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FCA dismisses Lilly’s olanzapine section 8 damages appeal and grants cross-appeal allowing for recovery of pipefill sales and under-reporting of data

On March 20, 2018, the Federal Court of Appeal (FCA) issued public reasons for judgment dismissing Eli Lilly Canada Inc. (Lilly)’s appeal of a Federal Court decision awarding more than $70 million to Teva Canada Limited (Teva) under section 8 of the Patented Medicines (Notice of Compliance) (PMNOC) Regulations in respect of olanzapine (Lilly’s ZYPREXA). The FCA granted Teva’s cross-appeal seeking to add to its recovery lost pipefill sales and an adjustment to account for an under-reporting of sales in the data relied on by both parties’ experts: Eli Lilly Canada Inc v Teva Canada Limited, 2018 FCA 53. See our prior article on the Federal Court’s decision here.  Generally, section 8 of the PMNOC Regulations permits recovery for a generic manufacturer’s losses, if the innovator’s prohibition application is discontinued, dismissed, or reversed on appeal.

Lilly’s Appeal

Lilly asserted that the trial judge erred in failing to find that Teva had abandoned its section 8 claim, by withdrawing its first Notice of Allegation (NOA) (another NOA was subsequently served which lead to the failed application that gave rise to the claim). Lilly also asserted that Teva did not suffer any compensable loss in view of the Supreme Court’s decision in AstraZeneca Canada Inc v Apotex Inc, 2017 SCC 36 (AstraZeneca) (as previously reported) which struck down the “promise of the patent” doctrine, and thus “rendered legally untenable the sole basis on which [Lilly’s] patent for olanzapine was ultimately found invalid.” The FCA held that there was sufficient evidentiary support for the trial judge to have rejected Lilly’s abandonment defence and also declined to exercise its discretion to not apply the doctrine of issue estoppel  as “[s]tanding back and taking into account the entirety of the circumstances … it would not work an injustice to apply issue estoppel in this case.”

Lilly also asserted that the section 8 damages award should be eliminated or reduced under section 8(5) of the PMNOC Regulations because the trial judge erred by ignoring the almost 1 year delay that resulted from Teva’s withdrawal of its first NOA only to then serve a second NOA, and by failing to find that doing so was an abuse of process. The FCA rejected both grounds of appeal. With respect to the delay argument, the FCA noted that the trial judge did not ignore the issue as alleged and found no error in the trial judge finding the start date of the liability period to be the date on which Teva would have received its Notice of Compliance (i.e., the presumptive start date under section 8(1)(a) of the pre-amended PMNOC Regulations). The FCA rejected the abuse of process argument as the service of two NOAs was not in its view an abuse and, in any event, held that Lilly was estopped from re-litigating the issue as it had been previously decided in earlier litigation between the parties. The FCA also found that there was evidence to support the trial judge’s finding that Teva could and would have come to market in March 2006, despite the FCA finding that “the trial judge incorrectly stopped witnesses called by Teva on the question of what it could and would have done in the hypothetical world from giving admissible evidence on ‘their own conduct and that of their businesses in the ‘but-for’ world’.”    

Teva’s Cross-Appeal

Teva had sought to recover lost pipefill sales, i.e., sales Teva would have made to distributors in the but-for world that would not have been captured by retail sales figures. In finding that Teva is entitled to recover for such sales, the FCA held that the trial judge improperly excluded sales that Teva would have made during the liability period. According to the FCA, “[t]he fact that the sales were to distributors or wholesalers rather than directly to retail customers does not take them outside of section 8. Nor does the fact that sales of that product further down the distribution stream – sales to retail customers – would have taken place beyond the liability period.” Further, as the parties’ experts were agreed that an adjustment to account for an under-reporting of the sales data was required and the trial judge’s list of findings to provide direction for a final calculation of Teva’s damages was silent on the issue, the FCA declared that such an adjustment be made. Lastly, the FCA rejected Teva’s argument that the trial judge erred in finding that Teva would not have obtained an exemption from the applicable pricing regulations in Ontario.

The parties can appeal this decision if leave is sought and granted by the Supreme Court of Canada.

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