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Claim of Inequitable Conduct in Statement of Defence Survives Motion to Strike

The decision of Justice Locke in Alcon Canada Inc. v. Actavis Pharma Company (2015 FC 1323) permits a generic party to plead that damages owing to a patentee due to infringement should be reduced based on conduct contrary to common law rules against restraint of trade and contrary to the Competition Act.

Justice Locke’s decision resulted from a motion brought by Alcon to strike Actavis’ pleading in a patent infringement action relating to a patent covering olopatadine. Alcon sought to strike the portions of Actavis’ Statement of Defence and Counterclaim which asserted that Alcon was disentitled from recovering damages for infringement due to conduct contrary to common law rules against restraint of trade and contrary to the Competition Act. Alcon’s motion was dismissed by Prothonotary Milczynski, and Alcon’s appeal was heard by Justice Locke.

Justice Locke’s characterization of Actavis’ Defence was important to his decision. He noted at paragraph 6 of his decision:

[6] Essentially, Actavis asserts that Alcon should be denied damages for infringement of the 924 Patent, either partially or entirely, because of its alleged inequitable conduct. During the hearing however, Actavis’ counsel clarified that its assertion is not that Alcon should be entirely denied its claim for damages simply by virtue of its conduct. I agree. Among other things, the remedy that Actavis seeks to deny to Alcon is a legal remedy, whereas an ex turpi causa argument normally can be relied on only to deny an equitable remedy. Rather, Actavis asserts that Alcon’s sales of its patented product were improperly increased as a result of its conduct, thus making its damages from the alleged patent infringement appear higher than they would have been if Alcon had not engaged in such conduct. Whether Alcon’s conduct in issue would result in damages being denied entirely (as asserted in paragraphs 80 to 84 of the Statement of Defence and Counterclaim) or simply reduced (per paragraph 85) would depend on the extent to which such conduct could be shown to have affected the amount of any damages. I refer to this below as Actavis’ characterization of its allegations in issue.

After reviewing the applicable standard of review and the Actavis’ pleading, Justice Locke concluded that the allegations were not vital to the case since their removal would not exclude an entire claim or cause of action. On that basis he held that he should not disturb Prothonotary Milczynski’s order unless it was clearly wrong.

Alcon argued that in order for Actavis to avoid having its inequitable conduct allegations struck, Actavis’ allegations must “cast a shadow” either on Alcon’s title to the patent, or on the question of whether infringement occurred. This rationale was based on Apotex Inc. v. Sanofi, 2008 FCA 175, in which the Federal Court of Appeal agreed it was plain and obvious that that Apotex’ allegation of inequitable conduct by Sanofi disclosed no reasonable defence to the remedy sought by Sanofi. Justice Locke distinguished Sanofi on the basis that the plaintiff in that case was seeking equitable relief (Sanofi had sought equitable relief in the form of an injunction and/or an accounting of profits).

In the case before him Justice Locke found that the claims sought to be limited by the inequitable conduct allegations concerned damages, a legal remedy. He emphasized the fact that counsel for Actavis had clarified that it was not seeking to entirely deny Alcon its damages. Rather, Actavis was asserting that Alcon’s sales of its patented product were improperly increased as a result of its wrongful conduct, thus making its damages appear higher than they would have otherwise been.

[37] As discussed above, Actavis has indicated that its allegations in issue are not intended to deny Alcon damages for infringement simply because Alcon engaged in the alleged inequitable conduct. Rather, Actavis’ allegations seek to reduce (or eliminate) those damages to reflect the effect of any improperly increased sales of Alcon’s patented product. In my view, this is a reasonable reading of these allegations, and a sound basis for dismissing Alcon’s motion to strike.

The full decision of Justice Locke is available here.