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Non-infringing alternative defence rejected in lovastatin infringement damages trial

On July 16, 2013, Justice Snider released her public Reasons for Judgment in the damages phase of the bifurcated lovastatin infringement action.  Justice Snider granted Merck over $119 million plus interest, the largest award of damages for patent infringement in Canadian history. The patent at issue, Canadian Patent No. 1,161,380, is a product–by–process patent claiming lovastatin produced by a specific microorganism.  As previously reported here, the Federal Court of Appeal (2011 FCA 363) upheld the decision of Justice Snider (2010 FC 1265) that had found the patent was valid and that batches of lovastatin made using the claimed microorganism infringed the 380 Patent.

Non-Infringing alternative

Approximately 40% of Apotex sales during the relevant period were made using a non-infringing process. A significant issue during the damages phase was the availability of the non-infringing alternative (NIA) defence for the approximately 60% of Apotex’ Lovastain found to infringe the 380 Patent. Apotex, relying primarily on US caselaw submitted that the availability of a non-infringing alternative should reduce Merck’s damages to a reasonable royalty, as Apotex could have used a non-infringing process. Justice Snider reviewed UK case law and concluded “… the law of the United Kingdom is clear and unequivocal; the non-infringing alternative defence is wrong at law.” Justice Snider also noted that a leading UK case, the United Horse Shoe and Nail Company, Limited v Stewart and Company , has been considered and followed in Canada in at least one decision of the Federal Court and referred to in another. While a NIA factors into assessing an accounting of profits in Canada and forms part of a damages assessment under American law, Justice Snider concluded a NIA has no place in assessing damages in Canada:

 [75]  In sum, Canadian law reflects the jurisprudence of the United Kingdom and results in a rejection of the NIA defence. In other words, under current Canadian law of damages, the fact that Apotex had available to it (but did not use) a non-infringing alternative is irrelevant to a calculation of damages

Justice Snider then proceeded to establish a framework for determining a reasonable royalty should the Court of Appeal find Merck’s damages are limited to a reasonable royalty. Justice Snider endorsed the hypothetical negotiation approach articulated in Jay-Lor and adopted two endpoints for this hypothetical bargaining range: (1) the defendant’s maximum willingness to pay amount; and (2) the plaintiff’s minimum willingness to accept amount. In situations where there is no overlap, Justice Snider accepted that the royalty would be based on the patentee’s minimum willingness to accept amount. In addition, Justice Snider stated that an infringer’s net profit margin does not constitute the ceiling at which a reasonable royalty is capped. In effect, this could result in a defendant paying a reasonably royalty that exceeds the profits earned from infringing the plaintiff’s patent.

A copy of the public Reasons for Judgment may be found here.