Fingolimod Settlement Agreement Begets New Disagreements

In March 2019, Novartis and Pharmascience entered into a settlement agreement giving Pharmascience a non-exhaustive license to sell its generic version of fingolimod, a multiple sclerosis drug. The agreement set Pharmascience’s product launch date and included a confidentiality covenant prohibiting Novartis from disclosing that date.

Pharmascience claimed Novartis induced it to sign in the agreement and breached the agreement by disclosing its market entry date to other parties. In addition to the confidentiality covenant, Novartis allegedly misrepresented that Pharmascience had the earliest market entry date. Pharmascience sought expectation and compensatory damages for breach of contract and, in the alternative, restitution for unjust enrichment and an accounting of Novartis’ profits. Novartis brought a motion to strike the claim for an accounting and disgorgement together with a motion to bifurcate damages from liability issues.

Pharmascience’s accounting and disgorgement claim continued

Justice Davies held it was not plain and obvious that Pharmascience’s claim for an accounting and disgorgement of Novartis’ profits would fail. Novartis based its motion to strike on Apotex v. Eli Lilly, 2015 ONCA 305 (“Apotex”). In that case, Eli Lilly commenced prohibition proceedings against Apotex in respect of its generic version of Eli Lilly’s ADHD drug. Eli Lilly’s patent was found invalid in separate PM(NOC) proceedings. Apotex commenced an action in the Ontario Superior Court claiming relief under the PM(NOC) Regulations and, in addition, disgorgement of profits as a remedy for unjust enrichment. The Court of Appeal held that the PM(NOC) Regulations provided a complete code with respect to remedies available to Apotex.

Justice Davies rejected Novartis’ argument that Apotex was dispositive of the motion because:

1. Pharmascience’s claim does not arise under the PM(NOC) Regulations, but rather for breach contract;
2. Pharmascience cannot recover its loss through the PM(NOC) Regulations;
3. Pharmascience advances unjust enrichment and disgorgement as an alternative measure;
4. Pharmascience advances its unjust enrichment claim on the “underlying legal wrong” theory of unjust enrichment, the underlying legal wrong being inducement through misrepresentation; and
5. Pharmascience claims it was the only party wronged by Novartis’ conduct.

While courts normally calculate damages for breach of contract based on what the injured party would have received if the contract were performed, there are circumstances where courts will look at the benefit to the defendant as a measure of damages. For example, disgorgement of profits may be available for breach of contract where damages, specific performance, and injunctive relief are inadequate (i.e. where the plaintiff’s loss is impossible to calculate or where the plaintiff’s interest in the contact is not purely economic). Here, specific performance and injunctive relief were unavailable to Pharmascience due to the passage of time.

Justice Davies dismissed Novartis’ motion to strike, holding that the facts as pleaded could support an unjust enrichment claim for an accounting and disgorgement of profits as an alternative measure of damages. Likewise, it was not plain and obvious that normal damages will be an adequate remedy. If the trial judge accepts Pharmascience’s interpretation of the contract and finds that Novartis induced Pharmascience by misrepresentation to enter the contract, the trial judge may order disgorgement as a remedy.

Bifurcation was ordered

While litigants are generally entitled to have all issues determined in a single trial, Justice Davies observed that the Federal Court “routinely bifurcates the liability and damages issues in pharmaceutical patent disputes.” Justice Davies cited Apotex v. Lundbeck, 2012 FC 414, in which Prothonotary Tabib explained this trend, highlighting the inefficiency of litigants in an un-bifurcated trial spending time gathering and leading evidence as to both parties’ revenues and expenses while not knowing whether to elect for plaintiff’s damages or an accounting of profits until the final judgment.

Justice Davies held that the circumstances justified bifurcation of liability issues from the assessment of damages, because:

• The liability issues are discrete from the damages issues;
• The complexity of the liability issues “pales in comparison to the quantification of damages”; and
• Even if Novartis is found liable, bifurcation will save significant court time and expenses because the trial judge’s interpretation of the agreement will likely narrow the damages issues.

A copy of the decision is available here.