Patent Damages Case Finds Non-Infringing Alternatives Irrelevant, Awards Compound Interest

On January 23, 2015, the Federal Court of Canada issued the judgment and reasons of Justice Zinn in Eli Lilly and Company v Apotex Inc, 2014 FC 1254 (Cefaclor Damages), the damages phase of a bifurcated patent infringement action. Cefaclor Damages addresses (i) the relevance of non-infringing alternatives in assessing patent damages; and (ii) the availability of compound interest on patent damages awards.

The underlying action was brought by Eli Lilly and Company and Eli Lilly Canada Inc (together, Lilly) against Apotex Inc (Apotex) for infringement of several patents covering processes for making key intermediates useful for manufacturing the drug cefaclor, a second generation cephalosporin antibiotic. In the liability phase of the action, the patents asserted by Lilly were found valid and infringed by Apotex (Eli Lilly and Company v Apotex Inc,2009 FC 991, aff’d 2010 FCA 240, leave to appeal to SCC refused, [2010] SCCA No 434).

Under the Patent Act, an infringer is liable for all damage sustained by the patentee during the life of the patent by reason of the infringement. The requirement for causation (liability limited to damage caused by the infringement) has led to some debate about the relevance of non-infringing alternatives available to the infringer at the time of infringement. Does the infringing act cause damage if a non-infringing act could have been performed instead?

The non-infringing alternative defence is recognized in the US but has not been adopted by Canadian courts. In Cefaclor Damages, Justice Zinn rejects the defence, stating:

In short, the causal connection must be examined in the real world. Damages arise if Lilly proves in the real world that, but for Apotex selling infringing product, it would have made some or all of those sales. The causal connection is not examined in the hypothetical world where the infringer engages in different conduct than that in which it actually engaged.

As part of the damages awarded to Lilly, Justice Zinn included an award of compound interest. In Justice Zinn’s view, where infringement is established and the plaintiff has elected to be compensated with damages (rather than an accounting of profits), the damages recoverable can include compound interest so long as the plaintiff demonstrates that it would have generated income on its lost profits. In this circumstance, compound interest must be considered among “all damage sustained by the patentee” for which an infringer is liable.

For the judgment and reasons in Cefaclor Damages, see here.