Docket: T-2078-00
Neutral Citation: 2001 FCT 1086
BETWEEN:
BRISTOL-MYERS SQUIBB COMPANY
and BRISTOL-MYERS SQUIBB CANADA INC.
Plaintiffs
and
APOTEX INC.
Defendant
REASONS FOR ORDER
MacKAY J.:
[1] These Reasons concern the disposition of a motion for an interlocutory injunction brought by the plaintiffs, Bristol-Myers Squibb Company ("BMS") and Bristol-Myers Squibb Canada Inc. ("BMS Canada") (collectively "the plaintiffs"), dated January 30, 2001 and argued before me on June 21, 2001 in Vancouver.
[2] The plaintiffs seek an interlocutory injunction enjoining the defendant, directly or indirectly, by itself or through any other person, company, partnership or business with which it may be associated or affiliated, or which may be under its authority, direction or control, from infringing claims 1, 2, 3, 4, 7 and 8 of Canadian patent 1,198,436, by marketing the defendant's generic product known as Apo-Nefazodone pending trial of the plaintiff's action claiming that manufacture and sale of the product infringes upon the designated claims of the BMS patent in suit.
[3] By Order dated June 28, 2001, I dismissed the plaintiffs' motion, indicating then that in due course reasons would be filed. These are Reasons for that Order.
Background to the motion
[4] BMS is incorporated under the laws of the state of Delaware in the United States of America. BMS is the owner of Canadian patent 1,198,436 which includes the compound nefazodone hydrochloride ("NH") as a product of the process disclosed in the patent. The compound NH is a serotonin re-uptake inhibitor which has a therapeutic effect in treating depression. Canadian patent 1,198,436 was issued on December 24, 1985, for a term of 17 years expiring on December 24, 2002. BMS has assigned to BMS Canada, a wholly-owned subsidiary incorporated under the laws of Canada, the right to make, use and sell NH in Canada.
[5] On April 27, 1994, BMS Canada obtained government approval in the form of a Notice of Compliance ("NOC") to market and sell the compound NH, and thereafter began doing so under the trade-mark SERZONE. BMS Canada later obtained a second NOC in respect of the compound NH on February 7, 2000, with respect to a change of the name of the product to SERZONE 5HT2.
[6] The plaintiffs have known of Apotex' intention to market and sell its own NH product, Apo-Nefazodone, since approximately January 26, 1998, the day on which Apotex provided BMS Canada with a Notice of Allegation pursuant to the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133. Shortly thereafter the plaintiffs arranged for Linson Pharma Inc. ("Linson") to market another version of their NH product, to be manufactured by BMS, in order to compete with generic producers such as Apotex.
[7] On April 17, 1998, the plaintiffs commenced an action for patent infringement (Court file T-751-98) against Apotex in respect of Canadian patent 1,198,436, in which an interlocutory injunction was sought on a quia timet basis. After the parties exchanged affidavits of documents in that action, Apotex disclosed that, although it had sent a Notice of Allegation to BMS, at that stage it had not filed a New Drug Submission. Thus, Apotex had not initiated steps, required under the regulatory process, to obtain approval for the marketing of its NH product. Apotex brought a motion for summary judgment. By Order of Madam Justice McGillis, dated April 20, 1999, the action was deemed premature, and it was therefore dismissed, as the plaintiffs were unable to demonstrate an imminent threat of infringement.
[8] Apotex later filed a New Drug Submission in respect of Apo-Nefazodone, in September, 1999. The plaintiffs learned of this through correspondence with Apotex in October, 2000, and on November 10, 2000, the plaintiffs initiated this action for infringement. The plaintiffs claim Apotex' version of the drug infringes its Canadian patent 1,198,436, while Apotex claims in its Statement of Defense and Counterclaim that, among other things, its actions are non-infringing and, moreover, that Canadian patent 1,198,436 is invalid.
The marketing and sale of NH by the parties
[9] Since entering the market in 1994, BMS Canada has promoted its NH product by informing physicians, pharmacists, health professionals, and indirectly prospective patients, about its use and benefits. In addition to providing health professionals with promotional and educational literature featuring its product, BMS Canada also provides physicians with "leave-behind" literature to inform patients, and, also with samples of its product for distribution to patients. BMS has also placed information concerning its product in various medical journals and other publications. As stated by Johanna Mercier, the Director of the Pharmacy Development Group for the company, in her affidavit sworn February 19, 2001, BMS Canada has spent in excess of $25 million promoting its NH tablets since its marketing began and currently spends $6 million annually on promotion of the product. Cumulative sales of BMS Canada's NH tablets in Canada to the end of 2000 have exceeded $100 million, with sales of $27.7 million in 2000.
[10] Most of Apotex' drug products are generic and compete directly with brand-name products with which they are therapeutically interchangeable, and they typically sell at a lower price. Under health plans all provinces, under varying conditions, provide for pharmacists to interchange prescribed pharmaceuticals with the lowest priced therapeutically equivalent product available, except for Quebec which does not enforce generic substitution for 15 years after the first version of the chemical is listed. Many of Apotex' products are listed on provincial drug formularies as interchangeable with the name brand originally marketed. Private drug plans also encourage use of the lowest cost alternative drugs. In contrast to BMS Canada's marketing efforts, Apotex promotes its generic brands to pharmacists, rather than doctors, to assist in having them dispensed in place of the brand-name products.
[11] On January 11, 2001, Apotex received a NOC to market and sell Apo-Nefazodone in Canada, and it began doing so that day. By January 17, 2001, Apotex had applied to have Apo-Nefazodone listed as interchangeable with BMS Canada's NH product on all provincial drug formularies across Canada. When this motion was heard Apotex was listed on the provincial drug formularies in British Columbia, Saskatchewan and Nova Scotia, and it expected to obtain complete listings for all provincial drug benefit formularies by September, 2001.
The issues
[12] Before an interlocutory injunction may be granted, the plaintiffs must meet the three-stage test set out in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 at 334, endorsing the test laid down in Manitoba (Attorney General) v. Metropolitan Stores (MTS) Ltd., [1987] 1 S.C.R. 110. Specifically, they must establish that:
1. there is a serious question of law before the Court to be tried,
2. irreparable harm will be suffered by the applicants in the period before trial if the application is refused, and subsequently, at trial the applicant is successful, and
3. on the balance of convenience, the applicants would suffer greater harm from the refusal of the remedy pending a favourable decision on the merits than the respondent would suffer if the remedy be granted but not be supported at trial.
[13] For the purposes of this motion, the parties agree, and I so find, that there is a serious issue to be tried with respect to the question of infringement. Submissions were confined to the issues of irreparable harm and the balance of convenience, as these Reasons do.
[14] The irreparable harm stage of the test has been described as follows in RJR- MacDonald, supra, at page 341:
At this stage the only issue to be decided is whether a refusal to grant relief could so adversely affect the applicants' own interests that the harm could not be remedied if the eventual decision on the merits does not accord with the result of the interlocutory application.
"Irreparable" refers to the nature of the harm suffered rather than the magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. ...
Further, it is insufficient for the plaintiffs to establish they will "likely suffer" irreparable harm. It is necessary for the evidence to support a finding that the plaintiffs would suffer irreparable harm if the interlocutory injunction is not granted. (Syntex Inc. v. Novopharm Ltd. (1991), 36 C.P.R. (3d) 129 at 135 (F.C.A.)).
[15] At the hearing of this motion, the plaintiffs argued they will suffer irreparable harm in three ways:
1. the inability to obtain damages or an accounting of profits for an inevitably lower market share after expiry of the patent as a result of "springboarding" by Apotex, i.e. its early entry to the market;
2. the inability to accurately quantify damages or profits for the period immediately after expiry of the patent; and
3. the inevitable decline in the total market that, it is urged, will result from changes in marketing largely because of Apotex' practice of not marketing to doctors.
For convenience, I address together the first two concerns put forth by the plaintiffs, and then proceed to the third concern.
[16] The plaintiffs argue Apotex is "springboarding" into the NH market. "Springboarding", as the plaintiffs use that term, refers to Apotex establishing its generic brand in the market in advance of expiry of plaintiffs' patent, by marketing its product and obtaining formulary listings across Canada. An early entry or "ramp up" into to the market allows Apotex early "market penetration", before expiry of the patent in suit. BMS Canada is concerned Apotex' NH product will acquire approximately 75% of the NH market (the approximate maximum market share that a generic drug is likely to achieve) within two years of its introduction, i.e., by January 2003 soon after expiry of plaintiffs' patent. Apotex' market share would be close to zero at that time if it were precluded from selling during the life of the patent.
[17] The plaintiffs rely upon Eli Lilly and Co. v. Apotex Inc. (1996), 67 C.P.R. (3d) 173 (F.C.T.D.) for the proposition that difficulty in quantification can be irreparable harm. The plaintiffs suggest difficulty will arise when the Court compares competing marketing theories put forward by the parties, and in particular in calculating damages for the period after life of the patent when sales by Apotex would not be infringing.
[18] For its part, Apotex states this Court has, on at least two occasions (Wellcome Foundation Ltd. v. Interpharm Inc. (1992), 41 C.P.R. (3d) 215 (F.C.T.D.) and Whirlpool Corp. v. Camco Inc. (1995), 65 C.P.R. (3d) 63 (F.C.T.D.)), dismissed applications for interlocutory injunctions where difficulty in quantifying damages, urged as a basis for irreparable harm did not meet the test where the losses are determinable and compensable at trial if there be a finding of infringement.
[19] In my opinion, if the plaintiffs are successful in their infringement action, any loss of their NH market share from "springboarding" by Apotex can be quantified both before and after expiry of the patent. I reach this conclusion after carefully reviewing the opinions of experts relied upon by both parties. With respect to loss of market share, Tom Brogan, for the plaintiffs, avers as follows at paragraphs 19 and 20 of his affidavit:
... the entry of the generic nefazodone on or around January 11, 2001 means that instead of gradually increasing sales as of December 24, 2002, sales would already be at or very near their maximum market potential of 75% or more as of that date, due to the early start. The loss to the Plaintiffs would be the difference between an established generic product that has achieved maximum market penetration versus one which is only starting to gain market share. The loss to the Plaintiffs is depicted as the shaded area bounded by the full line and the dashed line in Chart 2 (Exhibit "C"). As can be seen, as of December 24, 2002, and forward for several months, Apotex, unless enjoined, will be making sales of its generic product at a volume that would far exceed the sales it could achieve for that period if Apotex were only to enter the market on December 24, 2002, upon expiry of the patent. All such sales are at the expense of the sales that would otherwise be made by the Plaintiffs.
To the extent such lost sales may not be compensable, as the Defendant's sales at that time will have occurred following the expiry of the patent, the Plaintiffs will clearly have suffered very significant harm in the form of irretrievable lost sales and loss of market share.
[20] For Apotex, Stephen R. Cole, the principal of a Toronto firm practising exclusively in the fields of business valuation, damage quantification and investigative and forensic accounting, states the following at paragraphs 51-56 of his affidavit:
These damages are readily calculable. Such losses are measured by comparing Apotex actual market share at any given point in time and comparing it to what that same market share would have been had Apotex only entered the market upon expiry of the patent.
This can be demonstrated graphically, much in the same way as has been done by Mr. Brogan and for the purposes of this explanation only, I will assume his rates of penetration for Apotex.
Using the same data provided by him, I have compiled Exhibit 3 showing Apotex' gain of market share over time, and BMS Canada's loss of market share, caused by Apotex, over the same time period.
In the event of a finding of infringement, BMS Canada's total damages are represented by the "blue area", the total area between the two curves.
The area marked "B" to the right of the vertical line drawn on the patent expiry date represents the "springboard" portion of the damages. Our computation of the Plaintiffs' damages, if any, include this "springboard" effect. This can be seen from the methodology for loss calculations set out in Exhibit 2 and graphically in Exhibits 3 and 5 of my affidavit and the "blue area" marked therein. Further, to be conservative, for the reasons noted in paragraph 39, it is overstated.
The fact that this can be demonstrated graphically using numbers taken from the Plaintiffs' own evidence, underscores the fact that such a loss is easily quantifiable. Of course, at trial, the Court will not be concerned with losses of market share per se but rather, the actual loss of profits related thereto.
[21] Although Mr. Brogan stated the plaintiffs will suffer "very significant harm in the form of irretrievable lost sales", the test to be met is one of irreparable harm, as defined in RJR-MacDonald, supra. It is not unreasonable to conclude damages are calculable, even "for irretrievable lost sales". Experts on behalf of both parties demonstrate ways to calculate, by way of graphs and further explanation, their prospective market shares whether Apotex enters the market either before or after expiry of the patent. Although the parties disagree on the maximum market share Apotex will obtain, and may disagree on the appropriate data or criteria to be used in assessing market share both before and after patent expiry, I am satisfied that any loss of market share can be calculated and that loss can be quantified in damages.
[22] The difficulty in precisely measuring damages and the fact that the parties do not agree on a particular calculation do not constitute irreparable harm in the circumstances of this case. The difficulty may be exacerbated if the plaintiffs begin to market their generic version of NH through Linson. Nevertheless, in my opinion, damages will be calculated in reasonable fashion, providing a normal remedy for infringement, if the trial finds that to have occurred, whether those are caused before or after expiry of the plaintiffs' patent.
[23] Furthermore, the plaintiffs' submissions as to Apotex' inability to pay such damages if they are awarded as a result of trial are, in my view, speculative at best. There is no evidence that Apotex would not pay damages, or profits that may be awarded against them.
[24] I turn now to consider the plaintiffs' third claim of irreparable harm, i.e., the decline in the total market that, it is said, will inevitably result from changes in marketing largely because of Apotex' practice of not marketing to doctors.
[25] This argument is outlined by Ms. Mercier in her affidavit at paragraph 22:
Therefore, my Company will have to reduce our spending on promotion, education, patient information, support and services, providing samples and free trade of nefazodone hydrochloride. This, combined with Apotex' failure to promote nefazodone hydrochloride, will mean a net decline in the overall market for nefazodone. Thus, without an injunction, BMS will lose its market share and the overall nefazodone market will begin to shrink.
[26] The shrinking market argument is also articulated by Mr. Brogan, at paragraph 35 of his affidavit:
Therefore, it can be expected that the Defendant's entry into the market will result in a sharp decrease in the promotional activity and investment by the Plaintiffs in relation to nefazodone hydrochloride, and that the total market for this drug for all producers will decline as a result. It will not be economically viable for the Plaintiffs to continue marketing, education and promotion in relation to this product. Such expenditures, as noted, would enure almost completely to the benefit of the Defendant and would therefore not be offset by resulting revenues.
And further, at paragraph 38:
There will therefore be a permanent loss of market share for nefazodone hydrochloride (both innovator and generic versions), and as a result a permanent loss of the Plaintiffs' portion of that market, after the entry into market by the generic manufacturer. If the Defendant enters the market two years prior to the expiry of the Plaintiffs' patent, the arrest of growth and decrease in the market for nefazodone hydrochloride will commence two years earlier than otherwise would be the case. The extent of this loss will depend on the behaviour of other brand name competitors already on the market, the entry of new competitors (brand and generic), changes to provincial government policies regarding reimbursement, and reaction of physicians to the generic nefazodone, among other factors. The quantification of the loss cannot reliably be predicted and cannot be established with any degree of confidence even after the fact.
[27] According to the plaintiffs, a shrinking of the overall market for NH cannot be adequately quantified in damages or assessed by an accounting of profits. On cross-examination of her affidavit, Ms. Mercier was questioned about a contraction of the overall market for NH (at questions 87 through 91), as follows:
Q. I am assuming the situation you are in now with Apotex on the market. What I am asking is: If you were to continue that same level of advertising, then you wouldn't have the problem of the shrinking market that you describe in your affidavit. Correct?
A. That is correct. However, if you did that, it would be a poor business decision because you would be increasing the marketplace for nefazodone not only for Bristol-Myers Squibb, but for Apotex as well, and on a profit-margin sense, it makes no sense.
Q. Assuming the scenario I have just posited to you, if you are right at trial about infringement, you wouldn't have this additional problem of the shrinking market that you talk about in your affidavit. In your affidavit I understand you are talking about loss of market share itself, and a contraction of the overall market. Is that correct?
A. Yes, that is correct.
Q. My point simply is, if you continue the same level of advertising, you may very well lose market share, but you won't have the problem of a shrinking overall market. Correct?
A. But you wouldn't do that, even win or lose the injunction, because at the present time what we are looking at is the fact that Apotex is in the marketplace.
Q. I understand, but I have given you a hypothetical situation. I have asked you, if you were to continue the same level of promotion that you - -
A. From last year.
Q. From last year or on the same basis that you have tracked it from year to year, you wouldn't have a problem with the shrinking market. You would only have your problem of loss of market share within that market.
A. That is accurate, yes.
[28] Mr. Brogan, in cross-examination on his affidavit, also agreed that the overall market for NH should not shrink if the plaintiffs continued to promote its product. Specifically, he states at questions 167 to 169:
Q. Let's assume that Bristol-Myers is correct that Apotex is an infringer, and let's assume that Apotex is good for any damages that would flow from that infringement. If Bristol-Myers were to continue to market the molecule, that would have the effect of keeping the number of prescriptions, all other things being equal, where they were going to be but for Apotex's entry.
A. When you say "market", you mean promote.
Q. Promote.
A. Because we used the word "market" earlier to mean sell, which it probably shouldn't do anyway.
Q. Promote.
A. Yes, I would agree. I think that would happen.
And further at question 175:
Q. If Apotex is an infringer and Bristol-Myers is correct that it is an infringer, when Bristol-Myers recovers its damages, if it continues to promote, it will get back the bigger number that Apotex has earned. So it's throwing that away as well by not promoting. Correct?
A. Leaving aside how infringement damages are decided - - because I don't know - - yes.
[29] Although the plaintiffs argue it will not make "good business sense" to continue promotion of its NH product, they have failed, in my view, to demonstrate that there will be a shrinking market caused by Apotex' entry on the market or that this would constitute irreparable harm as defined in RJR-MacDonald, supra. In my opinion, any decline in the overall market for NH, and any harm resulting therefrom, is purely speculative, at this stage. It might well be caused, at least in part, by any decision of the plaintiffs to decrease sales promotion, if that course be taken, rather than solely by Apotex' entry into the market. On the other hand, if the plaintiffs were to continue promoting their product, this might result in an increased volume of combined sales for both the plaintiffs and Apotex. Moreover, if Apotex is found to infringe the plaintiffs' patent at trial, an award of damages or an accounting of profits may indirectly compensate, at least in part, any loss to the plaintiffs arising from reduction in the overall NH market.
[30] The plaintiffs also argued that a loss of sales would result in a loss of goodwill. On the issue of goodwill, the Court of Appeal stated as follows in Centre Ice Ltd. v. National Hockey League, (1994), 53 C.P.R. (3d) 34 at 54 (F.C.A.):
Loss of goodwill, of reputation, of distinctiveness, if established after a full hearing at trial may well constitute irreparable harm and lead to the issuance of a permanent injunction. However, as this court's jurisprudence has shown, in the absence of clear evidence that irreparable harm would result at this juncture, an interlocutory injunction should not be issued.
In my opinion there is not clear evidence of a loss of goodwill, between now and the date of decision at trial, which would constitute irreparable harm if the plaintiffs succeed at trial. That may or may not be established at trial.
Conclusion:
[31] In my opinion, the plaintiffs failed to demonstrate that they will suffer irreparable harm if an injunction is not now issued pending trial and their claims are upheld at trial. Having so found I need not address the third part of the test, namely, the balance of convenience, for to succeed in their application the plaintiffs must meet all three requirements of the test set out in RJR-MacDonald, supra.
[32] For these reasons the plaintiffs' application for an interlocutory injunction was dismissed, by Order of this Court dated June 28, 2001. Costs were ordered to be in the cause.
(signed) W. Andrew MacKay
_____________________________
JUDGE
OTTAWA, Ontario
October 3, 2001.