Federal Court Holds Apotex Could Have But Would Not Have Used Non-Infringing Alternative

Apotex was held liable in 2008 for infringing ADIR’s patent by selling perindopril tables made in Canada to affiliates in the UK and Australia. ADIR and Servier elected to receive an accounting of Apotex’ profits. ADIR v. Apotex Inc.,  addressed the question of whether Apotex’ non-infringing alternative (NIA) defence should impact the profits owed.

Apotex asserted that it would have used third-party manufacturers outside of Canada to produce non-infringing perindopril for its sales in the UK and Australia. The issues for the Court were whether Apotex (a) could have done so and (b) would have done so. The Court held that while Apotex could have used a non-infringing alternative, it likely would not have.

With respect to the “could have” branch of the test, Apotex had to establish that, during the relevant timeframe, the third-party manufactures could (a) complete the required technology transfers, (b) obtain marketing approvals, and (c) manufacture the required quantities. The Court found that Apotex’ hypothetical timeline was “utopic” as it required all events “occur perfectly, without any error or delay”, which was unlikely to occur in the hypothetical world. Thus, Apotex could have used the third-party manufacturers but it would have resulted in a delay of one year from the date of Apotex’ real world sales.

The “could have” branch is an objective test and “thus easier to demonstrate that it is met”. The “would have” branch is largely subjective and more difficult to establish. The Court must make inferences from evidence and from what transpired in the real world to determine what likely would have motivated the infringer’s conduct in the but-for world.

Although use of third-party manufactures would have been economically viable, the evidence did not demonstrate that Apotex would have gone this route in the but-for world. Apotex chose to manufacture in Canada in the real-world even though outsourcing would have been more profitable. Apotex’ Dr. Sherman admitted that the company preferred to do everything it could in Canada and preferred to use its own sites rather than those of third-parties. The only evidence at trial that might have contradicted this related to technological and regulatory hurdles and thus only to the “could have” analysis. Evidence that the supplier would have supplied the perindopril could not counter the evidence that Apotex would not have asked them to do so.

The Court found it more likely that Apotex would not have used the third-party suppliers to produce non-infringing perindopril and could not reduce $61 million profits award.

While NIA defences apply to assessments of both damages and an accounting of profits, this case is another example of the defence being considered but rejected on the facts. It will be interesting to see what may be required to reduce one’s liability on the basis of a NIA.

A copy of the decision can be found here.