The Federal Court of Appeal has recently released its first decision interpreting Section 8 of the Patented Medicines (Notice of Compliance) Regulations [PM(NOC)].

The PM(NOC) Regulations essentially serve as a link between the patent system and the drug regulatory approval system. The Regulations enhance protection for pharmaceutical patents by requiring generic companies to "clear" relevant patents prior to obtaining regulatory approval to produce and sell patented drugs.  Section 8 outlines the liability of an innovator to generic manufacturers after an unsuccessful application for a prohibition order against a generic company. Section 8 states that innovators are liable for "any loss suffered" that occurs as a result of an application being discontinued, withdrawn, dismissed, or successfully appealed by the generic company. Some generic companies have argued that the wording in section 8 indicates that generic manufacturers are entitled to damages as a result of being held off the market, including disgorgement of profits/revenues from the innovators and future lost profits.

On October 21, 2008, the Canadian Federal Court issued the first trial decision in regards to section 8 in Apotex Inc. v. Merck & Co. Apotex, a major generic drug manufacturer, filed a Notice of Allegation (NOA) in respect of the patent on alendronic acid held by Merck, a multinational pharmaceutical company. Alendronic acid is used in the treatment of osteoporosis as well as other bone diseases.  The drug inhibits bone resorption and is marketed by Merck under the brand name "Fosamax". Apotex claimed that Merck's patent was invalid for a number of reasons. Merck replied by initiating a proceeding for the issues Apotex raised in its NOA. Once proceedings are commenced by an innovator in response to a NOA, the Minister of Health is barred from issuing regulatory approval (NOC) to the generic company for 24 months or until proceedings are finished. Regulatory approval is required for generic companies to manufacture patented medicines.

Apotex was ultimately successful on some, but not all, of its patent invalidity claims in its NOA against Merck. Thus Apotex was able to bring a claim under section 8 for "any loss suffered" as a result of Merck's application against Apotex which prevented Apotex from manufacturing the drug for approximately one year. At trial, Apotex was awarded damages which included compensation for future losses, but was unsuccessful in obtaining a costs order against Merck. As well, Apotex's argument that it was entitled to a remedy of disgorgement of the innovator's profits was not accepted by the court, as it did not take into account the fact that Apotex is not in the position of a patentee and thus, the court states, should not be awarded the same types of damages as a patent owner seeking remedies for patent infringement.

On appeal, Apotex successfully claimed some damages from Merck's proceedings under the PM(NOC) Regulations. However, Merck was successful in denying a large portion of damages. Apotex was successful in claiming damages for losing market share due to the fact that other generic drug manufacturers entered the market at the same time as Apotex. However, while the trial court included future lost profits in the damages award, the Court of Appeal decreased the damages award to only include profits lost during the time period that Apotex was unable to obtain a NOC. The Court referenced an analysis done by the Governor-in-Council in 1998 which stated that lost profits and compensation should not include future losses. The Court of Appeal also rejected Apotex's assertion that disgorging Merck's profits was necessary to uphold the purpose of section 55.2 of the Patent Act. Section 55.2 states that it is not patent infringement to produce patented products for certain purposes prior to the expiration of a patent. For example, generic manufacturers are allowed to produce patented drugs intended for sale once the patent expires.

Apotex also failed to receive a costs award at trial because it was determined that both parties "largely" failed to succeed on the issues each party brought to the court. In order for a costs decision to be challenged, there must have been a legal error or misinterpretation of facts by the trial court. The Court of Appeal determined that there was no misapprehension of facts when the costs award was granted therefore the costs decision was not changed.

Would awarding future lost profits serve as a disincentive to litigate for innovators when a generic company files a NOA? Because the court determined in this case that only lost profits within the (maximum) 24 month time frame are recoverable by a generic manufacturer, it might be more profitable for the innovator to take a risk and challenge every NOA. Will there be a case where judges treat generic manufacturers more similarly to patent holders and award damages for future lost profits and/or disgorgement of an innovator's profits? Considering that recent amendments to the Regulations in October of 2006 eliminated the reference to profits in section 8, damage awards that include innovator's profits are highly unlikely.  It seems as though only a highly unusual case with obvious malicious intentions by innovators could render such a result.