Reality Check for s. 8 Damages: But-For World Should Reflect Real World

The Federal Court of Appeal recently pronounced from the bench that damages claimed under section 8 of the PM(NOC) Regulations for lost profits incurred in the but-for world will not be reduced under section 8(5) if the patentee would not have asserted its patent rights in the but-for world.

Pharmascience sought to market a generic version of pregabalin. Pharmascience sued Pfizer under section 8 of the PM(NOC) Regulations for damages resulting from lost sales during the time it was kept off the market.

Four years into the litigation, Pfizer amended its Statement of Defence to assert the maxim ex turpi causa non oritur actio (from a dishonourable cause an action does not arise), and section 8(5) (which allows a Court to take into account “all matters that it considers relevant”) to reduce or eliminate Pharmascience’s s.8 damages because any PMS-pregabalin sales, it argues, would have infringed one of Pfizer’s patents.

In the real world, Pfizer did not bring an action for patent infringement once Pharmascience began marketing PMS-pregabalin in 2013, and, based on Pfizer’s own admission during discovery, it would not have sued for patent infringement had Pharmascience been allowed market entry.

Pharmascience moved for summary trial to determine and dismiss Pfizer’s patent infringement defences. Justice O’Reilly granted Pharmascience’s motion in Pharmascience Inc v Pfizer Canada ULC (2019 FC 1271). Justice O’Reilly held that  “infringement is a factor that can and should be taken into account in assessing the quantum of s 8 damages, but only where infringement has been asserted and proved, or is not disputed. Otherwise infringement is not relevant to s 8, even when an infringement action is pending” (at paragraph 17).

The Federal Court of Appeal upheld Justice O’Reilly’s ruling and found that the Federal Court “could and should have gone farther than it did” because the issue had already been decided in Sanofi-Aventis v. Apotex Inc. (2014 FCA 68; aff’d 2015 SCC 20). The Court affirmed that the case stands for the proposition that “the absence of obstacles to market entry in the real world should prevail in the but-for world; if a generic manufacturer could have made sales without objection from the patentee, those sales should be considered in the calculation of the generic’s losses” (at paragraph 21).

Patentee conduct in the real world will therefore inform construction of the hypothetical section 8 but-for world, and assertions of patent infringement that run contrary to real-world intentions and conduct will not preclude generic pharmaceutical companies from receiving full compensation for lost sales.

Pharmascience was represented by Marcus Klee and Devin Doyle of Aitken Klee.

The decision can be found here.