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Federal Court maintains $100M+ award in cefaclor infringement damages reconsideration decision

On November 20, 2019, the Federal Court (FC) issued its reconsideration decision on the quantum of damages owed by Apotex for its infringement of eight Eli Lilly process patents related to the antibiotic cefaclorEli Lilly and Company v Apotex Inc, 2019 FC 1463. The Court maintained its initial award of over $100M in damages and prejudgement interest.

In the initial judgment on the quantum of damages, Justice Zinn awarded Lilly approximately $31M in damages and $75M in prejudgment interest (reported here). The Federal Court of Appeal (FCA) overturned that decision, remitting it to the FC for reconsideration solely on the prejudgment interest issue (reported here). 

The FCA commented on three aspects of the FC’s analysis relating to prejudgment interest. First, it concluded that the FC had erred in law by finding a presumption that a plaintiff would have generated and that the defendant did generate compound interest on the damages. Rather, Lilly was required to prove all of its losses flowing from infringement, including whether it would have generated compound interest on the relevant funds. Second, the FCA questioned why the FC had used Lilly Canada’s annual rate of profit on its sales as the applicable rate of interest, urging a fuller explanation. Third, the FCA requested more detail on whether it was proper to compound pre-tax dollars rather than after-tax dollars, including in respect of the applicable burden of proof.

Reconsideration decision

Did Lilly prove that it would have generated compound interest on the relevant funds?

The FC characterized the relevant question as: “[b]ut for Apotex wrongfully depriving Lilly of profits from lost sales of cefaclor … what could and would Lilly have done with [those profits] at the time when they should have been received?” During the relevant period, Lilly generated returns on its profits of at least the rate of prejudgment interest awarded in the initial damages decision. The FC concluded that Lilly would have done the same in the hypothetical but-for world in which damages are calculated.

Use of annual rate of profit as the rate of prejudgment interest

On this issue, the FC stated:
[72] The [rate of prejudgment interest] represents the profit margin of Lilly Canada in the period under consideration … . It is within the discretion of a trial judge to fix an appropriate rate of interest … . Given that the [rate of prejudgment interest] is the minimum average profit rate of Lilly, and represents the average rate of return for Lilly Canada, I found that rate to be the most appropriate.

Burden of proof on the tax issue

In its initial decision on the quantum of damages, the FC declined to discount the award of compound interest to account for the tax Lilly would have paid on the funds during the prejudgment period. Apotex had adduced no evidence to support such a calculation, which would therefore be speculative. On appeal, Apotex argued that it did not bear the burden to prove the impact of taxation. The FCA requested a fuller explanation of the tax issue, including in respect of the burden of proof.

In the reconsideration decision, 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. The FC stated that the burden of proof lies with the party who raised the issue requiring proof, i.e. Apotex, which had failed to meet that burden.

Having regard to the above, Justice Zinn maintained his original award.  Apotex has appealed.

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