FCA upholds award of compound interest in Cefaclor damages appeal - Lexology

In the latest Cefaclor decision, the Federal Court of Appeal has upheld the award of compound interest as damages for the time value of money lost, where there is trial evidence to support the award.[1]

As one of the longest running intellectual property cases in Canada, the history of the case is lengthy and complex. The nearly 25-year legal battle stems from an action for patent infringement commenced by Eli Lilly and Company and Eli Lilly Canada Inc. (collectively, "Lilly") against Apotex Inc. ("Apotex") in June 1997 with respect to the cefaclor antibiotic drug product. Approximately 12 years later, the liability judgment found that each of the eight patents at issue were infringed by Apotex.[2] The liability judgment was upheld by the Federal Court of Appeal,[3] and following an unsuccessful leave to appeal to the Supreme Court of Canada,[4] the determination of remedies fell to the Federal Court.

The trial for the damages reference took place in 2014, and resulted in the Federal Court awarding Lilly damages for its lost profits, including an award of compound prejudgment interest to account for the lost profits over the 17 years prior to the issuance of the remedies judgment.[5] In Apotex's appeal of this decision, the Federal Court of Appeal upheld the award but remanded the issue of compound interest back to the Federal Court for further consideration.[6] Following another unsuccessful leave to appeal to the Supreme Court of Canada,[7] the Trial Judge reconsidered the evidence in light of the Court of Appeal's guidance, and reached the same conclusion as previously on the issue of compound interest.[8] It is the Trial Judge's decision following reconsideration that was the subject of the appeal recently determined by the Federal Court of Appeal.

In dismissing the appeal and upholding the award of compound interest, the Court of Appeal reaffirmed that "damage awards regarding compound interest may reflect the time value of money owed or be intended to compensate a specific opportunity lost."[9] In the present case, Lilly sought and was awarded compound interest to compensate for the time value of money lost over the more than 17 years it took for damages to be awarded. Specific opportunity lost was not at issue in this case.

However, causation is still required to award compound interest. The Court of Appeal reiterated that compensation remains the concern, and that the "could have" and "would have" test used in assessing causation applies in evaluating an award of compound interest as well. While the unusually long period of time it took before damages were awarded was considered in awarding compound interest, Lilly was still required to show – and the Court of Appeal upheld that it did show – causation, as well as establish the loss it suffered on account of time value of money through trial evidence.

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