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To date, the Federal Court of Appeal has been reluctant to interpret Section 8 of PM(NOC) Regulations based on its plain meaning. This has created uncertainty as to the extent of damages that a generic manufacturer may claim against an innovator for delayed market entry. In a recent decision, a judge of the Federal Court has suggested that Section 8 should be interpreted based on its plain meaning. This provides a glimmer of hope that when the first Section 8 damages case goes to trial the broad interpretation put forward by the generics manufacturers may be rejected on the basis of the plain reading of the Regulations.

BACKGROUND

Section 8 of Canada's Patented Medicines (Notice of Compliance) Regulations (the "PM(NOC) Regulations") deals with an innovator's liability towards a generic manufacturer after unsuccessful patent enforcement proceedings.[1] Under the PM(NOC) Regulations, an innovative pharmaceutical manufacturer is liable to a generic manufacturer for "any loss suffered" when an application is discontinued, withdrawn, dismissed, or successfully appealed by the generic manufacturer. Generic manufacturers in Canada have argued that they are entitled not only to damages under the PM(NOC) Regulations, but also to disgorgement of profits/revenues and future losses.

Although no final decisions on Section 8 damages have been handed down yet, the Federal Court of Appeal has to date declined to limit the claim for damages potentially available under Section 8 and has refused to dismiss the sweeping damages claims advanced by generic manufacturers. In addition, the Court has allowed claims to proceed which rely on a broad interpretation of Section 8. This may result in the potential liability, not only of innovators, but also of other parties including subsidiaries of the innovator, parent corporations and others. Potential extensive exposure to damages under the PM(NOC) Regulations creates a high level of risk for innovators in Canadian proceedings.[2]

RECENT DECISION

Despite the above-noted trend, on April 12, 2005, the Honourable Mr. Justice von Finckenstein rendered an interesting decision in the case of Apotex Inc. v. Syntex Pharmaceuticals Limited and Hoffman-LaRoche Ltd and Her Majesty The Queen in the Right of Canada ("Syntex").[3] This case arose in the context of a Section 8 damages action wherein Apotex Inc. sued Hoffmann-LaRoche Limited and Syntex for damages on the basis that its generic drug was held off the market as a result of their application to the Minister of Health. Syntex and Roche, in turn, made a claim against the Minister alleging that the Minister is liable to Apotex for the delay which she caused as a result of not issuing the relevant NOC until some two weeks after dismissal of the prohibition proceeding.

This decision, which turns on the interpretation of Section 8, provides a glimmer of hope with respect to that section because the Court held that Section 8 forms a complete code in respect of the recovery of losses resulting from the regime established by the PM(NOC) Regulations. Mr. Justice von Finckenstein held that the following features are of particular relevance:

• only a first person may be liable;
• only a second person has a right of action;
• the Court only has jurisdiction to make an Order against the first person in favour of a second person; and
• the period of liability ends with the withdrawal, the discontinuance, the dismissal or the reversal of the prohibition proceedings.

According to Mr. Justice von Finckenstein it seems clear that:

• Section 8 does not establish liability on the part of anyone other than the first person;
• Section 8 does not create a right of action by anyone other than a second person;
• Section 8 does not give the Court jurisdiction to make an Order against anyone other than a first person; and
• no liability extends beyond the day of the withdrawal, the discontinuance, the dismissal or the reversal of the prohibition proceedings.

In Syntex, Mr. Justice von Finckenstein articulated, in plain language, the ordinary meaning of the words found in Section 8 of the PM(NOC) Regulations and, in so doing, provided insight and hope as to how Section 8 should be interpreted.

Mr. Justice von Finckenstein held that the circumstances in Syntex were well suited for a motion to strike under Rule 221(1) of the Federal Court Rules, 1998 and held that the Crown was not liable under Section 8 and was not a first person pursuant to that section. Moreover, because no liability extended beyond the day of the dismissal of the prohibition proceedings, the Crown was not liable for any loss suffered due to the two (2) week delay between the date of the dismissal of the proceeding and the date of the grant of the NOC.

CONCLUSION

Mr. Justice von Finckenstein's plain reading of Section 8 of the PM(NOC) Regulations provides a glimmer of hope for innovative pharmaceutical companies in the context of PM(NOC) proceedings in Canada. Mr. Justice von Finckenstein's approach confines liability under Section 8 to the first person and helps to contain the extensive claims for damages being brought forward by generic manufacturers.[4] What the courts will make of Section 8 when the first trial takes place has yet to be seen.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed.

[1].    Section 8 provides that the first person (as defined in Section 4(1)) is liable to the second person (as defined in Section 5(1)) for any loss suffered during the period (a) beginning on the date, as certified by the Minister, on which a Notice of Compliance ("NOC") would have been issued in the absence of these regulations, unless the Court is satisfied on the evidence that another date is more appropriate; and (b) ending on the date of the withdrawal, the discontinuance, the dismissal or the reversal. Further, a second person may, by action against a first person, apply to the Court for an order requiring the first person to compensate the second person for the loss referred to above.

[2].    Under the PM(NOC) Regulations, innovators are essentially deprived of the right of appeal and remain liable for Section 8 damages even if separate infringement proceedings are successful.

[3].    2005 FC 480. This decision was an appeal of the decision of Prothonotary Aronovitch dated January 27, 2005 in which she refused to strike out the third party claim of the Defendant against the Crown.

[4].    An appeal from the decision of Mr. Justice von Finckenstein was filed on April 22, 2005.

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