Facts
In
2001, Lilly obtained a patent for the use of a drug called atomoxetine in the
treatment of ADHD. Apotex developed its own version of the drug, and would have
received its Notice of Compliance to begin selling the drug in late 2008. Lilly
filed for, and received, an automatic Prohibition Order under s. 6 of the Regulations that prevented Apotex from
selling its atomoxetine until late 2010, when Lilly’s patent was declared
invalid.
Apotex
pleaded a series of overlapping, alternative claims. It made a claim for
damages under section 8 of the Regulations.
It also made a claim for unjust enrichment, seeking to disgorge Lilly’s profits
while it held its market monopoly. Interestingly, it also brought a claim for
treble damages and double costs under the British Statute of Monopolies of 1624 (as well as its more recent Ontario
counterpart of 1897). The decision in question concerns the disposition of
Lilly’s motion to strike this last part of Apotex’s pleadings.
In
rejecting Lilly’s motion, Justice Dunphy noted that Lilly’s “complete code”
argument - that the Regulations are a
complete code that precludes other sources of financial remedy to the plaintiff
generic following the removal of the statutory stay - has not been conclusively
determined to apply to the Regulations
by any appellate court. For this reason,
he ruled that the arcane statutory cause of action put forth by the plaintiff ought
not to be dismissed on a preliminary motion, but instead allowed to proceed to
trial where they can be determined on a full factual record.
It
should be noted, of course, that causes of action will only be struck on
preliminary motion where it is “plain and obvious” that the cause of action
stands no chance of success; therefore, little more can be said at this point
about the ultimate merits of the case on these statutes. It may well prove that
Apotex’s antiquarian claim receives little more traction than attempts by
litigants to obtain a “trial by combat”.
Analysis
Why is it that Apotex has put forth such a creative
pleading? It would appear to be a function of Apotex’s continuing efforts to –
from its perspective – level the playing field when it comes to the automatic
injunctive relief provided by the Regulations.
Under the section 8 damages regime of the Regulations – it has been argued - there
is a built-in incentive for the “first persons” or brands to take advantage of
the automatic statutory stay provisions of the Regulations, regardless of the merits of the particular patents
that it has listed on the patent register. Why is this? Consider that a sale
that a generic company was precluded from making during the Relevant Period –
i.e. a lost sale for which the brand will pay damages - is a sale that was, in
the “real world”, made by the branded drug company. The sole differences are
that:
● In
the real world, the brand will have made that sale at its brand price, which is
set in a monopolistic world. In the
notional “but for” world, the generic drug company (Apotex in this case) is
assumed to make many of those same sales, but for only a fraction of the price.
For example, during the relevant period for the atomoxetine case (i.e. 2008 to 2010), generic prices in Ontario
were equal to roughly 50% of brand prices.
● The
level of rebates or customer acquisition costs for branded drugs in a monopolistic
world will be negligible. By contrast, the assumed cost of customer acquisition
in the “but for” world is quite high, particular when multiple generic entrants
are assumed.
As a result, the actual profits per unit made by the
brand during the statutory stay period will likely greatly exceed the
hypothetical profits that the generic would have made during the time it was
kept off the market. For example, if a
brand company sold a drug for $1.00 per tablet in the real world and its
variable costs were $0.10 per tablet (for a gross margin of $0.90), and was
later found to have wrongly kept a generic off the market, it will pay as
little as $0.20 per tablet in damages to the generic to compensate the generic
for its losses; the net gain to the brand in such a case will be $0.70 per
tablet, no matter the merits of its patent.[2] Generic drug prices (as a percentage of
brands) have continued to drop in recent years; as a result, this gap has continued
to widen.
It is this discrepancy between the actual profits of the
brand and the potential damages award available to the generics under section 8
that has given rise to Apotex’s (unsuccessful) attempts to recover an award for
unjust enrichment (Apotex
Inc. v. Eli Lilly Canada Inc., 2011 FCA 358, Apotex Inc v Abbott Laboratories Ltd,
2013 ONCA 555; Apotex
Inc v Eli Lilly & Co, 2015 ONCA 305.) The claim for treble damages
on the Monopolies Act is simply
another attempt to break-out of the “complete code” that the Regulations have been characterized by
some courts as being.
Conclusions
Is Apotex likely to recover treble damages? It is probably
pointless to predict at this point. As to the broader question of whether the
damages component of the Regulations,
combined with the automatic right of a brand to injunctive relief, has created
an uneven playing field – I am not so sure. Following the Supreme Court’s
dismissal of the appeal in Sanofi-Aventis
v. Apotex Inc., 2015 SCC 20, there does exist the spectre that, at least in
cases involving drugs with multiple generic companies attempting to enter,
brands may indeed be left with net losses as a result of multiple, overlapping
damages awards or settlements.
[1] Novel for most
litigants, anyway; Apotex has played this card several times before. E.g., see Apotex Inc. v. Warner-Lambert Company LLC, 2012 FCA 323
[2] This calculation assumes that the variable
costs of producing and selling the medications are similar between the brand
and the generics, which is typically the case. The calculation is based on the
following assumptions:
$1.000 x 50% (formulary standard) x (1-40%
rebate) - $0.10 (other variable costs) = $0.20
