Date:19991116
Docket: T-753-99
BETWEEN:
MERCK & CO., INC. and
MERCK FROSST CANADA & CO.
Plaintiffs
- and -
NU-PHARM INC.
BERNARD SHERMAN
RICHARD BENYAK
Defendants
REASONS FOR ORDER
ARONOVITCH, P.
[1] The three defendants in this action bring separate motions prior to filing their statement of defence. The motions were heard together and are disposed of together in theses reasons.
[2] The applications are similar. Central to the defendants" applications is the contention that the statement of claim, or parts of it, disclose no reasonable cause of action. Other bases for striking out various paragraphs of the statement of claim are also asserted which will be reviewed later. In addition, the defendant Nu-Pharm Inc. ("Nu-Pharm"), seeks alternative relief requiring the plaintiffs to plead the requisite material facts to substantiate the allegations in the paragraphs sought to be struck. In the further alternative, the defendants Nu-Pharm and Richard Benyak require the plaintiffs to provide particulars of their claim.
THE PLAINTIFFS" ASSERTIONS
[3] To understand the defendants" arguments better, it is necessary to outline briefly the assertions in the plaintiffs" statement of claim. The following outline is taken from assertions made in the statement of claim filed by the plaintiffs in this action. For the purpose of the defendants" motion to strike out the statement of claim in whole or in part as disclosing no reasonable cause of action, the plaintiffs" assertions of fact are to be taken as proved.
[4] The plaintiff Merck & Co. Inc., a U.S. company, is the owner of Canadian Letters Patent No. 1,275,349 (the "349 patent). The plaintiff Merck Frosst Canada & Co., incorporated under the laws of Nova Scotia, is the sole licensee of the "349 patent in Canada. The "349 patent and the licence arrangement give the plaintiffs, hereinafter ("Merck"), the exclusive right in Canada to make and sell a compound known as enalapril and its salt enalapril maleate. On this basis, Merck Frosst manufactures enalapril maleate tablets which are sold in Canada by prescription under the trademark Vasotek for use in the treatment of hypertension and congestive heart failure.
[5] Apotex Inc. ("Apotex") has manufactured and sold a generic form of enalapril maleate tablets under the brand name Apo-Enalapril. In 1991, the plaintiffs brought an action in this Court against Apotex for infringement of the "349 patent based on Apotex"s manufacture and sale of enalapril maleate tablets. In December 1994, MacKay, J. ruled that Apotex had infringed the patent and enjoined Apotex from further infringing the patent and inter alia form using and selling Apo-Enalapril. A copy of the injunction was served on Nu-Pharm and each of the individual defendants.
[6] The defendant Bernard Sherman is the Chief Executive Officer of Apotex. In about 1989, he established the defendant Nu-Pharm under the laws of Ontario to carry on the business of manufacturing speciality generic drugs. Nu-Pharm is a privately held company. The defendant Richard Benyak is its president and a director. In April 1998 the pharmaceutical facilities of Nu-Pharm were purchased by Apotex.
[7] The plaintiffs allege that Bernard Sherman, an officer and director of Apotex, and thereby permanently enjoined from infringing and inducing others to infringe the plaintiffs" patent, attempted to circumvent the injunction and use Nu-Pharm as a vehicle to obtain an Notice of Compliance ("NOC") from Health Canada to manufacture and sell tablets identical to Apo-Enalapril.
[8] Thus in 1997, Nu-Pharm, with the involvement of the individual defendants and without notice to Merck, made a New Drug Submission to Health Canada with respect to enalapril maleate tablets to "illegally" obtain the grant of an NOC by citing Apotex"s Apo-Enalapril as the identical Canadian Reference Product. In February 1999, Nu-Pharm was issued an NOC and began marketing these tablets under the designation Nu-Enalapril. Merck alleges that this constitutes an infringement of the "349 patent and a violation of the 1994 injunction and that the defendants Bernard Sherman and Richard Benyak wilfully and knowingly directed and induced Nu-Pharm to infringe the patent and breach the injunction.
[9] The plaintiffs seek, in part,
(a) a declaration that Nu-Pharm has infringed the "349 patent;
| (b) a declaration that all defendants have knowingly and wilfully engaged in activities which infringe the "349 patent and are contrary to the injunction; |
| (c) a declaration that the defendants Bernard Sherman and Richard Benyak are personally liable for the activities of Nu-Pharm which infringe the patent and contravene the injunction; |
| (d) injunctive relief against all defendants restraining further infringement of the "349 patent; |
| (e) delivery or destruction of all enalapril and enalapril maleate possessed by or under the control of the defendants in infringement of the "349 patent; |
| (f) damages or an accounting of the profits received by the defendants from infringing activities; and |
| (g) exemplary or punitive damages for the defendants" knowing and wilful breach of the injunction and infringement of the patent. |
NO REASONABLE CAUSE OF ACTION
[1] As stated above, the defendants in separate applications seek to have all or part of the statement of claim struck out on the basis that it discloses no reasonable cause of action. In this regard they rely on Rule 221.
| 221(1) On motion, the Court may, at any time order that a pleading, or anything contained therein, be struck out, with or without leave to amend, on the ground that it (a) discloses no reasonable cause of action or defence, as the case may be, (b) is immaterial or redundant, (c) is scandalous, frivolous or vexatious, (d) may prejudice or delay the fair trial of the action, (e) constitutes a departure from a previous pleading, or (f) is otherwise an abuse of the process of the Court, and may order the action be dismissed or judgment entered accordingly. (2) No evidence shall be heard on a motion for an order under paragraph (1)(a). |
221. (1) À tout moment, la Cour peut, sur requête, ordonner la radiation de tout ou partie d'un acte de procédure, avec ou sans autorisation de le modifier, au motif, selon le cas : a) qu'il ne révèle aucune cause d'action ou de défense valable; b) qu'il n'est pas pertinent ou qu'il est redondant; c) qu'il est scandaleux, frivole ou vexatoire; d) qu'il risque de nuire à l'instruction équitable de l'action ou de la retarder; e) qu'il diverge d'un acte de procédure antérieur; f) qu'il constitue autrement un abus de procédure. Elle peut aussi ordonner que l'action soit rejetée ou qu'un jugement soit enregistré en conséquence. (2) Aucune preuve n'est admissible dans le cadre d'une requête invoquant le motif visé à l'alinéa (1)a). |
The defendants" alternatingly invoke grounds 1a) to d) and f) but primarily rely on 221(1)(a).
(a) Breach of Injunction
[2] With respect to the plaintiffs" claim of breach of injunction, the defendants take essentially the same position namely, that there is no cause of action for breach of injunction and that in any event, the defendants are not parties to the injunction and are thus not bound by it. They rely on the language of the injunction as pleaded in the statement of claim that the injunction was granted "against Apotex (not a party to these proceedings) by its officers, directors, servants, agents, employees or otherwise".
[3] The plaintiffs" maintain that Nu-Pharm and the individual defendants were fully aware of the injunction, that there is a close nexus or involvement with each other and that they are bound by the injunction.
[4] The legal background and framework for striking out a statement of claim for no reasonable cause of action were discussed by Wilson, J., speaking for the Court, in Hunt v. Carey Canada Inc. (1990), 43 C.P.R. (2d) 105 (S.C.C.). That case dealt with rule 19(24)(a) of the British Columbia Rules of Civil Procedure which is substantially the same as Rule 221(1)(a) of the Federal Court Rules, 1998. Wilson, J. noted that what is involved in this area is a Court"s inherent power to rid its own process of abuse.
| Thus, the test in Canada governing the application of provisions like Rule 19(24)(a) of the British Columbia Rules of Court is the same as the one that has governed an application under R.S.C. O. 18 r. 19: assuming that the facts as stated in the statement of claim can be proved, is it "plain and obvious" that the plaintiff"s statement of claim discloses no reasonable cause of action? As in England, if there is a chance that the plaintiff might succeed, then the plaintiff should not be "driven from the judgment seat". Neither the length and complexity of the issues, the novelty of the cause of action, nor the potential for the defendant to present a strong defence should prevent the plaintiff from proceeding with his or her case. Only if the action is certain to fail because it contains a radical defect ranking with the others listed in Rule 19(24) of the British Columbia Rules of Court should the relevant portions of a plaintiff"s statement of claim be struck out under rule 19(24)(a). [emphasis added] |
[5] In Domco Industries Ltd. v. Mannington Mills Inc. and Congoleum Corp. (1990),
29 C.P.R. 481 at 496 (F.C.A.), Iacobucci, C.J., for the Court adopted the concept of "cause of action" stated by Lord Justice Diplock in Letang v. Cooper , _1964_ All E.R. 929 (C.A.) at 934:
| "A cause of action is simply a factual situation the existence of which entitles one person to obtain form the Court a remedy against another person." |
Thus, in addition to the factual component there is a legal one pertaining to entitlement to a judicial remedy. The defendants" contention that there is no cause of action for breach of injunction may be seen as a contention that as a matter of law breach of injunction gives rise to no remedy in a civil action. I agree with this proposition.
[6] Lubrizol Corp. v. Imperial Oil Ltd. (1996), 67 C.P.R. (3d) 1 (F.C.A.) dealt with an action for infringement and inducing infringement of a patent. An interlocutory injunction was granted restraining the sale of certain products. The trial judge found that the patent had been infringed and the plaintiffs elected to receive the defendant"s profits from the infringement, to be determined on accounting. A continuance of the trial was ordered on the issue of exemplary damages in connection with the defendant"s disregard for the injunction and sizeable exemplary damages were awarded. On an appeal from the exemplary damages award the Court of Appeal ruled that the trial judge had erred in assessing exemplary damages prior to the accounting to compensate for profits. The Court stated that there was no remedy in damages for breach of injunction but that exemplary damages could be awarded as an adjunct in connection with patent infringement where there had been disregard for an injunction.
| It was also argued that the exemplary damages award in this case was for breach of the injunction and not for the patent infringement, so that the general damages were completely unconnected to the exemplary damages. True, the exemplary damages award in this case was based on the fact that a breach of an injunction had occurred. But this was not entirely divorced from the fact of the patent infringement. This action here was for patent infringement, with the breach of the injunction serving as an aggravating factor, suggesting arrogant conduct deserving of extra civil punishment There is no such thing as a separate civil action for damages for contempt; a contempt proceeding is either a quasi-criminal or a civil proceeding in which, if successful, the Court orders that a penalty be paid to the state, not to the claimant. However, where there is a patent infringement and a wilful breach of injunction followed that, the Court in a civil case may by an award of punitive damages punish that conduct in the context of the patent infringement action. |
| _emphasis added_ _page 21_ |
[7] Accordingly, I am satisfied that in law there is no civil remedy, and thus no civil cause of action, for breach of injunction. However, it is common ground between the parties that the cause of action in this claim is for patent infringement and in a case of patent infringement disregard for an injunction may support an award of exemplary damages. This means, breach of injunction may not be pleaded as a separate cause of action, but may be pleaded in connection with patent infringement. Pleading in this manner was permitted by Reed, J. in Apotex Inc. v. Merck & Co., Inc., (March 5, 1999,unreported).
[8] The defendants rely heavily on Preformed Line Products Co. v. Payer Electrical Fittings Co. Ltd. (1964), 42 C.P.R. for the proposition that a person cannot be bound by an injunction to which they are not a party. In my view, this case must be read in the light of Madame Justice MacLaughlin"s statement in MacMillan Bloedel Ltd. v. Simpson , _1996_ 2 S.C.R.. In that case, Madam Justice MacLaughlin limited her comments to the remedy of contempt in discussing judicial relief for non-compliance with an injunction.
| "It may be confidently asserted, therefore, that both the English and Canadian authorities support the view that non-parties are bound by injunctions : if non-parties violate injunctions, they are subject to conviction and punishment for contempt of Court." |
[9] At this juncture, I note two contentious issues between the parties; first, as to the scope of the injunction and whether it may be construed to bind the defendants. Second, is the defendants" argument that the injunction cannot give rise to rights as against parties not bound by it. Having regard to both issues, I am not called upon at this stage, to determine whether the parties are correct in their contentions on the merits. Where there are contentious issues of law, the merits are not appropriate for determination in the context of a motion to strike. I agree with the plaintiffs that, they must be left to be decided by the trial judge. Suffice it to say that the propositions advanced by the defendants by reference to these two issues is neither clear, obvious nor beyond doubt.
[10] Turning to the statement of claim. The underlined portions of paragraphs 1b), 1g) and 43, as set out below, refer to relief for breach of injunction as a separate remedy. In my view these portions constitute a radical defect because they refer to a cause of action which cannot succeed. They are to be struck out with leave to the plaintiffs to amend the affected paragraphs.
| 1(b) a declaration that, by the Defendants Nu-Pharm engaging in, and the defendants Sherman and Benyak using and inducing the defendant Nu-Pharm to engage in, the acquisition and sale of dosage form enalapril maleate tablets with knowledge of Canadian Letters Patent No. 1,275,349 and the judgments of the Federal Court of Canada holding the aforesaid Canadian Patent to be valued and infringed and granting a permanent injunction against further infringement of the aforesaid Canadian Patent, in Court Nos. T-2408-91 and A-724-94, the defendants Nu-Pharm, Sherman and Benyak have knowingly and willfully engaged in activities in infringement of Canadian Letters Patent No. 1,275,349 and contrary to the permanent injunction granted by the Federal Court of Canada, aforesaid ; |
| 1(g) exemplary or punitive damages against each and all of the Defendants for the knowing and wilful breach of the permanent injunction of this Court and infringement of Canadian Letters Patent 1,275,349; |
| 43. The Plaintiffs are not aware of the full extent of all of the Defendants" infringing activities, but claim relief in respect of all acts of infringement by the Defendants including exemplary or punitive damages for the knowing and wilful infringement of the "349 patent and the breaches of the aforesaid permanent injunction ; |
[11] Paragraphs 1c), 26, 31, 34 and 38-40 also contain allegations relating to non-compliance with the 1994 injunction by one or more of the defendants. However, in my view these assertions are permissible because they are made in connection with alleged patent infringement and not as a separate cause of action.
(b) Irrelevant Facts
[12] Nu-Pharm and the individual defendants argue that various portions of the statement of claim are irrelevant or immaterial and should be struck out. I do not find it necessary to outline in detail each allegation in the statement of claim which is impugned on this basis.
[13] In many cases, this aspect of the defendants" applications is based on the contention that allegations referring to a breach of the 1994 injunction or to personal liability for the individual defendants are improper. Based on my earlier conclusions on these topics, I do not find merit in the defendants" respective positions in this regard.
[14] Another basis of objection on which I comment below, is with regard to the facts asserted by the plaintiffs in paragraphs 26 to 30 and 38 of their claim, as these recount the process by which Nu-Pharm "illegally" obtained regulatory approval from Health Canada in order to bring enalapril maleate tablets to market.
[15] Rule 221(1)(b) authorizes a pleading to be struck out where it is immaterial or redundant. Having considered the statement of claim in its entirety, having regard to the Rule as a whole and subject to paragraph 34 below, I am not satisfied that the impugned allegations in the statement of claim are obviously irrelevant, immaterial or amount to an abuse of powers.
[16] I include in that regard, allegations of impropriety in connection with the regulatory process made in the context of an action for patent infringement. Without commenting on the merits of the allegations, it is far from clear that the conduct of the parties in the context of the regulatory process, is irrelevant and may not be raised in the circumstances of the plaintiffs" claim, see, Eli Lilly and Co. et al. v. Apotex inc. et al . per Teitelbaum J. at pages 15 and 16.
[17] Having said that, there are portions of the statement of claim which I consider to be irrelevant and are therefore to be struck out. Paragraph 10 is redundant and immaterial. Paragraph 37 sets out "the potential manufacturing sources for the Nu-Enalapril tablets". The paragraph is admittedly speculative and is therefore struck out.
(c) Material Facts
[18] The defendants Bernard Sherman and Richard Benyak seek to have the statement of claim struck out altogether as it relates to a claim of personal liability against them for patent infringement by Nu-Pharm on the basis that material facts pertaining to their alleged personal liability are not pleaded.
[19] Rule 174 states:
| Every pleading shall contain a concise statement of the material facts on which the party relies, but shall not include evidence by which those facts are to be proved. |
[20] A party may plead conclusions of law, however a conclusion of law pleaded without support of material facts is defective and may be struck out as an abuse of Court. It is an abuse of Court to simply assert a conclusion of law without furnishing to the Court and the other party the factual underpinning for the assertion. Jackett, P. addressed the need for material facts in a patent infringement case in Dow Chemical co. v. Kayson Plastics & Chemicals Ltd. (1966), 47 C.P.R. 1 (Ex. Ct.).
| If, however, the plaintiff has no ground for asserting that the defendant has done any particular act that, according to him, constituted an infringement of his rights, I should have thought that he has no basis for institution of proceedings If the plaintiff does not know what his claim is, "he has no right to make a statement of claim at all": _citations omitted_ A bare assertion that the defendant has infringed the plaintiff"s rights is not an allegation of facts constituting a cause of action and a statement of claim on which that is the only assertion of infringement could be struck out as being an abuse of the process of the Court. |
| _page 5_ |
| _. . ._ |
| If there is no allegation of acts which, if true, constitute an infringement of the plaintiff"s patent, the action can, as I have already indicated, be disposed of summarily on a point of law , either on a motion to strike out or otherwise. |
| _page 7_ |
| _. . ._ |
| In general, under our system of pleading, a statement of claim for infringement of a right should clearly show |
| (a) facts by virtue of which the law recognizes a defined right as belonging to the plaintiff, and |
| (b) facts that constitute an encroachment by the defendant on that defined right of the plaintiff. |
| _page 11_ |
[21] This approach has been confirmed in this Court and the Court of Appeal on numerous occasions. (Windsurfing International inc. v. Maurice Oberson Inc, (1987), 18 C.P.R. (3d) 91 at 93-94 (F.C.T.D.); Chart Industries Ltd. v. Hein-Werner of Canada Ltd. (1988), 25 C.P.R. (3d) 373 at 374 (F.C.T.D.); Painblanc v. Kastner (1994), 58 C.P.R. (3d) 502 (F.C.A.); Canadian Olympic Association v. USA Hockey Inc. (1997), 74 C.P.R. (3d) 448 (F.C.T.D.))
Personal liability for patent infringement
[22] The Federal Court of Appeal has ruled in Mentmore Manufacturing Co. v. National Merchandise Manufacturing Co. (1978), 40 C.P.R. (2d) 164 that an individual directing the affairs of a corporation may incur personal liability for patent infringement where there is a:
| "deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it. |
| _Per LeDain, J.A., for the Court, at page 174_ |
[23] With regard to an individual"s personal liability for corporate patent infringement, a statement of claim merely asserting that an individual occupies an ownership or managerial position with the company is insufficient and can be struck out for lack of supporting material facts Painblanc v. Kastner, supra ; Harnischfeger Corp. of Canada Ltd. v. Kranco Material Handling (1988), 23 C.P.R. (3d) 431 (F.C.T.D.)
| To establish a cause of action against Mr. Teasdale as the "directing mind", the mere fact of his capacity as president is insufficient. There must be an allegation that he ordered or authorized the facts complained of. |
| _Windsurfing International Inc. v. Novaction Sports Inc. (1987),18 C.P.R. (3d) 230 per Jerome, A.C.J. at 235_ |
This reflects the comment by LeDain, J.A. in Mentmore, supra, that:
| It would render the offices of director or principle officer unduly hazardous if the degree of direction normally required in the management of a corporation"s manufacturing and selling activity could by itself make the director of officer personally liable for infringement by his company. |
| _page 171_ |
[24] In my assessment, the statement of claim goes well beyond asserting ownership or normal actions of corporate management for the individual defendants. It recounts the plaintiffs" position that these defendants, bound by an injunction, through Nu-Pharm, have sought to circumvent the injunction and have improperly sought federal regulatory approval for a new product knowing that it infringed the plaintiffs" patent and without extending prior notice to the plaintiffs (paragraphs 19, 26-30, 34 and 38); have together, intentionally arranged for the new product to be manufactured and sold in Canada (paragraph 36, 39 and 40) in violation of the patent. I have therefore reached the conclusion that the statement of claim is not defective on this subject for want of material facts. If one accepts the allegations as proved, it cannot be asserted that the plaintiffs" claim against the individual defendants is bereft of any possibility of success. The plaintiffs" claim against the individual defendants should therefore be permitted to stand. I find support for this conclusion in the result reached on this issue in Smithkline Beecham animal Health Inc. v. Interpharm Inc. (1993), 52 C.P.R. (3d) 400 (F.C.T.D.), per Wetson, J. at 406-407.
[25] Following the above discussion, I also reject Nu-Pharm"s alternative claim as to the sufficiency of the material facts in certain impugned paragraphs in that they are not sufficient to found a cause of action. It is not necessary to consider each of these paragraphs, as Nu-Pharm"s objections are principally in respect of the application and alleged circumvention of the injunction. While I do not accept Nu-Pharm"s contentions that sufficient material facts have not been pleaded, I have concluded that the defendants are entitled to obtain certain particulars in order to be able to plead in their turn.
PARTICULARS
[26] The defendants Nu-Pharm and Richard Benyak advance alternative arguments claiming particulars of certain assertions made by the plaintiffs in their statement of claim. Particulars are to serve the purpose of defining the facts in issue and by narrowing the focus of the litigation hopefully leading to a saving of time and resources. Whether particulars are to be ordered involves a large measure of discretion having regard to the particular nature of the case pleaded. Jackett, P. had this to say in Dow Chemical Co. v. Kayson Plastics & Chemicals Ltd., supra, at 8
| Probably, applications for further particulars calling for an exercise of discretion are applications in which the Court should insist upon the supporting affidavits by both parties giving a reasonably full and frank disclosure of the grounds upon which the action was commenced and the actual problems with which the parties are faced from the point of view of pleading, discovery and preparation for trial. |
[27] In Windsurfing Intentional Ltd. v. Novaction Sports Inc., supra, Jerome, A.C.J. voiced a similar position.
| As a general rule, particulars will not be ordered unless the defendant establishes that they are both necessary for pleading and not within its knowledge, unless of course the pleadings are, on their face, inadequate or in violation of the rules: |
| _page 237_ |
[28] No affidavit material was filed in support of the defendants motion for particulars. Accordingly, I have approached my review of the statement of claim by determining which, if any, assertions are insufficient on their face. I have concluded that there are assertions in the statement of claim which require particulars in order to permit the defendants to know the case to which they must plead. I dismiss all other requests for particulars made by the two claiming defendants as I am not satisfied that the particulars sought are reasonably necessary at this stage. The plaintiffs are required to furnish particulars as now indicated.
[29] It is alleged at paragraph 19 of the claim, that Bernard Sherman has been involved in various attempts either directly or indirectly through related companies to circumvent the permanent injunction and to put an infringing counterpart of Apo-Enalapril on the market. Particulars are to be furnished as to the nature of the "various attempts" and the "related companies" referred to in paragraph 19.
[30] Paragraph 26, alleges that Nu-Pharm, submitted a New Drug Submission to Health Canada with the knowledge direction and "connivance" of the defendants Sherman and Benyak. The allegation of connivance is a serious one having a strong pejorative connotation. It is not a term of art and the defendants are therefore entitled to particulars of the alleged connivance of Bernard Sherman and Robert Benyak.
[31] Paragraph 27 of the claim, is unclear. It alleges that certain "identification" was deleted from the public records during the regulatory process. The plaintiffs are to provide particulars of the "identification" in question, the nature of "the public files" and the connection between Nu-Pharm and "the deletion".
[32] At paragraph 32, the plaintiffs allege that Nu-Pharm is threatening to offer to its Nu-Enalapril tablets for sale throughout Canada. The plaintiffs are to provide particulars of the "threats" referred to at paragraph 32; what they comprise and how they are being carried out.
CONCLUSION
[33] The defendants" motions are allowed to the extent noted above. The plaintiffs shall serve and file an amended statement of claim and provide the particulars as ordered. The defendants shall have leave to file their defence thereafter. A separate order shall issue consistent with the Reasons above.
[34] As success is divided, the costs shall be in the cause.