Paying for Delay: Old School Lawyering Meets Compound Interest

Compound interest ought to be the rule rather than the exception in calculating prejudgment interest in litigation involving commercial businesses. It is welcoming to see recognition and expansion of this concept in patent litigation.

 

The Facts

In 1997, pharmaceutical giants Apotex and Eli Lilly became entangled in a patent dispute regarding the antibiotic cefaclor. In 2009, the Federal Court found that Apotex infringed at least one valid claim in each of eight patents owned by Eli Lilly (Eli Lilly and Company v Apotex Inct, 2009 FC 991). On January 23, 2015, the Federal Court released its decision Eli Lilly and Company v. Apotex Inc, 2014 FC 1254 (Lilly) regarding the quantum of damages to be paid by the defendant.  The awarded damages were approximately $106 million in total. $31 million was the damage award, and due to a span of 17 years between the commencement of the proceeding and the final disposition, the prejudgment interest, compounded, was approximately $75 million. Unsurprisingly, Apotex has filed a notice of appeal.

To Delay or Not to Delay: Expanding a Supreme Court Decision

Peter Wells, a partner at McMillan LLP, writes in his Intellectual Property Bulletin, “there is a school of thought among litigators that delay tends to favour the defendant”. He also alludes to changes in corporate structure over time where new managers may be more willing to settle a case on favourable terms. Justice Zinn’s decision in Lilly may cause defendants to reconsider whether delay is a good strategy.

The Ontario Courts of Justice Act and the Federal Courts Act provide similar provisions for simple prejudgment interest unless the interest is “payable by a right other than under this section.” The refusal to award compound interest by default is criticized by many including contracts expert Angela Swan. Swan writes that “hostility to compound interest might have been understandable in an age before handheld calculators, … computers; the refusal now to award it can have no justification” [1].

Justice Zinn in Lilly based his award of compound prejudgment interest on the Supreme Court’s decision in Bank of America Canada v Mutual Trust Co (Bank of America). There, the Supreme Court recognized the “time-value” of money and supported awarding compound interest where that remedy is most appropriate in fully compensating the plaintiff. Compound interest was available to Eli Lilly due to subsection 55(1) of the Patent Act, which provides that the infringer is liable to the patentee “for all damage sustained” by reason of infringement. Justice Zinn went further in Lilly to say that “in today’s world there is a presumption that a plaintiff would have generated compound interest on the funds otherwise owed to it and also that the defendant did so during the period in which it withheld the funds” [para 118].

Implications

The willingness of the Federal Court in awarding compound prejudgment interest is as a step in the right direction for patent litigation. As the Supreme Court recognized in Bank of America, a party’s ability to utilize money is a factor in the compensation principle. In the case at hand, Apotex had the opportunity to invest money that rightfully belonged to Eli Lilly and earn compound interest on that sum for 17 years. Had the company been ordered to pay simple prejudgment interest, it would have benefitted from litigation delay. Unjust enrichment of this sort promotes and prolongs litigation by providing an incentive to first infringe upon another’s patent, then to delay the court process.

If Lilly is upheld on appeal, there will be broader implications. Those who are already involved in long-standing litigation relating to patents, industrial design, trademarks, and copyright will likely consider settling their cases to avoid paying huge sums for compound interest.

It will be very interesting to see how the Federal Court will treat Lilly in subsequent decisions, now that Justice Zinn has demonstrated a willingness to extend the principles in Bank of America into intellectual property litigation.

 

Jason Ho is an iPilogue Editor and JD Candidate at Osgoode Hall Law School

[1] Angela Swan & Jakub Adamski, Canadian Contract Law, 3d ed (Markham: LexisNexis, 2012) at 712.

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