Ottawa, Ontario, the 6th day of March, 2007
PRESENT: The Honourable Mr. Justice Mosley
BETWEEN:
APOTEX INC.
Plaintiff
and
MERCK FROSST CANADA & CO.
Defendants
REASONS FOR ORDER AND ORDER
[1] This is an appeal by motion pursuant to Rule 51 of the Federal Courts Rules to set aside the order of Prothonotary Aronovitch, dated November 15, 2006, wherein the plaintiff Apotex Inc. (hereafter Apotex) was ordered to provide answers to a series of questions posed on discovery by the defendants Merck & Co., Inc., and Merck Frost Canada & Co. (hereafter Merck). The context is an action pursuant to section 8 of the Patented Medicines Notice of Compliance Regulations (the “regulations”).
BACKGROUND:
[2] The background to the action is set out in the decision of the Supreme Court of Canada in Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare) [1998] 2 S.C.R. 193. In brief, Merck was the exclusive North American licensee under a patent for the antibiotic norfloxacin. Novopharm Ltd.,was granted a compulsory license under the former regulatory regime which allowed it to begin manufacturing norfloxacin in Canada on or after July 2, 1993 and to import the drug on or after July 2, 1996. The compulsory licence expressly prohibited the granting of sub-licences. In a Notice of Allegation (NOA) served on April 19, 1993 Apotex sought a Notice of Compliance (NOC) to market its version of the antibiotic, Apo-Norfloxacin. The NOA indicated that until the ban on importing expired, the drug would be manufactured in Canada by Delmar Chemicals Inc. (Delmar) and supplied to Apotex by Novopharm. Thereafter, Apotex planned to import its supply from companies abroad such as a Spanish firm, Chemo Iberica.
[3] Merck began prohibition proceedings on May 31, 1993 and was initially successful before the applications judge, on a finding that the NOA was premature, and before the Federal Court of Appeal, on the ground that Apotex’ proposed arrangement with Novopharm constituted an illegal sub-license. On July 9, 1998 the Supreme Court of Canada allowed the appeal from the judgment of the Federal Court of Appeal and set aside the prohibition order. In essence, the Supreme Court concluded that the NOA was neither premature, as of the date it was issued, nor grounded upon a transfer of Novopharm’s proprietary interests in the compulsory license to Apotex. The Court left open the question whether other non-infringing means existed in which the medicine could be acquired.
[4] A NOC was issued to Apotex for its norfloxacin tablets on July 16, 2000. Novopharm also entered the market at the same time using imported material. In the action, launched on March 6, 2001, Apotex seeks remedies arising from the delay in receiving the NOC and loss of market share. In Apotex’ Amended Amended Statement of Claim dated September 25, 2001 it alleges that it suffered harm as a result and that "Delmar stood ready to enter into an arrangement with Novopharm to permit Novopharm to manufacture norfloxacin at its plant and use the Delmar process, as needed, for Novopharm to manufacture norfloxacin pursuant to the compulsory license for supply to Apotex."
[5] In its Statement of Defence and Counterclaim, Merck denies Apotex' allegation that Delmar stood ready to assist in the production of norfloxacin. Merck has also taken the position that the alleged arrangement would have amounted to an illegal sub-license since it would not be Novopharm but rather Apotex through Delmar who would be producing the drug. Merck also generally denies that Apotex had the ability to sell non-infringing norfloxacin at all or that Novopharm would have been prepared to supply it.
[6] The plaintiff's representative Dr. Bernard Sherman was examined for discovery on several dates in 2005 in 2006. On July 14, 2006 Merck brought a motion seeking an order compelling Dr. Sherman to answer questions that were refused or follow-up questions arising from the answers to undertakings that were provided during his examinations for discovery. On November 15, 2006 Prothonotary Aronovitch ordered that Apotex answer certain questions. As is common in interlocutory proceedings in case-managed actions of this nature, no reasons for the order were provided. Apotex objects to answering these questions on the basis that they are irrelevant to the issues between the parties.
ISSUES
[7] The issues addressed by the parties on this appeal are as follows:
1. What is the appropriate standard of review of the prothonotary’s decision?
2. Did the prothonotary err in principle or misapprehend the facts?
ANALYSIS
[8] As enunciated by the Federal Court of Appeal in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (C.A.) [Aqua-Gem] at p. 463 and slightly reformulated by Décary J.A. in Merck & Co. Inc. v. Apotex Inc., 2003 FCA 488, [2004] 2 F.C.R. 459,315 N.R. 175 at paragraph 19:
Discretionary orders of Prothonotaries ought not to be disturbed on appeal to a judge unless: a) the questions in the motion are vital to the final issue of the case, or
b) the orders are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts.
[9] Aqua-Gem also stands for the proposition that where the decision of the prothonotary falls within the scope of either of the two categories outlined above, a reviewing Judge may exercise his or her discretion de novo.
[10] In this case it is not submitted that the questions in the motion are vital to the final issue. Apotex contends that the prothonotary erred in principle and acted upon a misapprehension of the facts in ordering the plaintiff to answer questions which are, in its view: a) irrelevant to the issues in this proceeding; b) outside any relevant time period; c) deal with the quantification of damages, the assessment of which will be dealt with subsequently should liability be established; and d) seek irrelevant information regarding Apotex’ corporate structure.
[11] Apotex further argues that where a prothonotary fails to provide any reasons for decision, there is no basis upon which it can be discerned how or why the decision was arrived at, thus removing any basis for deference. Accordingly, Apotex submits, a de novo review is appropriate in the present case.
[12] Merck submits that Prothonotary Aronovitch has case managed these proceedings from the outset in the course of which she has made numerous interlocutory orders, including orders in relation to discovery. In that process, she has acquired an in-depth knowledge and understanding of the allegations and legal positions in this case. Moreover, the learned prothonotary has extensive experience in multiple proceedings under s. 8 of the Regulations. Accordingly, she has adopted a uniform and logically coherent approach in dealing with such files for which deference is due.
[13] The lack of reasons alone will not automatically give rise to a hearing de novo on an appeal from a prothonotary’s decision before a judge of this Court. This was the conclusion Justice François Lemieux reached in Anchor Brewing Co. v. Sleeman Brewing & Malting Co., 2001 FCT 1066, 15 C.P.R. (4th) 63 at para. 31 having reviewed the existing precedents. Justice Lemieux noted further at paragraph 32 of his reasons that:
De novo intervention is not justified when, examining all of the circumstances, including the nature of the order made, the evidence before the prothonotary, whether the exercise of discretion involves essentially a consideration of legal principles, reasonably demonstrate the manner in which the prothonotary exercised his/her discretion. [emphasis mine]
[14] In Merck & Co. v. Apotex Inc., 2003 FCA 488, [2004] 2 F.C.R. 459, the Court of Appeal provided the following useful advice about when the Court should give deference to the decision of a prothonotary, and when the Court should proceed de novo:
40 … Counsel invites the Court to apply the rule set out in Sawridge Band v. Canada, [2002] 2 F.C. 346 at 354 (F.C.A.), where Rothstein J.A. expressed the view that the Court should only interfere in decisions made by case management prothonotaries or judges "in the clearest case of misuse of judicial discretion" (see also Montana Band v. Canada, [2002] F.C.J. No. 1257, 2002 FCA 331; Apotex Inc. v. Merck & Co. et al, [2003] F.C.J. No. 1725, 2003 FCA 438).
41 This rule, of course, only applies where deference is owed; it does not apply where the discretion has to be exercised de novo, for example, where, as here, the question is vital to the final issue of the case or where the case management prothonotary or judge has made an error of principle (see Apotex, supra, para. 41). Indeed, in Apotex, Strayer J.A. refused to dilute the legal right a party has to have relevant questions answered on examination for discovery for the sake of enhancing the case management system and of expediting the whole process. Furthermore, as noted by Snider J. in Louis Bull Band, supra, it is not all orders made by a case management judge or prothonotary which are made "as a result of an ongoing management function" (para. 16): where an order deals with "a new matter in respect of which [the case management prothonotary] had no special knowledge", the Sawridge rule does not apply. Indeed, case management prothonotaries and judges are often asked to decide motions which far exceed the case management expertise they have gained in a given case. [emphasis mine]
[15] In this case the order in dispute was made as a result of the prothonotary’s ongoing management function. Over the course of five years of managing the proceedings, it is apparent that the prothonotary had gained a thorough knowledge of the facts and the issues. There is no indication of any misuse of the judicial discretion which the prothonotary brought to bear on the motion before her. Accordingly, I am satisfied that her decision should be given considerable deference.
[16] Apotex has not met its burden of showing that the learned prothonotary erred in principle or acted upon a misapprehension of the facts. To the contrary, I am satisfied that the questions were relevant and the decision to order them answered based upon a clear understanding of the facts of this case.
[17] For convenience, I will rely upon the four categories in which the plaintiff had grouped the disputed questions.
[18] In the first category are questions which Apotex says seek information regarding purported allegations of “infringement” not properly at issue in this proceeding, grounded as it is on Merck’s alleged failure to allow Apotex to market a licensed product. The majority of the questions in dispute are in this category. As noted above, the Supreme Court left open the question of whether other non-infringing means existed in which the medicine could have been acquired and marketed under a NOC. Apotex says that its case is based upon the availability of a licensed source of supply from Novopharm, whether infringing or non-infringing. Thus, it argues, the issue of whether the process to manufacture norfloxacin could be said to be infringing or non-infringing is irrelevant as the license permitted use of infringing material manufactured in Canada or imported after a certain date.
[19] The compulsory license did not permit Novopharm to import norfloxacin until July 2, 1996. Prior to that date, any importation of norfloxacin whether by Apotex or Novopharm would have constituted an infringement of Merck's patent on the drug. Part of Merck’s defence to the action is that during the period in which importation was barred, Apotex was trying to import the drugs from Spain. In its 1990 New Drug Submission (NDS), Apotex declared an overseas supplier, Chemo Iberica.
[20] In order to establish its claim that it lost an opportunity to legally sell an imported product between June 1993 and July 1996, when importation would have been permitted, Apotex will have to demonstrate at trial that its supply during this period would have been non-infringing. The questions to which it objects go largely to the process or processes under which the sources of supply Apotex was exploring would have been produced. In my view, the issue of infringement is relevant and the questions should have been answered. I also agree with Merck that it is entitled to ascertain whether the possible sources cited by Apotex could have in fact produced the drug.
[21] One question in this category, item number 48 in the list prepared by Apotex, was dealt with separately by the parties. The question seeks verification of whether Delmar ever supplied Apotex with a certificate of analysis and if so, called for production of the document. Apotex objects to what it describes as needless work and contends that it is apparent from the NOC that such certificates were submitted to the Minister of Health. This it says demonstrates conclusively that Delmar could indeed manufacture norfloxacin. But, as Merck argues, these certificates are relevant to an un-admitted allegation of fact: whether Delmar could manufacture norfloxacin and whether such norfloxacin could have been used in a pharmaceutical product. I am again in agreement with Merck that they should be permitted to pursue this line of inquiry.
[22] The four questions in the second category deal with matters put to Dr. Sherman about purchases of norfloxacin after July 1998. Apotex submits that this information is irrelevant to the action given the nature of Novopharm’s compulsory licence and that Merck has not made any allegation of infringement in respect of material obtained by Apotex after the grant of its NOC. As of July 1998, Novopharm and through it, Apotex, was permitted to acquire domestic or imported norfloxacin.
[23] However, in its Amended Amended Statement of Claim, Apotex seeks damages from both lost sales and permanent market share. The loss of market share extends past July 1998. In my view, therefore, questions as to the source of supply after that date would be relevant to that question of liability. They may also establish that the supply arrangement alleged in Apotex’ NDS and NOA would have constituted a violation of the terms of Novopharm's compulsory license.
[24] The two questions in the third category, numbers 63 and 70, are identical. They ask what quantity of norfloxacin was purchased from Novopharm in 1998 and onwards. Apotex submits that there is no basis for these questions to be ordered answered as they relate to quantification of damages or profits. By Order dated April 18, 2002, all such issues were to be determined in a proceeding subsequent to the determination of liability.
[25] Merck's position is that the quantities purchased after July 1998 are indicative of Apotex' ability to obtain norfloxacin during the period at issue. If it was unable to obtain an amount of norfloxacin sufficient to supply the market after its NOC was issued, an inference may be drawn that it is improbable that Apotex could have obtained enough of the drug prior to that date to enter the market. Had it been unable to do so, Merck’s liability would not be engaged.
[26] It seems to me that this line of inquiry goes both to liability and to damages. Apotex will have to demonstrate that the bar to its entering the market was more than hypothetical and that it was in a position to obtain a sufficient supply earlier. Its purchases after July 1998 from Novopharm, the compulsory license holder, are relevant to that issue.
[27] The remaining two questions, numbers 68 and 69, seek information relating to the relationship between Apotex, a company entitled Tarlanda Enterprises Limited (“Tarlanda”), and a trust agreement between the two firms and Delmar. During the examination Dr. Sherman described Tarlanda as a sister company to Apotex and stated that he was the directing mind of both companies and the trust. Apotex says that Tarlanda has a minority interest in Delmar. The inference is that a portion of Delmar’s production was, therefore, under the control of the single directing mind. Apotex submits that once its representative had acknowledged this, nothing more was required to make out any allegations regarding these companies’ relationship with Delmar.
[28] Merck's position is that any scheme concocted by Apotex by which Delmar would have been induced to manufacture norfloxacin for sale through Novopharm to Apotex would have been a sham transaction and would have nullified the compulsory license under which Novopharm was
entitled to manufacture the drug. Merck argues that the compulsory license does not contemplate "have made" rights and that it was not open for a third party such as Apotex to direct the production of the licensed drug by a company at least partially under its control.
[29] While the Supreme Court left open the question of whether other, non-infringing means existed in which the medicine could be acquired, it is clear from the reasons for judgment by Justice Iacobucci speaking for the Court, that it agreed with the conclusion of the Federal Court of Appeal that Apotex was limited to acquiring norfloxacin only from Novopharm and pursuant to the supply agreement. As stated at paragraph 22 of the reasons "[n]othing in the NOA can be taken as indicative of any real possibility that the norfloxacin would be obtained other than pursuant to the supply agreement."
[30] The supply agreement was dependent upon manufacture by Delmar for sale to Novopharm and sale by Novopharm to Apotex. It is a legitimate line of inquiry for Merck to explore the nature of the relationship between Apotex and Delmar. To do so, Merck is not obliged to accept Apotex' stipulation that there is a common controlling mind for it, Tarlanda and the Trust and is entitled to see the evidence upon which such a conclusion might be based. Merck need not wait for Apotex to produce at trial evidence which might tend to disprove that Delmar was under its control, through Tarlanda and the trust agreement.
CONCLUSION
[31] I find no reason to conclude that the learned prothonotary’s Order was clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts. Accordingly, this appeal by motion to set aside the November 15, 2006 Order will be dismissed.
[32] Merck seeks costs in the fixed amount of $3,000 for this motion. Having concluded from my review of the record and the submissions of the parties that there was no compelling reason to bring this motion, I will exercise my discretion to order that the amount be paid forthwith and in any event of the cause.
ORDER
THIS COURT ORDERS that the motion to set aside the Prothonotary’s Order of November 15, 2006 is dismissed. Costs are fixed at $3,000.00 to be paid forthwith and in any event of the cause.
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-411-01
STYLE OF CAUSE: APOTEX INC.
and
MERCK & CO. INC. and
MERCK FROSST CANADA & CO.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: February 12, 2007
APPEARANCES:
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N. Crofoot
|
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Brian Daley Azim Hussain
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SOLICITORS OF RECORD:
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N. CROFOOT Goodmans LLP Toronto, Ontario
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BRIAN DALEY AZIM HUSSAIN Ogilvy Renault LLP Montreal, Quebec |