Non-Infringing Alternatives, Not an Alternative to Damages: Canadian Federal Court of Appeal Recognizes “Non-Infringing Alternative” Defense in Landmark Patent Infringement Case

2015-12-21

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NON-INFRINGINGALTERNATIVES,NOTANALTERNATIVETODAMAGES:
CANADIANFEDERALCOURTOFAPPEALRECOGNIZES“NON-INFRINGING
ALTERNATIVE”DEFENSEINLANDMARKPATENTINFRINGEMENTCASE.

J
ASONMOSCOVICI*
ROBIC,
LLP
L
AWYERS,PATENT&TRADEMARKAGENTS

OnJuly23rd,2015,theCanadianFederalCourtofAppealfoundthat,when
assessingdamagesinapatentinfringementcase,itisrelevanttoconsiderthe
availabilityofnon-infringingalternativesatthetimetheinfringementtookplace.The
caseinquestionrelatestoAPOTEXInc’s(“Apotex”)manufacturingandsaleofa
genericversionoflovastatin,amedicationusedtomitigatecholesterol.Thisdrug
wasthesubjectmatterofcertain“productbyprocess”claimsfoundinCanadian
patentNo.1,161,380(“380Patent”),ownedbyMERCK&Co.,Inc(“Merck”).Apotex
infringedthe380patentandwasorderedtopayoverC$120Million,pluspre-
judgementandpost-judgementinterest;anunprecedentedamount.Apotexappealed
thisdecision,allegingthattheFederalCourterredbynotconsideringtheavailability
ofnon-infringingalternativesthatitcouldandwouldhaveused.[ApotexInc.v.Merck
&Co.,Inc.,2015FCA171]

BackgroundandTrialDecision
MercksellslovastatininCanadaunderthetrademarkMEVACOR®.The380Patent
wasissuedin1984andexpiredin2001.

In1993,Apotexsoughtmarketapprovalforagenericversionoflovastatinandfiled
anapplicationtotheMinisterofHealthforaNoticeofCompliance(«NOC»).Atthe
time,ApotexrepresentedthatitsownlovastatinproductdidnotinfringeonMerck`s
380patent,sinceitusedaprocessthatwasoutsidethescopeofthispatent.The
NOCwasissuedin1997,atwhichpointMercktookanactionagainstApotexfor
patentinfringement.
Afteralengthytrialontheissueofliability,andaftermanyappeals,Apotexwas
ultimatelyfoundtohaveinfringedbysellingbatchesoflovastatinmanufacturedbya
processthatreadintothe380patent.

©CIPS,2015.*LawyerofROBIC,LLP,amultidisciplinaryfirmoflawyers,patentandtrade-markagents.Publishedat
(2015),29:10WorldIntellectualPropertyReport.Publication142.302.

Ontheissueofdamages,Merckclaimedalossofprofitswithregardstothetabletsit
“wouldhavesoldpriortothepatent’sexpiry,butfortheinfringement”.Apotex
submittedthatMerckshouldonlybeentitledtoareasonableroyalty,fornothaving
beenabletoshowthatithadsustaineddamages“byreasonoftheinfringement”,as
requiredundersubsection55(1)ofthePatentAct
1(“ACT“).

ApotexarguedthattheCourtshouldconsiderthefactthatithadalsomanufactured
thedrugbyothernon-infringingprocesses.Thispremisewasbasedontheallegation
thatApotexhadanon-infringingalternativethatitcouldandwouldhaveused.
Therefore,Apotex’sargumentwasthatany“butfor”causationanalysisshouldalso
accountforthefactthat,asofthetimeitreceivedregulatoryapproval,ithadthe
capabilitytoproduceanyandallpre-expirytabletsthatweresoldinCanada,soas
longastheywerenotcoveredbythepatentedprocess.Apotexalsosubmittedthat
Merckdidnotdemonstratethatitslosseswerecausedbytheuseoftheinfringing
process.Merck’slossshouldthereforeonlybeareasonableroyaltyonpre-expiration
datesales.Merckmaintainedthattherewasnolegalbasisfortherecognitionof
“non-infringingalternatives”inCanada.
TheTrialjudgerejectedApotex’ssubmissions.TheTrialjudgewasoftheviewthat,
hadApotexnotinfringedthepatent,Merckwouldhavemadethesales,mainlyfor
reasonsofcausation,aswellasamatterofpublicpolicy:since,“acknowledgingthe
relevanceofnon-infringingalternativeswouldcreateanincentivetoinfringe”2.

TheAppeal
Onappeal,ApotexassertedthattheTrialjudgeerredbynotconsideringthe
relevanceofanon-infringingalternativewhenassessingdamages,andthedamages
awardedneededtobereviewedinthatcontext.
Assuch,themainissuesbeforetheCourtofAppealwere1)toestablishiftheTrial
judgeerredinrejectingthelegalrelevanceofnon-infringinglovastatin,2)todecideif
Apotexhadfactuallyestablishedtherelevanceofanon-infringingalternative,based
ontheexistenceofnon-infringinglovastatin,and3)todetermineifthishadaneffect
onthequantumofdamagesawarded.
Onthefirstissue,theCourtofAppealreferredtosubsection55(1)oftheAct:“A
personwhoinfringesapatentisliable[…]foralldamagessustained[…]byreasonof
theinfringement.”

1R.S.C.1985,c.P-42ApotexInc.v.Merck&Co.,Inc.,2015FCA171,par.29

3
Therefore,thefirstissuerelatestothelegalrequirementthatthedamageshaveto
besustained“byreasonoftheinfringement”andifthisrequirementisrestrictedso
astodisregardcompetitionfromaninfringer.Or,otherwisesaid,isitrelevantto
considercompetitionfromtheinfringer?
TheCourtofAppealconsideredtheintentbehindtheAct,aswellasthepurposeof
theawardofdamages.Itfoundthatitallboilsdownthequestionofcausationwhich,
inpatentinfringementmatters,isestablishedbythe“butfor”test:“butforthe
defendant’sinfringement,theplaintiffwouldnothavesufferedloss”.

Onthequestionofcausation,theCourtofAppealfoundthattheTrialjudgeerredby
associating“therelevanceofthenon-infringingalternative”defense,withthe
applicabilityofthisdefensetoApotex,fromafactualperspective.Insodoing,if
damagesdonottakeintoaccountavailablenon-infringingalternatives,thiscan
createasituationwherethepatenteecouldbebetteroffthanitwouldhavebeen
withouttheinfringement.Therefore,ifadefendantmanufacturesandsellsanon-
infringingalternative,thepatenteewouldhavelessofacompletemonopolyand
moreofamarketshare.Assuch,adefendant`s“lawfulcompetitioninthe“butfor”
worldmayhavedeprivedthepatenteeofsomesales”
3.TheCourtofAppeal
recognizedtherelevanceofa“non-infringingalternative”defense.

TheCourtthenhadtoestablishifthisdefensewasapplicabletoApotex,andifthis
hadaneffectonthedamagesthatwereawarded.ItwasApotex`sburdentoprove
thatitwouldhave,factuallyspeaking,usedthenon-infringingalternative.

TheCourtofAppealsetoutafourparttesttostudytheeffectoflegitimatenon-
infringingcompetitionfromadefendant:
i)Isthenon-infringingalternativearealalternative?
ii)Isthenon-infringingalternativeeconomicallyviable?
iii)Atthetimeofinfringement,didtheinfringerhavesufficient
supply?(couldithavesoldthenon-infringingalternative?)
iv)Wouldtheinfringeractuallyhavesoldthisalternative?

WhenappliedtoApotex,atthetimeithadobtaineditsNOC,ithadtheabilityto
manufactureanon-infringingalternative.However,fromafactualperspective,
Apotexhadfailedtoshowthat,itsabilitytomanufacturenotwithstanding,it“could
andwouldhavesoldnon-infringinglovastatin”insteadoftheinfringinglovastatin.

OntheissueofwhetherornotApotexcouldhavesoldthenon-infringinglovastatin,
Merckallegedthatthealternativemusthavebeenavailabletoreplacetheinfringing
sales“astheywerebeingmade”.TheCourtagreedwiththissubmissionbothinfact
andinlaw,despiteApotex`srepresentationsthatithadnon-infringingbatchesof

3Ibidpar.48

4
lovastatinthatitsoldin1998,andthatthislovastatinwasavailabletoreplacethe
infringingproduct.

Forreasonsthatarespecifictothefactssurroundingthiscase(suchassupplychain
andmanufacturingpartners),theCourtfoundthatApotexfailedtoestablishthatit
couldhavereplacedalloftheinfringingsaleswithanon-infringingproduct,which
disposedoftheissueregardingthereviewofthequantumofdamages.

Conclusion

ThisdecisionbytheCanadianFederalCourtofAppealconfirmstherelevanceofthe
non-infringingalternativedefensewithregardsmattersinvolvingtheawardof
damagesfollowingafindingofpatentinfringement.However,therelevanceofthis
defenseneedstobeseparatedfromtheavailabilityofthisdefensetoadefendant,
fromafactualperspective.Itisnotsufficienttosimplyallegethatone“couldand
wouldhaveused”anon-infringingalternative.Itneedstobeshownthat,inlinewith
thefourparttestestablishedbythecourt,theDefendanthadthecapacitytouse,
andwouldhaveused,thenon-infringingalternativefortheDefensetoapply.