Date: 20031009
Docket: T-1321-97
Citation: 2003 FC 1171
BETWEEN:
ELI LILLY AND COMPANY and
ELI LILLY CANADA INC.
Plaintiffs
- and -
APOTEX INC.
Defendant
REASONS FOR ORDER AND ORDER
[1] I have before me three motions, one by the plaintiffs, defendants by counterclaim , herein collectively called "Lilly" and the others by the other defendant by counterclaim, herein called "Shionogi."
[2] One of the Shionogi motions and the Lilly motion seek summary judgment striking out certain paragraphs of the statement of defence and counterclaim and the dismissal of the counterclaim as against Shionogi. The second Shionogi motion is an appeal to the case management judge of an order of the Prothonotary dismissing a motion to strike the counterclaim against it. The arguments are virtually identical and it is convenient to deal with all three motions together.
[3] The action was commenced by statement of claim issued on June 18, 1997 and amended on January 11, 2001, and on August 22, 2003. In the principal action Lilly alleges that Apotex has infringed eight patents owned by Lilly which relate to intermediate compounds and processes for preparing intermediates useful in the preparation of the antibiotic cefaclor.
[4] By amendment to its statement of defence and counterclaim made on March 9, 2001, Apotex alleges that certain conduct of the plaintiffs violated section 45 of the Competition Act, thereby entitling Apotex to damages under section 36 thereof. In December 2002 , Apotex further amended its statement of defence and counterclaim to add Shionogi as a defendant by counterclaim in the proceeding as part of its claim for damages under the Competition Act. The amended pleading was issued on November 25, 2002 and served upon Shionogi in Japan on December 24, 2002.
[5] Four of the patents originally sued on by Lilly, namely Canadian Letters Patent 1,136,132, 1,144,924, 1,095,026 and 1,132,547 (the "Shionogi Patents") had been assigned by Shionogi to Lilly in 1995. At paragraphs 18 to 22 and 26 of the statement of defence (which are repeated and adopted at paragraph 105 of the counterclaim), and at paragraphs 105 to 112(b) of the counterclaim, Apotex alleges that this assignment of the Shionogi Patents constitutes a violation of section 45 of the Competition Act by Shionogi and the plaintiffs for which it is entitled to damages pursuant to section 36 of the Competition Act.
[6] All three motions attack only the allegations of the statement of defence and counterclaim dealing with the alleged breach of the Competition Act. The relevant paragraphs read as follows:
Anti-Competitive Activity
18. Each of the Shionogi Patents describes and claims processes suitable for making intermediates which can be converted to cefaclor by non-infringing processes.
19. None of the patents in this action contains a claim to the product cefaclor per se or a product-by-process claim for cefaclor. The basic patent for cefaclor and a process for its manufacture was disclosed and claimed in Canadian Letters Patent No. 1,016,537 which patent expired August 30, 1994.
20. With the issuance of the four Shionogi Patents, after August 30, 1994 at the latest, Shionogi was entitled to manufacture and sell within Canada cefaclor using the processes covered by its four patents as such processes would not infringe any patents owned by the Plaintiffs.
21. Prior to the issuance of the Shionogi Patents, the Plaintiffs enjoyed a monopoly in the Canadian market in respect of the manufacture and sale of cefaclor in Canada.
22. Faced with the prospect of competing with Shionogi for the Canadian cefaclor market, the Plaintiffs acquired the Shionogi Patents from Shionogi in order to prevent competition in the Canadian market.
...
26. In particular, Apotex states that the Plaintiffs knowingly conspired, combined, agreed, or arranged among themselves and with Shionogi to acquire the Canadian patents and patent rights granted to Shionogi under the Shionogi Patents for the purpose, and with the result, of preventing or impeding other manufacturers from producing or acquiring cefaclor, and so prevent or impede competition in the Canadian market for cefaclor.
COUNTERCLAIM
105. The Defendant, Plaintiff by Counterclaim, repeats and adopts the allegations contained in its Second Fresh as Amended Statement of Defence.
106. The Defendant by Counterclaim, Shionogi and Company Limited ("Shionogi"), is a manufacturer of pharmaceutical products around the world. Shionogi is a corporation incorporated and existing under the laws of Japan, with a principle place of business at 1-8, Doshomachi 3 - Chome, Chuo-ku, Osaka 541-0045, Japan.
107. As a result of the unlawful conduct of the Plaintiffs and Shionogi as described in the Second Fresh as Amended Statement of Defence, the Defendant's ability to manufacture or acquire cefaclor has been prevented, limited, or lessened, unduly.
108. The Plaintiffs' and Shionogi's knowing and wilful conduct, undertaken for the purpose of restricting trade in cefaclor, constitutes a violation of section 45 of the Competition Act. Accordingly, the Defendant claims damages pursuant to section 36 of the Competition Act, together with the full costs of its investigation of this matter, and of these proceedings.
109. Apotex states that the Defendant by Counterclaim, Shionogi, has conspired, combined, agreed or arranged to prevent, limit or lessen unduly, the manufacture or production of the medicine cefaclor, and to prevent or lessen, unduly, competition in the production, manufacture or supply of cefaclor, and to otherwise restrain or injure competition unduly, contrary to section 45 of the Competition Act.
110. In particular, Apotex states that Shionogi knowingly conspired, combined, agreed, or arranged with Eli Lilly and Company, Eli Lilly Canada, Inc. (collectively, "Lilly") or both, to allow Eli Lilly and Company to acquire the Canadian patents and patent rights granted to Shionogi under Canadian Letters Patent Nos. 1,095,026, 1,132,547, 1,136,132 and 1,144,924 (the Shionogi Patents) for the purpose, and with the result, of preventing or impeding other manufacturers from producing or acquiring cefaclor, and so prevent or impede competition in the Canadian market for cefaclor.
111. By reason of the foregoing, each of the Defendants by Counterclaim have:
a) limited unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in cefaclor;
b) restrained or injured, unduly, trade or commerce in cefaclor; and
c) prevented, limited, or lessened, unduly, the manufacture, purchase, barter, sale, transportation or supply of cefaclor;
Contrary to the provisions of the Competition Act, and so are jointly and severely [sic] liable to Apotex in respect of their violations of section 45 of the Competition Act.
112. The Defendant, Plaintiff by Counterclaim, therefore claims:
(a) a declaration that Canadian Letters Patent Nos. 1,095026, 1,132,547, 1,133,007, 1,133,468, 1,136,132, 1,144,924, 1,146,536 and 1,150,725 and each of the claims contained therein are invalid, void, unenforceable and of no force or effect;
(b) damages pursuant to section 36 of the Competition Act to be paid to Apotex and/or in the alternative to be set-off against any award of damages awarded against Apotex;
(c) costs of the counterclaim on a solicitor and client basis; and
(d) such further and other relief as to this Honourable Court may seem just.
[7] It will be observed that, apart from matters purely anodyne and language couched in the very words of the statute, the only material fact alleged against the two co-conspirators in these paragraphs is that Shionogi assigned the Shionogi Patents to Lilly in 1995 for the purpose and with the result of keeping the plaintiffs and others out of the production and marketing of ceflacor in Canada. The first and, in my view, most serious point taken by both Shionogi and Lilly is that these allegations simply fail to state a cause of action. That is a pure question of law and suitable for resolution either on a motion to strike or on motion for summary judgment. In neither case is the Court called upon to exercise any discretion : instead, it must answer the stark question "If all the allegations were admitted, could plaintiff obtain judgment?" Since this question undercuts and perempts all the other issues raised on the various motions, it must be the first to be tackled. For this reason, also, as far as concerns the appeal from the Prothonotary, the standard of review is correctness.
[8] It is useful to start with the decision of the Prothonotary which allowed Apotex' motion to amend its statement of defence and counterclaim in order to add the impugned paragraphs. The learned Prothonotary said (order dated October 24, 2002) :
... Apotex seeks leave to add Shionogi as a defendant to its Counterclaim, as a result of Shionogi's alleged conspiracy with Lilly to impede competition in the manufacture and supply of cefaclor. Apotex argues that Shionogi is a necessary and proper party, as its actions in concert with Lilly, that allegedly precluded Apotex from entering the market for cefaclor for some time, has already been pleaded by Apotex.
Lilly opposes this amendment on the basis of the Federal Court of Appeal's decision in Molnlycke AB v. Kimberly-Clark of Canada Ltd. (1991), 36 C.P.R. (3d) 493, ("Molnlycke") where the Court struck out allegations of anti-competitive activity, based on the assignment of a patent, that the Court found to involve no more than the legitimate exercise of the patentee's monopoly.
I will allow the amendment to add Shionogi as a defendant to Apotex' Counterclaim for the following reasons. First, this follows from my order of June 14, 2001, that allowed Apotex to counterclaim against Lilly for allegedly conspiring with Shionogi to acquire the Canadian patent rights granted to Shionogi with the intention, and effect, of impeding competition. Allowing Apotex to counterclaim against Shionogi flows from the existing allegations, engaging Shionogi as a partner in the alleged anti-competitive conduct.
In light of my order of June 14, 2001, I do not think it lies with the plaintiffs to now raise Molnlycke to oppose the motion. I will nevertheless address their objection on that ground. Molnlycke may be distinguished on several counts. The case involved an appeal by a foreign company with no presence in Canada from the refusal of the Trial Division to set aside an ex parte order for service ex juris of notice of the statement of defence and counterclaim of Proctor & Gamble who alleged conspiracy by the plaintiff in contravention of the Competition Act. Because Molnlycke was out of the jurisdiction of the Court, former Rule 307(1) applied. That Rule required, for service ex juris to be permitted, that the serving party have "a good cause of action", not merely the assertion of an arguable cause of action. In allowing the appeal and setting aside the order for service ex juris, Mahoney J.A. for the Court of Appeal found, by looking to the evidence, that there was not a good cause of action. Thus, in the circumstances of Molnlycke a different test applied, one which permitted a weighing of the evidence to determine whether a good cause of action arose.
Molnlycke also involved the acquisition and enforcement of a single patent, which is to be distinguished from the case at bar, on that basis, and on the basis of the pleadings and allegations as a whole. I add to this the fact that the law in this area is neither static nor settled (see : Volkswagen Canada Inc. v. Access International Automotive Ltd. [2001] FCA 79) and conclude that it is not beyond doubt that the amendments fail to disclose a reasonable cause of action.
[9] The learned Prothonotary (order dated August 5, 2003) returned to the question of the Molnlycke decision in her decision on Shionogi's motion to strike which is under appeal here. She elaborated upon her reasons for distinguishing the judgment of the Court of Appeal as follows :
By this motion Shionogi invites the Court to take a fresh look at the impugned pleading from the point of view of Shionogi and to make its own argument in that regard. This perfectly proper under the circumstances as my order of October 21, [sic]2002 was made ex parte Shionogi.
For the most part I accept the submissions of the defendant on point but will address two matters in particular. In respect of Shionogi's argument that section 32 of the Competition Act is specifically directed to the anti-competitive use made of intellectual property rights, and that accordingly sections 36 and 45 of the Competition Act cannot and should not be invoked to restrict the use of such rights, I agree that it is not appropriate to choose between two competing interpretation of the scope of statutory provisions in the context of this motion.
Shionogi's dominant argument is that unlike the plaintiff Lilly, nothing more than an assignment of patents has been alleged against Shionogi, such that the allegations against Shionogi fall four-square within the Federal Court of Appeal decision in Molnlycke. That judgment, says Shionogi, is determinative of the issues as they relate to Shionogi, and as a matter of law, precludes Apotex' suit against Shionogi for anti-competitive conduct.
In that regard, Shionogi's takes issue with both points of distinction with Molnlycke, noted in the endorsement on my order of October 24, 2002. First, I am not persuaded by Shionogi's argument on the standard applied in Molnlycke. Second, while I take the point that the assignment of 4 patents cannot be more egregious that the assignment of one, the point of distinction I have raised is not merely on that basis, but on the basis of "the pleadings and allegations as a whole". In other words, whether a conspiracy or arrangement to acquire multiple patent rights in a context, as in this case, where no monopoly for the compound cefaclor existed, allegedly for the purpose and effect of restricting access to the cefaclor market, can constitute an undue lessening of competition in the market for cefaclor, is not the factual paradigm or issue considered by the Court of Appeal in Molnlycke.
[10] It is helpful to recollect exactly what was said by the Court of Appeal in Molnlycke. The following extracts contain the essence of the decision:
There is no doubt that the Appellant, K-C Canada and K-C (U.S.) entered into an arrangement whereby the Appellant divested itself of the reissued Canadian patent and K-C Canada, who was competing with P & G in the Canadian market, acquired it so that it could assert the monopoly rights of the patent against P & G and that it proceeded to assert those rights as soon as it was registered as owner. That, of itself, does not give rise to a cause of action. What has recently been said by Décary, J.A., of the purchase of a patent, absent any right to sue for past infringement, may equally be said of its sale : Amsted Industries Inc. v. Wire Rope Industries Ltd., (1990) 32 C.P.R. (3d) 334 at 339.
I fail to see anything unlawful in itself in the purchase of property, in this case a patent, which the purchasers can only enjoy by defeating existing or future claims.
...
Certainly the existence of a patent is apt to limit, lessen, restrain or injure competition - monopolies do - but its issuance and the inherent impairment of competition has been expressly provided for by an Act of Parliament, which has made provision for compulsory licensing in circumstances where it has considered the ordinary incidence of the statutory monopoly to be contrary to public policy. It is the existence of the patent, not the manner in which issue was obtained or how and by whom its monopoly is agreed to be enforced and defended, that impairs competition.
...
Parliament has, in the Patent Act, defined a "due" impairment of competition. In my opinion, as a matter of law, it is not arguable that the impairment of competition inherent in the exercise of rights expressly provided by that Act - the obtaining of a patent or reissue of a patent, its assignment and action by the assignee to enforce its monopoly - can be undue. It follows that undue impairment of competition cannot be inferred from evidence of the exercise of those rights alone.
(Emphasis added)
[11] With great respect, I find myself in disagreement with the reasons which the learned Prothonotary has given for distinguishing or disagreeing with a unanimous decision of what, I say with deference, was a very strong bench. First, although it is true that the Court based its decision in part on its view of the facts of the case, it went on, in the passages quoted, to give independent grounds based purely on its view that there could be no cause of action under the Competition Act in a simple assignment of patent rights. That was no mere obiter dictum but a considered statement of the law by a Court whose pronouncements bind both myself and the learned Prothonotary. It is not appropriate for lower courts to invoke the changing character of the law ("neither static nor settled") in order to avoid following binding precedents with which they may disagree. If it is time to revisit Molnlycke, only the Court of Appeal itself or the Supreme Court of Canada may properly do so. I have not been told of any case having that effect.
[12] Second, what the Court determined in the quoted passages was not merely that the plaintiff had not shown a good arguable case but rather that it had shown no case at all in law. Thus, nothing whatever turns on the fact that the specific text of former Rule 307(1) being applied in Molnlycke set a different standart than the one applicable to the motions before both the Prothonotary and myself.
[13] I pass over any purported distinction based on the number of patents involved. While that seems to have been suggested as a ground for distinguishing that case from this one, the learned Prothonotary appears very properly to have abandoned it in the second of the above quoted passages.
[14] There remains the fact that the assigned Shionogi Patents were for processes useful in the production of ceflacor, that the patent for the product ceflaclor itself had expired, and that Lilly was the owner of the other process patents useful for the same purpose. The allegation that Shionogi and Lilly entered into the agreement to assign the Shionogi Patents (calling the agreement a "conspiracy" adds colour, but nothing else) for the purpose and with the effect of allowing Lilly to continue to have a monopoly of the Canadian market for ceflaclor is simply not, in light of the judgment of the Court of Appeal, an allegation of illegal conduct. Everyone who obtains a patent, whether by issue or by assignment, does so for the purpose of obtaining a monopoly which, by definition, is a lessening of competition. That monopoly is one that is legally sanctioned and simply cannot, as a matter of law, result in the lessening of competition being "undue" during the life of the patent.
[15] It is also the law, enacted by Parliament, that patents may be obtained for processes as well as for products. A process patent is also a monopoly, and if the process is the only way to arrive at the resulting product, gives a monopoly of the latter to the patentee as well but only for so long as someone else does not find another and non-infringing process giving the same result. As with product patents, so with process patents : acquisition by assignment, although perhaps intended to achieve and actually resulting in lessening of competition, is not illegal because Parliament has specifically provided for that particular type of monopoly, albeit for a limited term of years. Nothing in the Patent Act or elsewhere makes the fact of having been the holder of an expired product patent a bar to the obtaining of a process patent leading to the production of the same product. An intention to lessen competition, so long as the means to achieve the end remain within the four corners of the Patent Act, is not an intention to lessen competition unduly and is therefore not illegal. The "context" invoked by the learned Prothonotary does nothing to diminish the force of the judgment of the Court of Appeal.
[16] Before leaving the subject, it must be said that the manner in which Apotex went about amending its pleadings created a difficulty for the learned Prothonotary. The first amendment which was allowed by the order of June 14, 2001, named but did not implead Shionogi and included other allegations of anti-competitive conduct against Lilly. Those other allegations remain and have not been impugned. At least, part of the amendment was clearly allowable. Later, in the order of October 24, 2002, the Prothonotary referred to the fact that the allegations of conspiracy against Shionogi had already been allowed which, of course, made it awkward for the Court then to give effect to Lilly's somewhat tardy objection. The impleading of Shionogi was thus, in a sense, simply the logical consequence of the earlier amendment, which the Prothonotary was understandably loath to disturb or revisit. It remains, however, that the presently impugned paragraphs do not state a cause of action against either defendant by counterclaim.
[17] I conclude that the amendments to the statement of defence and counterclaim by Apotex should not have been allowed, and that the counterclaim as against Shionogi should have been struck out on the latter's motion.
[18] I have anxiously considered whether, having concluded as I have that the alleged conspiracy creates no cause of action , and that the impugned allegations should be struck out, whether I should also deal with the other arguments which were developed at some length by all parties other than Shionogi. I have decided that I should not. The cause of action asserted in the impugned paragraphs is simply a nullity. It should never have seen the light of day and the Court should spend no more time on it.
[19] In the result, all three motions will be allowed, the impugned paragraphs of the statement of defence and counterclaim will be struck out and the counterclaim as against Shionogi will be dismissed.
[20] On the question of costs, all three parties have asked for costs on a solicitor and client basis. In the case of Lilly, it seems to me that this party could and should have pursued an appeal of the Prothonotary's order allowing the original amendments and that if it had done so, there would have been a great saving in costs. Lilly is entitled to its costs but in the circumstances, only on the normal basis of assessment under Column 3.
[21] Shionogi's case is different. It moved against being included in the counterclaim as soon as it could. The fact that the appeal of the wrongful dismissal of its motion to strike did not come on before the hearing of its motion for summary judgment was a mere incident of Court scheduling and of the differing jurisdictions of a case management Judge and of a case management Prothonotary. It should have its costs on the summary judgment motion and the dismissal of the counterclaim against it assessed under Column 5 ; its costs on the appeal and on the motion to strike should be assessed under Column 3.
ORDER
The motions are allowed. Paragraphs 18 to 22 and 26 of the statement of defence and paragraphs 105 to 112(b) of the counterclaim are struck out ; the counterclaim against Shionogi is dismissed with costs. Lilly shall have its costs of the motion assessed under Column 3. Shionogi shall have its costs on the motion for summary judgment and the dismissal of the counterclaim against it assessed under Column 5 and on the motion to appeal of the Prothonotary's order and on the motion to strike assessed under Column 3.
Judge
Ottawa, Ontario
October 9, 2003
FEDERAL COURT
NAMES OF SOLICITORS AND SOLICITORS ON THE RECORD
COURT FILE NO.: T-1321-97
STYLE OF CAUSE: Eli Lilly and Co. et al v. Apotex Inc.
DATE OF HEARING: October 2, 2003
PLACE OF HEARING: Ottawa, Ontario
REASONS FOR ORDER AND ORDER OF THE HONOURABLE MR. JUSTICE HUGESSEN
DATED: October 9, 2003
APPEARANCES:
Anthony Creber and
Patrick Smith FOR PLAINTIFFS
Harry Radomski and
David Scrimger FOR DEFENDANT APOTEX
David Morrow and
Colin Ingram FOR DEFENDANT SHIONOGI
SOLICITORS ON THE RECORD:
Gowling Lafleur Henderson LLP FOR PLAINTIFFS
Goodmans LLP FOR DEFENDANT APOTEX
Smart and Biggar FOR DEFENDANT SHIONOGI