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.,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(See "Canada's Federal Court of Appeal Rules on Competition Law/Patent Law Interface," Intellectual Property Update (January 18, 2006).)
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 Apotex, 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.