DATE: 20020124 DOCKET: C35755

COURT OF APPEAL FOR ONTARIO

FELDMAN, MACPHERSON AND CRONK JJ.A.

B E T W E E N :

BAYER AKTIENGESELLSCHAFT and MILES CANADA INC.

Neil R. Belmore and Peter Choe for the respondents

Plaintiffs (Respondents)

• and -

APOTEX INC.

H.B. Radomski, Richard Naiberg and Julie Rosenthal for the appellant

Defendant (Appellant)

Heard: December 3, 2001

On appeal from the judgment of Justice Sidney Lederman dated January 2, 2001.

MACPHERSON J.A.:

A. INTRODUCTION

[1] This appeal arises out of the infringement by Apotex Inc. (“Apotex”), a leading Canadian pharmaceutical company, of the patent for a coronary disease capsule of Bayer Aktiengesellschaft (“Bayer”), a major international company in the same field.

[2] The principal issues on the appeal relate to the appropriate remedy for patent infringement. The trial judge determined that the remedy in this case should be, at Bayer’s election, either damages or an accounting for profits earned through the infringement. The trial judge then referred the quantification of damages or profits to a referee. However, he determined one specific matter relevant to the question of quantification, namely that all capsules sold by Apotex should be counted. The appellant, Apotex, appeals both of these components of the trial judge’s decision.

B. FACTS

(1) The parties and the events

[3] The appellant, Apotex, manufactured and sold a capsule which could be used in treating angina pectoris attacks. Bayer[^1] thought that Apotex’s product infringed its patent for a similar product. Bayer commenced an action against Apotex.

(2) The litigation

[4] As in many patent infringement cases, the trial was divided into two stages – liability and remedy.

[5] At the first stage, the trial judge, Lederman J., held that Apotex had infringed Bayer’s patent: see Bayer Aktiengesellschaft and Miles Canada Inc. v. Apotex Inc. (1995), 60 C.P.R. (3d) 58. This conclusion was affirmed by this court: (1998), 82 C.P.R. (3d) 526. The court, speaking through Cumming J. (ad hoc), also held, at p. 541:

Bayer and Miles are entitled to damages, or an accounting of the profits made by the defendant, for the infringement of its patent over this period of time. The matter is referred back to the trial judge for a determination of the remedy consequential to the finding of an infringement of Bayer’s patent.

[6] Lederman J. received evidence and conducted a hearing on the remedy issue. He wrote a comprehensive set of reasons, and concluded in this fashion:

Conclusion

Section 57(1) of the Patent Act, R.S.C. 1985, c. P-4, authorizes an award of an accounting for the profits earned through the infringement. The circumstances present in this case warrant that this remedy be available to Bayer. The plaintiffs, therefore, will have an Order awarding damages or an accounting of the profits made by the defendant for patent infringement, whichever they may, upon inquiry, elect.

The parties are to prepare a timetable for conducting the reference. On that reference, in respect of damages or profits, sales of all infringing Apo-Nifed capsules are to be considered and Apotex may not apportion revenues as between those Apo-Nifed capsules actually bitten, and those that were swallowed.

[7] Apotex appeals from the conclusions reached by the trial judge in both of these paragraphs. Apotex’s position is that Bayer should be limited to the remedy of damages and should not be permitted to elect (as Bayer in fact has elected) the alternative, and equitable, remedy of accounting for the profits received through the infringement. Moreover, Apotex contends that the trial judge erred by giving any directions to the referee or, in the alternative, he erred by giving the direction that all of the capsules sold by Apotex should be counted and serve as the basis for the quantification of damages or profits.

C. ISSUES

[8] The issues on the appeal[^2] are:

(1) Did the trial judge err by permitting Bayer to elect an accounting for profits as a remedy for the infringement of its patent?

(2) Did the trial judge err by directing that the referee count all infringing capsules, and not just those actually bitten by patients, when calculating profits?

D. ANALYSIS

(1) The accounting for profits remedy

[9] Apotex contends that the trial judge made three errors in his analysis supporting the conclusion that Bayer could elect the remedy of an accounting for profits.

(a) Burden of proof

[10] The first alleged error is that the trial judge reversed the burden of proof by not directing himself to a consideration of whether Bayer had demonstrated an entitlement to the remedy of an accounting for profits.

[11] In my view, this is a very weak argument. Section 57(1) of the Patent Act, R.S.C. 1985, c. 33, gives the trial judge in an action for infringement of a patent a wide discretion to “make such order as the . . . judge sees fit”, including, in paragraph (b), an order “for and respecting . . . account”. In several leading patent cases, this discretion has been specifically applied to the remedy of an accounting for profits: see, for example, Beloit Canada Ltd. v. Valmet-Dominion Inc. (1997), 73 C.P.R. (3d) 321 at 361 (F.C.A.) and Apotex Inc. v. Merck & Co. (1996), 70 C.P.R. (3d) 183 (F.C.A.).

[12] Apotex v. Merck & Co. is particularly relevant to the present appeal because in that case Apotex made precisely the same argument about the trial judge reversing the burden of proof. In brief reasons, Linden J.A. rejected this argument, concluding that “in matters of the granting of equitable relief no legal presumptions are controlling, something the Trial Judge clearly understood” (p. 184).

[13] I would say the same about Lederman J.’s reasons in the present case. In his endorsement dated June 17, 1999, which directed a hearing on the remedy issue, he wrote:

The remedy of an accounting of profits is not one to which a plaintiff is entitled as of right following a finding of infringement. Rather, the right to elect such a remedy is a matter within the discretion of a trial judge.

[14] Moreover, in his reasons granting the accounting for profits remedy, the trial judge very carefully considered a wide range of relevant factors, including delay, windfall, complexity of calculation (as compared to damages) and the conduct of Apotex (“when Bayer commenced this action, Apotex as licensee attacked the patent which put Bayer in jeopardy in respect of its entire market”).

[15] In summary, the trial judge did not err – indeed he did not come close to erring – on the elementary question of burden of proof. He understood that the remedy of an accounting for profits was a discretionary one and he carefully and fairly considered the relevant factors before making his decision.

(b) Improper interpretation of Bayer’s patent

[16] It is clear that at both stages of the action, liability and remedy, Apotex’s central submission was that the unique feature of Bayer’s patent was the biteability or “instant oral release” component of its capsule and that Apotex’s capsule was not marketed for sale with any emphasis on this feature. Lederman J. rejected that argument. In the judgment under appeal he said:

[I]t is not open to the defendant to argue that a single aspect of the infringing product was not a factor in the marketability of that product. It may be that the defendant could have successfully marketed a product with features different from the plaintiffs’. The fact is that it did not. Since the plaintiffs’ patent pertains to the whole of the product, so too does the defendant’s infringement.

[17] Apotex contends that the trial judge misconstrued Bayer’s patent when he stated in another part of his reasons that “Bayer’s patent is not limited to the biteable capsule” because it ignores the description in Bayer’s patent of a capsule with “instant oral release”. Accordingly, Apotex submits, any remedy should be limited to only biteable capsules. Since very few of Apotex’s infringing capsules were actually bitten, this would greatly reduce the quantum of any remedy.

[18] There are several problems with this argument. First, Apotex’s capsules have been held by the trial judge and this court to be biteable capsules. So any “error” correction to restrict the patent to merely biteable capsules would not help Apotex because its capsules have been determined to be biteable, and hence infringing, capsules.

[19] Second, even if some (indeed most) of Apotex’s capsules were excluded under a narrowed interpretation of the patent, that is irrelevant in terms of which remedy is appropriate. Such an exclusion would speak only to quantum, not to choice of remedy.

[20] Third, the trial judge did not commit the error alleged by Apotex. His use of the word “limited” was not meant to state that the biteability feature was not an element of Bayer’s patent. Indeed, he meant, and conveyed, the opposite, namely that Apotex had copied all of the elements of the patent and not just the biteability feature. This is clear from the sentence immediately following the impugned sentence. The two sentences together state: “First, Bayer’s patent is not limited to the biteable capsule. The evidence at trial was that, while the many individual aspects of the plaintiff’s product were not unique, there was uniqueness in their specific combination”.

[21] In summary, Apotex’s argument on this point is a disguised attempt to re-argue the main point it lost at the liability stage of the trial – the nature of its infringement of Bayer’s patent. Moreover, the argument is irrelevant on the issue of choice of remedy for infringement of the patent.

(c) The link between infringement and profits

[22] Apotex contends that the trial judge erred by failing to consider whether Apotex’s profits were attributable to factors other than its infringement of Bayer’s patent. It submits that an apportionment of profits is possible because the biteability factor in Bayer’s patent was virtually irrelevant in terms of Apotex’s sales of its capsules.

[23] In making this submission, Apotex relies on Lubrizol Corp. v. Imperial Oil Ltd. (1996), 71 C.P.R. (3d) 26 (F.C.A.) (“Lubrizol”). In that case, Imperial Oil infringed Lubrizol’s patent by using its dispersant additive in its motor oil. Although the appeal related to the production of documents, the context within which this issue arose was Imperial Oil’s assertion that it was entitled to apportion its profits on its sales of the infringing motor oils because those sales depended in part on non-infringing components of the product. The Federal Court of Appeal agreed with this submission. Hugessen J.A. stated, at pp. 30-31:

The issue of apportionment is at bottom a question of fact bearing on the relationship between the profits earned and the appropriation of the plaintiff’s invention. It may be possible for Imperial to show that some part of the profits made on the infringing sales are not profits “arising from” the infringement in that they are not caused by but simply made on the occasion of such infringement.

[T]he reality is that Lubrizol did not invent motor oil and that Imperial’s motor oils contain other additives than the one here in issue . . . . Thus it is possible that such oils have achieved their market share and attendant profits for reasons other than the presence of Lubrizol’s patented additive. A finding that Imperial’s motor oils infringed the Lubrizol patent does not necessarily amount to a finding that all the profits from the sales of such motor oils are profits arising from the infringement.

[24] Apotex contends that its sales of capsules did not depend on the biteability characteristic. Accordingly, an accounting for profits should permit an apportionment to take account of this factor.

[25] I disagree. Lubrizol is inapplicable because in the present case there was an express finding by the trial judge, confirmed by this court, that the Bayer capsule as a whole, not just its biteability factor, was protected by the patent. As restated and explained by the trial judge in his reasons relating to remedy:

The defendant manufactured and sold a product which, in its entirety, infringed the plaintiff’s patent. It made, presumably, a profit from those sales. It defies logic to suggest that these two facts taken together do not add up to a causal link.

Since the defendant’s product was infringing by virtue of its entire configuration, it is conceptually impossible for there to be a division of profits between infringing and non-infringing elements. [Emphasis added.]

[26] I agree with this analysis, as did this court when it upheld Lederman J.’s identical line of reasoning in his judgment on the liability issue. As expressed by Cumming J. (ad hoc) in the appeal judgment, at p. 531:

The trial judge found that claims 1 and 14 of ′582 constitute product claims in that they describe a physical product, as opposed to addressing how the capsule is to be used.

On the basis of the evidence tendered at trial, the trial judge found that Apotex’s product falls within the claims of Bayer’s ′582 patent. I agree with Lederman J.’s reasoning and conclusions on this issue.

[27] In summary, I reach the same conclusion as in the previous section of these reasons. Apotex’s argument is a disguised attempt to re-argue the main point it lost at the liability stage of the trial and it is irrelevant on the remedy issue.

(2) The direction to the referee

[28] For ease of reference, I set out again the passage in the trial judge’s reasons which the appellant challenges:

The parties are to prepare a timetable for conducting the reference. On that reference, in respect of damages or profits, sales of all infringing Apo-Nifed capsules are to be considered and Apotex may not apportion revenues as between those Apo-Nifed capsules actually bitten, and those that were swallowed.

Apotex challenges this conclusion in two respects.

(a) Fair hearing

[29] Apotex contends that the trial judge erred by giving any direction to the referee. It submits that the issue of directions was not properly before the court and that all issues relating to an accounting for profits should have been left to the referee.

[30] I have difficulty understanding this submission. The principal arguments Apotex made in the two stages of the hearing were that the core of Bayer’s patent was the biteability feature and that there was no causal link between Apotex’s infringement of the patent and its profits. Apotex initiated, and was given the opportunity to fully develop, these arguments. The trial judge rejected them. Having done so, it made perfect sense for the trial judge to remove them from the quantification hearing to be conducted by the referee.

(b) Function of referee usurped

[31] Apotex contends that the question of whether the profits arising on the sale of an infringing product result from the infringement is a question of fact for the referee and should not be determined by the trial judge.

[32] In my view, this argument overlaps almost completely with the previous one. Before the trial judge, Apotex argued strenuously that there was no causal link between its infringement and its profits. It cannot now resile from that position and argue that the component of the apportionment issue relating to the nature of the patent infringement and to the number of pills to be counted on the reference should be left to the referee. These matters were determined by the trial judge in response to Apotex’s arguments. They are not live issues. On the reference, the referee must count all of the infringing capsules sold by Apotex.

[33] In any event, a referee conducts a reference pursuant to the directions of a judge and makes a report to the judge. I can see no objection to a trial judge structuring the conduct of a reference to take account of the judge’s decisions leading up to the reference.

E. CONCLUSIONS AND DISPOSITION

[34] In Apotex Inc. v. Merck & Co., supra, Linden J.A. considered the remedy of an accounting for profits for infringement of a patent. He stated that “the matter of granting of this equitable remedy is in the discretion of the Trial Judge and is not lightly interfered with by the Court of Appeal” (p. 183).

[35] I agree with this statement. In the present case, I see no basis for interfering with the trial judge’s conclusion that an accounting for profits is an appropriate remedy, at Bayer’s election. Moreover, the direction the trial judge made to the referee on the apportionment of revenues issue was one that flowed naturally and, in my view, correctly from the decisions he made on the liability and remedy issues.

[36] I would dismiss the appeal with costs.

RELEASED: January 24, 2002

“J. C. MacPherson J.A.”

“I agree K. Feldman J.A.”

“I agree E. A. Cronk J.A.”

[^1]: The second appellant, Miles Canada Inc., is a wholly owned Canadian subsidiary of Bayer. In these reasons, I use “Bayer” to refer to both appellants.

[^2]: The respondents brought a motion to introduce new evidence on the appeal, specifically an affidavit by William Dovey, an accountant, relating to Apotex’s export sales of the infringing patent. The appellant contested this motion, but also filed a responding affidavit by Jack Kay, the President of Apotex. The respondents then filed a reply affidavit by William Dovey. All of these affidavits were filed virtually on the eve of the hearing of the appeal. In my view, the fresh evidence proposed by the appellant does not meet the test for admission set out in R. v. Palmer, [1980] 1 S.C.R. 759. Accordingly, none of the affidavits should be admitted.