Apotex denied claim for innovator's profits following PM(NOC) litigation

The ongoing quest by generic pharmaceutical companies for the disgorgement of innovator profits following litigation under the PM(NOC) Regulations (the "Regulations") has hit a potentially fatal roadblock.

In unanimous reasons dated May 5, 2015 the Ontario Court of Appeal (OCA) held that an unjust enrichment claim made by a generic seeking an innovator's profits did not satisfy the Supreme Court of Canada's test for unjust enrichment because there was no deprivation of the generic company that corresponded to an enrichment of the innovator.¹ The OCA's reasons apply even in situations where unjust enrichment claim is made outside the Regulations.

Facts in Brief

This was an appeal by Apotex from a Divisional Court decision to grant Lilly's motion to strike Apotex's claim for unjust enrichment. As a motion to strike, the facts as set out in Apotex's Statement of Claim are assumed to be true. The relevant facts asserted in Apotex's statement of claim were that Apotex was kept off the market by virtue of Lilly commencing a prohibition proceeding under the Regulations (a "prohibition proceeding"), that Apotex suffered a loss and that Lilly made sales during this period, and that Lilly supposedly made misrepresentations in obtaining and in listing the patent at issue on the Patent Register.

Statutory and Jurisprudential Background

Section 8 of the Regulations states that an innovator is liable to a generic for any "loss suffered" if a prohibition proceeding is withdrawn, discontinued, or dismissed by the Court. Notwithstanding this language, generics have argued that they should be entitled to more than their losses suffered after the culmination of prohibition proceedings. All previous decisions on point denied generics the ability to receive any profits made by the innovator that exceeded the generic's statutorily prescribed "loss suffered".

In particular, the Federal Court of Appeal (FCA) denied a claim by Apotex for unjust enrichment, citing a lack of jurisdiction. The FCA's reasoning was that it lacked jurisdiction because Parliament's intention in limiting s. 8 to the "loss suffered" was clearly to exclude claims to the innovator's profits.² Nöel JA (as he then was) held in obiter that a cause of action made outside the Regulations may provide the FCA with jurisdiction to hear such a claim.

The OCA had also considered arguments for disgorgement made by Apotex in this context. Apotex attempted to argue that the Supreme Court's tripartite test for unjust enrichment was met in these circumstances. The tripartite test requires:

1. An enrichment of the defendant;
2. A corresponding deprivation of the plaintiff; and
3. The absence of any juristic reason for the enrichment.³

In line with Supreme Court jurisprudence,⁴ The OCA denied Apotex's claim on the basis that the Regulations provided a juristic reason for any enrichment that occurred.⁵

The Court of Appeal's Decision - Apotex Suffered No Corresponding Deprivation

Apotex attempted to distinguish the present situation from the prior FCA and OCA decisions by arguing that its claim for unjust enrichment was outside the Regulations, and therefore that the Regulations could not be cited as a juristic reason for denying its claim. Apotex argued that the claim was outside the Regulations because it was based on Lilly's (alleged) misrepresentations rather than a withdrawal, discontinuance, or dismissal of a prohibition proceeding.

The OCA found that Apotex's claim did not meet part two of the tripartite unjust enrichment test. In particular, Apotex was not deprived of anything;⁶ it had the ability to claim its loss. Further, the corresponding deprivation requirement of the unjust enrichment test required a "causal connection" between the Lilly's enrichment and Apotex's loss. This did not exist as Apotex could not show that any excess profits made by Lilly should have accrued to Apotex.⁷

Apotex argued that the lack of a deprivation was not fatal as disgorgement can be granted remedially to recover the "profits of wrongdoing". One classic case cited was Blake, where the House of Lords ordered disgorgement of the profits of book sales made by a former Soviet double agent even though the British government was not economically "deprived".⁸

The "profits of wrongdoing" line of cases was distinguished by the OCA. Unlike in those cases, it was found that Apotex was not the sole party with a right to "enforce" or "deter" the underlying wrong. Indeed, Apotex was found to be an inappropriate party to do so, as Lilly owed Apotex no equitable duty and Lilly was not exploiting Apotex to its advantage.⁹

Whether Apotex's claim would have been rejected in any event because the Regulations constitute a juristic reason was not considered in this appeal.

Gowlings' Patrick Smith and Todd Burke were counsel for Lilly before the OCA. A copy of the OCA's full decision can be found here.