Quia timet counterclaim allowed in the context of an action for a declaration of non-infringement

Apotex Inc. v. H. Lundbeck A/S, 2010 FC 807

The generic pharmaceutical manufacturer Apotex Inc. (Apotex) commenced an action seeking declarations of invalidity and non-infringement with respect to Canadian patent no. 1,339,452 (the ‘452 patent), owned by H. Lundbeck A/S (Lundbeck),  relating to the medicine escitalopram.  During the course of these proceedings, Apotex brought a motion for an order striking Lundbeck’s counterclaim, or, in the alternative, requiring that Lundbeck provide security for costs.

Lundbeck’s counterclaim was in the nature of a quia timet action on infringement (essentially an injunction to restrain threatened and imminent patent infringement that has not yet commenced). While Lundbeck admitted that such action would be improper and subject to being struck if brought as an independent action, it argued that its counterclaim should be saved and allowed to proceed on the basis that it was brought in response to an action seeking a declaration of non-infringement. If the counterclaim was permitted to proceed, Lundbeck further argued that it should not be required to post security for costs or, in the alternative, that the amount requested by Apotex was unreasonable.

Background

Wishing to sell its generic version of the antidepressant escitalopram in Canada, Apotex filed an abbreviated new drug submission with Health Canada to receive the necessary notice of compliance (NOC), along with serving Lundbeck with a notice of allegations (NOA) pursuant to the Patented Medicines (Notice of Compliance) Regulations (SOR/93-133) (Regulations). Lundbeck thereafter sought and was granted a prohibition order preventing the Minister of Health from issuing a NOC, thereby preventing Apotex from selling its drug in Canada until after expiry of the ‘452 patent. Apotex commenced the current action notwithstanding that an appeal from the prohibition order has been scheduled for hearing on September 14, 2010.

Quia timet actions on infringement

The Court has consistently held, as demonstrated in Connaught Laboratories Ltd. v. Smithkline Beecham Pharma Inc., (1998) 86 C.P.R. (3d) 36 (Connaught), that the actions of a “second person” (or generic pharmaceutical company) in pursuing a NOC under the mechanism set out in the Regulations, will not, without more, justify the bringing of a quia timet action by a “first person” (or innovator pharmaceutical company). The Court, however, accepted Lundbeck’s argument that the criteria applied in Connaught should be applied flexibly in a situation where a quia timet proceeding is brought in response to an action for a declaration of non-infringement. 

The fundamental concern in regulating the use of quia timet proceedings is to prevent abuses of process and the avoidance of wasting judicial resources on matters that will have no practical effect. While an abuse of process might arise in situations where a counterclaim was used to launch a fishing expedition at discovery, in the present case Apotex would itself be putting sufficient particulars before the Court relating to use of its generic product, including revealing its formulation and method of manufacture, in seeking a declaration of non-infringement. Given that Lundbeck’s counterclaim relied on the same facts as those put forward by Apotex, the Court found that Lundbeck’s counterclaim would not constitute an abuse of process and would instead avoid a potential waste of judicial resources by ensuring that all issues between the parties were finally resolved.  As a result, Apotex’s motion to strike was refused.

Security for costs

Given that Lundbeck’s counterclaim was allowed to proceed and that Lundbeck was not ordinarily resident in Canada, Apotex was prima facie entitled to an order for security for costs. Lundbeck, however, argued that the amount requested by Apotex was excessive and, further, that the Court should exercise its discretion to dispense with the requirement as Lundbeck had substantial foreign assets sufficient to cover any award of costs.

The Court concluded that Lundbeck should only be required to post security for costs if Apotex’s expected costs in defending the counterclaim could be shown to exceed its costs in pursuing the main action.  The Court used Tariff rates to determine that Apotex’s initial request was clearly excessive and that any additional costs in defending the counterclaim would be minimal. Upon considering a variety of factors and finding the counterclaim to be dependent on the main action, the Court decided that Lundbeck should be exempted from the requirement to post security for costs.
 

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