The Price is Right… If You Can Prove It In Court

The Federal Court has agreed that a defendant may reduce the damages owed to a plaintiff, if the defendant can show that part of the price for an infringing product was given on account of non-infringing services or features sold with the invention. The decision was issued by Justice Gagné in ADIR v. Apotex Inc. in the damages portion of an earlier infringement action in which Justice Snider found that Apotex had infringed ADIR’s perindopril patent and ordered an accounting of profits (2008 FC 825, decision available here).

Justice Gagné proceeded from the principle that the profit to be disgorged was the difference between Apotex’ gross revenues and its expenses directly attributable to the infringement. Apotex argued that a portion of the perindopril price for sales to its foreign affiliates in the UK and Australia was specifically paid on account of an indemnity and legal services offered by Apotex to the foreign affiliates. According to Apotex, $22 million of the $43 million in export sales was received on account of a contractual provision under which Apotex agreed to indemnify the foreign affiliates in addition to controlling and paying for all litigation relating to any law suits commenced in those countries. The plaintiffs argued that apportionment was not proper in principle because the whole of the perindopril sold by Apotex infringed the relevant patent, and that Apotex would have received no revenue but for its infringement.

The Court held that apportionment was proper in principle, stating:

[29] …The notion of apportionment is, in my view, little more than a restatement of the principle that only those profits that are causally attributable to the invention should be disgorged. As this is a question of fact, one can imagine situations where a portion of the profits is not necessarily attributable to non-infringing features of the product sold, but to non-infringing services sold with the product or rendered on the occasion of the sale of the product.

[30] In the case at bar, I agree with the defendants, as a matter of principle, that the provision of foreign litigation services and of an indemnity for liability under foreign patents does not constitute an infringement of the 196 Patent. Therefore, I am of the view that if part of the price paid by Apotex UK and GenRx is proven to have been paid on account of those services, then the revenues should be apportioned or segregated accordingly, in order to respect the simple “common sense view of causation” or “differential profit” (in this case gross revenues) approach (Schmeiser, at paras 101 and 102). The question is therefore, whether or not the defendants have provided sufficient evidence proving that part of the price paid was indeed on account of non-infringing services and indemnity.

Justice Gagné then turned to the transfer pricing agreements in order to determine whether Apotex had provided sufficient evidence to prove that part of the price paid was in fact on account of non-infringing services and an indemnity. However, after reviewing the agreements in detail, Justice Gagné found that the proper interpretation of the agreements did not lead to the conclusion that an increase in the price paid was solely on account of the indemnity provision and related litigation services. In the result, Justice Gagné did not allow Apotex to deduct the $22 million from its export sales to the UK and Australia.

The decision is available here.