



COURT OF APPEAL FOR ONTARIO

CITATION: Apotex Inc. v. Schering Corporation, 2018 ONCA 890

DATE: 20181108

DOCKET: C65118 / C65129

Strathy C.J.O., Nordheimer J.A. and McKinnon J. (
ad
    hoc
)

BETWEEN

Apotex Inc.

Plaintiff (Respondent)

and

Schering Corporation, Sanofi-Aventis,
    Sanofi-Aventis Deutschland GmbH and Sanofi-Aventis Canada Inc.

Defendants (Appellants)

Gunars Gaikis and Lynn Ing, for the appellants,
    Sanofi-Aventis, Sanofi-Aventis Deutschland GmbH and Sanofi-Aventis Canada Inc.

Marc Richard, for the appellant, Schering Corporation

Nando De Luca and Daniel Cappe, for the respondent

Heard: October 17, 2018

On appeal from the judgment of Justice Sean Dunphy of the
    Superior Court of Justice dated February 6, 2018, with reasons reported at 2018
    ONSC 903.

Nordheimer J.A.:

[1]

The appellants appeal from the judgment of the motion judge dated February
    6, 2018 that dismissed their motions to amend their statements of defence. Specifically,
    the motion judge refused to permit the appellants to plead that a June 29, 2009
    decision of the Federal Court of Canada invalidating a patent was decided based
    on wrong legal principles. The following reasons explain why I have determined
    that the motion judge erred in his conclusion. The proposed amendments ought to
    have been permitted.

I: Background

[2]

I will attempt to explain the background to this proceeding as briefly
    as I can. The underlying action involves a claim by the respondent for damages
    pursuant to three statutes:
An Act concerning Monopolies, and Dispensation
    with penal laws, etc.
,
R.S.O. 1897, c. 323 (Ontario
Statute of
    Monopolies
);
An Act concerning Monopolies and Dispensations with
    Penal Laws, and the Forfeitures thereof
, 1624, 21 Jac. I, c. 3 (UK
Statute
    of Monopolies
); and the
Trade-marks Act
, R.S.C. 1985, c. T-13.

[3]

The claim involves a drug called Ramipril that was the subject of a
    number of patents which the Sanofi appellants (Sanofi) either held or licensed.
[1]
The present appeal relates to
Canadian Patent
    No. 1,341,206
(the 206 Patent), that was held by Schering and licensed
    by Sanofi.

[4]

Pursuant to the
Patented Medicines (Notice of Compliance)
    Regulations
, S.O.R./93-133 (the 
Regulations
), the respondent
    sought to market its own Ramipril product. The respondent is well known for its
    production and marketing of generic drugs and this was another example of that
    practice. To do so, the respondent had to first address the 206 Patent. It did this
    by serving a
Notice of Allegations on Sanofi,
in
    accordance with s. 5 of the
Regulations
,
alleging that the 206 Patent was invalid.

[5]

In response, Sanofi brought an application in the Federal Court of
    Canada under s. 6 of the
Regulations
,

for an order prohibiting the
    Minister of Health from allowing the respondent to sell its version of Ramipril
    until the 206 Patent expired. The respondent countered that the prohibition
    order should not be granted because the 206 Patent was invalid.

[6]

On September 20, 2005, Mactavish J. of the Federal Court of Canada dismissed
    the claim for a prohibition order on the basis that the 206 Patent was invalid.
    Relying upon the promise doctrine (which I describe below), Mactavish J. held
    that the patent failed to soundly predict that the compounds in claim #12 of
    the 206 Patent would be useful as claimed.  The respondent was unsuccessful on various
    other grounds of alleged invalidity. The decision was upheld on appeal and
    leave to appeal to the Supreme Court of Canada was refused:
Aventis Pharma
    Inc. v. Apotex Inc.
, 2005 FC 1283, at paras. 158, 279-80, affd 2006 FCA
    64, leave to appeal refused [2006] S.C.C.A. No. 136.

[7]

The decision of Mactavish J. was one of narrow application relating only
    to the
Regulations
that permit the Minister of Health to grant a
    Notice of Compliance to permit someone to sell a new drug, including a drug
    that might infringe a current patent for an existing drug. The decision did not
    result in an
in rem
declaration that the 206 Patent was invalid. Consequently,
    after the respondent received regulatory approval and entered the market with
    its generic version of Ramipril, Sanofi, together with Schering, sued the
    respondent for infringement of the 206 Patent. The respondent counterclaimed,
    asserting that the 206 Patent was invalid.

[8]

On June 29, 2009, after many days of trial, Snider J. of the Federal
    Court of Canada rendered her decision finding that the 206 Patent was invalid
    (the Invalidity Decision):
Sanofi-Aventis Canada v. Apotex Inc
.
,
    2009 FC 676. The Invalidity Decision entailed two findings  a finding of
    inutility based on the promise doctrine, and an alternative finding of
    obviousness.  First, as Mactavish J. had, Snider J. concluded that the inventors
    could not soundly predict that the claimed compounds would have the utility
    promised by the patent.  Snider J. also found the 206 Patent was invalid as
    being uninventive or obvious, in the sense that its claims were not new and
    would have been apparent to a person of requisite skill. As had been the
    situation before Mactavish, J., various other grounds of invalidity advanced by
    the respondent were not successful. In contrast to the decision of Mactavish
    J., the Invalidity Decision resulted in an
in rem

declaration
    that the 206 Patent was invalid.

[9]

The Federal Court of Appeal upheld the Invalidity Decision insofar as it
    invalidated the 206 Patent for inutility:
Sanofi-Aventis Canada Inc. v.
    Apotex Inc
.
, 2011 FCA 300. The Federal Court of Appeal expressly
    declined to endorse Snider J.s conclusions regarding obviousness, labelling her
    analysis on that point as 
obiter
. The Federal Court of Appeal added,
    at para. 13:

These reasons should not be taken
    as an endorsement of the judges conclusions regarding the issue of obviousness
    and do not constitute such an endorsement.

The Supreme Court of Canada refused leave to appeal:
Sanofi-Aventis
    Canada v. Apotex Inc
.
, [2011] 3
    S.C.R. xi.

[10]

Shortly
    after the release of the Invalidity Decision in 2009, the respondent brought an
    action in the Federal Court of Canada to recover damages available under s. 8
    of the
Regulations
on the basis that it was delayed entry into the
    Ramipril market by the unsuccessful prohibition application brought by Sanofi (the
    s. 8 proceeding). The respondent succeeded in this claim and was awarded $215
    million in compensation:
Apotex Inc. v. Sanofi-Aventis
, 2012 FC 553,
    affd 2014 FCA, affd 2015 SCC 20. None of the appellants are seeking to obtain
    a return of this compensation.

[11]

It
    should be noted that, in the s. 8 proceeding, the respondent included the same
    claims that they currently advance in this action. However, when the appellants
    brought a motion to strike out those claims on jurisdictional grounds, the
    respondent voluntarily withdrew the claims.

[12]

On
    June 27, 2011, the respondent commenced this action in which it seeks treble
    damages under the Ontario
Statute of Monopolies
or, alternatively, under
    the UK
Statute of Monopolies
.
The respondent also claims
    additional or alternative damages under the

Trade-marks Act
. The
    action progressed slowly, at least until the motion judge began to case manage
    the proceeding. Just prior to the release of a decision of the Supreme Court of
    Canada, that I am about to describe, this action was to be set down for trial
    by mid-February 2018.

II: The
AstraZeneca
decision

[13]

On
    June 30, 2017, the Supreme Court of Canada released its decision in
AstraZeneca
    Canada Inc. v. Apotex Inc
.,
2017 SCC 36, [2017] 1 S.C.R. 942. In
    its decision, the Supreme Court struck down the law on the promise doctrine,
    which had been the foundation for the Invalidity Decision. The Supreme Court
    found, at para. 2, that the promise doctrine was not the correct approach to
    determine whether a patent has sufficient utility. The promise doctrine, as
    applied by the Federal Courts, required a review of the entire specifications,
    including the patents claims and disclosure, to identify all promises of
    utility. If any identified promise of utility was not fulfilled, then the
    utility requirement was not met and the patent was declared to be invalid in
    its entirety. The Supreme Court rejected this approach. It held that a single
    use related to the nature of the subject matter was sufficient to demonstrate
    utility and, in proving utility, even a scintilla of utility will suffice:
AstraZeneca
at para. 55.

[14]

As
    a result of this decision, the appellants say that the Invalidity Decision is
    fundamentally flawed. Indeed, they contend that had the decision in
AstraZeneca
been available to Snider J., she would not have invalidated the 206 Patent.
    To give effect to this contention, the appellants sought to amend their
    statements of defence in this action, as I explained earlier.

III: The
    decision below

[15]

There
    was no real issue between the parties before the motion judge regarding the
    legal principles that apply to a proposed amendment to a pleading under r.
    26.01 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194. The
    motion judge correctly set out those principles, including the mandatory
    language of r. 26.01, which requires that leave to amend be granted in the
    absence of non-compensable prejudice. The motion judge also correctly set out
    the exceptions to that mandatory language, including that the proposed
    amendment had to advance a reasonable cause of action or defence.

[16]

The
    respondent resisted the proposed amendments to the appellants statements of
    defence on the basis that the proposed amendments did not allege tenable
    defences. More specifically, the respondent contended that the proposed
    defences were subject to the application of the issue estoppel branch of the
    doctrine of
res judicata
, and also that the proposed defences
    represented a collateral attack on the Invalidity Decision.

[17]

The
    motion judge found that the respondent would suffer no non-compensable
    prejudice as a result of the proposed amendments. However, he dismissed the
    appellants motions on the basis that the proposed amendments would run afoul
    of issue estoppel, as they would inevitably require the entire re-litigation
    of an issue that has been finally decided by a court of competent jurisdiction
    (para. 11), that is, the validity of the 206 Patent. The motion judge also
    found that the Invalidity Decision remained valid and binding and could not
    be the subject of a collateral attack in another proceeding. The motion judge
    stressed that there had to be finality to litigation.

[18]

While
    I will come to discuss the legal requirements of issue estoppel in a moment, it
    is sufficient at this stage to note that the motion judge found that the
    special circumstances exception to issue estoppel did not apply in this case,
    as there was no change in the law.
[2]
More specifically, the motion judge said, at para. 64:

Where, as here, the special
    circumstance pleaded to avoid the application of the doctrine of
res
    judicata
would effectively require the re-litigation of the entire
    question that was already decided after a lengthy trial, there are no special
    circumstances. That is precisely the public policy outcome that
res
    judicata
seeks to avoid.

IV: Analysis

[19]

I
    would note, at the outset, that the scope of the special circumstances
    exception to issue estoppel constitutes a question of law. The standard of
    review is thus one of correctness:
Housen v. Nikolaisen
, 2002 SCC 33,
    [2002] 2 S.C.R. 235, at para. 8.

[20]

The
    requirements of, and purpose behind, the doctrine of
res judicata
were
    thoroughly canvassed in
Danyluk v. Ainsworth Technologies Inc
.,
2001 SCC 44, [2001] 2 S.C.R. 460. In that decision, Binnie J. reviewed the
    historical development of the doctrine and its component parts: cause of action
    estoppel and issue estoppel. He also reviewed the development of the doctrine
    of collateral attack.

[21]

As
    set out in
Danyluk

at para. 25, the preconditions to the operation
    of issue estoppel are: (i) that the same question has been decided; (ii) that
    the judicial decision which is said to create the estoppel was final; and,
    (iii) that the parties to the judicial decision or their privies were the same
    persons as the parties to the proceedings in which the estoppel is raised or
    their privies. It is clear that those three preconditions are met in this case.

[22]

However,
    Binnie J. went on in
Danyluk
to point out that the court retained a
    discretion not to apply the doctrine where to do so would work an injustice. More
    specifically, Binnie J. adopted the observation in

British Columbia
    (Minister of Forests) v. Bugbusters Pest Management Inc.

(1998), 159
    D.L.R. (4th) 50 (B.C.C.A.) where Finch J.A. said, at para. 32:

It must always be remembered that
    although the three requirements for issue estoppel must be satisfied before it
    can apply, the fact that they may be satisfied does not automatically give rise
    to its application. Issue estoppel is an equitable doctrine, and as can be seen
    from the cases, is closely related to abuse of process. The doctrine of issue
    estoppel is designed as an implement of justice, and a protection against
    injustice. It inevitably calls upon the exercise of a judicial discretion to
    achieve fairness according to the circumstances of each case.

[23]

Binnie
    J. added, at para. 67:

The objective is to ensure that
    the operation of issue estoppel promotes the orderly administration of justice
    but not at the cost of real injustice in the particular case.

[24]

Finally,
    Binnie J. concluded with a statement of what he said was the most important
    factor in deciding whether issue estoppel ought to be applied in any given
    case. He said, at para. 80:

As a final and most important
    factor, the Court should stand back and, taking into account the entirety of
    the circumstances, consider whether application of issue estoppel in the
    particular case would work an injustice.

[25]

The
    exercise of the discretion to apply issue estoppel was also the subject of the
    decision of this court in
Minott v. O'Shanter Development Co.
(1999), 42
    O.R. (3d) 321 (C.A.). Of particular importance, for the purposes of this case,
    is the observation of Laskin J.A. at para. 51 where he said:

If the decision of a court on a
    point of law in an earlier proceeding is shown to be wrong by a later judicial
    decision, issue estoppel will not prevent relitigating that issue in subsequent
    proceedings. It would be unfair to do otherwise.

[26]

The
    motion judge sought to avoid this point by finding that there was no change in
    the law involved in this case. In doing so, the motion judge appears to have
    equated a change in the law with a change in a statutory provision, since he
    said, on this point, at para. 59:

There has been [no] change in the
    law. No provisions of the
Patent Act
relevant to the validity of the
    206 Patent have been amended.
[3]

[27]

In
    my view, the motion judge erred in adopting this narrow view of what
    constitutes a change in the law for the purpose of determining whether the
    court has discretion not to apply issue estoppel. The motion judge does not
    cite any authority for this narrow view and it appears to directly conflict
    with the observation made by Laskin J.A. in
Minott

in which he
    refers to a decision of a court on a point of law. That said, a change in the
    law only provides the opportunity to argue that issue estoppel ought not to be
    applied. It does not dictate that that should be the result.

[28]

It
    is clear, in this case, that there was a decision of a court on a point of law.
    Indeed, it was a decision of the Supreme Court of Canada on the applicability
    of the promise doctrine, the legal principle that was central to the conclusion
    reached by the Federal Court of Canada on the validity of the 206 Patent. In
    that regard, it is similar to the result reached in
Hockin v. Bank of
    British Columbia
(1995), 123 D.L.R. (4th) 538 (B.C.C.A.), another case
    where an intervening decision of the Supreme Court of Canada led to a
    reconsideration of an earlier decision of the British Columbia Court of Appeal.
    The motion judge sought to distinguish
Hockin
but he did so on grounds
    that I find unpersuasive.

[29]

In
    response, the respondent submits that, even if the Invalidity Decision is
    called into question insofar as it is founded on the promise doctrine, the
    Federal Court of Canada also invalidated the 206 Patent on the basis of obviousness
    so the Invalidity Decision still stands on that alternative ground. That
    submission cannot succeed in light of the Federal Court of Appeals conclusion
    that the obviousness conclusion was 
obiter
.
[4]
Additionally, the Federal Court of Appeal expressly refused to rule on the correctness
    of that conclusion. Consequently, the Invalidity Decision cannot be considered
    to be binding on the basis of obviousness nor would it be fair to hold the
    appellants to it, given that their appeal on that point was never determined.

[30]

I
    return to the final factor enunciated by Binnie J. in
Danyluk
that
    requires the court to stand back and, taking into account the entirety of the
    circumstances, consider whether application of issue estoppel in the particular
    case would work an injustice. In my view, the result of the motion judges
    decision would work an injustice in this case.

[31]

Counsel
    for the respondent acknowledged, in the course of his submissions, that the
    Invalidity Decision is central to the respondents claim. Even absent that
    acknowledgement, at least that much would be clear in this case. The
    respondents claim is a novel one, as the motion judge himself characterized
    it. It is evident, however, that in order to have any prospect of success, the
    respondent will have to establish that the monopoly that the appellants enjoyed
    in the market for Ramipril was an unlawful one. If the monopoly was the result
    of a valid patent, and thus was a monopoly authorized by law, there does not
    appear to be any way for the respondent to succeed in its claim. Thus, it would
    appear to be beyond debate that the invalidity of the 206 Patent is an
    essential element of the claims advanced here. Indeed, it is arguable that an
    invalid patent is an essential element of any claim of this type: see
Actavis
    Pharma Co. v. Alcon Canada Inc
.,
2016 ONSC 7151 and the cases
    referred to therein.

[32]

Given
    the centrality of the Invalidity Decision to this action, in considering
    whether the elements of the claim will be made out by the respondent, it seems
    fundamentally unfair to preclude the appellants from arguing that this central
    element is suspect. While it will be up to the trial judge to determine whether
    the respondent, as plaintiff, can establish that element of its cause of action
    - that is, the invalidity of the 206 Patent and the consequent unlawful
    monopoly - the appellants, as defendants, ought fairly to be able to raise
    defences to the proof of that element.

[33]

I
    appreciate that this conclusion may result in the re-litigation of the validity
    of the patent. While the appellants suggested that that result would not
    necessarily follow from their proposed defence, their suggestion in that regard
    is itself a suspect one. I note that, in its draft amended Reply, the
    respondent goes out of its way to raise that very issue.
[5]

[34]

I
    am well aware that, if that is the result of allowing the proposed amendments
    to the statements of defence, the trial of this action will be both delayed and
    possibly significantly expanded. That, however, is the direct result of the
    respondents effort to advance a novel claim, one that seeks an extraordinary
    level of damages, over and above the compensation that it has already received
    out of this matter. In that respect, it is the respondent who is effectively
    raising the central issue, regarding the validity of the patent, for a second
    time. If the respondent wishes to make that choice, in these circumstances,
    then it does not lie with it to complain that the appellants ought not to be
    able to have an equal opportunity to defend. I note, in passing on this point,
    that the damages being claimed were roughly estimated, during the course of the
    hearing, at between $1 billion and $3 billion. The costs of re-litigating the
    validity of the patent pale in comparison to the amounts sought.

[35]

I
    also realize that, in reaching my conclusion, I am differing with the
    conclusion that the Federal Court of Appeal reached in
Eli Lilly Canada
    Inc. v. Teva Canada Ltd
.,
2018 FCA 53, on a similar point. Indeed,
    the Federal Court of Appeal cited the motion judges reasoning in this case in
    support of its decision to apply issue estoppel in that case.

[36]

In
    explaining the differing result, I make the following observations. First, by
    definition when one is exercising a discretion, different courts will exercise
    that discretion differently in different cases. That is the very nature of a
    discretion. Second, the issue in
Eli Lilly
was the appeal of a damages
    award of the same type as the $215 million compensation in this case, which is
    not the subject of any challenge by the appellants. Third, this case does not
    involve an appeal of a trial decision but rather the right to make amendments
    to a pleading in defence of a new cause of action, all in the context of a
    presumption that amendments will be permitted. It will be up to the trial judge
    to determine if that defence succeeds. Fourth, I do not accept the distinction
    drawn by the Federal Court of Appeal between litigation involving commercial
    interests, and other types of litigation, and the suggestion that issue
    estoppel is a more applicable doctrine in the former. I am unaware of any
    jurisprudence that establishes that
res judicata
and collateral attack
    have different impacts depending on the type of litigation that is involved. Fifth,
    I do not agree with the concern expressed by the Federal Court of Appeal that permitting
    a change in the law, such as the one here involving a decision of the Supreme
    Court of Canada on a fundamental legal point, to constitute a special
    circumstance will effectively weaken the desired objective of finality. This
    was a rare instance that resulted in a foundational change to the law in this
    particular area. In my view, it is precisely the type of special circumstance
    where the principle of finality should yield to the justice of the case. And,
    in any event, each such circumstance still falls for an independent and
    contextual application of the discretion.

[37]

In
    the end result, in my view, the strict application of issue estoppel in this
    case would work an injustice on the appellants. If the respondent wishes to
    pursue a further claim for damages arising out of what they contend is an
    invalid patent, they will be obliged to prove the constituent elements of their
    claim viewed against the law as it exists at the time that they are called upon
    to make that proof. Justice requires that the appellants be able to argue that
    a prior conclusion regarding the patent is no longer a valid conclusion in
    light of changes in the law.

[38]

For
    the reasons set out above, the appellants proposed amendments are also not
    barred by the doctrine of collateral attack. In
Toronto (City) v. C.U.P.E.,
    Local 79
, 2003 SCC 63, [2003] 3 S.C.R. 77, the Supreme Court of Canada
    described issue estoppel and collateral attack as particular applications of a
    broader doctrine of abuse of process (at para. 22). Though not entirely
    interchangeable, the Supreme Court went on to hold the following, at para. 53:

The discretionary factors that
    apply to prevent the doctrine of issue estoppel from operating in an unjust or
    unfair way are equally available to prevent the doctrine of abuse of process
    from achieving a similar undesirable result.

As the application of collateral attack in this case
    would work the same injustice as issue estoppel, it should not be applied to
    block the proposed pleadings.

[39]

Finally,
    I will briefly address the motion judges conclusion that s. 62 of the
Patent
    Act
, R.S.C., 1985, c. P-4 supported his conclusion regarding the special
    circumstances application of issue estoppel. In my view, there is nothing in s.
    62 that overrides the proper application of the special circumstances exception
    or that could fairly be seen as altering its constituent elements. Given the
    historical application of the principle of
res judicata
, much clearer
    language would be required in that section in order to accomplish such a
    result.

V: Conclusion

[40]

I
    would allow the appeal and set aside the order below. The appellants shall have
    the right to seek to amend their statements of defence along the lines
    originally proposed, subject only to any further issues regarding any pleading
    irregularities that may exist in the proposed amendments. Those issues, if they
    exist, can be dealt with by the case management judge.

[41]

I
    would order that the respondent pay costs in the agreed amount of $40,000 - $20,000
    to Schering and $20,000 to Sanofi.

Released: November 8, 2018

I.V.B.
    Nordheimer J.A.

I
    agree. G.R. Strathy C.J.O.

I
    agree. Colin McKinnon J.





[1]

Ramipril belongs to a class of drugs used to treat high blood
    pressure and related heart ailments.



[2]

The expression special circumstances can be found in the
    decision of the House of Lords in
Arnold v. National Westminster
    Bank PLC
, [1991] 2 A.C. 93 (H.L.).



[3]

In an unfortunate typographical error in the reasons, the word
    no appears as on.



[4]

Obiter dictum


    A judicial comment made while delivering a judicial opinion, but one that is
    unnecessary to the decision in the case and therefore not precedential (although
    it may be considered persuasive):
Black's Law Dictionary
, 10
th
ed., Thomson Reuters, 2014



[5]

In making that observation, I do not reach any conclusion on
    whether the contents of the proposed amended Reply comply with the requirements
    for a Reply under the
Rules of Civil Procedure
.


