Generic Damages in Life Sciences Patent Litigation: Strategic Considerations by Christopher Van Barr and Kiernan Murphy

1. Generic Damages in Life
Sciences Patent Litigation:
Strategic Considerations
Christopher C. Van Barr
Kiernan A. Murphy

2. Presenters
Christopher Van Barr
Partner (Ottawa)
613-786-8675
christopher.vanbarr@gowlings.com
Kiernan Murphy
Associate (Ottawa)
613-786-0273
Kiernan.murphy@gowlings.com
2

3. Outline
• Brief background
• Recent developments regarding the scope of the
section 8 cause of action
• Recent developments regarding quantification of
generic damages
• Strategic considerations relating to generic
damages proceedings
3

4. Brief Background:
Regulatory Approval, the PMNOC Regulations and
Section 8 Damages
4

5. Drug regulatory approval process
• Innovator
• Files new drug submission (NDS)
• Obtains notice of compliance (NOC)
• Submits patent list of eligible patents in respect of
drug to Minister of Health for inclusion on patent
register
• Generic
• Files abbreviated new drug submission (ANDS)
referencing innovator drug
• demonstrate bioequivalence to innovator drug
• Market entry – but subject to PMNOC Regulations
5

6. Patented Medicines (Notice of Compliance) Regulations
• PM(NOC) Regulations – linkage regulations that replaced
compulsory licensing in 1993
• Minister of Health maintains Patent Register on which
innovators list relevant patents against drugs
• Generic must address listed patents by providing Notice
of Allegation and Detailed Statement
• Allegations include patent invalidity, non-infringement,
etc
6

7. Patented Medicines (Notice of Compliance) Regulations
• Innovator may commence an application to prohibit the
Minister from issuing a NOC within 45 days of receiving
NOA
• Minister is temporarily prohibited from issuing the NOC
(“statutory stay”)
• If generic allegations are justified, application is
dismissed
• Minister may then issue NOC if approvable
7

8. Patented Medicines (Notice of Compliance) Regulations
• Merck v Apotex, 2009 FCA 187
• The PM(NOC) Regulations had to be construed having regard to
the Patent Act read as a whole and the balance which it seeks to
create between the effective enforcement of patent rights
through the use of the PM(NOC) Regulations (subsection
55.2(4)) and the timely entry of lower price generic drugs
through the use of the “early working” exception (subsection
55.2(1)) (Biolyse, supra, para. 50).
8

9. Section 8 of the PMNOC Regulations
8. (1) If an application made under subsection 6(1) is withdrawn or discontinued by
the first person or is dismissed by the court hearing the application or if an
order preventing the Minister from issuing a notice of compliance, made
pursuant to that subsection, is reversed on appeal, the first person is liable to
the second person for any loss suffered during the period
(a) beginning on the date, as certified by the Minister, on which a notice of
compliance would have been issued in the absence of these Regulations, unless
the court concludes that
(i) the certified date was, by the operation of An Act to amend the Patent Act and
the Food and Drugs Act (The Jean Chrétien Pledge to Africa), chapter 23 of
the Statutes of Canada, 2004, earlier than it would otherwise have been and
therefore a date later than the certified date is more appropriate, or
(ii) a date other than the certified date is more appropriate; and
(b) ending on the date of the withdrawal, the discontinuance, the dismissal or the
reversal.…
(5) In assessing the amount of compensation the court shall take into account all
matters that it considers relevant to the assessment of the amount, including
any conduct of the first or second person which contributed to delay the
disposition of the application under subsection 6(1).
9

10. Validity of Section 8
Section 8 Damages
• Challenges to s.8 by Innovators have been unsuccessful
• Merck v Apotex, 2009 FCA 187
• not ultra vires Patent Act - falls within s.55.2(4) the Act
• is within the authority of Parliament pursuant to section
91(22) of the Constitution Act, 1867
• Court has jurisdiction to hear s.8 cases
• Apotex v AstraZeneca, 2012 FC 559; Sanofi v Apotex,
2012 FC 551
• Not unconstitutional for “vagueness” or “harshness”
• Not invalid delegated legislation
• Not invalid in the face of TRIPS and NAFTA
10

11. Scope of Section 8 Damages
Claims
11

12. Lost Future Profits are Not Available to Generics
• FCA held that generics’ lost future profits cannot be
claimed under s.8 (Apotex v Merck 2009)
• Damages are constrained by s. 8.
• “The Governor in Council could have extended the
measure of the losses to include those caused [as
opposed to “suffered”] during the period, regardless of
when they are suffered. However, it did not do that.”
• Trial decision was the first decision on the merits for
s.8
• Trial judge had awarded lost future profits, considering
them to be an issue of quantity and not injury
12

13. Disgorgement of Innovator Profits
• Generic claims to Innovator profits
• Generic argue that
• Innovators charge more than generics and therefore
obtain larger profits
• Because of that difference in profits (), it may be
still beneficial to trigger the statutory stay even if
payment of generic losses must be made
• Disgorgement of profit is therefore a necessary
disincentive to triggering the statutory stay
13

14. Evolution of Section 8
Section 8
1993 : 8(1) The first person is liable to the second person for all
damages suffered by the second person …
8(2) … by way of damages or profits as the circumstances
require…
1998 : 8(1) … the first person is liable to the second person for
any loss suffered …
8(4) … by way of damages or profits as circumstances
require…
2006: 8(1) … the first person is liable to the second person for
any loss suffered …
8(4) … by way of damages as circumstances require.
RIAS: Government believes arguments re accounting of
profits should no longer be open to generics invoking section 8
14

15. Not Entitled to Innovator Profits at Federal Court
• Innovator profits are not available as a measure of
damages under s. 8 (Apotex v Merck 2009 FC/FCA)
• Apotex argued that inclusion of the word “profits” in
subsection 4 could not be redundant with the word
“damages”, and thus must refer to Merck’s profits
• S.8(4) has since been amended to remove the word
“profits”
• S. 8 compensated for having been kept off the market
• The reasonable interpretation was that the generic can
seek only its own lost profit as a measure of its damages
• Subsequent lower court decisions came to similar
conclusions
15

16. Not Entitled to Innovator Profits at Federal Court
Apotex v Eli Lilly, 2011 FCA
• No jurisdiction to award profits for causes of action
arising from section 8 including claims for equitable relief
arising from same facts
• Parliament considered this issue and removed the
reference in s.8 to profits
• What about causes of action independent of facts giving
rise to the operation of s.8?
• None was alleged in that case
16

17. Entitlement to Innovator Profits in Provincial Court
Provincial Courts
• Prior to Lilly, Generics moved the s.8 damages battle to
provincial courts to claim other remedies including equitable
claims such as unjust enrichment
• Reason: Provincial Superior courts are courts of inherent
jurisdiction and do not require statutory grants of jurisdiction
• Ex. Courts of Justice Act, RSO 1990, c C-43, s 96(1)
17

18. Provincial Courts : The New Battlefield
Apotex v Abbott 2010 ONSC (lansoprazole)
• Whitaker J.’s Decision
• Motion to Strike unjust enrichment/disgorgement of
profits
• Whitaker J. held that it was not plain and obvious that
the PMNOC Regulations constituted a complete code
• None of the cases concerned the ousting of all common
law causes of action or remedies
• Law is still “muddy”; in its infancy
18

19. Provincial Courts : The New Battlefield
Apotex v Abbott 2010 ONSC (lansoprazole)
• Whitaker J.’s Decision
• Enrichment and deprivation were pled
• Only issue concerned the juristic reasons branch of the test
• Disposition of law “has been understood to mean
enrichment and deprivation “required” by law”
• Held - Abbott was not required to invoke the PMNOC
Regulation for some purpose other than to protect the
patents
• Would require an examination of all the circumstances
• Not plain and obvious that the claim would fail
19

20. Provincial Courts : The New Battlefield
Apotex v Abbott, Takeda 2011 ONDivCt (lansoprazole)
• Leave to appeal Whitaker J. Decision (Swinton J)
• No decisions on whether unmeritorious commencement of
NOC proceedings can give rise to a claim in unjust
enrichment
• Not plain and obvious that reliance on permissive law
constitutes a juristic reason
• Not plain and obvious that PMNOC Regulations are a
complete code and that unjust enrichment would undermine
its purpose
20

21. Provincial Courts : The New Battlefield
Apotex v Eli Lilly, 2012 ONSC (atomoxetine)
Justice MacDonald :
• Motion to strike
• Law in respect of claims pursuant to s 8 is not fully
settled
• Not plain and obvious that PM(NOC) Regulations limit
claims or only remedies which s.8 provides are available
21

22. Provincial Courts : The New Battlefield
The Pending Decisions: Apotex v Abbott, Takeda ONSC
(lansoprazole)
• Motion for summary judgement (Quigley J)
• Focus on Apotex pleadings
• “wrongful invocation” of the PMNOC Regulations
• Settlement Agreement
• Defendants argued that Apotex v Eli Lilly 2012 FC
governed
• ie. no independent cause of action exists
22

23. Provincial Courts : The New Battlefield
The Pending Decisions: Apotex v Abbott, Takeda
ONSC (lansoprazole)
• Plaintiff: pleadings re. wrongful invocation and Settlement
Agreement supported unjust enrichment
• However:
• no further material facts presented, ex. regarding wrongful
invocation, intent of the parties
• Apotex declined opportunity to conduct examinations for discovery
• Decision expected in early 2013
23

24. Provincial Courts : The New Battlefield
The Pending Decisions: Apotex v Eli Lilly ONDivCt
(atomoxetine)
• Leave to appeal MacDonald J decision (Ducharme J)
• Defendants argue that motions judge considered the
wrong question
• Correct question: did Parliament intend on excluding
innovator profits, not whether Parliament intended on
excluding all other causes of action.
24

25. Provincial Courts : The New Battlefield
Take-away points to date
• Ontario Superior Court has not conclusively
held that claims for unjust enrichment in section
8 actions are proper
• They have merely delayed deciding the issue
• Availability of disgorgement of profits in the
context of s.8 claims may be clarified in early
2013
25

26. Quantifying Section 8 Damages
26

27. Section 8 Damages Finally Quantified
• First quantification judgments issued 2012
• Apotex v Sanofi-Aventis, T-1357-09, November 2,
2012
• $215,529,129 awarded to Apotex
• Apotex v Merck, T-1144-05, December 4, 2012
• $54,168,579 awarded to Apotex
27

28. The Main Issue in s.8 damages proceedings
Hypothetical (“But for”) World
• The main issue is the “hypothetical question”: What
would have happened had the first person not
brought an application for prohibition? (Apotex v
Merck 2011 FCA)
• Note issue below: Is hypothetical world one with no
Regulations or no Notice of Application?
• In other words, Court must construct a hypothetical,
or “but for”, world during a defined period of time in
the past in order to determine the market share the
generic would have captured (Apotex v Sanofi; Teva
v Sanofi 2012 FC)
28

29. Quantifying Section 8 Damages
• Framework for quantifying s.8 damages
1. determine the “Relevant Period”;
2. determine the “Drug Market”;
3. determine the “Generic Drug Market”;
4. determine the “Second Person’s Lost Volumes”; and
5. determine the “Second Person’s Lost Profits”.
(Apotex v Sanofi, Teva v Sanofi 2012 FC; Apotex v Merck 2012 FC)
• Overall burden on generic
• Generic: evidential burden re compensation
• Innovator: evidential burden re disqualifying compensation
29

30. Quantification of Damages
Overall Market
Generic Market
Share of Generic Market
Lost Profits
30

31. Start Date of the Relevant Period
• Presumptive start date: “patent hold date”
• Court has discretion to select more appropriate date
(Apotex v Merck 2008 FC; Apotex v Merck 2012 FC)
• Relevant period cannot start before statutory
stay (Teva v Sanofi 2012 FC)
• Other factors (ex. infringement, manufacturing
capacity) likely fall under other inquiries
31

32. End Date of the Relevant Period
• Court has no discretion? (s 8(1)(b))
• Date of withdrawal, discontinuance, dismissal or
reversal
• However:
• Multiple prohibition proceedings?
• Date of issuance of NOC?
• End date was issuance of NOC by Minister despite
pending application (Apotex v Sanofi 2012 FC)
32

33. Overall Size of the Market
• Overall volume sales in units for all manufacturers
• However, consider impact of genericization
• Overall market often decrease after genericization
• None or very little effect according to a report from
PMPRB report
• Consider real world outcome
• Ex. did innovator stop promoting (Apotex v Sanofi, Teva
v Sanofi 2012 FC)
• Court has come to opposite conclusions on the same drug
(Apotex v Sanofi, Teva v Sanofi 2012 FC)
33

34. Generic Market Size
• % of overall volume made by all generic manufacturers
• Real world share is an important predictor
• Factors include:
• Market penetration
• Erosion rate, number of generic entrants
• Timing of formulary listings
• Number of market entrants and their timing might not impact
the generic market size (Apotex v Sanofi 2012 FC)
34

35. Share of the Generic Market
• % of the specific generic’s volume
• Different hypothetical worlds may exist in different
cases
• Compare Apotex v Sanofi 2012 FC and Teva v Sanofi
2012 FC
• Considerations:
• Competition from other generics
• Competition from Authorized Generic
• Generic manufacturing capacity
• Motivation (Willingness to assume “at risk” launch)
• “Pipeline adjustment” or “channel stuffing”
35

36. Share of the Generic Market – Competing Generics
• Generic’s market share must be assessed in light of
any competition that would have existed (Apotex v
Sanofi; Teva v Sanofi 2012 FC)
• Factual determination: competition not included/excluded
by default
• Are there any regulatory or practical impediments to
generic competition?
• Impact of absence of underlying prohibition proceedings
(Apotex v Sanofi 2012 FC)
• Competitors’ motivation (ex. at risk entry) (Apotex v
Merck 2012 FC)
• Inability to manufacture drug
36

37. Share of the Generic Market – Authorized Generic
• Authorized Generics are not excluded from the
hypothetical world (Apotex v Sanofi; Teva v
Sanofi 2012 FC)
• Factors include:
• real world actions (ie. launch of AG upon
genericization)
• importance of drug
• contemplation of AG prior to commencing
prohibition proceedings
37

38. Share of the Generic Market – Authorized Generic
• Innovator will be “caught of guard”? (Apotex v
Sanofi 2012 FC)
• Regulatory process is confidential and generic need
not provide NOAs in the Hypothetical world
• Would have required 3 months after generic launch
• Different hypothetical world for Authorized Generic?
• Absence of Regulations v Absence of application?
• Inconsistent with other aspect of s.8 decisions
38

39. Generic’s Lost Profits
Determine Generic’s lost revenues
• Key determinant is pricing
• Public or private regime?
• Public regime is governed by the public
formularies
• Maximum prices typically established as a
percentage of innovator prices
• Pricing regimes have changed significantly
in the last few years
39

40. Generic’s Lost Profits
Determine Generic’s cost of sales
• Sales returns
• Trade spend (ex. discounts, allowances, “rebates”)
• Operational costs, ex. manufacturing costs, freight,
distribution, plant capacity
• Free Goods
• Cost of Active Pharmaceutical Ingredient (API)
• Ramp-up costs
• Double ramp-up has been rejected (Apotex v Sanofi 2012
FC)
• However, this view has been questioned by the FC (Apotex
v Merck 2012 FC)
40

41. Generic’s Lost Profits - Adjustments
• Indirect losses
• Lost profits on sales of other products
• Rejected by FC for lack of support (Teva v Sanofi
2012 FC)
• Not rejected as a head of damages
• Indirect lost profit, ie. through investment
• Rejected as a head of damages because alleged
losses are speculative and too remote (Teva v Sanofi
2012 FC)
41

42. Other Factors (s.8(5)) – Unapproved Indications
• Unapproved indications («off-label»)
• Damages for losses which more likely than not would
have included off-label sales (Apotex v Sanofi 2012
FC)
• Court considered the facts, including:
• Generics do not promote drugs for specific indications
• Off-label prescribing and substitution take place and
product monographs are not relevant to physicians
• In the real world, Sanofi didn’t oppose interchangeability
of generic drug
• Sanofi can sue for infringement for the off-label use
• But: «That is not to say that a second person may
always recover for unapproved indications.»
42

43. Other Factors (s.8(5)) - Infringement
• Infringement (Ex Turpi Causa)
• Court may exercise “judicial discretion to assess the
appropriate amount of compensation payable
(including nil)” (Apotex v Merck 2011 FCA)
• If generic “would have likely” infringed, Court will
exercise discretion and disallow recovery for the
relevant amounts (Apotex v Merck 2012 FC)
• Court disallowed all but one month of recovery
• But, no pending infringement actions (Apotex v Astra 2012 FC)
43

44. Other Factors (s.8(5)) - Mitigation
• Failure to mitigate damages
• Section 8 provides a claim for damages and thus
might require generic to mitigate
• Argument not rejected by FC (Apotex v AstraZeneca
2012 FC)
• Delay in serving NOA not a basis for finding failure to
mitigate (Apotex v AstraZeneca 2012 FC)
44

45. Strategic considerations and Take-away points
• Quantification of section 8 damages is highly factual
• Many factors remain to be raised
• Scope of discovery will depend on claims and
arguments raised
• Early negotiations re scope may limit
documentary productions
• Evidence in s.8 proceedings often relates to
sensitive business information
• Start discussions about protective / confidentiality
orders and appropriate designations early
45

46. Strategic considerations and Take-away points
• Information about competing generics is key
• Make Access to Information requests for
competing generics’ drug submissions
• Compile documentation re post-genericization
plans
• Consider obtaining IMS data regarding generic
competition
• Consider Authorized Generics early
46

47. Strategic considerations and Take-away points
• Counterclaims for infringement may be brought
in s.8 proceedings
• Infringement can assist as a defence to a s.8
claim
• However, must also show infringement in hypothetical
world
• A counterclaim for infringement may expand the
scope of discovery
• Innovator may have to produce documents in support
of their lost profits
• May be conflicting levels of profits for the hypothetical
and real periods of infringement
47

48. Barreau Credits
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48

49. Thank You Christopher C. Van Barr
Partner
Tel: 613.786.8675
christopher.vanbarr@gowlings.com
Kiernan A. Murphy
Associate
Tel: 613.786.0273
kiernan.murphy@gowlings.com
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