Law Times

PAGE 10 FOCUS September 21, 2009 • Law timeS Court limits damages for generic drug companies BY JULIUS MELNITZER For Law Times I n a key decision for Canada's pharmaceutical sector, the Federal Court of Appeal has ruled generic drug manufactur- ers seeking damages under the patented medicines regulations may not claim an accounting of the innovator's profi ts. As well, the court decided ge- nerics could not claim damages for loss of market share beyond the period for which approval for the drug in question was delayed. "Th is decision represents a long-awaited certainty for both innovators and generics on the subjects of the innovator's ex- posure and the generic's recov- ery under s. 8 [of the patented medicines (notice of compliance) regulations]," says Patrick Kierans of Ogilvy Renault LLP, who with colleagues Jason Markwell, Kris- tin Wall, and Andres Garin rep- resented Merck in Merck Frosst Canada Ltd. v. Apotex Inc. "Not everyone got what they want, but having the decision in place is a positive development for all because now that the law's interpretation is clear, the par- ties need to deal only with com- mercial value and evaluation of risk in arriving at solutions and settlements to litigation." With costs of $100 million to $1 billion to bring a drug to mar- ket, brand-name drug makers have a huge investment to recoup. Generic companies don't have to make that investment but instead can obtain approval for the safety and effi cacy of their own versions while the brand-name manufac- turer's patents are still in eff ect. Th ey can then either wait for the patent to expire or use the patent- ed medicines regulation to try to get to market earlier. In order to do so, the generic must serve documents explaining why its process does not infringe on the brand company's rights or why they are invalid. If the brand company wants to delay the generic's market- ing, it must serve an application generics to take on such litigation in the hope that one of the court actions will pay off in spades. Th e diffi culty from the gener- While 'not everyone got what they want,' the recent court ruling is positive, says Patrick Kierans. seeking to prevent it from re- leasing its product until the pat- ent expires. Under the current regulations, the court must hear the applica- tion within 24 months. But un- til the court makes its decision, the generic can't go to market. As their development costs are relatively low, however, it pays the ics' perspective is that the regula- tion off ers little incentive to settle. Because the system puts a stay on the introduction of the generic drug during the two years it al- lows a case to get to trial, it's al- most always in the interest of the brands to maintain the monopoly during the entire period. Making it even more worth- while for the brands to do so is the fact that the right of suc- cessful generic litigants to seek losses from the delay has been very much in question since the regulation's inception. Until the 2008 ruling by Justice Roger Hughes in Merck, there was not a single trial deci- sion that dealt with the brand companies' claim that s. 8 of the regulation, which gives success- ful generics the right to recover losses, was unconstitutional. Th e case presented the op- portunity for a major victory for both sides. Th e result, however, was a split decision. Th e fi rst issue struck at the very existence of s. 8. On that point, Hughes' decision was a re- sounding victory for the generics. To begin with, he dismissed Merck's argument that the Pat- ent Act did not give the Federal Court jurisdiction to hear s. 8 claims. He concluded that the regulation, including s. 8, con- ferred appropriate jurisdiction on the Federal Court. Merck also maintained that Canadian Patent Reporter Let the experts help you to narrow your search and save you research time. Canadian Patent Reporter has been Canada's leading intellectual property law report since 1942. This renowned resource, available online and in print, includes precedent-setting intellectual property law judicial and board decisions from across Canada. This publication has a tradition of providing practitioners with the leading decisions on patent, industrial design, copyright and trade-mark law. Topical catchlines in bold print show the key issues involved. Expert case selection and headnoting are a tradition with Canadian Patent Reporter. Weekly updates via email and in print, plus an annual cumulative index volume, ensure that this publication continues to be the prime reference source for intellectual property case law. Includes eReports (weekly electronic pdf version) Stay current as cases are issued with eReports e-mailed weekly to your desktop, with topically indexed case summaries linked to the full text judgments. the regulation-making powers granted under the Patent Act, which permit the government to make rules "necessary for the pre- venting of the infringement of a patent," did not authorize s. 8. Merck's lawyers reasoned that s. 8 did not prevent infringe- ment but merely punished an unsuccessful brand company. Hughes, however, sided with Andrew Brodkin of Goodmans LLP, counsel for Apotex. Th e sec- tion, he decided, was no diff erent from a court's power to compen- sate defendants for damages in- curred due to wrongfully granted temporary injunctions. Despite the victory on the constitutional point, it wasn't all good news for the generics. Apotex had argued that it could choose between its own losses and Merck's profi ts as the measure of the damages it had sustained through its inability to market its product while the litigation was pending. Brodkin pointed out that the applicable version of s. 8 spoke of "damages or profi ts" as relief, and that "prof- its" referred to Merck's profi ts. Th e Ogilvy team countered with the successful argument that s. 8 made the brand liable to the generic "for any loss suff ered" and that those damages clearly referred to the generic's loss. In the end, Hughes decided that s. 8 was intended to "com- pensate" generics, meaning that the courts had no power to go beyond an award of damages. "I think the innovative indus- try was well satisfi ed with the rul- ing at trial because it was very con- cerned that the legislation would be misread and misapplied," Ki- erans says. "Having to account for profi ts in respect of drugs they developed and brought to mar- ket at great risk and expense was something to which innovators were not looking forward." On the other hand, Hughes agreed with Apotex that the cal- culation of damages was not lim- ited to actual losses suff ered dur- ing the delay period but could include damages Order your copy today! Full service subscription (parts and bound volume) • $399 • 9 vol/yr P/C 0325094999 • ISSN 0008-4689 attributable to a loss of market share. Here, two other generic manufacturers took advantage of the 16-month delay to enter the market at about the same time as Apotex which, without the delay, would have been fi rst to market. Since the ruling, however, For a 30-day, no-risk evaluation call: 1.800.263.2037 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. www.lawtimesnews.com CPR (LT 1-2x4).indd 1 4/22/09 12:02:21 PM LT0427 Apotex has applied for leave to appeal to the Supreme Court of Canada. "But however that turns out, brands will continue to assess pat- ent proceedings on their merits," Ogilvy's Markwell says. LT Fourth Series (Volumes 1 to 65): Edited by Glen Bloom, Osler, H Founding Editor: Gordon F. H First, S Edited by Marcus Gallie, Ridout & Maybee LLP econd and Third Series: Edited by Gowling, Strathy & H enderson, C.C., Q.C., LL.D. oskin & H arcourt LLP enderson

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