Federal Court Of Appeal Affirms Award Of Damages For Compound Interest That "Would Have" And "Could Have" Been Earned In Patent Infringement Litigation Involving Cefaclor

• Published date: 11 August 2021
• Subject Matter: Corporate/Commercial Law, Intellectual Property, Litigation, Mediation & Arbitration, Corporate and Company Law, Patent, Trials & Appeals & Compensation
• Law Firm: Bereskin & Parr LLP
• Author: Mr Joshua W. Spicer and Bruna Kalinoski

What is the test a party must meet to establish a claim for interest as damages arising from lost profits? On the first appeal in connection with the quantification of damages for the infringement of the cefaclor patents, the Federal Court of Appeal (the "FCA") held that damages for interest on lost profits cannot be presumed and "must be proved in the same way as any other form of loss or damage."¹ Recently, on the second appeal in this matter, it had the opportunity to consider the approach that Justice Zinn of the Federal Court ("FC") used for assessing such a claim: Apotex Inc. v. Eli Lilly and Company, 2021 FCA 149.

Justice Zinn adopted the "would have" and "could have" framework from jurisprudence establishing that damages in patent cases are generally assessed by a comparison between real and hypothetical worlds.² The FCA accepted that this framework ' as previously used in Pfizer Canada Inc v. Teva Canada Limited ³ for assessing section 8 damages under the PM(NOC) Regulations⁴' also applies in assessing damages that turn on a lost opportunity to generate profits.

The decision is significant because it offers guidance on how a claim for interest as damages should be pursued and on what evidence is suitable to establish that interest would and could have been earned but for the adverse party depriving its adversary from using its profits.

Background History

For nearly 25 years, Eli Lilly and Company and Eli Lilly Canada Inc. ("Lilly") battled against Apotex Inc. ("Apotex") in the Federal Courts over Apotex's bulk importation of cefaclor for use in its antibiotic product, Apo-cefaclor, in Canada. The liability judgement held that Apotex had infringed at least one valid claim in each of Lilly's eight patents covering cefaclor.⁵

Lilly was awarded damages in the form of lost profits that it would have earned from selling cefaclor during the relevant infringing period (i.e., 1997 to 2001). The quantification of these damages winded its way back to the FC for determination by way of reference, which was heard by Justice Zinn.⁶

On the appeal of the original reference, the FCA affirmed the FC decision that compound interest was available in patent disputes when claimed as a head of damages, but it reversed Justice Zinn's ruling that this loss could be presumed.⁷ The FCA also held that it was not "readily apparent"⁸ how the FC had arrived at the annual rate of profit on sales (i.e., the interest rate), and so these two aspects of the computation damages in the form of interest were remitted to the FC for reconsideration.⁹

On remand, Justice Zinn reached the same conclusion as before and thus maintained the award of compound interest...