While the Court in this case addressed numerous issues, the
scope of this article is limited to the issue of the intellectual
property-competition interface.
On October 1, 2009, the Federal Court of Canada, in Eli Lilly
and Company v. Apotex Inc.,1 rejected a
counterclaim by Apotex, a generic pharmaceutical manufacturer, in
which it had sought damages pursuant to section 36 of the
Competition Act (the "Act") against two brand
name pharmaceutical manufacturers in connection with a patent
assignment. The decision follows the November 2005 judgment in
which the Federal Court of Appeal characterized the assignment of a
patent as including "evidence of something more than the mere
exercise of patent rights" and, as such, not beyond the
application of the Act's conspiracy provision.2
The Federal Court's most recent decision is part of a lengthy
litigation that began in 1997, when Eli Lilly brought a patent
infringement action against Apotex in respect of eight patents
related to intermediate compounds and processes for the manufacture
of the antibiotic "cefaclor." While four of the eight
patents had been continuously owned by Eli Lilly, the other four
patents (the "Shionogi Patents") had been assigned to Eli
Lilly in 1995 by Shionogi & Co. Ltd., a Japanese pharmaceutical
company. In 2001, Apotex brought a counterclaim against Eli Lilly
and Shionogi, alleging that the assignment constituted an illegal
conspiracy under section 45 of the Act, thereby entitling Apotex to
damages under section 36 of the Act.
Before examining the merits of the counterclaim, the Federal Court
addressed the nature of section 36 of the Act, which entitles any
person who has suffered loss or damage as a result of conduct that
is contrary to the criminal provisions of Part VI of the Act,
including section 45, to sue for and recover an amount equal to the
loss or damage proved to have been suffered by the plaintiff. The
Court characterized this right of action as a "special
remedy," noting that the Commissioner of Competition is the
principal enforcer of the Act. Not surprisingly given this
characterization, the Court appeared sceptical about the validity
of Apotex's counterclaim since the Commissioner had not
launched an inquiry into the conduct at issue. The purpose of
section 36, the Court said, is to offer a means of compensation to
those who suffer loss as a result of anti-competitive conduct - not
to encourage persons to take the place of the Commissioner in
provoking inquiries into the conduct of others.
The Court then proceeded to consider whether the counterclaim was
time-barred. Subparagraph 36(4)(a)(i) of the Act states that, in
the case of conduct contrary to Part VI of the Act (including
section 45), no action may be brought under section 36 more than
two years after the date of the impugned conduct. Keeping in mind
that Apotex filed its counterclaim in 2001, approximately six years
after the assignment at issue, Apotex argued that the assignment
gave rise to an ongoing conspiracy that continued as long Eli Lilly
asserted its assigned patent rights. The Court rejected this
argument, noting that, in this case, behaviour subsequent to the
assignment was irrelevant to establishing whether an offence had
taken place. The Court found that Apotex had failed to allege any
actions on Shionogi's part following the assignment that could
support an allegation of conspiracy. Rather, once Shionogi assigned
the patents to Lilly, Shionogi had ceased to play any role in
connection with those patents. Effectively, the Court ruled that
the conspiracy began and ended with the assignment in 1995.
While the Court concluded that Apotex's counterclaim was
time-barred, it nevertheless proceeded to consider the substance
thereof. To succeed in a damages claim, the Court said that Apotex
had to prove on a balance of probabilities that, "but
for" the assignment of the Shionogi Patents to Eli Lilly, it
would have avoided the claimed losses. To this end, Apotex had
outlined six possible scenarios in a "but for world,"
which the Court interpreted as "indicative of the degree of
speculation required to find that Apotex has been harmed by the
assignment."
According to Apotex, the two most likely scenarios were that it
would have been licensed by either Shionogi or Eli Lilly. The Court
disagreed, citing a number of reasons why Shionogi would not have
licensed the patents to Apotex, including:
- Shionogi had no history of licensing generic drug
manufacturers, or of licensing anyone for the use of its patented
process to manufacture bulk cefaclor;
- Shionogi has never directly carried out business outside of
Japan;
- Shionogi would not have wished to jeopardize a longstanding
relationship with Eli Lilly for the sake of licensing its process
patents;
- Shionogi believed that it was already bound by an exclusive
licence agreement with Eli Lilly; and
- Apotex was not in the habit of seeking to obtain a lawful source of supply of bulk cefaclor because, among other reasons, it did not select its suppliers based on whether or not they had a licence. In fact, the Court stated that, for Apotex, obtaining a licence for bulk cefaclor was "an option of last resort."
Instead, the Court concluded that the most likely "but for
world" scenarios involved Apotex practising both the Shionogi
and Eli Lilly processes, just as it did in reality, and being sued
for infringement by both companies. The Court therefore concluded
that Apotex did not suffer any damage that could have been avoided
"but for" the patent assignment. Rather, the only
difference between the actual events and the likely "but for
world" was that Shionogi also would have been a party to the
action for infringement.
In summary, the Federal Court's decision is noteworthy in a
number of respects. It will be interesting to see, for example, if
future courts follow the Court's characterization of private
enforcement under section 36 of the Act as secondary to enforcement
by the Commissioner. The case also highlights the practical
difficulties of pursuing section 36 claims with respect to
assignments of intellectual property, including framing a claim
within the two-year limitation period and the complexity of
establishing damages suffered as a result of such an
assignment.
Footnotes
1 2009 FC 991.
2 See "Canada's Federal Court of Appeal Rules on
Competition Law/Patent Law Interface,"
Intellectual Property Update (January 18, 2006)
.
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