Federal Court of Appeal affirms application of principles of causation, burden of proof and laws of evidence to section 8 proceedings

In its recent decision, reported as Pfizer Canada Inc. v Teva Canada Limited, 2016 FCA 161, the Federal Court of Appeal (“FCA”) overturned the Federal Court’s decision awarding Teva $92 million (plus interest) in damages pursuant to section 8 of the Patented Medicines (Notice of Compliance) Regulations (“Regulations”).  The FCA remitted the issue of Teva’s entitlement to damages back to the Federal Court to be decided in accordance with proper evidentiary principles. In particular, the FCA affirmed that it is Teva who bears the burden of proving its loss on a balance of probabilities.  Further, the FCA held that the rules of evidence (in particular, those rules that exclude hearsay) must be applied when considering whether Teva has satisfied its burden.

Background

The section 8 action arose by virtue of the dismissal of Pfizer’s (formerly, Wyeth) application for a prohibition order in respect of its extended-release antidepressant, Effexor XR (venlafaxine HCl).

Before the trial judge, Teva relied extensively on hearsay evidence in respect of whether its supplier (Alembic Pharmaceuticals) could have and would have supplied Teva with its venlafaxine product.  Rather than exclude this evidence as inadmissible, the trial judge relied on it in coming to his decision to award Teva its damages of approximately $92 million dollars, plus interest.¹

Pfizer appealed this decision on multiple grounds.  However, the FCA’s decision substantially focused on the issue of Teva’s burden to prove its loss and the importance of applying the rules of evidence in determining admissibility.

Teva bears the burden of proving its loss

The FCA confirmed that, in section 8 cases, the overriding principles are the same as other damages claims, such as those for breach of contract or tort.  First, the plaintiff is entitled only to be compensated for losses caused by the commencement of a prohibition proceeding that was withdrawn, dismissed or discontinued.  Second, the plaintiff must show both that it could have and would have made the sales for which it seeks compensation in the hypothetical or “but for” world.  

A key issue in the venlafaxine section 8 trial was whether Teva could have and would have obtained sufficient venlafaxine product in the hypothetical world.   As explained by the FCA:

Both "would have" and "could have" are key. Compensatory damages are to place plaintiffs in the position they would have been in had a wrong not been committed. Proof of that first requires demonstration that nothing made it impossible for them to be in that position—i.e., they could have been in that position. And proof that plaintiffs would have been in a particular position also requires demonstration that events would transpire in such a way as to put them in that position—i.e., they would have been in that position.

Both elements have to be present. "Could have" does not prove "would have"; "would have" does not prove "could have"…

There must be evidence that the parties "would have" and "could have" ordered and supplied material at the relevant time…

…

… Teva's position was that in the hypothetical world, Ratiopharm (Teva) could have and would have obtained venlafaxine in sufficient quantities from Alembic… Teva [bears] the burden of proving that as part of its general burden to prove its loss.²

The rules of evidence must be applied in section 8 proceedings

In attempting to establish that it had access to venlafaxine, Teva put forward evidence which Pfizer objected to on the basis that it was inadmissible hearsay.  As noted above, the trial judge nevertheless considered this evidence in determining that Teva was in a position to supply the market with generic venlafaxine in the hypothetical world.

The FCA agreed that this was improper and noted the importance of applying the rules of evidence:

Recently, some rules of evidence have been liberalized, allowing for more flexibility. Seduced by this trend towards flexibility, some judges in various jurisdictions have been tempted to rule all relevant evidence as admissible, subject to their later assessment of weight. But according to our Supreme Court, this is heresy. The trend towards flexibility has not undermined the need for judges to take a rigorous approach to admissibility, separating that analytical step from others, such as determining the weight to be given to evidence…

… Before a court can rely on the evidence and ascribe it any weight or draw any inferences from it, it first must determine its admissibility.³

In particular, the FCA noted the dangers in admitting hearsay evidence, in particular the absence of an opportunity to conduct an effective cross-examination.  With respect to the specific evidence in this case, the FCA held that it was impermissible for a Teva representative to provide evidence in respect of its supplier’s operating capacity; its ability and willingness to redirect or add equipment; or how long production would have taken at the relevant time. Further, it was also impermissible to rely on emails and documents not authored by the witness, as these could not be properly authenticated by the witness.

As evidence was admitted which should have been excluded, which may have affected the outcome of the case, the FCA held that judgment of the court below must be set aside.  The FCA remitted the issue of Teva’s entitlement to damages to the Federal Court, to be decided in accordance with the appropriate evidentiary principles.