Robic's Newsletter

CLICK FOR LEGAL NOTICE

Publications Back to the newsletter

Quantifying damages and profits: recent trends in patent disputes

2017-11-25

ROBIC,LLPwww.robic.cainfo@robic.com
MONTREAL1001Square-Victoria-BlocE-8thFloorMontreal,Quebec,CanadaH2Z2B7Tel.:+1514987-6242Fax:+1514845-7874
QUEBEC2828LaurierBoulevard,Tower1,Suite925Quebec,Quebec,CanadaG1V0B9Tel.:+1418653-1888Fax.:+1418653-0006
QUANTIFYINGDAMAGESANDPROFITS:RECENTTRENDSINPATENTDISPUTES

JUSTINFREEDIN*
ROBIC,LLP
LAWYERS,PATENT&TRADEMARKAGENTS

ABSTRACT.Calculatingtheappropriatecompensationforasuccessfulplaintiffina
patentdisputeisnotaneasytask.Dependingonthecontext,theplaintiffmaybe
entitledtoreceivereparationfordamagessuffered,orrecuperateaninfringer’s
profits.Inbothcases,thereisoftendisagreementastotheappropriatemethodology
forcalculatingwhattheplaintiffisowed.

Thisconferencewillprovideanoverviewoftheremediesavailabletoplaintiffsin
patentdisputes,andwillreviewrecentcaselawhighlightingthemethodsusedbythe
courtstoquantifydamagesandprofits.Topicscoveredwillinclude:non-infringing
alternatives,pricesuppression,apportionment,springboardprofits,deductiblecosts,
pipefillandtradespend.

RÉSUMÉ.Lecalculd’unecompensationappropriéepourundemandeurayantgagné
sacausedansunlitigeenmatièredebrevetsn’estpasunetâchefacile.Selonle
contexte,ledemandeurpeutavoirdroitàuneréparationpourlesdommagessubis
ouàrécupérerlesprofitsd’uncontrevenant.Danslesdeuxcas,laméthode
appropriéepourcalculercequiestdûaudemandeurestfréquemmentunecausede
désaccord.

Cetteconférenceviseàdonnerunaperçudesrecoursoffertsauxdemandeursdans
leslitigesenmatièredebrevets,etexamineralajurisprudencerécentemettanten
évidencelesméthodesutiliséesparlestribunauxpourquantifierlesdommageset
lesbénéfices.Lessujetscouvertscomprendront:lesalternativesnon-contrefactrices,
lasuppressiondesprix,larépartition,lesbénéfices«springboard»,lescoûts
déductibles,le«pipefill»etlesdépensesdecommercialisation.

©CIPS,2017.*Lawyer,engineerandpatentagentwithROBIC,LLP,amultidisciplinaryfirmoflawyers,patentand
trade-markagents.PublishedinDévelopppementsrécentsenpropriétéintellectuelle2017
(Cowansville,Blais,2017).Publication470.

ROBIC,LLPwww.robic.cainfo@robic.com
MONTREAL1001Square-Victoria-BlocE-8thFloorMontreal,Quebec,CanadaH2Z2B7Tel.:+1514987-6242Fax:+1514845-7874
QUEBEC2875LaurierBoulevard,Delta3–Suite700Quebec,Quebec,CanadaG1V2M2Tel.:+1418653-1888Fax.:+1418653-0006
2
1.PATENTINFRINGEMENTREMEDIES…………………………………………………3
1.1DAMAGES……………………………………………………………………………………..3
1.2ACCOUNTINGOFPROFITS…………………………………………………………………4
2.RECENTCASESQUANTIFYINGREMEDIESINPATENTINFRINGEMENT5
2.1JANSSENV.TEVACANADA,2016FC593……………………………………………6
2.1.1QuantificationofDamages–GeneralPrinciples…………………………….6
2.1.2ConstructionoftheFictionalMarketplace……………………………………..7
2.1.3DamagePeriod…………………………………………………………………………8
2.1.4PriceSuppression……………………………………………………………………..8
2.2APOTEXINC.V.ADIR,2017FCA23………………………………………………….8
2.2.1Non-InfringingAlternatives–RelevancyforExportSales………………..9
2.2.2Apportionment…………………………………………………………………………10
2.3AIRBUSHELICOPTERSS.A.S.V.BELLHELICOPTERTEXTERONCANADALIMITÉE,
2017FC170……………………………………………………………………………………….11
2.3.1CompensatoryDamages…………………………………………………………..11
2.3.2ReasonableRoyalty…………………………………………………………………12
2.3.3Non-Infringingalternatives………………………………………………………..12
2.3.4Determiningtheroyaltyfee……………………………………………………….14
2.3.5PunitiveDamages……………………………………………………………………14
2.4DOWCHEMICALCOMPANYV.NOVACHEMICALSCORPORATION,2017FC35015
2.4.1ReasonableRoyalty…………………………………………………………………15
i)HypotheticalNegotiation…………………………………………………………..15
ii)MWAvs.MWTP………………………………………………………………………16
2.4.2Accountingofprofits…………………………………………………………………16
i)SpringboardProfits………………………………………………………………….16
ii)DeductibleCosts……………………………………………………………………..17
2.4.3Quantum………………………………………………………………………………..17
3.REMEDIESUNDERTHEPATENTEDMEDICINES(NOTICEOF
COMPLIANCE)REGULATIONS………………………………………………………………18
4.RECENTPM(NOC)CASES………………………………………………………………19
4.1ELILILLYV.TEVACANADA,2017FC88…………………………………………….19
4.1.1QuantumofDamages–Overview……………………………………………..19
4.1.2LiabilityPeriod…………………………………………………………………………20
4.1.3Teva’sshareoftheolanzapinemarket……………………………………….21
4.1.4Pipefill…………………………………………………………………………………….22
4.1.5Trade-spend……………………………………………………………………………22
4.2TEVACANADAV.PFIZER,2017FC332…………………………………………….23
4.2.1QuantumofDamages–Overview……………………………………………..23
4.2.2LiabilityPeriod…………………………………………………………………………23
4.2.3Teva’sshareofthepregabalinmarket………………………………………..24
4.2.4PipefillandTrade-spend…………………………………………………………..24
5.CONCLUSION…………………………………………………………………………………25

ThePatentActgrantspatenteestheexclusiverighttomake,useandsellan
inventionthroughoutthetermofapatent.Thereisnodoubtthatpatentsprovide
significantcommercialvalue;theyareanexceptiontofreecompetition,andallow
patenteestoenjoymonopolyforalimitedperiod.Asaresult,apatenteecanprofit
substantiallybyreceivingproceedsofallsalesduringthepatentperiod,andbybeing
abletofullyestablishthemselvesinthemarketplacebeforeanycompetitorscome
along.

Ofcourse,thevalueofapatenthingesonothersrespectingtheexclusivitygranted
bythegovernment.Whenathirdpartyengagesinactivitieswhichinfringeona
patentright,thepatenteecansuffersignificantlosses,includinglossofpotential
salesandreducedprofitsduetocompetition.Meanwhile,thethird-partyinfringercan
seesignificantprofitsbymaking,usingorsellingaproduct,whichtheywouldnot
otherwisehavetherighttodo.

Severalrecoursesareavailabletopatenteeswhoarevictimsofinfringement.The
patenteecanseekaninjunctionorderingtheinfringertoceaseinfringingactivities.
Thepatenteecanfurtherobtainacourtorderallowingtheseizureand/ordestruction
ofinfringinggoods.Whilesuchrecoursescanpreventfutureactsofinfringement,in
mostcasestheinfringerhasalreadyprofitedfromtheinfringementand/orthe
patenteehasalreadysuffereddamages.Fortunately,therearemonetaryremedies
availableallowingthepatenteetodeprivetheinfringerofitsprofitsorcompensate
thepatenteeforthedamagessuffered.

Inmostcases,therearetwotypesofmonetaryremediesavailabletopatentees:
damagesandanaccountingofprofits.Damagesseektoreturnthepatenteetothe
positionitwouldhavebeeninhadtheinfringementnotoccurredbycompensating
thepatenteeforthelosssufferedduetoinfringingactivities.Accountingofprofits,on
theotherhand,seektoreturntheinfringertothepositionitwouldhavebeeninhad
theinfringementhadnotoccurred,bytakingawaythebenefitsitreceivedduetothe
infringingactivities.

Ascanbeappreciated,thesetworemediescanoverlaptoacertainextent.
Therefore,whentakingactionagainstaninfringer,thepatenteewillhavetoelectone
ortheother.Decidingwhichremedyisthemostappropriateisverymuchastrategic
question,andwilldependonfactorssuchasthetypeofconvincingevidence
availabletothepatentee,andwhichremedyisexpectedtoresultinamorelucrative
payout,amongothers.

1.1Damages

Section55(1)ofthePatentActprovidesthataninfringerisliableforalldamage
sustainedbyapatenteeduetoinfringingactivitieswhileapatentisinforce.The

Evenoncethenatureofthedamagehasbeendetermined,itcanbeverydifficultto
accuratelyquantifytheamountofdamageactuallysustained.Theusualmethod
adoptedbythecourtsistodeterminethedifferencebetweenthepatentee’sactual
financialsituationandthefinancialsituationthepatenteewouldhavebeeninifnot
fortheinfringement.Ascanbeappreciated,determiningthefinancialsituationbutfor
theinfringementrequirescourtstoessentiallymakeaneducatedguess.Moreover,
thereareavarietyofsecondaryfactorswhichthecourtwillhavetoconsiderwhich
mayhaveanimpactonthepatentee’sactualfinancialsituation.

Inadditiontodamagessustainedwhileapatentisinforce,thePatentActalso
providesamechanismforpatenteestoseekcompensationretroactivelyforacts
whichtookplacebeforethepatentwasinforce.Ineffect,patentsmaybependingfor
severalmonthstoseveralyearsbeforetheyareactuallygranted,andapatenteewill
onlyhavealegalrecourseagainstinfringersoncethepatenthasactuallybeen
granted.Duringthistime,athirdpartycanmake,selland/orusetheinvention
describedinapatentapplicationwithouttechnicallyinfringing.Inordertodetersuch
activities,section55(2)ofthePatentActprovidesthataninfringerisliabletopay
reasonablecompensationforactivitieswhichoccurredbetweenthetimewhenthe
patentwaspublishedandwhenitissued,i.e.thepre-grantperiod.

Section55(2)ofthePatentActdoesnotawarddamagesperse,butrather
“reasonablecompensation”.Generally,reasonablecompensationislessthanthe
actualdamagessufferedbythepatentee.Thecourtshavegenerallyequated
reasonablecompensationwitha“reasonableroyalty”1,andthusinsteadof
calculatingthedamagessuffered,thecourtsdetermineanappropriateroyaltythat
theinfringershouldhavepaid.

1.2AccountingofProfits

Insomecases,awardingdamagesmaynotbethemostappropriateremedy.For
example,apatenteemayonlysufferminordamageswhileaninfringerprofits
substantiallythroughtheirinfringingactivities.Ifdamagesweretheonlyremedy
available,aninfringermightdecidetointentionallyinfringewiththeknowledgethatit
wouldstillprofitevenifitisorderedtopaydamagestothepatentee.

1Jay-LorInternationalInc.v.PentaFarmSystemsLtd.,2007FC358atpara.122;BauerHockey
Corp.v.EastonSportsCanadaInc.,2010FC361atparas.337,338,aff’d2011FCA83.

Anaccountingofprofitsisanequitableremedyandisthusmadeavailableatthe
discretionofthecourt.Therearemanycasesinwhichthecourthasrefusedtoallow
anaccountingofprofitsasaremedy.Suchrefusalhasbeenbasedontheconductof
thepatentee(e.g.duetoanexcessivedelayincommencingproceedings,orfailure
toworktheinventioninCanada)2.Insomecases,thecourtshaverefusedtoaward
anaccountingofprofitsduetotheprohibitivecomplexityindeterminingtheprofits
gained.

Therearetwodifferentapproachesastohowprofitscanbequantified.Thefirst
approachisreferredtoasthe“actualprofits”approachandinvolvessimply
subtractingthecostsassociatedwithmanufacturingandsellingthearticlefromthe
revenueobtainedfromthesellingthearticle.Thisapproachisfactuallybased,and
theplaintiffhastheburdenofprovingthedefendant’srevenue,whilethedefendant
hastheburdenofprovingallcostsandapportionmenttodeductfromthisamount.3
Thesecondapproachisreferredtoasthe“differentialapproach”andinvolves
determiningthedifferencebetweenthedefendant’sactualprofitsandtheprofitsit
wouldhavereceivedbyusingthebestnon-infringingalternative.Generallyspeaking,
thedifferentialprofitsapproachispreferred.4

2.RemediesinPatentInfringement:RecentCases

Oncepatentinfringementhasbeendetermined,thematterofquantifyingmonetary
remediesisanimportantissueinitsownright.Inpractice,therearemanycontextual
andfinancialfactorswhichcanbetakenintoconsiderationwhencalculatingprofits
and/ordamages.Howthecourtchoosestotreatthesefactorscanbethedifference
betweenaplaintiffreceivingalargewindfallandreceivingnexttonothingas
compensationforinfringement.Bothpartieswillthereforebringupeveryaccounting
trickinthebooksothatthecourtcalculatestheremediesintheirfavor.

Duetothecomplexityandtheimportanceofcalculatingmonetaryremedies,patent
disputesareoftenbifurcatedintotwoseparateproceedings.Afirstproceeding
2ConsolboardInc.v.MacMillanBloedel(Saskatchewan)Ltd.,(1978),39C.P.R.(2d)191(F.C.),
Collier,J.,rev’d1979CarswellNat206(F.C.A.),rev’d[1981]S.C.R.504(S.C.C.);InvacareCorp.v.
Everest&JenningsCanadianLtd.(1987),14C.P.R.(3d)156(F.C.),Collier,J.3TeledyneIndustriesInc.v.LidoIndustrialProductsLtd.,1979CarswellNat781,45C.P.R.(2d)18
(F.C.),varied1981CarswellNat561(F.C.A.),leavetoappealrefused1981CarswellNat813(S.C.C.).4MonsantoCanadaInc.v.Schmeiser,2004SCC34,partD,“Remedy,”atparas98-105.

Inthepastyear,therehavebeenseveraljudgementsarisingoutoftheremedies
phaseofpatentinfringementsuits.Thesejudgementshighlightsomeofthecomplex
issueswhichmustbeaddressedwhenquantifyingmonetarycompensation,and
provideinsightastohowdifferentcontextualandfinancialfactorsareconsideredby
thecourts.

2.1Janssenv.TevaCanada,2016FC593

Inapreviousjudgement5,theFederalCourtupheldthevalidityofCanadianpatent
no.1,304,080(hereafter“CA’080”)towhichtheplaintiffJanssenInc.(previously
Janssen-OrthoInc.,hereafter“Janssen”)holdsalicense,andfoundthatthe
defendantTevaCanadaLimited(formerlyNovopharmLimited,hereafter“Teva”)was
infringingonclaim4ofsaidpatentthroughthesaleofproductscontaining
levofloxacin(LEVAQUIN),adrugusedtotreatavarietyofbacterialinfections.The
courtgrantedaninjunctionanddamages,butdecidednottoawardanaccountingof
profits,notingthatsinceitisanequitableremedy,theplaintiffhastheburdenof
demonstratingabasisfortheexerciseofequity,whichitdidnotdointhiscase6.

2.1.1QuantificationofDamages–GeneralPrinciples

TheCourtwasnowtaskedwithdeterminingthetypeandquantityofdamagesto
awardJanssenduetoTeva’sinfringingactivities.Totacklethismatter,theCourt
appliedanover100-year-olddoctrinewhichinstructstheexerciseofa“sound
imagination”andthepracticeofa“broadaxe”torestoretheplaintifftoaconditionit
wouldhavebeenhadtheinfringementnotoccurred7.Thisdoctrineisparticularly
appropriateforrestorationinpatentcases,becausenotalldamagessufferedbythe
plaintiffareaccuratelyquantifiable,anditcanbenearlyimpossibletoconsiderall
factorswhichmayhavecontributedtothedamages.Itisthusinherentlyverydifficult
toattributeanumbertothedamagessufferedbytheplaintiff,callingfortheCourtto
do“thebestonecan”withoutprofessingtohavebeencompletelyaccurateandhave
consideredeverypossiblecircumstanceinacase8.

5Janssen-OrthoInc.v.NovopharmLtd.,2006FC1234,affirmedbytheFederalCourtofAppealon
June7,2007(DocketNo.A-500-06,Reasonscitedas2007FCA217).Leavetoappealrefusedby
theSupremeCourtofCanadaonDecember6,2007(DocketNo.32200).6Ibidatpara.132.7Janssenv.TevaCanada,2016FC593atpara.69.CitedThewordsofLordShawinWatson,
Laidlaw&Co.Ltd.vPottCassels,andWilliamson(1914),31R.P.C.104,pages117to118.8Ibidatpara.71.;CitedMetersLtd.v.MetropolitanGasMetersLtd(1911),28RPC157(EngCA)at
page161.

2.1.2ConstructionoftheFictionalMarketplace

Asafirststepinthisassessment,thecourtexaminedthemarketplaceasitexistedin
factbeforeandaftertherespectiveentryofLEVAQUINandthecorresponding
generics.Thecourttookintoconsiderationthatthereweretwoothersimilarproducts
(AVELOXandTEQUIN)whichwerecompetitiveinthemarketplacearoundthesame
timethatLEVAQUINwasintroduced.ThecourtalsonotedthatTevawastheonly
generictolaunchagenericonthemarketforLEVAQUIN,andthatitdidsoforthe
250mgand500mgstrengthtablets,butnotforthe750mgwhichwerealsobeing
soldbyJanssen.9

Asasecondstep,thecourtturnedtotheexpertwitnessesofbothpartiesto
determinewhatthemarketmighthavelookedlikebutfortheentryofTeva’sgeneric
product.Theexpertsonbothsidesprovidedseveralpossiblescenariosforthecourt
toconsider.Unsurprisingly,theexpertsonbothsidesdivergedfromoneanother
quiteabit.Teva’sexpertsubmittedthatJanssenactuallybenefitedbyTevaentering
themarketplacebyover$4million(duetoavoidingadditionalspending),whereas
Janssen’sexpertarguedthatJanssenactuallysufferedalossof$20million.10

TheCourtexpressedthatithadtroublecomprehendinghowTevawouldhave
actuallybenefittedfromTevabeinginthemarketearlier11.Ultimately,theCourt
determinedthatascenariopresentedbyJanssen’sexpertwitnesswasthemost
likelytohaveoccurred.Inthisscenario,theexpertputforththatLEVAQUINwould
havehadsaleseffortsduringtheDamagesPeriodwhichweresimilartothose
immediatelyprecedingtheDamagesPeriod,andthatthemarketshareof
LEVAQUINduringthosetwoperiodswouldbeessentiallythesame,i.e.atabout
51.8%ofthecombinedlevofloxacinandAVELOXmarket12.AlthoughtheCourt
retainedthescenariopresentedbyJanssen’sexpert,itnotedthatcertainchanges
wouldhavetobemadetosomeassumptionswhichtheexpertreliedonforhis
calculations,particularlywithrespecttothedamageperiodandpricesuppression.

9Ibidatparas75to88.10Ibidatparas.89to96.11Ibidatpara.95.12Ibidatparas.89and106.

Withrespecttothedamageperiod,thecourtnotedthat,aspreviouslyheldinMerck
&Co.,Inc.vApotexInc.13,aclaimantisentitledtodamagessustainedafterapatent
hasexpired,inasmuchasthoselosseswereincurredasaresultofinfringement
duringtheperiodthepatentwasinforce.TheCourtnotedthatinthepresentcase,
evenafterthepatentexpires,prescriptionswouldhavetobefilled,contracts
compliedwith,andotherexistingobligationsincurredduringaperiodwhenthe
patentwasinforcewouldhavetobefulfilled.Thedamageperiodmusttherefore
extendbeyondtheexpiryofthepatent.

Inthepresentcase,thecourtnotedthatcustomersoflevofloxacincanbedivided
intoatleasttwodifferentgroups,andthatthedamageperiodwouldbedifferentfor
eachofthesegroups.Moreparticularly,afirstgroupcorrespondstodirectsalesto
hospitals,andasecondgroupcorrespondstoretailsalesthroughdirectorindirect
salestodrugstores.Itwasdeterminedthatthedamageperiodforretaillosseswould
extendtwomonthsbeyondtheexpiryofthepatent,whereashospitallosseswould
extendoneyearafterthepatentexpired.

2.1.4PriceSuppression

Anotherfactorintheadjustmentrelatedtopricesuppression.Ineffect,onceTeva
hadenteredthemarketplace,Janssenwasforcedtoreduceitspricetohospitalsto
compete.Moreover,JanssenwasunabletoraisethepricesafterTevawasforcedto
withdrawduetotheinjunction.CitingAlliedSignal14,theCourtnotedthatprice
suppressionisindeedatypeofdamagewhichcanbeclaimedifitcanbeestablished
thatthepricereductionwasnecessarybecauseofthecompetitionoftheinfringer.
TheCourtwassatisfiedwiththeevidenceprovidedbyJanssentothiseffect,and
thusfactoredpricesuppressionintotheawardeddamages.

Aftertakingallfactorsintoconsideration,about$19millionintotaldamageswere
awarded,includingpre-judgementinterest.Thematterofcostswouldbedetermined
inasubsequentjudgement.

2.2ApotexInc.v.ADIR,2017FCA23

Thiscaseisanappealofa2015FederalCourtjudgement15onremedies,inwhich
thedefendants,ApotexInc.andApotexPharmachemInc.(hereaftercollectively
“Apotex”),wereorderedtopayover$60millionindamages,plusinteresttothe
plaintiffs,ADIRanditsaffiliateServierCanadaInc.(hereaftercollectively“Servier”).
13Merck&Co.v.ApotexInc.,2013FC751atpara.183.14AlliedSignalInc.v.DuPontCanadaInc.(1998),1998CanLII7464(FC),78C.P.R.(3d)129(FCTD,
aff’d1999CanLII7409(FCA),86CPR(3d)324(FCA))atpara.23.15ADIRv.ApotexInc.,2015FC721.

In2008,theFederalCourtissuedafirstjudgementonliability16,confirmingthe
validityofServier’sCanadianpatentno.1,341,196(hereafter“CA’196”),andfinding
thatApotexhadinfringedthispatentthroughthemanufactureandsaleofproducts
containingperindopril(COVERSYL),adrugusedtotreathighbloodpressureand
heartfailure.Inthisfirstjudgement,theCourtallowedServiertoelectbetween
recoveringdamagesoranaccountingofprofitasaremedy.

Duringthesubsequenttrialonremedies,Servierelectedanaccountingofprofits,
andtheFederalCourtwastaskedwithdeterminingtheamountofApotex’sprofits
whichwereattributabletotheinfringingactivity.TheFederalCourtsubsequently
issuedthe2015judgementorderingApotextopayover$60million,accountingfor
Apotex’sprofitsfromthesaleofperindopriltabletsinCanada,aswellasthesaleof
tabletsmanufacturedinCanadatoforeignaffiliates.

Incalculatingtheprofits,theFederalCourthadtoconsideranumberofissues,
includingtherelevancyofnon-infringingalternatives,andwhetheraportionof
Apotex’srevenuewasattributabletonon-infringingservices.Theseissuesarenow
thesubjectofthepresentappeal.

2.2.1Non-InfringingAlternatives–RelevancyforExportSales

Attrial,Apotexacknowledgedthattherewerenonon-infringingalternativesavailable
inCanada.ApotexwasthereforerequiredtocompletelydisgorgeitsCanadian
profits.However,withrespecttoexportsales,Apotexarguedthatnon-infringing
alternativeswereavailable.Moreparticularly,Apotexarguedthattheperindopril
tabletscouldhavebeenmanufacturedincountrieswhereitwasnotprotectedby
patent,andthosetabletscouldhaveinsteadbeensoldtotheforeignaffiliates.The
trialjudgerejectedthisargumentasamatteroflaw,statingthatanon-infringing
alternativecannotbetheproductcoveredbythepatent,andfurtherstatingthat
allowingsuchadefensewouldprovideApotexwithperfectshelteragainstthe
consequencesofanyfuturepatentinfringementinCanada.17

Inthepresentdecision,theCourtofAppealreversedthetrialjudge’sruling,and
decidedthattheforeignmanufacturedperindoprilisinfactarelevantnon-infringing
alternative.TheCourtofAppealreiteratedtheimportancethatapatenteeshould
onlyreceiveaportionoftheinfringer’sprofitswhicharecausallyattributabletothe
invention,andthatthisprinciplecannotbetrumpedbypolicyissuessuchasthe
desiretoavoidproviding“aperfectshelter”toinfringers.Thevalueofapatentliesin
16LaboratoiresServierv.ApotexInc.,2008FC82,aff’d2009FCA222.Leavetoappealrefusedby
theSupremeCourtofCanadaonMarch25,2010(DocketNo.33357).17Supranote15atparas.119to121.

Inreversingthetrialjudge’sruling,theCourtofAppealalsoclarifiedthattheforeign
manufacturedperindoprilshouldnotbecategoricallyexcludedasarelevantnon-
infringingalternative.WhiletheCourtofAppealdidnotdisagreethatanon-infringing
alternativecannotbethepatentedproductitself,itimpliedthatforeign-manufactured
perindoprilisnotinfactthepatentedproduct.Ineffect,theCA’196patenthasno
extraterritorialreach,soitcouldnotpreventApotexfromlegallymanufacturingthe
perindoprilinjurisdictionswhereitwasnotpatented.Iftheforeign-manufactured
perindoprilweretobeconsideredthepatentedproduct,theCA’196patentwould
effectivelybegivenextraterritorialreach19.

ThematterwasthusremittedtotheFederalCourttorecalculatetheprofitswhile
takingintoaccounttheavailabilityofnon-infringingalternatives.Inremittingthis
mattertotheFederalCourt,theFederalCourtofAppealprovidedguidanceasto
howtodeterminetheavailabilityofnon-infringingalternatives.Moreparticularly,it
mustbedemonstratedthatApotexcouldhaveandwouldhaveobtainedsufficient
quantitiesofnon-infringingperindopril,andfurtherthatApotexcouldhaveandwould
havesoldthesenon-infringingquantitiestotheirforeignaffiliates20.

2.2.2Apportionment

Attrial,Apotexarguedthatitsprofitsshouldbereducedbecauseasignificantportion
ofitsgrossrevenueforforeignsalesofperindoprilwasnotattributedtothe
perindoprilitself,butrathertonon-infringingserviceswhichApotexprovidedaspart
ofthesale.Ineffect,ApotexwassellingtheperindoprilmanufacturedinCanadato
itsaffiliatesinAustraliaandtheUK.Sinceperindoprilwasclassifiedasa“Patent
ChallengedProduct”inthesecountries(i.e.itpresentedahighriskoflitigation),
Apotexagreedtopayanindemnityandprovidelitigationservicesifeveritsaffiliates
werefacedwithlitigation.Theseadditionalserviceswereaccountedforintheprice
oftheperindoprilwhichApotexsoldtoitsaffiliates,asitattemptedtodemonstratein
itspricetransferagreement.21

Thetrialjudgeacknowledgedthatapportionmentisrelevant,inthatitallows
identifyingwhatprofitsarecausallyattributabletotheinvention.Inthepresentcase,
thejudgewasinagreementthattheindemnityandlitigationofferedbyApotexdid
notconstituteaninfringementoftheCA’916.Therefore,ifitcouldbeproventhata
partofthepricepaidbyApotex’saffiliateswaspaidonaccountofthoseservices,
thentherevenuesshouldbeapportionedaccordingly22.However,thetrialjudgewas
18ApotexInc.v.ADIR,2017FCA23atparas.28and3419Ibidatparas.32and3320Ibidatparas.67and68.21Supranote15atparas.26and27.22Ibidatparas.29and30.

TheCourtofAppealupheldthedecisionnottoapportion.Thisdecisionwasprimarily
basedonacausalityanalysis.Ineffect,theCourtnotedthatwithouttheinfringing
perindopril,Apotexwouldnothavebeenabletomakeasaleatall.Therefore,the
entiretyoftheprofitsofthesalewerecausallyattributabletotheinfringing
perindopril.24

2.3AirbusHelicoptersS.A.S.v.BellHelicopterTexteronCanadaLimitée,
2017FC170

Followingapreviousfinding25thatthedefendant,BellHelicopterTextronCanada
Limitée(hereafter“Bell”),infringedonCanadianpatentNo.2,207,787(hereafter
“CA’787”)belongingtotheplaintiff,AirbusHelicopterS.A.S.(hereafter“Airbus”),the
CourthasbeenseizedwithdeterminingtheamountofdamagestoawardtoAirbus
fortheinfringement.

TheCA’787patentrelatestoaskid-typelandinggearforhelicopters.In2004,Bell
begandevelopmentofitsBell429helicopter,incorporatinga“legacy”landinggear
whichcloselyresembledtheinventioncoveredbytheCA’787patent.Despitebeing
awareofthecloseresemblance,Bellinstructeditsengineersto“carryon”withthe
development26.Thelegacygearwaslatermodifiedandreplacedwithanother
versionofthelandinggearwhichcametobeknownasthe“production”landinggear.

Duringtheliabilityphase,theCourtdeterminedthatonlythelegacygearhad
infringedontheCA’787patent.Bellwasthusorderedtodestroyalllegacygearsstill
initspossession(saveone,foruseinforeignlitigation),andforbiddenfrom
manufacturing,usingorsellingthelegacylandinggearuntiltheCA’787patent
expires.TheCourtfurtherruledthatAirbuswasentitledtodamages,both
compensatoryandpunitive,asaresultofBell’sinfringement27.Now,duringthe
damagesphase,thecourtistaskedwithdeterminingthequantumofthedamagesto
whichAirbusisentitled.

2.3.1CompensatoryDamages

Theextentoftheinfringementwasnotindispute.Bothpartieswereinagreement
that21legacygearsweremanufacturedandusedbyBellforavarietyofpurposes.
However,aparticularityinthiscaseliesinthefactthatthelegacygearswerenever
23Ibidatpara.51.24Supranote18atpara.7125Eurocopterv.BellHelicopterTextronCanadaLimitée,2012FC113,aff’d2013FCA21926Ibidatpara.1027Ibid,Judgementpoints1to7

2.3.2ReasonableRoyalty

Becausenosalesweremade,Airbuswasnotinapositiontoproveithadactually
sustaineddamagesthroughlostprofits.TheCourtthereforefounditappropriateto
compensateAirbusviaareasonableroyaltyforBell’suseoftheinfringinggears28.
Thisreasonableroyaltywouldhavetobedeterminedbycreatingahypothetical
negotiationbetweentheparties,anddeterminingwhatroyaltywouldhavebeen
agreeduponontheeveofthefirstinfringement.Ofcourse,thehypothetical
negotiationwouldhavetobebasedonreliableevidence.

Proceedingwithahypotheticalnegotiationrequiredthecourttodeterminethe
bargainingpowerofeachofthepartiesontheeveoftheinfringement.Infollowing
thesampleprinciplesappliedinpreviouscases,thecourtconsideredanumberof
contextualfactorsforthispurpose,including:(1)transferoftechnology;(2)
differencesinthepracticeoftheinvention;(3)non-exclusivelicense;(4)territorial
limitations;(5)termofthelicense;(6)competitivetechnology;(7)competition
betweenthelicensorandlicensee;(8)demandfortheproduct;(9)risk;(10)novelty
oftheinvention;(11)compensationforresearchanddevelopmentcosts;(12)
displacementofbusiness;and(13)capacitytomeetmarketdemand29.Thesefactors
wouldultimatelyaidthecourtinassessingtheminimumroyaltyAirbuswouldhave
beenwillingtoaccept(“minimumwillingnesstoaccept”,hereafter“MWA”)andthe
maximumroyaltyBellwouldhavebeenwillingtopay(“maximumwillingnesstopay”,
hereafter“MWP”).

2.3.3Non-Infringingalternatives

Thecourtconsideredthe“competitivetechnology”factorseparatelyfromtheothers.
Aspartofthisfactor,theCourthadtoconsidertheexistenceandrelevanceofnon-
infringingalternatives,andtheirimpactonthenegotiatingpowerofthepartiesand/or
onthepotentialdamagesufferedbythepatentee.

Withrespecttonegotiatingpower,theexistenceofnon-infringingalternativesmay
weakenthepositionofthepatentee.Whennegotiatingalicense,itisunlikelythata
licenseewouldagreetopayanamountwhichexceedstheexpectedbenefithe
28AirbusHelicoptersS.A.S.v.BellHelicopterTexteronCanadaLimitée,2017FC170atpara.112
(citingJay-LorInternationalInc.v.PentaFarmsSystemsLtd,2007FC358atpara.123andMerck&
CoIncvApotexInc,2013FC751atpara.4129Ibidatpara.119(citingfactorsmentionedinAlliedSignalIncv.DuPontCanadaInc,1998CanLII
7464(FC),[1998]FCJNo190,78CPR(3d)129(FCTD))

Withrespecttopotentialdamages,theexistenceofnon-infringingalternativesmay
reducethedamageattributabletotheinfringingactivities.Withoutanynon-infringing
alternatives,everysalemadebytheinfringercouldbeapotentiallostsaleforthe
patentee.However,whenanon-infringingalternativeexists,thepatenteemaynotbe
abletoclaimeverysaleasalostsale,assomeofthosesalesmayhavebeenlostto
lawfulcompetition.

Toproperlyassesstheeffectoflegitimatecompetitiononthenegotiationsand
damages,theCourtfollowedtheLovastatintestwhichwaspreviouslylaidoutbythe
FederalCourtofAppeal30.ThetestdirectstheCourttoanswerthefollowingfour
questions:
1.Istheallegednon-infringingalternativeatruesubstituteandthusareal
alternative?
2.Istheallegednon-infringingalternativeatruealternativeinthesenseofbeing
economicallyviable?
3.Atthetimeofinfringement,doestheinfringerhaveasufficientsupplyofthe
non-infringingalternativetoreplacethenon-infringingsales?Anotherwayof
framingthisinquiryiscouldtheinfringerhavesoldthenon-infringing
alternative?
4.Wouldtheinfringeractuallyhavesoldthenon-infringingalternative?

Thecourtconsideredseveralpotentialnon-infringingalternatives,including
conventionalgear,wheellandinggear,andI-beamcrosssectiongear.However,the
courtconcludedthatnoneoftheseweretruealternatives,asnonewerefoundtobe
economicallyviable.Theonlyoptionwhichwasdeterminedtobeatruealternative
andeconomicallyviablewastheproductiongearwhichBellhaddeveloped.
However,thecourtdidnotconsidertheproductiongeartobeatruenon-infringing
alternativeasitwasnotavailableontheeveoftheinfringement,andBelltherefore
couldnothaveusedit.

Althoughtheproductiongeardidnotactuallyexistontheeveoftheinfringement,
Bellattemptedtoarguethatithadthenecessaryknowledgeandtoolsatthetimeto
createsaidgear.Therefore,Bellarguedthatinabutforworld,itcouldhave
developedtheproductiongearearliertoavoidinfringement.TheCourtdidnotaccept
thisargument,notingthatBellhadnotdemonstratedthatitcouldhavedevelopedthe
productionlandinggearfromscratch.Moreover,theCourtnotedthatthecreationof
theproductiongearwasonlymadepossiblethroughtheillicituseofthelegacygear.
SinceAirbushadnotgrantedBellalicensetousethelegacygearfordevelopinga
non-infringingalternative,thisavenueforobtaininganon-infringingalternativewould
nothavebeenpossible.31

30Merck&CoIncvApotexInc,2015FCA17131Supranote28atpara.213

2.3.4Determiningtheroyaltyfee

Afterconsideringthevariousfactors,theCourtdeterminedthatAirbuswouldhave
beeninamuchstrongerpositioninahypotheticallicensenegotiation.Theagreed
royaltywouldthereforehavebeenclosetoBell’sMWP,whichwasestimatedas
$525,000,correspondingtotheactualunitpriceofallthelegacygearsthatwere
manufacturedforthedevelopmentoftheBell429.Moreover,havingconsideredthat
Airbuswouldhavereasonablyrequestedaminimumof$250,000forthecostsBell
wouldhavesavedfromhavingtodeveloptheproductiongearfromscratch,that
Airbuswouldsoughttorecoveraportionofeconomicbenefitsrealizedfromthe
promotionofthelegacygear,andthatthepartieswouldhaveagreedupona
reasonableriskpremiumforAirbustoallowitscompetitortocommercializeits
patent,theCourtconcludedthatthatAirbus’MWAwouldberoughly$475,000.By
applyingthe“broadaxeprinciple”betweenBell’sMWPandAirbus’sMWA,theCourt
foundthatanappropriatelumpsumfortheagreedroyaltyresultingfromthe
hypotheticalnegotiationwouldbe$500,00032.

2.3.5PunitiveDamages

TheCourtconsideredthattheawardeddamagesof500,000$wouldnotbesufficient
toachievethegoalofpunishmentanddeterrence.Accordingly,thecourtordered
Belltopayanadditional1,000,000$inpunitivedamage.Thisamountawardedin
proportiontotheblameworthinessofBell’sactions,tothedegreeofAirbus’s
vulnerability,totheharmdirectedtoAirbus,totheneedtosufficientlydeter
infringement,andtotheeconomicadvantagewrongfullygainedbyBell.

Inthepresentcase,theblameworthinessofBell’sactionhadthemostsignificant
impactontheawardofpunitivedamages.Duringtheliabilityproceedings,theCourt
hadfoundthatBell’smisconductwasplannedanddeliberate–Bellintentionally
importedahelicopterhavingthepatentedgearforthepurposesofcopyingit,and
subsequentlypromotedtheinfringinglegacygearasitsowninvention.Moreover,
BellisasophisticatedcompanywithanIPdepartment,andhadthemeansto
preventinfringement.Despitethis,Bellwillinglycontinueditsinfringingactivitiesfor
severalyears.

Theneedfordeterrencewasalsoanimportantfactorfortheawardofpunitive
damages.TheCourtcouldnotacceptthatBellintentionallycopiedAirbusand
subsequentlyclaimtheinventionasitsown.TheCourtwantedtosendamessage
thatBell’sconductwouldnotbetoleratedasitwentagainstthecorepurposeof
patentlaw.Anamountnolessthan$1,000,000wasnecessarytoachievethis
purpose.

32Ibidatparas.376to379

ThiscaseinvolvesDowChemicalCompany’s(hereafter“Dow”)CanadianPatentno.
2,160,705(hereafter“CA’705”),whichcoversaspecifictypeofpolyethyleneplastic
usedtomake“film”products,suchasplasticsbagsandfoodwrapping.Inaninitial
judgement33,thepatentwasheldvalidandinfringedbythedefendant,Nova
ChemicalsCorporation(hereafter“Nova”),duetothemanufactureandsalein
CanadaofitsSURPASSbrandpolyethylenefilm-gradecopolymers.Pursuanttothe
judgement,Dowwasentitledtocompensationbyelectingbetweendamagesandan
accountingofNova’sprofits.Moreover,sinceNova’sinfringingactivitiestookplace
duringthependencyperiodofDow’spatent,Dowwasalsoentitledtoseek
reasonablecompensationforinfringingactivitieswhichtookplaceduringthepre-
grantperiod.

Aspartofthepresentjudgement,theFederalCourthasbeentaskedwith
determininghowtoappropriatelyquantifythedamagesandreasonable
compensationowedtoDow.

2.4.1ReasonableRoyalty

Inthejudgement,theCourtfirstaddressedthematterofreasonablecompensation.
Bothpartiesagreedthatthepropermeasureofthiscompensationwouldbeto
calculateareasonableroyaltyforNova’suseofDow’spatentduringthepre-grant
period.TherelevanttimeperiodwasdeterminedtoextendbetweenDecember9,
2004andAugust21,2006,i.e.startingonthedateDowhadacquiredthestill
pendingCA’705patentapplication,andendingonthedatetheCA’705was
granted.34

i)HypotheticalNegotiation

Todeterminetheappropriateroyaltyrate,theCourtappliedthepracticelaidoutin
AlliedSignal35,andsoughttoconductahypotheticalnegotiationbetweentheparties,
withtheultimategoalofidentifyingtheroyaltyratethatwouldresultfroma
negotiationbetweenawillinglicensorandawillinglicensee.Toconductthis
hypotheticalnegotiation,theCourtconsideredevidencepresentbyexpertwitnesses
onbothsidestodeterminetheminimumrateDowwouldhavebeenwillingtoaccept
(referredtoas“minimumwillingnesstoaccept”orMWTA),andtoweighthisagainst
themaximumrateNovawouldhavebeenwillingtopay(referredtoas“maximum
willingtopay”orMWTP).

33DowChemicalCompanyv.NOVAChemicalsCorporation,2014FC844,aff’d2016FCA21634DowChemicalCompanyv.NovaChemicalsCorporation,2017FC350atpara.64.35AlliedSignalInc.v.DuPontCanadaInc.,1998CanLII7464(FC),[1998]FCJNo190(TD)atpara
199,aff’d[1999]FCJNo38(CA)

ii)MWAvs.MWTP

IncalculatingDow’sMWTA,theCourtconsideredthatitwouldcorrespondtothe
profitsDowexpectedtolosefromlicensingitstechnologytoNova,i.e.theproportion
ofNova’ssalesofSURPASSthatwouldbedivertedfromDow’ssalesofits
correspondingELITEproduct.36Similarly,incalculatingNova’sMWTP,theCourt
consideredthatitwouldcorrespondtotheprofitthatNovawouldexpecttoearnon
SURPASScomparedtothenextbestnon-infringingalternative.37

Afterreviewingtheevidence,theCourtfoundthatDow’sMWTAwasactuallyhigher
thanNova’sMWTP.Inotherwords,therewouldhavebeennobargainingrange
betweentheparties,anditwouldnothavebeenpossibletocometoanagreement.
However,sincethebargainingiscompulsoryforthepurposesofestablishingthe
reasonableroyalty,theCourtsimplyacceptedDow’sMWTAastheappropriaterate,
andsettheroyaltyat8.8%ofNova’snetrevenuefromsalesoftheinfringing
products.38

2.4.2Accountingofprofits

Thenextmatteraddressedbythecourtwascompensationfortheperiodduring
whichthepatentwasinforce.Dowelectedcompensationbywayofanaccountingof
Nova’sprofitsratherthanrestitutionfordamagessuffered.Dowthereforeborethe
burdenofprovingNova’ssalesrevenuewhichwereattributabletotheinfringing
activitieswhichtookplacebetweenwhenthepatentwasgrantedonAugust22,
2006,andwhenthepatentexpiredonApril19,2014.

i)SpringboardProfits

AnimportantissueundercontentionwaswhetherDowshouldbeentitledto
“springboardprofits”.DowarguedthatbyinfringingtheCA’705patent,Novawas
abletoenterthemarketearly(i.e.“springboard”intothemarket).Asaresult,bythe
timethepatentexpired,Novawasabletoenjoyahigherlevelofsalesthanitwould
havehaditwaitedforthepatenttoexpirebeforeenteringthemarket.Dowtherefore
arguedthatNovacontinuedtoprofitfromitsinfringingactivitiesevenafterthepatent
expired,andshouldthusbeentitledtoreceivethese“springboardprofits”.

TheCourtagreedthatitwasindeedappropriatetoawardspringboardprofitstoDow.
TheCourtnotedthatthepurposeofanaccountingofprofitsissimplytogivetothe
plaintifftheprofitsmadebythedefendantfromthewrongfulinfringement.39The
36Supranote34atpara.6837Ibidatpara.82.38Ibidatparas.87to89.39Ibidatpara.120.

Tocalculatethespringboardprofits,theCourtheldthattheappropriatemodelinthis
casewouldbetoconsiderthatNovawouldhavehadtohavegonethrougha
progressiveramp-upperiodafterthepatentexpiredtoattainthesamelevelofreal
worldsales.41

ii)DeductibleCosts

Oncerevenueshavebeenestablished,thedefendantmustprovetheappropriate
coststodeducttoarriveattheactualprofits.Inthepresentcase,asignificantportion
ofthecostswouldbeassociatedwithacquiringethylene,akeyingredientinthe
manufactureoftheplasticprotectedbytheCA’705patent.However,insteadof
acquiringethylenefromthirdparties,Novaproduceditsownethyleneatitsfacilities
locatedinAlberta.ThisenabledNovatobenefitfromasignificantdiscountcompared
tothemarketpriceofethylene.

TheCourtnotedthatNovaenjoyedaneconomicadvantagewithrespecttothecost
ofethylene,andthatthisbenefitshouldbepassedontoDow.Therefore,insteadof
deductingthecostofethyleneatmarketprice,theCourtruledthatitwasappropriate
todeducttheactualcostNovaincurredtoproducetheethylenethatwasusedto
maketheinfringingSURPASSproducts.42

Inadditiontodeductingthecostofproducingethylene,theCourtalsoallowedNova
todeductseveralothercostsassociatedwithmanufacturingtheinfringingSURPASS
productsatitsplants,including:(i)capitaldepreciationexpenses;(ii)salaries;(iii)
overhead;(iv)ongoingcapitalcosts;and(v)plant,distribution,sales&marketing,
technical,administrationandresearchanddevelopmentcosts,excludingcosts
relatedtoresearchanddevelopment.Thecourtoptedforthis“fullcosts”approach,
astherewerenoviablenon-infringingalternativesavailable.Itwasthereforemore
appropriatetocalculateNova’sprofitsbysubtractingitsfullcostsfromitsrevenues,
ratherthancalculatingthedifferencebetweentheprofitsNovaearnedfromthe
infringementlesstheprofitsitwouldhaveearnedhaditproducedanon-infringing
alternative(the“differentialcosts”approach).43

2.4.3Quantum

40Ibidatpara.124.41Ibidatpara.130.42Ibidatparas.139and140.43Ibidatparas.142,143,146and165.

3.RemediesUnderthePatentedMedicines(NoticeofCompliance)
Regulations

Infringementproceedingsarenottheonlypatentdisputeswhichinvolveamonetary
remedy.ArecoursefordamagesalsoexistsunderthePatentedMedicines(Noticeof
Compliance)Regulations(hereafter“PM(NOC)”).

InCanada,whenaninnovatorwantstomarketanewdrug,itmustfirsthaveit
approvedbyHealthCanada.Inordertodoso,theinnovatormustsubmitaNew
DrugSubmission(hereafter“NDS”)whichsetsoutthesafetyandefficacyofthedrug
asevaluatedthroughthoroughtesting.HealthCanadawillreviewtheNDS,andifthe
drugisapproved,itwillassignadrugidentificationnumber(hereafter“DIN”)tothe
drug,andwillissueaNoticeofCompliance(hereafter“NOC”)effectivelyauthorizing
theinnovatortomarketthedrug.Anysubsequentcompanywishingtosellthesame
drugmustapplyfortheirownNOC.Ifthedrughasalreadybeenapproved,they
needsimplyfileanAbbreviatedNewDrugSubmission(hereafter“ANDS”)claiming
bioequivalencetothedrugwhichhasalreadybeenapproved.

TheprocedureforissuingaNOCisgovernedbythePM(NOC)regulations,which
aredesignedtopromotetheprotectionofpatentrightsoftheinnovator.Whenfiling
anNDS,theinnovatoralsosubmitsalistofpatentswhichprotectthedrugin
question,andthesepatentscansubsequentlybelistedonaregister.Whena
genericmanufacturerfilesanANDSforadrugwhichhaspatentslistedonthe
register,theNOCregulationsaretriggered.Undersection5oftheNOCRegulations,
beforeaNOCcanbeissued,thegenericmustaddresseachofthepatentslistedon
theregisterforthedruginquestion,andeitheracceptthataNOCwillonlyissueafter
thepatenthasexpired,orfileaNoticeofAllegation(NOA)inwhichitallegesthatthe
patenthasexpired,thatthepatentisinvalid,orthatthepatentwillnotbeinfringed.

UponreceivingaNOA,section6oftheNOARegulationsallowtheinnovatortoapply
totheFederalCourtforanorderprohibitingtheMinisterofHealthfromissuinga
NOCtothegeneric.Oncesuchanapplicationhasbeenfiled,section7(2)ofthe
NOAregulationsprovidethataNOCcannotissueforaperiodofupto24months.
Duringthisperiod,theallegationsintheNOAcanbeevaluatedbytheFederalCourt,
butthegenericwilleffectivelybeheldoffthemarket.IftheFederalCourtrulesin
favorofthegeneric,thegenericwillhavebeenunjustlyheldoffthemarketduringthe
24monthperiod.Section8oftheNOCregulationsthereforeallowthegenericto
recoverdamagessustainedfromhavingbeenheldoffthemarketbytheinnovator.
44DowChemicalCompanyv.NovaChemicalCorporation,2017FC637.45DowChemicalCompanyv.NovaChemicalsCorporation,2017FC759.

4.RecentPM(NOC)Cases

Muchlikedamagesinpatentinfringement,damagesundersection8ofthe
PM(NOC)arerestorativeinnature.Inthiscase,therecourseseekstoreturnthe
genericmanufacturertoapositionthatitwouldhavebeeninifithadnotbeenheld
offthemarket.Damagesarethereforecalculatedinasimilarwayasincasesof
patentinfringement,andrequirestheCourttocreateahypotheticalbutforworldto
assesstheextentofthedamage.Inthiscase,insteadofdeterminingwhata
patentee’spositionwouldhavebeenbutfortheactionsofaninfringer,theCourt
mustdeterminewhatageneric’spositionwouldhavebeenbutforbeingheldoffthe
market.Thiscaninvolveconsideringwhatthegeneric’sprofitswouldhavebeen
duringtheappropriateperiod.

Giventhesimilaritiesbetweentherecourses,themannerinwhichthecourts
considerfactorswhenassessingdamagesundersection8ofthePM(NOC)
regulationscaninformhowsimilarfactorscouldbeconsideredduringinfringement
proceedings,andvice-versa.Twojudgementsissuedthisyearhavehelpedclarify
thefactorswhichthecourtswillconsiderwhenassessingdamagesundersection8
ofthePM(NOC)regulations.

4.1EliLillyv.TevaCanada,2017FC88

In2006,EliLillyCanadaInc.(hereafter“Lilly”)attemptedtopreventTevaCanadaLtd
(formerlyNovopharmLtd,hereafter“Teva”)fromcomingtomarketwithageneric
versionofZYPREXA(olanzapine),adrugprimarilyusedinthetreatmentof
schizophrenia,byfilinganapplicationforanordertoprohibittheMinisterofHealth
fromissuingaNoticeofCompliancetoTeva.Tevawassubsequentlyheldoffthe
marketuntil2007,pursuanttotheregulatorystayinthePM(NOC)regulations.In
2007,Tevawasfinallyabletoenterthemarketaftertheproceedingsunderthe
PM(NOC)regulationsconcludedwitharulinginTeva’sfavor46.

LillysubsequentlybroughtanactionagainstTevaalleginginfringementofitspatent
forolanzapine47.TheCourtultimatelyconcludedthatLilly’spatentwasinvalid,and
confirmedthatTevawasentitledtodamagesundersection8ofthePM(NOC)
regulationsfortheperiodoftimeduringwhichitwasunjustlyheldoffthemarket.In
thepresentjudgement,theCourthasbeentaskedwithdetermininghowtocalculate
theamountofdamagestowhichTevaisentitled.

4.1.1QuantumofDamages–Overview

46EliLillyCanadaInc.vNovopharmLtd.,2007FC59647EliLillyCanadaInc.v.NovopharmLtd.,2009FC1018.

Duringthisexercise,therewereanumberofelementswhichthecourtwouldhaveto
takeintoconsideration,includingthedurationoftheliabilityperiod,Teva’s
hypotheticalmarketsharebutfortheinfringement,andfinallyanyfactorswhichmay
havevariedTeva’sactuallosses.

4.1.2LiabilityPeriod

Withrespecttotheliabilityperiod,therewasnodisagreementbetweentheparties
thattheenddateshouldcorrespondtothedateonwhichadecisiondismissingLilly’s
applicationunderthePM(NOC)proceedingswasrendered,i.e.onJune5,2007.
However,therewassomecontentionastowhentheliabilitydateshouldhavebeen
consideredtohavestarted.

Asafirstposition,LillytriedtoarguethatTevahadeffectivelyabandoneditsclaimto
damagesundersection8ofthePM(NOC)regulations,andthatthereshouldbeno
liabilityperiod.Ineffect,TevahadfiledafirstNOAallegingtheinvalidityofLilly’s
olanzapinepatentonAugust5,2004.LillyrespondedtotheNOAbyapplyingfora
prohibitionorder,andfiledevidencetothiseffect.Tevasubsequentlywithdrewits
NOAandsubsequentlyservedanewone.AfterLillytriedtorecovercosts,Teva
claimeditwasprejudicedfromthedelayresultingfromthewithdrawal,partially
becauseithad“abandoneditsclaimtos.8damages”.

LillythusputforththatTevawasestoppedfromsubsequentlyclaimings.8damages.
However,thecourtdisagreedwiththisposition,andwasoftheopinionthatthis
abandonmentrelatedonlytos.8damagesrelatingtothefirstproceeding,andthatit
wouldhavenobearingonwhetherornotTevacouldseeks.8damagesinthe
secondproceeding.

Asanalternativeposition,LillyattemptedtoarguethatalthoughTevawouldhave
receiveditsNOConMarch3,2006inthebutforworld,itwouldnothavebeenable
toenterthemarketrightaway.AccordingtoLilly,itwouldhavetakenTevauptoa
yeartoactuallymakeitintothemarketfollowingtheissuanceoftheNOC.

Afterreviewingtheevidence,theCourtdisagreedwithLilly,andfoundthatTeva
wouldnothavehadanytroubleenteringthemarketuponreceivingtheNOC.The
48EliLillyv.TevaCanada,2017FC88atpara.11

4.1.3Teva’sshareoftheolanzapinemarket

Inordertoproperlyquantifythedamages,animportantquestionwhichtheCourthad
toansweriswhatwouldTeva’sshareoftheolanzapinemarkethavebeenbutfor
beingheldoffthemarketduringtheliabilityperiod.TheCourttookasystematic
approachtoanswerthisquestion,andbroketheproblemdownintothreedistinct
steps:first,determiningtheoverallsizeoftheolanzapinemarketinthebutforworld,
second,determiningthegeneric’sshareoftheoverallmarketinthebutforworld,
andfinally,determiningwhatTeva’sshareofthegenericolanzapinemarketwould
havebeeninthebutforworld.

Inregardtotheoverallsizeoftheolanzapinemarketinthebutforworld,bothparties
agreedthatitwouldhavebeenthesameasthereal-worldmarket.Inotherwords,
thesizeofthemarketwouldnothavebeenaffectedbytheintroductionofageneric
versionofthedrug.

Next,inregardtothegeneric’sshareoftheolanzapinemarket,thepartieswerein
disputeastothespeedwithwhichagenericcompanycouldhaveenteredthe
marketineachprovince.Inordertoresolvethisissue,thecourtlookedathowlongit
tookTevatoenterthemarketineachprovincefollowingreceiptofaNOAinthereal
world.TheCourtnotedthatthereweresomefactorswhichsloweddownTeva’s
entryintosomeprovinces,andthatthesefactorswouldnothavebeenapplicablein
thehypotheticalworld.50

Finally,indeterminingTeva’sshareofthegenericolanzapinemarket,theCourthad
toconsiderwhethertherewereanygenericcompetitorsduringtheliabilityperiod,
andifso,howtheywouldstackupagainstTeva.LillyattemptedtoarguethatTeva
wouldhavehadtosharethegenericmarketwithApotex,anothergenericcompany.
However,theCourtnotedthatApotexwasalsoheldoffthemarketduetoprohibition
proceedings,andthatinthebutforworld,Lillywouldhaveproceededwiththe
prohibitionproceedingsagainstApotexevenifTevahadobtaineditsNOC.Asa
result,Apotexwouldhavebeenkeptoffthemarketinthebutforworld,atleast
duringtheliabilityperiod,andthatTevawouldthereforebetheonlygenericonthe
market.TheCourtthusdeterminedthatTevawouldhavethefullshareofthegeneric
olanzapinemarketduringtheliabilityperiod.51

WithTeva’sshareofthegenericmarketbeingdeterminable,thelossessuffered
wouldessentiallybetiedtothesalepriceofthegenericolanzapineinthe
hypotheticalworld.Inthepresentcase,theCourtdeterminedthattheappropriate
49Ibidatpara.43.50Ibidatparas45to83.51Ibidatparas84to88.

4.1.4Pipefill

PipefillreferstothequantityofsalesTevawouldhavemadetodistributorsinthebut-
forworldthatwouldnotbeincludedinretailsalesfigures.Inpractice,beforea
productcanbesoldtoconsumers,theproductmustmakeitswaythroughthe
appropriatechannels.Forexample,amanufacturedproductmaysitinafactory’s
inventoryforawhilebeforebeingshippedtowholesalers,andmaysitininventoryat
thewholesalerbeforebeingsenttoretailer,andfinallymaysitonapharmacyshelf
beforeultimatelybeingdispensedtoaconsumer.

Tevaarguedthatitwouldbeappropriatetoincludeanamountforpipefillin
calculatingtheirlossesinthiscase,andthatanadjustmentforpipefillwasawarded
inthepast52.However,theCourtnotedthattheissueofpipefillwasnotseriously
addressedinpastproceedings,anditsquantumwasneverspecificallycalculated.
TheCourtultimatelydeniedcompensationforpipefill,reasoningthatanydiscrepancy
betweenretailsalesandtheamountofproductleavingthemanufacturer’sfactories
wouldrepresentfuturesales.Suchsalescannotbecompensatedundersection8of
thePM(NOC)Regulations,astheyaresaleswhichwouldtakeplaceaftertheendof
thelabilityperiod.53

4.1.5Trade-spend

Trade-spendrepresentsadditionalcostspaidbygenericstobuildrelationshipswith
retailers.Suchcostscanincluderebates,tradeallowances,educationalsubsidies,
purchasingincentives,etc.Inmultisourcemarketswhereseveralgenericsare
manufacturingthesameproduct,genericswillgenerallycompetewithoneanother
throughtheamountoftrade-spendtheyarewillingtoprovide.Generally,retailerswill
haveagreaterincentivetosellthegenericproductfromamanufacturerfromwhich
theyreceivethemosttrade-spend.Trade-spendisgenerallyconsideredanormal
expense,andwouldbefactoredinwhenassessingageneric’sprofits.

Inthepresentcase,LillyattemptedtoarguethatTeva’strade-spendinthebutfor
worldwouldbethesameorhigherastheaverageforallproductsintherealworld,
andthatTeva’shypotheticalprofitsshouldbediscountedbyacorresponding
52SeeApotexInc.v.Sanofi-Aventis,2012FC553(CanLII)atparas221-226,aff’d2014FCA68
(CanLII);TevaCanadaLimitedv.PfizerCanadaInc.,2014FC248(CanLII)atparas.186-190;
andApotexInc.v.TakedaCanadaInc.,2013FC1237(CanLII)atparas.119-120.53Supranote48atparas.102and103.

4.2TevaCanadav.Pfizer,2017FC332

Shortlyaftertheolanzapinedecision,theFederalCourtissuedanotherdecision
relatingtosection8damageswhichalsoinvolvedTeva.Thistime,thedisputewas
betweenTevaandPfizerCanadaInc.(hereafter“Pfizer”),andwasrelatedtothesale
ofproductcontainingpregabalin(LYRICA),apopulardrugusedtotreatepilepsy,
neuropathicpain,fibromyalgia,andgeneralizedanxietydisorder.Tevasought
damagesundersection8forhavingbeenheldoffthemarketwhilePfizer
commencedprohibitionproceedings.Pfizerultimatelydiscontinuedtheproceedings
onFebruary14,2013,atwhichpointTevawasfinallyabletoenterthemarket.

4.2.1QuantumofDamages–Overview

ThecourtfollowedthesamestepsasEliLillyv.TevaCanadatoconstructthebutfor
worldandassessthedamages,i.e.determinethedurationoftheliabilityperiod,
determinetheoverallsizeofthepregabalinmarketduringtheliabilityperiod,
determinethegeneric’sshareoftheoverallpregabalinmarketduringtheliability
period,determineTeva’sportionofthegenericmarketduringtheliabilityperiod,and
finallyquantifytheactualdamagesthatTevawouldhavesuffered.Citingarecent
judgement55,theCourtnotedthatinconstructingthebutforworld,itwouldhaveto
considerbothwhatcouldhavehappened,andwhatwouldhavehappened.Could
haverequiresproofthatnothingmadeitimpossibleforTevatobeinacertain
position,andwouldhaverequiresproofthateventswouldtranspiretoputTevain
thatposition.56

4.2.2LiabilityPeriod

Indeterminingtheliabilityperiod,therewasnodisagreementthattheenddatewould
correspondtothedateonwhichPfizerdiscontinueditsprohibitionproceedings,i.e.
onFebruary14,2013.However,thepartieswereindisagreementastothe
appropriatestartdate.Inparticular,bothpartieshadadifferentviewastothedate
whichTevawouldhavebeenabletoobtainitsNOCandenterintothemarket.
54Ibidatpara.120.55PfizerCanadaInc.v.TevaCanadaLimited,2016FCA161.56Supranote48atpara.12.

Inordertosettlethisdisagreement,theCourtattributedasignificantimportanceto
eventswhichtookplaceintherealworldinordertopredictwhatTeva’sactions
mighthavebeeninthebutforworld.Tevahadarguedthatinthebutforworld,it
wouldhaveactedexpeditiouslytoobtainanNOCtoallowittolaunchassoonas
possible.However,intherealworld,Tevadidnotactexpeditiouslyinrespondingto
thepatentholdletterithadreceived.

Generallyspeaking,ifagenericisseriousaboutbringingaproducttomarket,itwill
actveryquicklyuponreceivingapatentholdlettersuchthatthetwoyearstayperiod
whichisinitiatedthereafterwillendassoonaspossible.SinceTevadidnotact
quicklyintherealworld,Teva’sargumentthatitwouldhaveactedquicklyinthebut
forworldwasnotconvincing.TheCourtultimatelydecidedthatastartdateofAugust
26,2010wasappropriate,thuscorrespondingtothepatentholddate.

4.2.3Teva’sshareofthepregabalinmarket

TheCourtreliedontheevidenceprovidedbyTeva’sexpertwitnessinorderto
establishthetotalsizeofthepregabalinmarketandthegeneric’sportionofthe
pregabalinmarketinthebutforworld,statingthatitwasmorebalancedandfairthan
thatofPfizer’sexpert.WithrespecttoTeva’sshareofthegenericpregabalinmarket,
therewassomedisputeastowhetherTevawouldhavefaceddelaysenteringthe
market,andwhetherTevawouldhavetosharethemarketwithothergeneric
competitors.Afterconsideringtheevidence,theCourtconcludedthatTevawould
havebeenabletolaunchthepregabalinwithoutdelays,andthattherewouldnot
havebeenanythird-partyorauthorizedgenericsinthemarketduringtheliability
period.Tevawasthusconsideredtohavethefullshareofthegenericpregabalin
marketduringtheliabilityperiod.57

4.2.4PipefillandTrade-spend

AswiththeEliLillyv.TevaCanadajudgement,theCourtconsideredtheeffectof
trade-spendonTeva’sprofits.Toestimatetheappropriatetrade-spend,theCourt
againconsideredthereal-worldtrade-spendofanotherdrugsubjecttosimilarmarket
conditions,inthiscaserisedronate.Thetrade-spendratewasultimatelysetat35%.

UnliketheEliLillyv.TevaCanadajudgement,theCourtacceptedanadjustmentin
Teva’sprofitstoaccountforpipefill.AccordingtotheCourt,theFederalCourtof
Appealmadeitclearinapreviousdecision58thatsection8damagesarerestrictedto
whatwouldoccurinthebutforworldduringtheliabilityperiod,thusprecluding
doubleramp-upcompensation.SaidtheCourt:“Totheextentthatpipefillor
inventoryadjustmentsrepresentsaleslostintheBFW,theyareappropriate.Tothe
57Ibidatparas.217,244,and258.58ApotexInc.v.Sanofi-Aventis,2014FCA68atparas.156-159,aff’d2015SCC20.

5.Conclusion

Althoughnotgroundbreaking,therecentjudgementsfromtheFederalCourtand
FederalCourtofAppealdiscussedabovehaveshedlightonthedirectioninwhich
thecourtsareheadedwhencalculatingdamagesandprofitsinpatentdisputes.It
appearsthatthecourtsareopentoconsideringawiderangeoffactors,provided
thosefactorscanbedemonstratedasbeingcausallylinkedtotheplaintiff’sdamages
and/orthedefendant’sprofits.

Mostnotably,non-infringingalternativesseemtohavebeencementedasarelevant
considerationincalculatingbothdamagesandprofits.Futurecasesmaytherefore
seedefendantsrelymoreheavilyonanon-infringingalternativesdefensetoreduce
thecompensationtheywillberequiredtopay.Suchadefenseisnotalways
available,however,asthedefendantmustbeabletodemonstratethatitcouldhave
andwouldhavebeenabletorelyonthenon-infringingalternative.Whenanon-
infringingalternativeisnotavailable,thecourtcanfallbackonthelesspreferred
actualprofitsapproach,andcalculateprofitsbydeductinganinfringer’sfullcosts
fromitsrevenue.

Withrespecttoprofits,thecourtsarewillingtoapportionbetweentotalprofitsand
profitsattributabletotheinvention.However,itappearsthatthebarisquitehighfor
apportionmenttoapplyinpractice,asthedefendanthastheonusofdemonstrating
thattheapportionedprofitsarenotcausallyattributabletotheinvention.

Ithasalsobeenconfirmedthat“springboard”advantagesarearelevant
considerationinanaccountingofprofits.Ithasalreadybeenwellestablishedthat
“springboarddamages”canbeawardedinthecontextofcalculatingdamages.
However,theDowChemicaljudgementeffectivelyconfirmedthatthisprinciple
appliesinthecontextofanaccountingofprofitsaswell.Thisallowsaplaintiffto
receiveprofitsgainedbyaninfringerafterapatenthasexpired,providedthose
profitsareattributabletotheinfringingactivitieswhichtookplacewhilethepatent
wasinforce.

Finally,withrespecttodamagecalculations,thecourtshaveconfirmedthatprice
suppressionandtrade-spendarerelevantfactorstoconsider.However,the
relevancyofpipefillisstilluncertain,astworecentFederalCourtdecisionshad
completelydifferentviewsonthismatter.ItremainstobeseenwhethertheFederal
CourtofAppealcanweighinandclarifythesituation.

59Supranote47atpara.311.