In Merck Frost Canada v. Apotex (2009 FCA 187), the Federal Court of Appeal (FCA) upheld the Federal Court’s (FC) decision (2008 FC 1185) holding s. 8 of the Patented Medicines (Notice of Compliance) Regulations (PMNOCR) was intra vires s. 55.2(4) of the Patent Act and within the authority of Parliament under s. 91(22) of the Constitution Act, 1867, and that the FC had jurisdiction to hear the s. 8 action. The FCA also upheld the FC’s ruling that s. 8 of the PMNOCR does not contemplate disgorgement of an innovator’s profit. However the FCA found the remedy does not allow compensation for losses suffered outside the period the Minister of Health is prevented from issuing a Notice of Compliance (NOC) to the generic.

Apotex initiated the action because it was prevented from obtaining a NOC for a generic version of alendronate for thirteen months due to Merck’s application for prohibition, launched in response to Apotex’s own notice of allegation.

Constitutionality

The FCA held s. 8 of the PMNOCR was intra vires the Patent Act and was validly enacted since the regulations come within the general authority of s. 55.2(4) of the Patent Act. The FCA looked to Bristol – Myers Squibb Co. v. Canada (Attorney General), 2005 SCC 26 (Biolyse) and AstraZeneca Canada Inc. v. Canada (Minister of Health), 2006 SCC 49 (AstraZeneca) for the background of, and statutory authority for, the PMNOCR. The FCAnoted that in both Biolyse andAstraZeneca, supra,the PMNOCR and the Patent Act were construed together to come to proper outcomes preventing infringement. The FCA held that, in this case, s. 8 of the PMNOCR forces innovators to focus on infringement and consider the strength of a legal position before initiating an application, rather than merely triggering the automatic stay as of right, a problem identified in previous case law. S. 8 of the PMNOCR maintains a balance between innovators and generics, as alluded to in Biolyse andAstraZeneca, supra, and thus ultimately promotes the prevention of infringement. Therefore, s. 8 of the PMNOCR comes within s.5 5.2(4) of the Patent Act.

The FCA then held s. 8 of the PMNOCR was valid federal legislation within s. 91(22) of the Constitution Act, 1867 by applying the three-part test for constitutional validity in Motors of Canada Ltd v City National Leasing, [1989] 1 S.C.R. 641.First, s. 8 of the PMNOCR minimally encroaches on provincial heads of power because of the narrow scope of the right of action, namely patent controversies relating to drug products. Second, Merck conceded that the PMNOCR were validly promulgated. Third, the FCAheld, for the reasons set out previously, that s. 8 of the PMNOCR is intra vires the Patent Act as the provision is sufficiently integrated into the overall scheme of the Patent Act to become part of it.

Jurisdiction

The FCA went on to consider whether the FC had jurisdiction to hear the action. The test for such jurisdiction was established in International Terminal Operators Ltd. v. Miida Electronics., [1986] 1 S.C.R 752. At issue was whether there was an “express statutory grant of jurisdiction by the federal Parliament”. The FCA dismissed the cases put forth by Merck against federal jurisdiction because they dealt with contractual or equitable rights rather than patents. The FCAthen held that s. 20(2) of the Federal Courts Actprovides the FCwith jurisdiction to hear both s. 6 and s. 8 actions, since they are remedies pursuant to a regulatory scheme aimed at prevention of infringement. The FCA also disagreed with the FC that paragraph 55.2(4)(d) of the Patent Act empowers the Governor-in-Council to confer jurisdiction on courts not already possessed with such jurisdiction and that the designation in s. 2 of the PMNOCR of the FC amounts to a valid express grant of statutory authority.

Remedies

The second set of issues dealt with the remedies available under s. 8 of the PMNOCR. Apotexclaimed that the FCfailed to recognize disgorgement of profits made during the stay period as an applicable remedy. The FCA upheld the FC’s statutory interpretation of s. 8 of the PMNOCRand the words “for relief by way of damages or profits” in favour of Merck. The FCA held that compensation is to be computed by reference to the loss suffered by the generic due to the automatic stay or the profits it would have made during the period it was prevented from entering the market. Generics are not entitled to all the remedies available to patentee in infringement proceedings, namely disgorgement.

The FCA then allowed the appeal pertaining to whether losses occurring after the end of the automatic stay come within s. 8(1) of the PMNOCR.The amendments to s. 8 of the PMNOCR made clear when damages can be awarded. Although the FCinterpreted “suffered” from s. 8(1) of the PMNOCRto extend to losses suffered beyond the automatic stay, the FCA held that entitlement to damages does not include compensation for losses occurring in future years since they were not suffered during the automatic stay. Thus, Apotex’s claim that it lost sales because delayed market entry of its product allowed two other generic drug manufacturers to take control of the market place was rejected.