Date: 20000307
Docket: T-2408-91
BETWEEN:
MERCK & CO. INC., and
MERCK FROSST CANADA INC.
Plaintiffs
- and -
APOTEX INC.
Defendant
REASONS FOR JUDGMENT
MacKAY J.
[1] These Reasons concern contempt of court proceedings, heard over an extended period, in which the defendant, Apotex Inc., and Dr. Bernard Sherman, formerly President, now Chairman and continuing Chief Executive Officer of Apotex, were directed by order of Mr. Justice Pinard, dated April 27, 1995, to show cause why they should not be found in contempt of the Court's process.1
[2] The circumstances of the alleged contempt are said by the plaintiffs to be analogous, in part, to those dealt with in Baxter Travenol Laboratories v. Cutter (Canada),2 where the contempt ultimately found3 was in conduct that occurred after Reasons were delivered and before the formal Judgment of the Court was filed.
[3] The terms of the show cause Order of April 27, 1995, include, in the preamble to the Order, a description of the perceived contempt, as follows:
| (a) breach of the permanent injunction granted by the honourable Mr. Justice MacKay pronounced on December 14, 1994 in Reasons for Judgment delivered on that day, restraining the Defendant, by its officers, directors, servants, agents, employees or otherwise, from infringing claims 1 to 5 and 8 to 15 of Canadian Letters Patent No. 1,275,349, and breach of the Order for the delivery up, or destruction under oath or under supervision of this Court, of all compositions, that is, APO-ENALAPRIL products, not including bulk enalapril maleate held in inventory, within the possession or control of the Defendant that infringe Canadian Letters Patent 1,275,349, by selling and causing to be sold, distributing and removing out of their custody, possession or control, and into the custody, possession or control of third party wholesalers, pharmacy chains and pharmacists during the period between December 14 and 22, 1994, and by aiding and abetting in the transfer, distribution and sale by the third party wholesalers, pharmacy chains and pharmacists of APO-ENALAPRIL tablets among themselves throughout Canada during the period January 9, 1995 to date; |
| (b) acting in such a way as to interfere with the orderly administration of justice, and impair the authority and dignity of this Court, by selling and causing to be sold, distributing and removing out of their custody, possession or control, and into the custody, possession or control of third party wholesalers, pharmacy chains and pharmacists during the period between December 14 and 22, 1994, infringing APO-ENALAPRIL tablets, following the delivery by the Honourable Mr. Justice MacKay of Reasons for Judgment in this case dated December 14, 1994, and with knowledge of the said Reasons for Judgment, in which the Honourable Mr. Justice MacKay declared that the Plaintiffs were entitled to a permanent injunction as particularized in part (a) hereof in respect of the said APO-ENALAPRIL tablets and to an Order for the delivery up or destruction under oath of said APO-ENALAPRIL tablet products, as particularized in part (a) hereof, and by aiding and abetting in the transfer, distribution and sale by the third party wholesalers, pharmacy chains and pharmacists or [sic] APO-ENALAPRIL tablets among themselves throughout Canada during the period January 9, 1995 to date, all so as to defeat and subvert the Court's process herein and render nugatory the permanent injunction and Order for delivery up or for destruction of APO-ENALAPRIL tablets as declared in the Reasons for Judgment dated December 14, 1994 and the formal Judgment of the Federal Court dated December 22, 1994; |
[4] The show cause Order was rendered in response to the initiative of the plaintiffs, Merck & Co. Inc. and Merck Frosst Canada Inc. (hereinafter "Merck"), taken by Notice of Motion dated April 18, 1995, and the Order of Pinard J. on April 27, 1995 referred to reasons for alleged contempt in that notice of motion and in the preamble to the Order, which is largely quoted above.
[5] The Reasons for Judgment dated December 14, 1994 that are central to the show cause proceedings were issued after judgment had been reserved at the conclusion of trial hearings on April 16, 1994, in an action by the plaintiffs Merck who alleged infringement by the defendant of Merck's patent interests. On two occasions, in September and October, 1994, as trial judge, I directed by correspondence to counsel through the Court Registry, that my expectations to complete my decision had not been realized.
[6] In Reasons for Judgment dated and filed December 14, 1994, I set out findings and conclusions in relation to the defendant's infringement of the plaintiffs' patent, which I found had occurred by the manufacture and sale of Apotex' product Apo-Enalapril, for which the defence pleaded by Apotex, under then s. 56 of the Patent Act, was not a defence to Merck's claim of infringement. The Reasons then dealt with the relief sought by the plaintiffs in the following terms:
| ...On the basis of my findings they [the plaintiffs] are entitled to |
| a) a declaration that claims 1 to 5 and 8 to 15 of Canadian Letters Patent No. 1,275,349 have been infringed by the defendant; |
| b) a permanent injunction restraining the defendant by its officers, directors, servants, agents, employees or otherwise from infringing claims 1 to 5 and 8 to 15 of Canadian Letters Patent No. 1,275,349. |
| c) an order...for delivery up, or destruction under oath or under supervision of this Court, of all compositions, that is, APO-ENALAPRIL products, not including bulk enalapril maleate held in inventory... |
| d) damages or an accounting of profits... |
| e) pre-judgment and post-judgment interest, |
| f) costs.... |
The Reasons for Judgment then continued:
| At the conclusion of trial in this matter, counsel suggested that formal judgment might most appropriately be considered after an opportunity for consultation between counsel, and if desirable a further appearance, before the Court, concerning the terms of judgment in light of my findings and conclusions. That seems to me an appropriate course at this stage, in particular since judgment will be rendered after a delay following trial which was unanticipated and for which I express my regret. |
In the circumstances, these Reasons are filed with this final direction and an invitation to counsel for the plaintiffs to consult with counsel for the defendant on appropriate terms of the final judgment to be filed in light of my conclusions as set out in these Reasons. Counsel for plaintiffs should prepare a draft judgment, seek approval of counsel for the defendant as to its form and, if possible, its content, and submit the draft for consideration by the Court. If counsel for either or both of the parties wishes to be heard on the matter, a hearing shall be arranged.
[7] After the Reasons for Judgment were filed on December 14, 1994, there was correspondence on that day between counsel for the parties, each taking an opposing view of the effect of the Reasons in relation to the relief sought by injunction. Early that evening the officers of Apotex, Dr. Sherman and Mr. Kay, after reading them, had determined that the Reasons did not require the company to stop selling, and that business would continue, at least until a formal judgment including any injunction was filed, after consultation by the Court with counsel. Counsel for Apotex, it is said by Dr. Sherman, concurred with action proposed though he was instructed to seek to stay any injunction. Counsel for Merck urged to his counterpart for Apotex that the circumstances were similar to those in Baxter v. Cutter.4 Sales did continue on the following day until late in the afternoon of December 15, when Dr. Sherman told Mr. Kay, then Executive Vice-President of Apotex, to stop further sales, on the basis of advice received that afternoon from counsel for Apotex, that, in view of Merck's insistence that the Baxter v. Cutter decision was applicable, as a matter of caution Apotex should stop further sales. Sales were not made after about 4:00 p.m. that day, though deliveries continued until late in the evening of December 15.
[8] By letter dated December 15, received by the Court on the following day, Apotex then sought, on an urgent basis, a hearing by telephone of a proposed motion to stay implementation of the Reasons pending hearing of a motion to stay an injunction until an appeal proposed by Apotex was determined. When that request reached me on December 16 I responded through the Registry that, at that stage, judgment was not filed, that there was no formal decision until one is filed, and thus there was nothing to be stayed or appealed until judgment was filed. At that stage the Court was not aware of the correspondence between counsel or of the position taken by Apotex that it was free to continue, or that it did continue, selling Apo-Enalapril, which the Reasons had concluded was product infringing upon Merck's patent interests. My communication to counsel suggested that the only purpose of a telephone conference on an urgent basis would be to set a date when submissions on proposed terms of judgment, and any motion by Apotex for a stay, could be heard. Counsel for Apotex requested a telephone conference on an urgent basis, to seek directions with respect to Reasons for Judgment of December 14, and one was then arranged at 4:30 p.m. on December 16.
[9] Before that conference convened counsel for Apotex advised Dr. Sherman, apparently early in the afternoon of December 16, that by his interpretation of the Court's directions issued that day Apotex' view of the Reasons was correct and Apotex could continue to sell Apo-Enalapril. Dr. Sherman so informed Mr. Kay and sales orders were again processed by Apotex, apparently including orders received but not processed on the previous day after sales were ended.
[10] In the telephone conference on the afternoon of December 16, 1994, I confirmed that the circumstances in this case appeared analogous to those in Baxter v. Cutter, supra. There the Supreme Court of Canada had held that a party to an action, and, at that stage, an officer of that corporate party, having notice from the Court's Reasons for Judgment that an injunction shall issue to preclude actions found to infringe patent rights, may be liable for contempt if, before formal judgment is filed, activities are undertaken which would be enjoined when the formal judgment or order of the Court is filed. Following the conference on December 16, late in the afternoon counsel for Apotex advised Dr. Sherman, again, that sales of Apo-Enalapril should be stopped, and they were stopped.
[11] The parties were heard by personal appearance on December 21 and the terms of judgment were settled upon. Judgment was filed on December 22, 1994. That Judgment included the following terms:
| 3. The Defendant, by its officers, directors, servants, agents, employees, or otherwise, is hereby restrained and enjoined from infringing claims 1 to 5 and 8 to 15 inclusive of Canadian Letters Patent No. 1,275,349, and in particular from manufacturing, using, offering for sale and selling, in Canada or elsewhere, APO-ENALAPRIL tablets or any tablets or other dosage forms containing enalapril maleate as an active ingredient, whether such manufacture or sale be from |
| (a) bulk enalapril or enalapril maleate acquired prior to the grant of the patent, or |
| (b) any quantities of bulk enalapril maleate acquired after the grant of the patent. |
| 4. The Defendant shall forthwith deliver up, or destroy under the supervision of this Court all compositions, that is, APO-ENALAPRIL products and any compositions or dosage forms containing enalapril maleate, as well as bulk enalapril maleate manufactured by Delmar Chemicals Inc. originally designated as lots numbered P-65478, P-65479 and P-65480 and referred to at page 28 of the Reasons for Judgment herein, the whole within the possession or control of the Defendant, provided that such delivery up or destruction shall be suspended pending the disposition of all appeals from this Judgment on condition that... |
| [Conditions were then set out for holding of the infringing product from the market.] |
[12] The provision in the Judgment for an injunction could hardly have surprised Apotex. It does specify certain activities i.e., "manufacturing, offering for sale and selling" as particular forms of infringing activity that are prohibited, activities not specified in the relief contained in Reasons for Judgment. Yet it merely reflects the typical injunctive relief awarded when infringement of patent interests is found, the very sort of relief claimed by Merck in its statement of claim in the action which alleged infringement by Apotex importing or having manufactured enalapril maleate, manufacturing therefrom tablets for dispensing, and selling that product.
[13] On December 23, 1994, following a further telephone conference when issues could not be satisfactorily resolved to determine the defendant's motion for a stay of the judgment in relation to injunctive relief, the Court ordered an interim stay of the injunction order pending further hearing. Ultimately that hearing was arranged for January 6, 1995 and on January 9, 1995 by further Order the interim stay ordered on December 23, 1994 was withdrawn effective at the close of business in various local offices of the defendant on that day.
[14] The Order of January 9, 1995 included a particular provision concerning third parties in the market place for Apo-Enalapril, in the following words:
| 3. Third parties, not having been parties to the action herein, who have acquired, in good faith, property in Apo-Enalapril products made by the defendant, before the close of business on January 9, 1995, shall be deemed not to be in violation or contempt of any order of this Court by their possession, distribution, sale or consumption of those products whether before or after January 9, 1995. |
[15] All of the proceedings from December 14, 1994 to January 9, 1995 are dealt with in Reasons for Order dated and filed on January 24, 1995. To review, the effects of all those proceedings in terms of datelines are these:
| December 14, 1994 Reasons for Judgment filed. |
| December 15, 1994 Apotex continued selling, but after 4:00 p.m. stopped sales on advice of counsel. |
| December 16, mid-day The Court directs, in response to Apotex' request for a hearing to stay an injunction, that until judgment is filed there is nothing to be stayed or appealed. (Thereafter Apotex commences selling again.) |
| December 16, late p.m. The Court indicates circumstances are analogous to those in Baxter v. Cutter. On advice of counsel Apotex stops sales. |
| December 22, 1994 Judgment signed and filed, including permanent injunction and order for delivery up, or holding all Apo-Enalapril product. |
| December 23, 1994 Interim Order for a stay of the injunction pending further hearing. |
| January 9, 1995 Interim stay is withdrawn (permanent injunction granted December 22, 1994 is restored). |
[16] The evidence establishes that, except for a brief time on the afternoon of December 15 and early the following day, after December 14 until late in the day on December 16 Apotex continued to sell Apo-Enalapril, a product that, following trial, this Court held infringed on plaintiffs' patent interests, as the Reasons for Judgment clearly stated. On December 15, sales of Apo-Enalapril exceeded $9 million, and on the following day more than $360,000. of additional sales were made by Apotex. After December 16, Apotex processed no purchase orders for Apo-Enalapril until after December 23 but it continued after December 16, to deliver Apo-Enalapril to customers whose purchases were made before sales were stopped on December 16. After December 23 until January 9, 1995, Apotex' sales were not enjoined while the interim stay was in place, and when it was withdrawn on January 9, Apotex did not itself thereafter sell the product to its customers. The sales on December 15 and 16, and deliveries made thereafter, by Apotex, are the basis of the alleged contempt in the period from December 14 to 22, 1994.
[17] Further, it is said that Apotex and its staff assisted in the marketing of inventories of Apo-Enalapril held by third parties to other third parties after January 9, 1995 and that this constitutes the basis for the allegation of contempt in relation to the second time period referred to in the Order of Pinard J., from January 9, 1995 to the date of that Order.
[18] There can be no doubt that following the filing of Reasons for Judgment on December 14, 1994, those Reasons were read by Dr. Sherman, by his then Executive Vice-President, Mr. Jack Kay, and by counsel for Apotex. The assessment reached by Dr. Sherman, before speaking with counsel, was that the Reasons indicated only that an injunction would issue when formal judgment was filed and in the interim Apotex was free to carry on business as usual. That position was maintained after discussion with counsel, who is said by Dr. Sherman to have shared that view.
[19] The following day, December 15, 1994, Apotex sold more than $9 million of Apo-Enalapril to domestic buyers and one foreign purchaser, an amount equivalent to one month's sales on the basis of Apotex' prior experience and more than 20 times the daily average of sales at that time. The day was described as "hectic" by Mr. Kay. The sales were characterized as "unusual" in their volume by Mr. Gary Timm, a forensic accountant who testified for the plaintiffs after study of sales and other records that were ordered produced by the Court, some of them under subpoenas to witnesses who were either officers of Apotex or officers of Kohlers Distributing Inc. at the time.
[20] There is no doubt that officers of Apotex, in particular Mr. Kay and Mr. Barbeau, now Vice-President, Sales and Marketing, acted within the scope of their regular duties on December 15 when Mr. Barbeau contacted customers directly or through regional sales representatives to assure them that Apotex was still selling Apo-Enalapril, though it might be enjoined in the future. Apotex accepted substantial sales orders on the 15th of December before sales were stopped late in the day. It is said that no incentives were offered but it is conceded none were required, for the product, the only generic brand of the largest selling (dollar value) prescription drug in the Canadian market, had ready sales with preference under provincial drug plans listing it as accepted for medical prescription public funding in all but one province. There is no evidence that Dr. Sherman gave any direction to Messrs. Kay and Barbeau about selling Apo-Enalapril in the period after January 9, 1995. He did decide on the 14th of December that Apotex was not required to stop, it was to be business as usual, without special incentives. Thereafter, on December 15 he did direct Mr. Kay to stop sales, and on the following day to continue selling, then later on December 16 to stop sales again, acting on advice of counsel. Shipments of goods sold on December 16 continued in the period after that date with five deliveries made on December 17, 63 deliveries on December 19 and one on December 20.
The allegations of contempt
[21] I turn to the show cause Order of April 27, 1995 and the allegations it contains to which Apotex and Dr. Sherman are required to show cause. There are two main allegations, based upon Rule 355 of the Court's Rules5 as it then applied. That Rule provided, in part,
| 355(1). Anyone is guilty of contempt of court who disobeys any process or order of the Court or a judge thereof or who acts in such a way as to interfere with the orderly administration of justice, or to impair the authority or dignity of the Court. ... |
The Rule embraces two kinds of conduct, first, disobeying any process or order of the Court or of a Judge, and second, acting in such a way as to interfere with the orderly administration of justice or to impair the authority or dignity of the Court.
[22] In this case the show cause Order alleges both kinds of conduct in directing the defendant and Dr. Sherman to appear and present their evidence and grounds in defence and to show cause why the two of them should not be condemned for contempt of Court "for reasons particularized in the Notice of Motion and in the preamble to this Order".
[23] The notice of motion leading to the show cause Order does contain particular allegations of fact but the general descriptions of alleged wrongdoing are those described in the preamble to the Order. The first paragraph, clause (a) of the preamble, in abbreviated form, alleges
| breach of the permanent injunction...pronounced on December 14, 1994 in Reasons for Judgment delivered on that day restraining the Defendant, by its officers, directors, servants, agents, employees or otherwise, from infringing claims 1 to 5 and 8 to 15 of Canadian Letters Patent No. 1,275,349, and breach of the Order for delivery up...by selling and causing to be sold...[to] third party wholesalers, pharmacy chains and pharmacists between December 14 and 22, 1994, and by aiding and abetting in the transfer, distribution and sale by third party wholesalers, pharmacy chains and pharmacists of APO-ENALAPRIL tablets among themselves during the period January 9, 1995 to date; |
[24] In Baxter v. Cutter6, Dickson J. said in part, speaking of a similar clause in the show cause order in that case, where Reasons for Judgment were filed December 11 and Judgment was filed a week later:
| ...In the present case there was no injunction, and hence there could be no breach of the injunction prior to December 18, 1980 [the date of the Court's formal judgment in that case]. |
[25] In the case at bar there was no injunction by order of the Court until December 22, 1994 and in my opinion, there could be no breach of the injunction or of an order for delivery up of infringing product until the formal order was filed. That, in my opinion, is the simple answer in response to the allegations set out in paragraph (a) of the preamble so far as those concern activities undertaken in the period before December 22, 1994 when formal judgment in the matter was filed.
[26] The second form of contempt alleged in this case, as set out in paragraph 1 clause (b) of the preamble of the Order of April 27, 1995, is comparable to the second form described in Rule 355, i.e., conduct which interferes with the orderly administration of justice or that impairs the authority or dignity of the Court. It is in respect of that sort of conduct that Dickson J. found there may be contempt by action taken in the interim between Reasons being released and formal Judgment being filed, if, with knowledge of the Reasons, one acts in a manner that the Court has clearly indicated in Reasons is to be prohibited. In Baxter v. Cutter Dickson J. commented:7
| ...Once a judge has rendered his decision by giving reasons, and assuming any prohibitions contained therein are clearly worded, it is not, in my view, open to any person to flout his disposition of the case on the ground that there is no judgment yet in effect. The situation after reasons for decision is very different from a situation in which the defendant acts prior to any court determination. Once reasons for decision have been released, any action which would defeat the purpose of the anticipated injunction undermines that which has already been given judicial approval. Any such action subverts the processes of the court and may amount to contempt of court. |
[27] Under clause (b) of paragraph one of the show cause Order's preamble, it must be shown beyond a reasonable doubt that in the period December 14 to 22 Apotex and Dr. Sherman, with knowledge of the Reasons, acted contrary to the conclusions and directions set out in the Court's Reasons of December 14, and further that by their actions after January 9, 1995, when the interim stay of the injunction was withdrawn and the permanent injunction set down by the Judgment of December 22 was fully in effect, its terms and those of the order for delivery up or for holding Apo-Enalapril on conditions, were rendered nugatory by the aid proffered to third parties to trade among themselves the infringing product.
[28] As for the first time frame, December 14 to 22, 1994, it is urged for Apotex and Dr. Sherman that the latter's reading of the Court's Reasons for Judgment, on December 14, was entirely reasonable in the context of the entire case over many months. In written submissions it is urged:8
| ...The history of the action up to and including the release of this Court's Reasons indicate that the Court never intended that the Reasons should constitute or implement an immediate prohibition of the activities it had expressly allowed to continue during the 14 months following issuance of Apotex' NOC for its brand of enalapril maleate. It was an entirely reasonable interpretation of those Reasons, particularly in light of the history, to conclude that the Court only intended by their release to advise the parties of its conclusions on the substantive issues addressed at trial. |
[29] That may be Dr. Sherman's explanation, but in my opinion it does not excuse the conduct of Apotex and Dr. Sherman, in continuing to sell product that had been found, and was clearly stated in the Reasons, to be infringing upon the patent interests of Merck. Indeed at trial, the exclusive right of Merck to use of its patented product was conceded by Apotex for its defence was based on s. 56 of the Patent Act as it then applied, which permitted use or sale of a patented article by one who acquired it before the patent was granted. My Reasons for Judgment found that provision not to be applicable to finished product in the circumstances of this case, a determination that was later overturned by the Court of Appeal on April 20, 1995 when Apotex' appeal of the Judgment following trial was allowed in part.
[30] With respect, my decision in the fall of 1993 to dismiss Merck's application for an interlocutory injunction pending trial of the action, which I assume is what is referred to in the quotation above as "expressly" allowing Apotex to continue its activities, is not a relevant factor in the context for interpreting the Reasons of December 14, 1994. Experienced counsel for Apotex must surely appreciate the difference between dismissal of an interlocutory injunction application pending trial of an action for infringement, and a permanent injunction to protect patent interests following a finding of infringement. It was also suggested that the historical context of the case could not ignore that after hearing the case, my decision was reserved for some eight months during which I had indicated, twice, that my hopes of concluding judgment had not yet been met. That is part of the history, but I am perplexed to understand how delay in rendering judgment may be a factor in determining the meaning of the conclusions, including decisions on relief, as expressed in Reasons for Judgment.
[31] Left with words in the Reasons themselves it is urged that they imply that relief indicated was not intended to be effective until after a formal order is entered. The reference to the request of counsel at the conclusion of trial, then advanced by counsel for Apotex, for an opportunity for counsel to consult about the terms of formal judgment in light of my findings and conclusions, and my invitation in the Reasons to counsel to so consult and to be heard if that were desirable, does not, in my opinion, indicate an intention to await a final order to determine the effective date for the conclusions and findings set out by the Reasons. The consultation between counsel, and if necessary with the Court, could not do more than implement by formal judgment the findings and conclusions already made and effective, without any prospect of significant change, on December 14, 1994 when the Reasons were dated and filed.
[32] It is urged that Dr. Sherman, acting with advice of counsel, sought merely to understand what the Court's Reasons directed, specifically whether Apotex could continue to sell its product. Having concluded that it could do so, he then determined that Apotex would continue with business as usual on December 15, and Messrs. Kay and Barbeau resolved to apprise customers on that day that Apotex would continue to sell Apo-Enalapril, though it might be enjoined in the future.
[33] Dr. Sherman's desire to comply with the law and the Court's Order is said to be demonstrated by the decision to stop selling on December 15 on the advice of counsel and then to proceed again the following day because the Court had indicated there was no judgment filed at that stage, until counsel later advised that the Court had indicated sales should not continue. That may be relevant to any penalty, but it is hardly relevant to the issue whether the decision made on December 14 to continue selling was consistent with the Reasons for Judgment.
[34] It seems to me surprising that the Court's Reasons were read as permitting activities infringing upon Merck's patent interests to continue until some unspecified time in the future. Dr. Sherman and counsel surely understood from the Reasons for Judgment my findings that specified claims of Merck's patent were valid claims and that in manufacturing and selling Apo-Enalapril Apotex had infringed upon those claims. The Reasons specified, following those and other findings and conclusions, that Merck, the plaintiffs, were entitled, at the date of the Reasons, to a declaration that certain claims of their patent had been infringed by the defendant, Apotex, and to a permanent injunction restraining the defendant, by its officers, directors, servants, agents, employees or otherwise from infringing the valid claims of Merck's patent, and to an order in appropriate terms for delivery up, or destruction under oath or under supervision of the Court, of all Apo-Enalapril products not including bulk enalapril maleate held in inventory.
[35] Dr. Sherman qualified his understanding, when cross-examined, by referring to the paragraphs of the Reasons quoted above in paragraph 6, which referred to delay and asked counsel to consult on appropriate terms of final Judgment, as counsel had requested at the conclusion of trial. Those paragraphs he read as implying, without any expressed indication in the Reasons, that the relief, including presumably the declaration of infringement, the permanent injunction and the order for delivery up were not to be effective until some future unspecified date. A determination of this sort, which Dr. Sherman inferred from his reading of the Reasons for Judgment, would be so extraordinary, in my opinion, that the Reasons would only be so understood by persons knowledgeable about the legal process, as Dr. Sherman is by reason of his direction of legal affairs for Apotex, and counsel for Apotex is, if the Court had clearly expressed an intention that its findings and conclusions should be considered to be effective only at some unspecified time in the future. No such express wording of the application of the findings and conclusions is set out in the Reasons.
[36] I am not persuaded that the Reasons for Judgment were ambiguous or unclear. In particular in regard to injunctive relief, the Reasons specify that Merck was entitled to a permanent injunction prohibiting infringement of its valid patent claims. That infringement was found to be in the manufacture and sale of Apo-Enalapril tablets that infringed on Merck's patent. It was surely clear on December 14 that formal judgment would include a permanent injunction, and so it did in the Judgment dated December 22, 1994 in terms similar to those in the Reasons, except for the addition of other acts, i.e. "using", "offering for sale" as infringing acts, in addition to "manufacture" or "sale" of enalapril maleate product, whether acquired before or after the grant of the patent to Merck.
[37] Were the terms of the injunction as described in the Reasons disobeyed? The evidence is clear that Apotex did sell Apo-Enalapril products on December 15 and 16, and delivered those products so sold late into the evening of December 15, on December 16, December 17, 19 and 20. Those sales made were authorized by Dr. Sherman, then President and CEO of Apotex, and were facilitated by arrangements made by Mr. Kay and Mr. Barbeau, without specific direction from Dr. Sherman. That is acknowledged by the three of them in testimony. There is no question the actions were done knowingly.
[38] It may be that subjectively Dr. Sherman did not intend to violate the injunction provided for in the Reasons, or to subvert the process of the Court. However,
| ...in order to constitute a contempt it is not necessary to prove that the defendant intended to disobey or to flout the Order of the Court. The offence consists of the intentional doing of an act which is in fact prohibited by the Order. The absence of the contumacious intent is a mitigating factor but not an exculpatory circumstance9 |
Apotex did, and so did Dr. Sherman do, just what he intended. Apo-Enalapril product was sold, and sold in quantity, after the Reasons for Judgment specifying Merck's entitlement to a permanent injunction were read by officers and by counsel of Apotex. By so doing both Apotex and Dr. Sherman, in my opinion, committed contempt. In the words of Dickson J. in Baxter v. Cutter:10
| ...Once reasons for decision have been released, any action which would defeat the purpose of the anticipated injunction undermines that which has already been given judicial approval. Any such action subverts the processes of the Court and may amount to contempt of court. |
[39] For Apotex and Dr. Sherman it is urged that in Baxter v. Cutter, the Reasons for Judgment clearly indicated the Order the Court intended to issue. The Court and both parties knew the content of the Order that would issue11, whereas in this case it is urged that the Reasons allowed differing reasonable interpretations. I am not persuaded there was substantive difference in the terms of the permanent injunction described in the Reasons and the terms included in the Judgment of December 22, 1994. In my opinion, the Reasons, in this case clearly described the permanent injunction to be issued, which was later included in the Judgment of December 22.
[40] In my opinion, it is beyond a reasonable doubt that both Apotex by its officers, and Dr. Sherman in his personal capacity, committed contempt by selling, and in Dr. Sherman's case by authorizing the selling, of Apo-Enalapril product after Dr. Sherman had read the Reasons for Judgment dated December 14, 1994, which indicated that as of that day the Court had resolved that Merck was entitled to a permanent injunction prohibiting Apotex by its officers, and others, from infringing upon the valid claims of Merck's patent.
[41] It is urged for Dr. Sherman that he not be found personally in contempt. Yet he was the "directing mind" of Apotex, it was his decision about the effect of the Reasons for Judgment on December 14 that led to sales of Apo-Enalapril on the following two days, just as it was his decision to stop sales finally on the 16th of December. He knew and had read the Reasons for Judgment and his decisions were the key to conduct of Apotex officers and staff. In my opinion he committed contempt, as did the corporate defendant.
The period from January 9 to April 27, 1995
[42] The second allegation of contempt included in the show cause Order relates to actions in the period from January 9, 1995, when the interim stay of the injunction was withdrawn, to April 27, 1995 when the show cause Order issued. Those allegations also are raised by paragraph (b) of the first paragraph of the preamble in that Order, in the following terms:
| acting in such a way as to interfere with the orderly administration of justice, and impair the authority and dignity of this Court...by aiding and abetting in the transfer, distribution and sale by the third party wholesalers, pharmacy chains and pharmacists or [sic] APO-ENALAPRIL tablets among themselves throughout Canada during the period January 9, 1995 to date, all so as to defeat and subvert the Court's process herein and render nugatory the permanent injunction and Order for delivery up or for the destruction of APO-ENALAPRIL tablets as declared in the Reasons for Judgment dated December 14, 1994 and the formal Judgment of the Federal Court dated December 22, 1994; |
| .... |
[43] The provisions of the Reasons for Judgment, and of the Judgment dated December 22, 1994, referred to in this second allegation of contempt, concerning a permanent injunction and an order for delivery up or destruction of products found to be infringing, have already been set out.12
[44] Dr. Sherman acknowledges that for business reasons he directed Mr. Kay, for the period commencing after January 9, 1995, that Apotex would not accept returns of Apo-Enalapril from its customers. This was a departure from Apotex' normal policy to accept returns, but Dr. Sherman noted that policy applied when in the normal course the only returns made were the result of errors in product delivery, or damage to containers or similar occasional events. The circumstances in this case were considered extraordinary, and once goods were returned they could not be resold by Apotex, because of the injunction, and because it would be virtually impossible for Apotex to meet all requirements under food and drug regulations for sales of a product by the manufacturer, including assurance of control of the product before sale. In short, Dr. Sherman foresaw that Apo-Enalapril product, if returned, could not be resold and would be lost.
[45] Dr. Sherman gave no instructions about implementing the policy of "no returns", though in correspondence with Ontario officers concerned about continued listing of Apo-Enalapril as an accepted generic brand of enalapril maleate for drug formulary purposes, Dr. Sherman was apparently aware from his staff of the supply of Apo-Enalapril in the trade, among distributors, pharmacy chains and pharmacists. At the time, in January 1995, he appears to have believed there was sufficient supply in inventory in the trade for some months of sales, and that Apotex' staff could inform prospective purchasers of where stock was available from third parties and that prospective buyers would have little difficulty filling their orders from other third parties.
[46] Mr. Kay passed on to Mr. Barbeau, the instruction that there be no returns of Apo-Enalapril, but Mr. Kay also left details of implementing that policy to his Vice-President Sales, Mr. Barbeau, who was to work out arrangements with customers that avoided returns to Apotex.
[47] Mr. Barbeau and his sales force were imaginative. The evidence shows and I so find,
| i) Information was exchanged through Apotex' sales representatives and Mr. Barbeau about customers who had inventory of Apo-Enalapril they wished to get rid of and others, distributors or pharmacy chains seeking to acquire inventory, particularly Kohlers Distributing. Customers who wanted to return Apo-Enalapril were directed by Mr. Barbeau and Apotex sales representatives to send it to Kohlers. Some deliveries of product to Kohlers from other third parties were arranged by Apotex representatives. This exchange became more significant after Apo-Enalapril was "de-listed" in Ontario and thereafter was not marketable for all intents and purposes in that province, while it was still marketable and listed in other provinces. |
| ii) In one or more of these transactions the vendor of inventory was issued a credit by Apotex and the purchaser, Kohlers, was invoiced for the value of the inventory, and Kohlers received a 6% distribution allowance from Apotex. At least for a time Kohlers also claimed, and apparently was credited with, a further 4% discount, though for Apotex it is said this claim, for prompt payment, was not approved formally in advance by the defendant, though it was credited by Apotex. |
| iii) In some transactions from third party vendor to third party "purchaser" payment was made between third parties, but the original third party customer continued to be credited with a 6% distribution allowance by Apotex and the purchaser, Kohlers, received a similar allowance. |
| iv) In one transaction, Mr. Barbeau made direct contact with a B.C. pharmacy chain and arranged for a transfer from an Ontario vendor to that chain, with Apotex charging the B.C. purchaser the cost of the product less a 15% distribution allowance, while the vendor was credited with a similar allowance granted by Apotex when it originally purchased the product. |
| v) In another transaction, when a dispute arose as to proper pricing by Kohler's in a transaction with an Alberta firm, Apotex ultimately stepped in and paid some $35,000. to Kohlers to assist in settlement of the matter. |
[48] In sum, Apotex, by the actions of Mr. Barbeau and his direction of his staff, played an active role in promoting sales and purchases by third parties of product which had been found to infringe upon Merck's patent interests, at least until April 20, 1995. On that date the Court of Appeal upheld Apotex' claim that product produced from bulk enalapril maleate acquired prior to the grant of Merck's patent was protected from a claim of infringement by s. 56 of the Patent Act as it then was. Some bulk product was acquired after the grant of Merck's patent, and the product manufactured from that was not protected by s. 56 and was infringing upon Merck's patent interests after the decision of the Court of Appeal.
[49] In the view of Mr. Timm, a forensic accountant retained by Merck, the involvement of Apotex in the transactions that were nominally between third parties only, really constituted sales by Apotex. That view was disputed by an expert testifying for Apotex and Dr. Sherman, in part reflecting his examination of the Apotex records examined by Mr. Timm and reflecting also his discussions with Apotex staff, results of which were not otherwise provided to the Court. In his view it was not possible to class the transactions as sales by Apotex on the basis of the limited documentary evidence from Apotex and from Kohlers that Mr. Timm had considered.
[50] In my view, it is unnecessary to determine whether or not these transactions were sales in the traditional sense, by Apotex. The issue in my view is whether the actions of Apotex by Mr. Barbeau and his staff is action "that interfere(s) with the orderly administration of justice and impair(s) the authority and dignity of this Court", as described in clause (b) of paragraph 1 in the preamble to the show cause Order.
[51] For Apotex and Dr. Sherman it is said that the Court's Order of January 9, 1995 expressly excluded from the application of the injunction, sales by third parties of Apo-Enalapril acquired before January 9, 1995. If such transactions were exempt from the injunction it is urged that Apotex, by aiding such transactions, could not be infringing the injunction. Moreover, it is urged that the injunction, and the terms of the show cause order do not specifically preclude the actions Apotex here took to facilitate sales and purchases among third parties. Those characterizations might be more acceptable had Apotex avoided financial commitments to third parties. Those commitments in the form of distribution allowances were said to be normal practice but that would be practice relating to sales by Apotex itself to its customers, and in the normal course the allowances would be credited only to one party purchaser. In my view, in the circumstances of transactions purportedly among third parties, the allowances provided by Apotex were incentives. The incentives provided by Apotex clearly facilitated the transactions and avoided return of goods to Apotex which would have resulted in loss of the goods.
[52] For Apotex written submissions include an extraordinary description of the rights of a patent owner. Paragraphs 110 and 162 of the Written Submissions of the Defendant Apotex Inc. and Dr. Bernard Sherman state, respectively:
| 110. Finally, it is the position of Apotex and Dr. Sherman that no substantive rights of Merck could have been lost of imperilled, nor could the administration of justice have been adversely affected, in circumstances where the Judgment upholds the right of a patentee to earn all the profits derived from the invention's use or entitles it to an accounting of the infringer's profits. The grant of a patent confers no other substantive right. |
| ... |
| 162. It must be remembered that a patent confers nothing more than the right to earn all the profits derived from the invention's use. If that right is confirmed and upheld by the Court in an Order or Judgment which fully compensates a patentee for all of its lost profits, or alternatively, entitles it to an accounting of the infringer's profits, no substantive rights will have been lost or imperilled if that entitlement is not compromised thereafter, and the administration of justice will not have been adversely affected in the slightest. |
As authority for paragraph 162, the submissions cite Apotex Inc. and Novopharm Ltd. v. The Wellcome Foundation Limited et al.13 per Marceau J.A., where His Lordship was dealing with an appeal from refusal to grant a stay of a permanent injunction pending appeal, circumstances not relevant in the case at bar.
[53] I assume that, in the written submissions quoted above, counsel must have overlooked the primary substantive right of a patent owner, that is, to exclusive use of the patented invention. It is that right that gives rise to an injunction when infringement is found. In short, patent rights are more than the right to damages from, or profits earned by, one who infringes the owner's interests. Ignoring that primary quality of a patent may provide some rationale for Apotex' actions but it is no defence if those actions are found to be in contempt.
[54] As we have seen the Judgment of December 22, 1994 provided, in part,
| 3. The Defendant, by its officers, directors, servants, agents, employees, or otherwise is hereby restrained and enjoined from infringing claims 1 to 5 and 8 to 15 [of the plaintiffs' patent] and in particular from manufacturing, using, offering for sale and selling...Apo-Enalapril tablets... . |
[55] That Judgment was known to Dr. Sherman. He apparently gave no instruction to staff about compliance, though direct sales to customers by Apotex which continued from December 23 to January 9, 1995 when the injunction was stayed, were terminated after January 9, when the stay was set aside. Then, Dr. Sherman's instruction was simply that Apotex would accept no returns.
[56] For a corporation and its chief executive officer concerned to be perceived as seeking to comply with the law, to be "law abiding" in terms of the Court's orders, it is surprising that Apotex, through its Vice-President, Sales and Marketing, Mr. Barbeau, and his staff, was sailing close to the wind, with no perception of the spirit of the Order affirming and protecting the rights of the patent owner.
[57] It is my opinion that the activities of Apotex in the period between January 9, 1995 and the date of the show cause Order, facilitating sales of its product among third paries, not merely by exchange of information but by its financial involvement in providing distribution allowances and prompt payment allowances, treating some transactions as if they were sales made directly by Apotex to third party purchasers, did interfere with the orderly administration of justice and did impair the authority and dignity of the Court. While transactions between third parties were exempt from the injunction by the Court's Order of January 9, 1995, the transactions in which Apotex was financially involved through distribution allowances were not transactions exclusively between third parties. In my opinion, Apotex' action in relation to these transactions, its involvement in financial arrangements that facilitated the transactions, did subvert the Court's process, and in the circumstances constituted contempt of court in the period after January 9, 1995.
[58] It is urged that Dr. Sherman by directing a "no returns" policy and providing no other direction to Apotex staff was also guilty of contempt in the actions on behalf of Apotex after January 9, 1995. I am not so persuaded.
[59] The activities of Mr. Barbeau and his staff on behalf of Apotex were undertaken by them, acting within their responsibilities. The evidence before me is that Dr. Sherman was unaware of the arrangements made by them until the show cause hearing and there is no evidence of Dr. Sherman's involvement in any of those arrangements. I find that Dr. Sherman was not in contempt of this Court's Judgment in the period after January 9, 1995.
Conclusion
[60] I find that Apotex Inc., by selling on December 15 and 16, 1994, and Dr. Bernard Sherman, then President and Chief Executive Officer of Apotex, by authorizing those sales, of Apo-Enalapril product, which was determined to infringe upon Merck's patent interests, as set out by Reasons for Judgment dated December 14, 1994, after Dr. Sherman had read those Reasons, both acted in a manner that interfered with the orderly administration of justice and impaired the authority and dignity of this Court in a manner constituting contempt.
[61] Further, I find that Apotex Inc. by the action of its Vice-President Sales and Marketing, Mr. Richard Barbeau, and his staff, in facilitating sales among third party vendors and purchasers of Apo-Enalapril after January 9, 1995, by authorizing distribution and other allowances, acted in manner that interfered with the orderly administration of justice and impaired the authority and dignity of the Court, subverting the Court's process and constituting contempt.
[62] Having so found, I invite submissions from counsel for Dr. Sherman and for the plaintiffs and the defendant concerning penalties appropriate in the circumstances, and also concerning costs. Submissions may be in writing, or upon appearance by counsel, as they may agree. If any of counsel desire to appear, a hearing on appropriate penalties and costs will be arranged at the convenience of all interested counsel.
[63] If counsel agree that submissions be in writing the plaintiffs shall file written submissions on or before March 31, 2000 and the defendant and Dr. Sherman shall file any written submissions on or before April 14, 2000.
(signed) W. Andrew MacKay
JUDGE
OTTAWA, Ontario
March 7, 2000.
__________________1 The Order of April 27, 1995 also directed Mr. Jack Kay, then Executive Vice-President of Apotex, to appear and show cause, but the allegations against him were later withdrawn.
2 [1983] 2 S.C.R. 388, 75 C.P.R. (2d) 1.
3 Baxter Travenol Laboratories of Canada Ltd. et al. v. Cutter (Canada) Ltd., [1986] 1 F.C. 497, 1 C.P.R. (3d) 433 (T.D.).
5 The Rules applicable in 1995 were those of 1978 as amended (C.R.C. 1978, c. 663). The Federal Court Rules, 1998 , SOR/98-106, include Rule 466(b) and (c) which is comparable to the former Rule 355.
7 Supra, note 2, at p. 8 (C.P.R.), 378 (S.C.R.).
8 Written submissions of the Defendant, Apotex Inc., and Dr. Bernard Sherman, para. 128.
9 Re Sheppard and Sheppard (1976), 67 D.L.R. (3d) 592 at pp. 595-6, 12 O.R. (2d) 4 at p. 8 (C.A.). See also Di Giacomo Inc. v. Mangan et al. (1988), 20 C.P.R. (3d) 251 at 261 (Ont. H.C.).
10 Supra note 2, at p. 8 (C.P.R.), 398 (S.C.R.).
11 See Reed J., Williams Information Services Corp. v. Williams Telecommunications Inc. (1998), 142 F.T.R. 76, at para. 13.
12 Supra, paragraphs 6 and 11.
13 (1998), 232 N.R. 40, [1998] F.C.J. No. 1088 at para. 7 (C.A.).