Federal Court of Appeal updates Section 8 damages law

On March 14 2014 the Federal Court of Appeal issued its highly anticipated decisions concerning claims by Teva and Apotex for damages pursuant to Section 8 of the Patented Medicines (Notice of Compliance) Regulations (Teva Canada Limited v Sanofi-Aventis, 2014 FCA 67; Apotex Inc v Sanofi-Aventis, 2014 FCA 68; Teva Canada Limited v Sanofi-Aventis, 2014 FCA 69). These claims followed prohibition proceedings involving Apotex and Teva related to generic versions of ramipril, marketed by Sanofi as ALTACE®.

Background
Section 8 damages are calculated by considering the generic manufacturer’s loss in a hypothetical world where it starts selling without the delay occasioned by the regulations. In a trilogy of trial judgments issued in May 2012, the trial judge provided guidance for the hypothetical world calculation and addressed Sanofi’s challenges to the validity of Section 8 (Sanofi-Aventis v Teva Canada Limited, 2012 FC 551; Teva Canada Limited v Sanofi-Aventis, 2012 FC 552; Apotex Inc v Sanofi-Aventis, 2012 FC 553).

The Federal Court of Appeal grappled with the unique facts presented by the appeals and ultimately dismissed all but one appeal. The successful appeal varied one trial judgment to exclude a generic competitor from Apotex’s hypothetical market and thus increase Apotex’s claim. The appellate decisions are summarised below. Among the court’s more notable findings are the following:

• Both generic claimants and generic competitors are subject to the regulations in the hypothetical world, except for the sole purpose of determining the start date of the period of liability. Majority and dissenting reasons on this issue recognised that this approach could serve to inflate each generic claimant’s hypothetical market share, thus providing a potential windfall to the generics beyond the loss they suffered during the period of liability.
• As they are subject to the regulations, generic claimants will send notices of allegation to address patents listed against the drugs they seek to copy, thus providing notice to innovators of their impending market entry. In reaching this conclusion, the appeal court has largely done away with the notion that the innovator would be taken by surprise by a generic launch in the usual circumstances.
• Generic claimants will be subject to a reduction in revenues for 'ramp-up' in the hypothetical world. Such ramp-up cannot be discounted on the basis that the generic also suffered a ramp-up in the real world.
• Section 8 may permit generic claimants to be compensated for sales directed to indications for which they did not seek approval, notwithstanding patents which the generics did not address. The court noted that such sales may be precluded where the facts so justify.

Apotex liability appeal: Apotex Inc v Sanofi-Aventis
In this case, the Federal Court of Appeal was divided. A lengthy dissent (from Justice Mainville) was issued along with the majority’s reasons (penned by Justice Sharlow, with Justice Pelletier concurring).

Key findings of the majority included the following:

• The regulations generally apply to both the generic claimant and generic competition in the hypothetical world – the majority rejected the argument that Apotex and competing generics would enter the hypothetical world free of the constraints of the regulations. Rather, the majority held that the regulations were to be disregarded only for the specific purpose of determining the start date of the liability period. Thus, in contrast to prior Federal Court decisions, the regulations exist for all generics including the generic claimant in the hypothetical world. In the circumstances of multiple Section 8 claims (eg, the case before the court), the majority recognised the possibility that deciding each such claim separately could result in distinct and inconsistent hypothetical world calculations. The dissent emphasised that such an approach inherently leads to windfalls to generic claimants and favoured a methodology which strives to fairly compensate them in line with principles of compensatory damages. Contrary to the majority, the dissent expressly held that, upon the deemed issuance of a notice of compliance in the hypothetical world, other generic manufacturers should be assumed to be in a position to receive a notice of compliance subject only to the delays and timelines set out in the Food and Drug Regulations. 
• Generic claimants serve notices of allegation in the hypothetical world and give notice of their hypothetical market entry – the majority expressly held that, in the hypothetical world, Apotex would have been obliged to address the patents listed on the Patent Register against ALTACE and to serve notices of allegation. Thus, even in the hypothetical world, Sanofi would have had notice that Apotex wished to come to market. Nonetheless, the majority did not disturb the trial judge’s finding that Sanofi would not have launched an authorised generic until after Apotex’s hypothetical market entry. On the facts, the majority found that the launch would not have occurred until Sanofi lost its first prohibition proceeding. As a result, the majority has largely done away with the notion of a 'surprise launch' relied on by the trial judge, and referred to in subsequent jurisprudence, except possibly in unique factual circumstances where a generic could have entered the market prior to serving its notice of allegation. Consequently, notice of generic launch should be included in the calculation of any authorised generic, or other generic, entry in the hypothetical world.
• Competing generics generally act in the hypothetical world as they did in the real world – the majority, overturning the trial judge, held that Teva would not have competed with Apotex in the hypothetical world. The majority found that Teva (and another generic competitor) would have sought summary dismissal, as they did in the real world, as soon as they considered they had a fair chance of success. However, the majority concluded that Teva would have sought summary dismissal only after Apotex’s period of liability. Consequently, as the sole generic, Apotex’s damages claim was held to be larger than that found by the trial judge. It would seem that the court did not fully address the impact of its finding that the generic claimant is deemed to be both selling a product and simultaneously defending a prohibition proceeding. Presumably, if the complaining generic is deemed to be selling a product, third-party generics might also be deemed to act more aggressively in seeking summary dismissal. Also, the innovator would presumably act differently if the complaining generic were deemed to be selling a product. In any event, while the majority’s conclusion emphasised the real-world outcome of related prohibition proceedings in determining market entry of competing generics, the decision was driven by the unique facts of the case.
• Generic claimants’ ramp-up in the hypothetical world – the majority agreed with the trial judge’s rejection of Apotex’s argument that its damages should not be reduced since it was already subject to a ramp-up in the real world. The majority held that Section 8 limits losses incurred to the defined period of liability. The majority did not refer to recent Federal Court jurisprudence rejecting the trial judge’s approach. However, that jurisprudence was specifically discussed and endorsed by the dissent, and thus can arguably be considered to have been rejected by the majority.

Teva liability appeal: Teva Canada Limited v Sanofi-Aventis
In this case the Federal Court of Appeal split again, with Mainville issuing a lengthy dissent against Sharlow’s reasons for the majority (with Justice Dawson concurring).  The reasons of the court diverged on many of the same issues as in the Apotex liability appeal.

Of particular interest is the Court of Appeal’s finding that Teva would have entered the market one year before it was deemed to enter the market in the Apotex liability appeal. The majority accepted the trial judge’s factual finding that Apotex would have entered the hypothetical market in the Teva liability appeal at the same time as Teva. In the result, while in the Apotex liability appeal the majority held that Apotex would not have competed with Teva in the hypothetical world, these generics would have competed in the hypothetical world of the Teva liability appeal. The apparent inconsistency may be explained by the unique factual circumstances of these cases. However, it may also be that such inconsistencies are exposed only when select facts in the real world are used to populate the hypothetical world.

The majority also accepted the trial judge’s factual finding that Sanofi would have been ready to launch an authorised generic at the beginning of the liability period, one year before it did so in the real world. Similarly, the majority reiterated its rejection of the double ramp-up argument and noted that it was impossible to reach a contrary conclusion without implicitly reversing prior jurisprudence of the Federal Court of Appeal.

The majority also agreed with the dissent’s conclusions regarding the start date of the period of liability, without specifically endorsing the dissent’s reasoning. The dissent concluded that the start date of the period of liability should be presumed to be the date on which the minister certified that a notice of compliance would have issued, even if such certification pre-dates a statutory stay under the regulations. However, this is subject to the court’s discretion to displace that date in circumstances where another date is more appropriate. Nonetheless, the dissent ultimately accepted the trial judge’s finding that Teva would have entered the market only after receiving its certification date. Specifically, the dissent agreed that, on the facts before it, Teva had agreed to await expiry of a patent and would not have launched its generic drug before the expiry of that patent.

Validity appeal: Teva Canada Limited v Sanofi-Aventis
Sanofi also raised several challenges to the validity, applicability and operability of Section 8 of the regulations, all of which were dismissed by the trial judge. Sanofi appealed only on the question of whether Section 8 can allow compensation to a generic manufacturer for lost sales attributable to indications not approved by Health Canada. Mainville, for a unanimous court, dismissed this appeal.

In both the Apotex liability appeal and the Teva liability appeal, the court upheld the trial judge’s finding that Apotex and Teva would have made sales relating to unapproved indications and that any lost sales in this regard should be taken into account when determining compensation owed under Section 8. 

This conclusion was based on the trial judge’s finding that as Sanofi was not enforcing its patents for the unapproved indications in the real world, there was no reason to find that it would do so in the hypothetical world. The appeal court further rejected the argument that, as a matter of jurisdiction, Section 8 cannot allow compensation to be paid for sales for unapproved indications. 

Nonetheless, the appeal court expressly agreed with the trial judge that Section 8 damages for lost sales relating to unapproved indications may be precluded if the facts so justify.