Federal Court Outlines How to Calculate Section 8 Damages, Clarifies Evidentiary Issues and Rejects Pipefill Claim

The Federal Court in Eli Lilly Canada Inc v Teva Canada Ltd, 2017 FC 88 established how to calculate the section 8 damages Teva was entitled to as a result of being prevented from entering the olanzapine market in 2006-2007. Two evidentiary issues relating to fact witnesses and hearsay evidence were clarified, and Teva’s claim for a pipefill adjustment was rejected.

Under section 8 of the PM(NOC) Regulations, when the Court dismisses an innovator’s application for a prohibition order, the innovator is liable to the generic manufacturer for any losses suffered during the relevant period.

The Court, in agreement with Teva, found that the period of liability was from March 3, 2006 to June 5, 2007 - representing when Teva would have received an NOC but for Eli Lilly’s application, to the date the application for a prohibition order was dismissed. Eli Lilly had disputed the start date on the grounds that Teva abandoned its claim to damages and because Teva could not have marketed its product sooner than March 22, 2007.

Justice O’Reilly stated that in order to determine the amount of compensation, if any, Teva was entitled to “one must create a hypothetical “but-for” world in which Eli Lilly would not have brought an application whose effect was to deny Teva access to the olanzapine market.”

In this context, the Court considered two evidentiary issues:

1) whether fact witnesses could testify about what they thought would or would not have happened in the but-for world; and

2) whether hearsay evidence was admissible.

It was clarified that fact witnesses are restricted to only providing facts within their own knowledge and cannot provide their opinions. Furthermore, hearsay evidence is not admissible unless it falls within a recognized exception, or meets the requirements of necessity and reliability.

While both parties agreed that the size of the market for olanzapine in the but-for world would be the same as the real world market, the parties did not agree on how quickly Teva could have entered that market in British Columbia, Alberta, Saskatchewan and Manitoba. The Court stated that in each market, one would have to look at what happened in the real world and then consider whether something different would have happened in the but-for world.

Given Eli Lilly’s actual behaviour, it was determined that Teva would have been the only generic olanzapine product on the market throughout the relevant period. Teva’s proposed trade spend of 29.4% was accepted by the Court because, as the sole source for the generic product, its trade spend on olanzapine would have been low in the but-for world.

Teva’s argument that its losses should include a pipefill adjustment was rejected as it was held that pipefill did not represent lost sales. Pipefill is the differential between retail sales and the quantity of the product leaving the factory, which would have been sold outside of the relevant period.

Teva was found to be entitled to pre-judgment interest from March 3, 2006, and post-judgment interest as of June 5, 2007.