Digests

Merck & Co. Inc. v. Apotex Inc.

A-226-00, A-410-01

2003 FCA 234, Sexton J.A

26/5/03

55 pp.

Appeal and cross-appeal from judgment of MacKay J. in Merck & Co. v. Apotex Inc. (2000), 5 C.P.R. (4th) 1 (F.C.T.D.), which held both Apotex Inc. and Dr. Bernard Sherman, President and CEO of Apotex Inc. (defendants) guilty of contempt of Court, and from the supplementary judgment imposing fines in respect of contempt--Merck & Co., Inc. (Merck) alleged infringement and on December 14, 1994, MacKay J. released reasons for judgment finding infringement and holding that Merck entitled to permanent injunction restraining further infringe-ment on part of defendants--MacKay J. also directed counsel for parties to submit draft judgment--On December 1994, before counsel had even commenced to discuss such draft, defendants sold $9 million worth of drug--Whether defendant's actions amounted to contempt of Court--Dr. Sherman testified that he instructed the Executive Vice-President of Apotex to "stop selling"--According to Dr. Sherman, "stop selling" meant that the inventory was frozen on computer, in such situation, invoices not generated for customer orders--However, invoices already generated continued to be processed, meaning product was still picked, packed and shipped--No instructions given by Dr. Sherman to stop processing orders already received--Despite stop-selling order by Dr. Sherman, sales by defendants continued long into the afternoon on December 15, 1994--Single day of sales equivalent to more than average month of sales and 7.5 times greater than previous highest day of sales--Counsel for defendants called and advised Dr. Sherman that "the Court had confirmed that we were correct, and that there was no injunction in effect and we were free to sell the product"--Clearly, MacKay J. had not been asked, nor did he address, whether defendants "free to sell the product"--Sales of Apo-Enalapril resumed by order of Dr. Sherman at that time--MacKay J. issued further direction based on Baxter Travenol Laboratories of Canada Ltd. et al. v. Cutter (Canada) Ltd., [1983] 2 S.C.R. 388 in which Supreme Court of Canada held "that a party to an action, having notice from its reasons for judgment that the court has determined an injunction would issue to preclude actions found to infringe patent rights, is liable for contempt if it continues activities which would be enjoined when the court's formal order is signed and filed"--Accordingly, Dr. Sherman instructed defendants to again freeze inventory-- However, already generated invoices continued to be processed and shipments and deliveries of Apo-Enalapril continued well past December 16th--MacKay J. dismissed Apotex's application for stay of judgment on January 9, 1995; injunction therefore in effect at close of business on January 9, 1995--On April 19, 1995, Federal Court of Appeal delivered judgment with respect to Apotex's appeal of judgment of MacKay J. at trial--Court allowed appeal in part saying that "most of the Apo-Enalapril maleate acquired by the appellant was shipped by the supplier, before the grant of the patent" and, thus, was non-infringing--Trial Judge concluded that both Apotex by its officers and Dr. Sherman in his personal capacity committed contempt by carrying out December sales of Apo-Enalapril after Dr. Sherman had read the reasons for judgment dated December 14, 1994--MacKay J. imposed $250,000 fine on Apotex and $4500 fine on Dr. Sherman personally--Awarded costs to Merck in fixed lump sum of $1,500,000--Appeal raises five questions--(1) Whether MacKay J. erred in applying test for contempt--Test should be whether order or reasons for judgment clear if so, intent to commit act sufficient--Obvious from MacKay J.'s reasons that Apotex infringed Merck's patent by its manufacture and sale of Apo-Enalapril, and that any workable injunction would have to enjoin manufacturing and selling in order to curb future infringements--In present case, defendants knew of MacKay J.'s reasons for judgment and committed acts in contravention of reasons--Lack of intent to interfere with orderly administration of justice or to act with contempt only relevant to question of penalty as mitigating factor in determination of penalty--Case law establishing not necessary to show alleged contemnor intended, by doing action, to interfere with orderly administration of justice or to impair authority or dignity of Court--Too high level of intent to require in civil contempt cases--Sufficient that reasons clear and that prohibited act knowingly committed--Intention subverting process of Court not required to prove contempt of Court, but only goes to mitigation of sentence--Apotex's actions meet proper test for finding contempt--Test to apply asks following two questions: (i) whether alleged contemnor having knowledge of prohibition in reasons for judgment; and, (ii) whether Apotex's actions constituted contravention of prohibition therein--As MacKay J.'s reasons clear and unambiguous and Apotex had read reasons, Apotex knowingly committed prohibited act--Therefore, MacKay J. did not err in applying test for contempt--(2) Whether MacKay J. erred in finding Apotex acted in contemptuous manner by "assisting" its third party customers in transferring Apo-Enalapril--Provision of assistance by Apotex to such third parties, whether financial or otherwise, not amounting to contempt--If such selling by third parties not prohibited, then surely cannot be anything wrong with assisting such legal transactions--Therefore, Trial Judge erred in concluding that, by providing assistance to third parties in selling and distributing, Apotex had interfered with orderly administration of justice--Order of January 9, 1995 expressly permitted such sales and distributions--Merely providing assistance does not put Apotex in contempt of Court--(3) Whether MacKay J. erred in failing to find Merck committed prosecutorial misconduct during course of contempt proceedings, such that stay of contempt proceeding ought to have resulted--No reason to interfere with MacKay J.'s finding on this issue--Dismissal or stay of proceedings for abuse of process extraordinary remedy and one where necessary to show abuse must have caused actual prejudice of such magnitude that public sense of decency and fairness affected--MacKay J. found none of appellants' complaints supported dismissal or stay of proceedings, as appellants not prejudiced in right to make full answer and defence--Therefore MacKay J. did not err on this issue--(4) Whether Appeal Court should interfere with the fine imposed against defendants--To determine fit penalty, MacKay J. should not have de-emphasized importance of deterrence considering value of infringing sales in present case, and fact that corporation involved--Deterrence particularly important factor in sentencing involving contempt cases--Furthermore, deterrence factor not to be minimized in area of intellectual property--Where corporation has committed contempt in relation to intellectual property matter, deterrence factor merits serious consideration--Corporation cannot be imprisoned, so only penalty is fine--Fine must not be so small as to amount to mere licence fee--Taking into account all relevant considerations, Court reducing fine against Apotex; fine against Dr. Sherman not changed--(5) Whether MacKay J. erred in assessing costs--As matter of principle, not inappropriate for MacKay J. to award costs against appellants on solicitor-and-client basis--However, having regard to fact Merck has been unsuccessful with respect to second period of contempt involving January facilitation of third party sales, award of costs must reflect division of success--Costs award to respondents at trial and on appeal on all issues, except for second period of contempt --Appeal allowed in part by setting aside finding of contempt relating to post-January 9, 1995 time period, by reducing fine for Apotex to $125,000--Cross-appeal dismissed without costs.