The Federal Court of Appeal (FCA) has refused to apply the “special circumstances” exception to issue estoppel in view of a change in law arising from the rejection of the “promise doctrine” in AstraZeneca Canada Inc v Apotex Inc, 2017 SCC 36 (NEXIUM, reported here). Noting any injustice to Lilly is “entirely commercial in nature” as well as a concern of Teva being ‟twice vexed,” the court rejected Lilly’s argument that the NEXIUM decision should be considered as a factor in determining damages pursuant to section 8 of the Regulations.
Teva sought damages from Eli Lilly Canada Inc. pursuant to section 8 of the Regulations, as compensation for having been prevented from coming to market in 2006-2007 with a generic version of ZYPREXA® (olanzapine). As we reported, the Federal Court considered the established parameters to calculate Teva’s damages for being delayed from entering the olanzapine market, clarified evidentiary issues on fact witnesses and hearsay, and rejected Teva’s argument that its damages should include a pipefill adjustment.
The FCA upheld the Federal Court on the evidentiary issues but overturned on the issues of pipefill.
On appeal, Lilly argued the FCA ought to consider the Supreme Court’s decision in NEXIUM, which changed the state of the law for patent utility. Lilly argued the sole basis on which Teva succeeded in the prohibition proceedings that gave rise to section 8 liability was a finding of inutility, and in light of the subsequent NEXIUM decision the court should consider the change in law as a factor in assessing section 8 damages.
The FCA applied the doctrine of issue estoppel, finding it would not be appropriate to allow a collateral attack on the findings of invalidity of the patent given that the issue had already been decided. The court noted a change in the law did not trigger the “special circumstance” exception to issue estoppel, and found there was no basis to exercise its discretion to bar the application of issue estoppel in this case. Given the real-world impact of “entirely commercial” high-stakes litigation, the special circumstance exception warrants further clarity from the courts.
The Court of Appeal refused to follow the Supreme Court of the United Kingdom’s reasoning in Virgin Atlantic Airways Limited v Zodiac Seats UK Limited,  UKSC 46,  1 A.C. 160, which did consider a change in law in its assessment of damages, and noted its reasoning is consistent with a recent Ontario Superior Court decision in litigation relating to ramipril, reported here.
Fact Witnesses Speaking to the Construction of the But-For World
In the underlying decision, the Federal Court addressed the admissibility of evidence on actions fact witnesses would have taken in the but-for world. It held that fact witnesses could be asked about what they did in the real world, and whether they knew of any reason why they would have acted differently in the but-for world. However, opinion evidence from a fact witness about what it would have done in the hypothetical but-for world was inadmissible.
The FCA found it was an error for the Federal Court not to consider factual testimony about what would have happened in the but-for world. It clarified that appropriately positioned fact witnesses can testify not only about their conduct in the real world, but about their own conduct and that of their businesses in the but-for world.
Pipefill Sales Recoverable
In quantifying Teva’s damages, the Federal Court found that pipefill sales do not represent lost sales incurred during the liability period because those units would not be sold to end consumers until after the end of the liability period.
The Court of Appeal found this to be an error, noting section 8 damages are intended to compensate the generic manufacturer for sales it actually would have made during the period. Since the manufacturer would have made sales into its distribution pipeline during the relevant period, it is immaterial that the units might not be sold to end-users until after the end of the liability period.