Teva Can Have its Cake and Eat it Too

Published June 4th, 2012

Teva Canada Ltd. v Wyeth LLC and Pfizer Canada Inc. 2012 FCA 141 (Sharlow, Dawson, Stratas)

Summary – The Federal Court of Appeal (“FCA”) has permitted Teva to both (1) pursue its predecessor ratiopharm’s section 8 damages claim for venlafaxine (EFFEXOR™ XR – antidepressant), and at the same time (2) profit from its own sales of the drug as a patent licensee.

Analysis – The FCA first examined Novopharm’s change of name to Teva, its purchase of ratiopharm, and finally the amalgamation of Teva and ratiopharm into Teva.  Under the Canada Business Corporations Act, it was clear that Teva had a right to continue ratiopharm’s section 8 case regarding venlafaxine that ratiopharm had brought almost 3 years earlier following a successful Notice of Compliance (“NOC”) proceeding against Wyeth [paras. 7, 22].

The critical issue in this case was that Novopharm had also been involved in selling venlafaxine, through a license with Wyeth, since December 1, 2006 [para. 11].  In accordance with the license, Wyeth notified Novopharm once it received ratiopharm’s Notice of Allegation (“NOA”), and Novopharm offered “to consult” on the NOC case, though no such consultation took place [paras. 10, 15].  Wyeth’s NOC case was dismissed by the FCA on August 1, 2007.  Once again Novopharm offered “to consult” with Wyeth in any subsequent infringement proceedings that Novopharm considered were part of Wyeth’s obligations.  No such proceedings were commenced.

After amalgamation, Teva brought a “summary trial” proceeding (based on expert affidavits, discovery transcripts and limited cross-examination with court permission) at which time Mr. Justice Hughes found Teva was barred from continuing ratiopharm’s section 8 action according to “the equitable doctrine of election” [para. 26].

The FCA focussed on the specific nature of the Wyeth/Novopharm license, and found there was no basis to conclude that ratiopharm or Teva “had made a decision that is inconsistent with its claim for section 8 damages” [paras. 30, 35].  Novopharm’s “consultation” had no consequences – it gave Novopharm no right to start a case, or require that Wyeth take certain action.  As an aside, although the FCA focussed on the “consultations”, Wyeth did not.  Wyeth’s argument (as accepted by Justice Hughes) was that Novopharm had decided “to assert the validity of the 778 patent by compelling or encouraging Wyeth to apply for a prohibition order” [para. 32].  The FCA focussed on what was permitted by the plain language of the license – to “consult”.

The FCA dealt with a second point – whether Teva’s section 8 damages should be offset by Novopharm’s profits over the same period.  The FCA accepted for purposes of its analysis (without deciding) that:  “Wyeth is correct to say that a claim for section 8 damages is determined by answering this hypothetical question:  If Wyeth had not applied for a prohibition order, what profit would Ratiopharm have realized by selling its generic version of Effexor XR between January 10, 2006 and August 2, 2007?” [para. 39].

Wyeth argued that without deductions, Teva “will be overcompensated” [para. 43], and that Novopharm would have entered the market earlier in the “hypothetical world” where ratiopharm had not been delayed by Wyeth’s NOC case [para. 45].  The FCA dismissed the first argument, as the “pre-amalgamation profits” of Novopharm were not Teva’s profits.  “Profit is not property or a chose in action that survives an amalgamation to continue its existence as an asset of the amalgamated corporation.” [para. 44]  The FCA also found there was no evidence that Novopharm had “the practical capacity” to enter the market [para. 46].  However, the FCA made it clear that Wyeth may certainly bring evidence in the section 8 case as to Novopharm’s “hypothetical presence” in the market as of January 10, 2006 and that “the judge who determines Ratiopharm’s section 8 damages may be persuaded to take that evidence into account” [para. 47].  Effectively this means that Teva’s section 8 award is likely to be reduced as a result of the hypothetical generic competition.  The FCA reiterated that this reduction was not the same as a mere offset of Novopharm’s profits.

Practice Point– The difference of opinion between the FCA and Mr. Justice Hughes was largely based on how the license arrangement and terms were to be reasonably interpreted.  Arguably, the FCA took a restricted view of the license, and did not find that, by paying a royalty on Wyeth’s patent for almost 11 months before ratiopharm’s section 8 case, Teva/Novopharm had unconsciously acquiesced in the validity of Wyeth’s patent.  As the license only provided for Novopharm to “consult” with Wyeth in any infringement cases, the FCA clearly found this could not satisfy the “exercise of an inconsistent right” requirement of the doctrine of election.  Query whether, had the license stipulated more control by Novopharm as the exclusive licensee, this would have qualified?  In addition, the license prohibited Novopharm from exercising its statutory right to commence an action as a person “claiming under the patentee” – this was central to the FCA’s findings [para. 33].