Merck awarded blockbuster damages for Apotex’s patent infringement

In December 2010, the pharmaceutical giant Merck won a major patent case against the generic pharmaceutical maker Apotox. In  Merck & Co v Apotex Inc, 2010 FC 1265, 91 CPR (4th) aff’d 2011 FCA 363, 102 CPR (4th) 321, Justice Snider found Merck’s ‘380 patent for the drug  lovastatin, a statin sold in Canada under the trade name MEVACOR, was valid and had been infringed. In a decision made public yesterday after a trial to determine damages, Merck & Co v Apotex Inc 2013 FC 751, Justice Snider ordered Apotex to pay Merck more than $180 million dollars in damages and interest.

The case does a very good job of summarizing the general principles related to the assessment of damages under s55(1) of the Patent Act.  The guiding principles were summarized as follows:

1. An award of damages seeks to compensate the plaintiff for any losses suffered by the plaintiff as a result of the infringement;

2. The profits made by the defendant are irrelevant;

3. Every sale of an infringing product is an illegal transaction for which the plaintiff is entitled to recover damages;

4. In assessing the award, the plaintiff is entitled to the profits on the sales it would have made but for the presence of the infringing product in the market;

5. For those sales made by the defendant that the plaintiff patentee would not have made or cannot persuade the Court it would have made but for the presence of the infringing product, the plaintiff is entitled to a reasonable royalty; and

6. The plaintiff bears the burden of proving: (a) the sales that it would have made but for the presence of the infringing product; and (b) what a reasonable royalty would be.

The decision canvasses many issues relevant to the assessment of damages. Of note are two holdings made by Justice Snider.

First, the existence of a non-infringing alternative (NIA) is not relevant to an assessment of damages. In reaching this conclusion, the court followed the prior decisions in The United Horse Shoe and Nail Company, Limited v Stewart and Company (1888), 5 RPC 260, 13 App Cas 401 (HL), Catnic Components Ltd v Hill & Smith Ltd, [1983] FSR 512 (Pat Ct), Gerber Garment Technology Inc v Lectra Systems Ltd, [1995] RPC 383 (Pat Ct) at 405-406 [Gerber], rev’d on other grounds [1997] RPC 443 (CA), Ultraframe (UK) Limited v Eurocell  Building Plastics Ltd, [2006] EWHC 1344 (Pat) and Domco Industries v Armstrong Cork Canada Ltd (1983), 76 CPR (2d) 70 at 74, [1983] FCJ No 1182, rev’d on other grounds, (1986), 10 CPR (3d) 53 (FCTD).

The court refused to follow US cases which have taken NIA’s into account for a number of reasons including differences in US and Canadian/UK the law. The court also refused to depart from the well settled law for policy reasons stating:

There are also compelling policy reasons why Apotex’s arguments in favour of the NIA defence should not be considered. The argument advanced in this case would result in an inadequate compensation for injured plaintiffs and the infringer escaping responsibility for its infringement. The submission of the Defendants is, quite simply, that “I would have harmed you just as much even if I had not infringed!”…

Contrary to the submission of Apotex, it is not punitive to compensate Merck for lost profits where the Defendants could have (but did not) use the non-infringing alternative. This analysis simply recognizes that Merck, the party whose position is the focus of a compensatory award of damages, suffered losses as a direct result of the infringing acts. Apotex’s unauthorized use of the AFI-1 process caused Merck Canada’s loss of over $62 million in profits…

In its final written argument at paragraphs 112-114, Merck expressed the following views:

Where a patentee like Merck does not typically license its invention, a would-be infringer with a less efficient non-infringing alternative would simply proceed to infringe the patent with full knowledge that, at the end of the day, the infringer will only have to pay a reasonable royalty for its unauthorized use of the patent.  Adopting such a rule amounts to a judicial sanction on infringers like Apotex taking for itself a compulsory license and is flatly inconsistent with Canada’s public reasons for repealing compulsory licensing, and inconsistent with Canada’s international obligations.

Thus, if adopted, the NIA defence would render illusory the grant of the monopoly that this court has already found to be valid and infringed. Such an approach would be inconsistent with the intent of the Patent Act.

Far from protecting valid and infringed patents, Apotex’s assertion, if accepted, would actually create an incentive to infringe. Apotex’s position in this litigation is that it should only have to pay (at most) the cost savings associated with using the infringing AFI-1 process.  If this position is accepted, a competitor will always choose to infringe rather than use the more expensive and less efficient non-infringing alternative.

I could not agree more.

Second, the Court recognized that an owner of a patent that has granted another entity an exclusive license is still entitle to recover damages for its loss of profits arising from the infringements of its patent. This flows from the principle that a patent gives the owner thereof the right to exclude others from making, using and selling the invention. This right is not given up merely because an exclusive license is granted to another entity.

I begin with a very important right held by a patentee. As described by Justice Wood of the British Columbia Court of Appeal in Forget v Specialty Tools of Canada Inc (1995), 62 CPR (3d) 537 at para 16, [1996] 1 WWR 12 (BCCA), “the effect of a patent is to exclude others from the exploitation of an invention, rather than to confer rights with respect to that invention on the patent holder(s)”. With this fundamental patent right comes the right of the patentee to claim any damages that it sustained by reason of the infringement.

Moreover, this right is not necessarily affected by a licence. In Armstrong Cork Canada v Domco Industries Ltd, [1982] 1 SCR 907 at 916, 136 DLR (3d) 595 [Armstrong], the Supreme Court stated as follows:

It seems to me to be made manifest by the legislation that what the patentee is entitled to and what the persons claiming under him are entitled to are basically the same, namely, “all damages sustained” by them respectively by reason of the infringement. It would, of course, be inconceivable that the patentee with a valid patent would not be entitled, from the person who infringes, to damages in compensation for his loss by reason of the infringement… all

person claiming under the patentee, who would include non-exclusive licencees, now have the same basic right, as has the patentee, namely, to recover from the person who infringes, damages in compensation for their losses by reason of the infringement.

What then is the position of the licensee? I agree with Merck that an exclusive licence grants the licensee leave to use the patent, coupled with a contract not to permit anyone else to do the same thing. It is well-established in the jurisprudence that an exclusive licence does not confer any interest or property in the patent (Electric Chain Co of Canada Ltd v Art Metal Works Inc, [1933] SCR 581 at 587, [1933] 4 DLR 240; Armstrong, above at 912-913; Liability Reasons, above at para 49). Under s. 55 of the Patent Act, as a person claiming under the patentee, the licensee is given the right to sue an infringing person for its damages. However, as set out in Armstrong, this does not mean that the patentee who has granted a licence is precluded from claiming its own damages, if sustained as a consequence of the infringement.

In short, an exclusive licence establishes a contractual relationship between the licensor and the licensee, which relationship must be interpreted in accordance with the terms of the agreement. The agreement should not be interpreted to give away more than was agreed by the parties. With respect to the MACI Licence Agreement, did Merck US give away its right to exclude others from the exploitation of the ‘380 Patent? I do not believe that it did.

My firm, McCarthy Tetrault LLP, lead by IP litigators Andy Reddon and Steve Mason, was counsel for Merck at both the liability and damages trials. For more on the judgment, see, Steve Mason, Andy Reddon, and David Tait, Merck Awarded More Than $180 Million Against Apotex for Infringement of Lovastatin Patent.



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