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FCA upholds reconsideration decision maintaining $100M+ award against Apotex for cefaclor patent infringement

On July 23, 2021, the Federal Court of Appeal (FCA) dismissed Apotex’s appeal of the Federal Court’s (FC) reconsideration decision on the quantum of damages owed by Apotex for its infringement of eight Eli Lilly process patents related to the antibiotic cefaclor: Apotex Inc. v Eli Lilly and Company, 2021 FCA 149.

Background

The initial FC decision awarding Lilly roughly $31M in damages and $75M in prejudgment interest was overturned on appeal (reported here). The FCA remitted the decision for reconsideration solely on the quantum of prejudgment interest, requesting clarity on: (1) whether Lilly had proven its losses flowing from infringement; (2) why Lilly Canada’s annual rate of profit on sales was used as the applicable rate of interest; and (3) whether it was proper to compound pre-tax dollars rather than after-tax dollars.

On reconsideration, the FC maintained its original award (reported here). On questions (1) and (2), the FC held that Lilly had proven its losses and that Lilly Canada’s annual rate of profit on sales was the most appropriate rate of interest as it represented the average rate of return for Lilly Canada. With respect to the tax issue, the FC explained that the issue had not been pleaded, that there was no evidence in the record from either party as to Lilly’s tax rate, and that Lilly had already been exposed to tax liability on the damages it recovered in this litigation.

Appeal decision

In its appeal of the reconsideration decision, Apotex argued that the FC had failed to properly address the issues of causation and mitigation, had given inadequate weight to the evidence of Apotex’s expert, had erred in the reasoning that supported the award, and had failed to consider the impact of income tax on the award.

Causation: Apotex argued that Lilly could not prove that Apotex’s conduct caused the claimed loss because during the relevant period, Lilly had excess cash deposited at a bank earning a lower rate of compound interest. The FCA rejected Apotex’s argument as premised in a specific lost opportunity, whereas Lilly was claiming damages for the “time value” of money. A damages award of compound interest may reflect either.

Mitigation: Apotex argued that the FC ought to have considered whether Lilly had mitigated its damages. The Court declined to address the issue, which had neither been raised at the redetermination hearing nor in the Notice of Appeal.

Weighing of expert evidence: Apotex argued that the FC had given inadequate weight to the evidence of its expert. The FCA declined to re-weigh the evidence, finding that the FC was entitled to prefer the testimony of one witness over another.

Reasoning supporting the award: Apotex identified several alleged gaps in the FC’s reasoning. For example, Apotex argued that there was “no logical connection between the lost profits entering Lilly’s “pool of resources” and being “spread among” all of Lilly’s uses of money”. Broadly, the FCA found that the awarded rate of compound interest was supported by the evidence before the FC.

Impact of income tax: Finally, Apotex argued that annual tax rates can be estimated from the financial statements on the record and that the FCA could direct the FC to re-compute the interest award accordingly. The FCA agreed with the FC’s conclusion that such exercise would be based on speculation given the lack of evidence before either Court on the issue.

Should you have any questions, please do not hesitate to contact a member of the Pharmaceutical Litigation Group.

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