T-1321-97
2004 FC 1445
Eli Lilly and Company and Eli Lilly Canada Inc. (Plaintiffs) (Defendants by Counterclaim)
v.
Apotex Inc. (Defendant) (Plaintiff by Counterclaim)
and
Shionogi & Co. Ltd. (Defendant by Counterclaim)
Indexed as: Eli Lilly and Co. v. Apotex (F.C.)
Federal Court, Hugessen J.--Ottawa, October 13 and 20, 2004.
Patents -- Inter-relationship between Patent Act, Competition Act -- Plaintiffs commencing action against defendant for infringement of eight cefaclor processing patents, four of which assigned to them by defendant by counterclaim -- Defendant alleging, in amended statement of defence and counterclaim, assignment resulting in undue lessening of competition contrary to Competition Act, s. 45, and thus entitled to Act, s. 36 damages -- Plaintiffs seeking summary judgment dismissing paragraphs of statement of defence and counterclaim alleging anti-competitive agreement contrary to Act, s. 45 -- Defendant by counterclaim seeking summary judgment dismissing counterclaim against it -- Patent Act and Competition Act to be read together harmoniously -- Meaning of "undue" in Act, s. 45 limited to restrictions on competition not specifically authorized by Patent Act -- Assignment of patents in present instance authorized by Patent Act, s. 50 and as dealing with nothing other than permitted assignment of patents, not undue -- Defendant's suit having no foundation in law -- Motions allowed.
This was a rehearing of two motions for summary judgment against Apotex. In 1997, Eli Lilly and Company and Eli Lilly Canada Inc. (collectively Lilly) commenced an action against Apotex Inc. (Apotex) for infringement of eight patents pertaining to the processing of the antibiotic cefaclor, four of which had been assigned to them by Shionogi & Co. Ltd. (Shionogi) in 1995. In its amended statement of defence and counterclaim, which included Shionogi as a defendant by counterclaim, Apotex alleged that the assignments to Lilly constituted an agreement that resulted in an undue lessening of competition contrary to section 45 of the Competition Act and thus entitled Apotex to damages under section 36 of the Act. Lilly sought summary judgment dismissing those paragraphs of the statement of defence and counterclaim that were based on an anti-competitive agreement between Lilly and Shionogi and dismissing the counterclaim against Shionogi. Shionogi sought summary judgment dismissing the counterclaim against it. The Motions Judge relied on the decision of the Federal Court of Appeal in Molnlycke AB v. Kimberly-Clark of Canada Ltd. et al. and granted both motions. That decision was appealed and the Federal Court of Appeal held that, although the Motions Judge had correctly concluded that he was bound by Molnlycke, he had overestimated the reach of that decision and he had not made a finding that it applied to the facts of this case as shown in the evidence. The motions for summary judgment were thus remitted for further consideration by the Motions Judge. The following issues were to be addressed: (1) Whether subsection 45(1) of the Act can apply to an agreement involving the exercise of patent rights; (2) if so, whether there were sufficient facts to prove that Lilly and Shionogi engaged in conduct contrary to section 45; and (3) whether Apotex was precluded from claiming damages.
Held, the motions should be allowed.
(1) The Patent Act does not insulate from liability under the Competition Act any and every agreement which may also have to do with the exercise of patent rights. However, the two statutes must be read together harmoniously. The meaning of the key word "undue" in section 45 is limited to restrictions on competition which are not specifically authorized by the Patent Act. An undue impairment of competition cannot be inferred from evidence of the existence of patent rights alone.
(2) It was not contested that the result of the assignment of Shionogi's patents to Lilly was to increase the latter's monopoly power. Apart from that assignment, there was no other agreement alleged or shown by the evidence which could be the basis of a section 45 offence. For Apotex' claim to succeed, it had to show that conduct contrary to the provisions of section 45, i.e. Apotex had to show the existence of an agreement the intent or effect of which was to unduly lessen competition. The assignment of a patent (monopoly right) is a transaction which has been specifically authorized by Parliament in section 50 of the Patent Act. Since the agreement at issue here had been so authorized and dealt with nothing other than the permitted assignment of patents, its effects could not be undue and the number of patents involved or of other players in the market was irrelevant. Apotex' suit therefore had no foundation in law and was dismissed on summary judgment.
(3) Although it was not necessary to address the third question in light of its findings on the first two questions, the Court did indicate that it was not appropriate to give effect on summary judgment to the defences raised by Lilly and Shionogi (that Apotex was precluded from claiming damages).
statutes and regulations judicially
considered
Competition Act, R.S.C., 1985, c. C-34, ss. 1 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19), 36 (as am. by R.S.C., 1985 (4th Supp.), c. 1, s. 11), 45 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 30; S.C. 1991, c. 47, s. 714).
| Federal Court Rules, 1998, SOR/98-106, Tariff B, Column III. |
| Patent Act, R.S.C., 1985, c. P-4, s. 50 (as am. by R.S.C., 1985 (3rd Supp.), c. 33, s. 20). |
cases judicially considered
applied:
Molnlycke AB v. Kimberly-Clark of Canada Ltd. et al. (1991), 36 C.P.R. (3d) 493; 132 N.R. 315 (F.C.A.).
considered:
Eli Lilly and Co. v. Apotex Inc. (2003), 28 C.P.R. (4th) 37; 2003 FC 1171; Eli Lilly and Co. v. Apotex Inc. (2004), 240 D.L.R. (4th) 679; 32 C.P.R. (4th) 195; 323 N.R. 180; 2004 FCA 232.
MOTIONS for summary judgment dismissing those paragraphs of the defendant's statement of defence and counterclaim that were based on an anti-competitive agreement between the plaintiffs and the defendant by counterclaim, and dismissing the counterclaim against the defendant by counterclaim. Motions allowed.
appearances:
Anthony George Creber and John Norman for plaintiffs (defendants by counterclaim).
Harry B. Radomski and David Scrimger for defendant Apotex (plaintiff by counterclaim).
A. David Morrow and Colin B. Ingram for defendant by counterclaim Shionogi.
solicitors of record:
Gowling Lafleur Henderson LLP, Ottawa, for plaintiffs (defendants by counterclaim).
Goodmans LLP, Toronto, for defendant Apotex (plaintiff by counterclaim).
Smart & Biggar, Ottawa, for defendant by counterclaim Shionogi.
The following are the reasons for order and order rendered in English by
Hugessen J.:
Background
[1]In 1997, Eli Lilly and Company and Eli Lilly Canada Inc. (collectively Lilly) commenced an action against Apotex Inc. (Apotex) for infringement of eight patents pertaining to the processing of the antibiotic cefaclor. Of the eight patents Lilly claimed were infringed by Apotex, four had been assigned to it by Shionogi & Co. Ltd. (Shionogi) in 1995.
[2]By amendments to its statement of defence and by counterclaim made in 2001, Apotex alleged that certain conduct of Lilly violated section 45 [as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 30; S.C. 1991, c. 47, s. 714] of the Competition Act, R.S.C., 1985, c. C-34 [s. 1 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19)] (Competition Act), thereby entitling Apotex to damages under section 36 [as am. by R.S.C., 1985 (4th Supp.), c. 1, s. 11] of that Act. In 2002, Apotex further amended its statement of defence and counterclaim to add Shionogi as a defendant by counterclaim in the proceedings as part of its claim for damages under the Competition Act. More precisely, Apotex asserts that the assignments to Lilly constituted an agreement that resulted in an undue lessening of competition contrary to section 45 of the Competition Act.
[3]In October 2003, three motions were brought before me. In the first, Lilly sought summary judgment dismissing those paragraphs of Apotex' statement of defence and counterclaim that were based on an anti-competitive agreement between Lilly and Shionogi and dismissing the counterclaim against Shionogi. In the second motion, Shionogi sought summary judgment dismissing the counterclaim against it. The third motion, also brought by Shionogi, was an appeal from an order of Prothonotary Aronovitch in which she had refused to strike the Apotex counterclaim against Shionogi.
[4]I dealt with all three motions together. I considered as a preliminary question of law whether Apotex' allegations respecting conduct contrary to section 45 of the Competition Act by Eli Lilly and Shionogi disclosed a cause of action and found that they did not.
[5]In coming to that conclusion regarding the absence of a cause of action, I relied on the decision of the Federal Court of Appeal in Molnlycke AB v. Kimberly-Clark of Canada Ltd. et al. (1991), 36 C.P.R. (3d) 493 (F.C.A.) (Molnlycke) which I considered to be a binding precedent and dispositive of the matter.
[6]Accordingly, I allowed the appeal from the Prothonotary and granted both motions for summary judgment [(2003), 28 C.P.R. (4th) 37 (F.C.)]. I struck out those paragraphs of Apotex' statement of defence and counterclaim that were based on allegations of an anti-competitive agreement between Lilly and Shionogi and dismissed the counterclaim against Shionogi. Apotex appealed that decision.
[7]In its reasons for order, the Federal Court of Appeal [(2004), 240 D.L.R. (4th) 679] stated that I correctly concluded that I was bound by Molnlycke. Nevertheless, the Court of Appeal was of the view that I had overestimated the reach of Molnlycke and that I had not made a finding that it applied to the facts of this case as shown in the evidence. Thus, while not overruling Molnlycke, the Court allowed the appeal on the two motions for summary judgment and directed that they should be remitted for further consideration by me.
[8]Specifically, the Court of Appeal set out that at a minimum I would have to address:
(1) Whether subsection 45(1) can ever apply to an agreement involving the exercise of patent rights;
(2) If it can, whether the facts of this case are sufficient to prove that Lilly and Shionogi engaged in conduct that was contrary to section 45 of the Competition Act.
(3) Finally, even if Apotex can establish that section 45 applies and that Lilly and Shionogi's conduct was contrary to section 45, I still have to determine if any of the other arguments raised by Lilly and Shionogi, which I did not originally consider, prevent Apotex from recovering damages under section 36 of the Competition Act. These include whether Apotex is precluded from claiming damages, because:
- The cause of action is statute-barred;
- Apotex has not suffered damages; and /or
- Eli Lilly and Shionogi are exempt under the research and development exemption.
Analysis
[9]On the first question, it appears to me to be undoubted that the Patent Act [R.S.C., 1985, c. P-4] does not have the effect of insulating from liability under the Competition Act any and every agreement which may also have to do with the exercise of patent rights. However, where an agreement deals only with patent rights and is itself specifically authorized by the Patent Act, any lessening of competition resulting therefrom, being authorized by Parliament, is not "undue" and is not an offence under section 45. The two statutes must be read together harmoniously and that can only be done if the meaning of the key word "undue" in section 45 is limited to restrictions on competition which are not specifically authorized by the Patent Act.
[10]Thus, as Molnlycke makes clear, agreements involving the mere exercise of patent rights are exempt from subsection 45(1). The basic proposition of Molnlycke, which was accepted by the Court of Appeal in the present case, is that an undue impairment of competition cannot be inferred from evidence of the exercise of patent rights alone.
[11]The second question asks whether on the facts of this case there is evidence of an agreement between Lilly and Shionogi whose effect is to unduly lessen competition. The essentials of those facts are not in dispute. In the reasons for my earlier order in this case I said, among other things [at paragraph 14]:
There remains the fact that the assigned Shionogi Patents were for processes useful in the production of cefaclor, that the patent for the product cefaclor itself had expired, and that Lilly was the owner of the other process patents useful for the same purpose.
[12]That finding finds its echo in the reasons given in the Court of Appeal [at paragraph 17]:
In the present case, Apotex does not allege that it is the mere assignment of patent rights or the enforcement of those patent rights by Lilly that gave it a cause of action. Rather, Apotex says that the assignment in this case resulted in one company, Lilly, acquiring patent rights that allow it to control all of the commercially viable processes for making cefaclor where, before the agreement, those processes were controlled by two companies, Shionogi and Lilly.
[13]To avoid any possible doubt, what was stated by the Court of Appeal in the quoted passage to be an allegation of Apotex is a fact amply demonstrated by the evidence and not seriously contested by either Lilly or Shionogi.
[14]So, there is and never has been any doubt that the result of the assignment of Shionogi's patents to Lilly was to increase the latter's monopoly power. Where formerly it had held four process patents useful in the production of cefaclor, it now held eight and no one else held any. In a word, it had a monopoly of the known production processes. It may well have been in a position of market dominance.
[15]The agreement which constitutes the conspiracy alleged by Apotex, however, is solely and exclusively the assignment of the Shionogi patents and there is no other agreement alleged or shown by the evidence which could be the basis of a section 45 offence.
[16]But the assignment of a patent is a transaction which has been specifically authorized by Parliament. Section 50 [as am. by R.S.C., 1985 (3rd Supp.), c. 33, s. 20] of the Patent Act reads in relevant part:
50. (1) Every patent issued for an invention is assignable in law, either as to the whole interest or as to any part thereof, by an instrument in writing.
[17]This is no mere formal authorization, nor is it, as Apotex argues, the simple confirmation of the normal right of any owner of property to sell or assign it to another. What Parliament is dealing with here is a patent, a monopoly. The monopolist is given specific legal warrant to deal in his monopoly by transferring it to another. The provision would not be necessary if it did not go beyond the right of every proprietor to deal with his own as he or she sees fit.
[18]Section 36 of the Competition Act, which creates the right of action asserted by Apotex in its counterclaim against both Lilly and Shionogi reads in relevant part:
36. (1) Any person who has suffered loss or damage as a result of
(a) conduct that is contrary to any provision of Part VI, or
(b) the failure of any person to comply with an order of the Tribunal or another court under this Act
may, in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct or failed to comply with the order an amount equal to the loss or damage proved to have been suffered by him, . . . .
[19]Since there is no question in the present action of Lilly or Shionogi disobeying any order of the Tribunal or of another court, and since the only relevant provision of Part VI is section 45, Apotex' claim must stand or fall on a showing of conduct contrary to the provisions of that section.
[20]The basic elements of the offence under section 45 of the Competition Act are first, an agreement, and, second, its intent or effect of unduly lessening competition. The relevant text reads:
45. (1) Every one who conspires, combines, agrees or arranges with another person
(a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product,
(b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof,
(c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance on persons or property, or
(d) to otherwise restrain or injure competition unduly,
is guilty of an indictable offence
[21]But as we have seen, in section 50 of the Patent Act Parliament specifically authorizes the agreement ("an instrument in writing") to assign a monopoly right. Assuming that the patent is for an invention that is useful and marketable, which in the present case it manifestly was, that agreement has for a necessary consequence an increase in the assignee's market power. But, since the agreement has been so authorized and deals with nothing other than the permitted assignment of patents, its effects cannot be undue and the number of patents involved or of other players in the market is irrelevant.
[22]Accordingly, my answer to the second question is that although there was an agreement between Lilly and Shionogi and although it had the effect of lessening competition, that lessening was not undue because it had been authorized by an Act of Parliament. It is possible, of course, that the agreement would be "reviewable" under the provisions of some Part of the Competition Act other than Part VI but that would not be enough to bring it within the ambit of section 45 and therefore to form the basis of Apotex' civil suit under section 36. That suit has no foundation in law and must be dismissed on summary judgment.
[23]I would add that this conclusion which flows from the very words of the relevant statutes is also in my view fully compatible with the "Intellectual Property Enforcement Guidelines" issued by the Competition Bureau.
[24]This brings me to the third question remitted to me. When these motions were previously before me I did not find it necessary to answer this question. In light of my present finding that is still the case. In my view, scarce judicial resources ought not to be spent unnecessarily. However, out of respect for the source of the question, I will indicate very briefly here why I would not give effect on summary judgment to any of the three defences raised by Lilly and Shionogi. The argument that Apotex has suffered no damage is based on the latter's admissions that it was not delayed in successfully bringing its version of cefaclor to market and that the measure of its damages will simply be the payments it will have to make to Lilly if the latter is successful in the present patent infringement action. While that appears to me to be a rather strange proposition in law, it is not clear that it cannot succeed and if Apotex were otherwise successful on its section 36 claim, I would not be prepared to dismiss it on that basis alone at the summary judgment stage.
[25]As to both Lilly's and Shionogi's arguments that the Apotex claim is either prescribed or is saved by the research and development defence, there is sufficient conflict and lack of clarity in the relevant evidence on the questions of foreseeability and the reach of the 1975 research and development agreement between Lilly and Shionogi that those questions are not suitable for summary judgment and should only be resolved after a full trial.
Conclusion
[26]In summary, the answer to the first question is yes, to the second no, and while the third question does not arise, it too would receive a negative answer.
[27]The motions for summary judgment will be allowed, the relevant paragraphs of Apotex' defence and counterclaim against Lilly will be struck out and the claim against Shionogi will be dismissed. Lilly and Shionogi will each have their costs to be assessed in the normal way.
ORDER
The motions are allowed with costs. Paragraphs 18 to 22 and 26 of the statement of defence and paragraphs 105 to 112(b) of the counterclaim against Lilly are struck out; the counterclaim against Shionogi is dismissed with costs. Lilly and Shionogi shall each have their costs to be assessed under Tariff B, Column III [Federal Court Rules, 1998, SOR/98-106].