The Ontario Court of Appeal’s recent decision in Apotex Inc. v. Eli Lilly and Company offers important clarity for pharmaceutical companies engaged in patent litigation under the Patented Medicines (Notice of Compliance) Regulations (“NOC Regulations”). The case centres on Apotex’s attempt to recover damages under section 8 of the NOC Regulations after a prohibition application filed by Eli Lilly delayed its product’s entry into the market.
Regulatory Framework for Generic Drug Marketing
Under Canadian law, brand-name pharmaceutical companies hold a 20-year patent monopoly on their products. However, the Patent Act and accompanying NOC Regulations allow for early preparations by generic manufacturers to enter the market upon patent expiry.
Section 55.2(1) of the Patent Act allows generic companies to develop and seek approval for generic versions of patented drugs without infringing the patent (commonly referred to as the “early working” exception). The NOC Regulations establish a legal framework for resolving disputes when generics seek to market their products before patent expiry.
Generic Drugs and Notice of Compliance
A generic company that wants to market a “copycat” drug before the expiry of a patent must serve a Notice of Allegation on the patent holder. In response, the innovator can file a prohibition application under section 6 of the NOC Regulations to delay the issuance of a Notice of Compliance, which is necessary to market the generic drug.
If the prohibition application is ultimately unsuccessful – whether dismissed, withdrawn, or reversed on appeal – section 8 may entitle the generic company to damages for delayed market entry. This damage period, or “liability period,” runs from the date the generic would have received its NOC but for the prohibition, until the dismissal or withdrawal of the proceeding.
Apotex Created Generic Version of Eli Lilly’s Strattera
In Apotex Inc. v. Eli Lilly and Company, Apotex developed “Apo-Atomoxetine”, a generic version of Eli Lilly’s “Strattera”, which was protected by Canadian Patent No. 2,209,735 (the “Strattera Patent”). Apotex initially indicated it would wait for the patent to expire in 2016 before seeking a Notice of Compliance to market its generic version.
However, after Teva (then Novopharm, another generic manufacturer) commenced a patent invalidity action against Eli Lilly under the Patent Act, Apotex served its Notice of Allegation. Eli Lilly responded by initiating a prohibition application, which stayed the issuance of Apotex’s Notice of Compliance.
Apotex Action Rendered Moot When Eli Lilly’s Patent Invalidated
The same judge in the Federal Court heard both the Teva action and the prohibition proceeding. On September 14, 2010, the Federal Court ruled in Teva’s favour, invalidating Eli Lilly’s Strattera Patent. Apotex received its Notice of Compliance shortly after, on September 21, 2010. However, in a separate ruling on October 29, 2010, the Court dismissed Eli Lilly’s prohibition application against Apotex; not because Apotex prevailed on its arguments, but because the patent had already been invalidated in the Teva case, rendering the proceeding moot.
Apotex then sued Eli Lilly under section 8 of the NOC Regulations, claiming damages for delayed market entry caused by the prohibition proceeding.
Trial Judge Found Apotex Not Entitled to Damages
The trial judge dismissed Apotex’s section 8 claim on two grounds:
- Interpretation of Section 8: The trial judge held that section 8 of the NOC Regulations only provides a remedy when a prohibition application is dismissed on its merits. Since Eli Lilly’s prohibition proceeding was dismissed as moot, Apotex was not entitled to damages. To allow otherwise, the judge said, would let Apotex act as a “free rider,” benefiting from Teva’s success in a separate proceeding.
- No Damages in the “Hypothetical World”: Even if section 8 applied, Apotex would not be entitled to damages. The trial judge found that although Apotex could have entered the market earlier, it would not have done so because of the risks associated with patent infringement litigation. Apotex had shown itself to be risk-averse in the real world, and there was no reason to assume otherwise in the hypothetical damages scenario.
Court of Appeal Found It Unlikely Apotex Would Have Risked the Cost of Patent Litigation
Apotex appealed on both points but was unsuccessful at the Court of Appeal. The Court of Appeal declined to address whether section 8 technically applied, as the outcome would be the same either way. The focus of the Court’s decision was the trial judge’s construction of the “hypothetical world”.
The “Hypothetical World” Analysis
In damages claims under section 8, courts must assess a “hypothetical world” in which the prohibition application never occurred. The key questions are:
- Could the generic company have entered the market during the liability period?
- Would the generic company have chosen to do so?
Apotex had to prove both. The Court of Appeal accepted the trial judge’s finding that although Apotex could have launched Apo-Atomoxetine as early as October 2008, it would not have done so because Eli Lilly still held the Strattera Patent and was known to aggressively litigate to protect its patent rights.
Apotex had delayed its market entry even after receiving its Notice of Compliance in the real world, waiting until after the Teva judgment was no longer subject to appeal. The Court held that this demonstrated a clear reluctance to risk patent infringement liability, which could result in substantial damages.
Apotex’s Arguments About Early Entry Unconvincing
Apotex argued that it would have taken the risk of early entry to capture the benefits of being the sole generic in the market. However, the trial judge had found this claim unconvincing for multiple reasons.
One issue was rebate costs. Apotex would have been required to offer substantial rebates to secure market share, undercutting potential profits. Additionally, Apotex had failed to pursue viable arguments, like inutility (the ground on which Teva impeached the Strattera Patent) in the prohibition application, weakening its position in any hypothetical patent litigation. Finally, given the failure of Apotex’s legal arguments and Eli Lilly’s litigation history, Apotex was unlikely to risk launching earlier.
Teva’s Role and Market Competition
Apotex also contended that Teva would not have entered the market early, and thus Apotex could have enjoyed a monopoly. However, the Court found that Teva, which filed its Abbreviated New Drug Submission (ANDS, the required filing to obtain marketing approval for generic drugs) before Apotex, could have secured its own Notice of Compliance.
Moreover, Apotex and Teva had spent months exploring a joint venture, suggesting Apotex did not see itself as the sole generic even in the real world. This undercut its argument that it would have taken the risk of early entry for sole generic profits.
Tierney Stauffer LLP: Ottawa Lawyers Providing Elite Commercial Litigation Services in Competitive Industries
The Apotex v. Eli Lilly decision reinforces the complexity of claims related to lost opportunities and damages in highly regulated industries, such as the pharmaceutical sector. Litigation strategy and properly shaping hypothetical damages claims can be determinative. At Tierney Stauffer LLP, our top-tier litigation lawyers provide innovative legal solutions to convoluted business disputes, including those in the product development field.
Our firm proudly serves clients in Ottawa, Cornwall, Kingston, North Bay, and the surrounding areas. To book a consultation, please contact us online or call 1-888-799-8057.
