Collaboration of Counsel in Preparing Expert Reports

dTechs EPM Ltd v British Columbia Hydro and Power Authority 2023 FCA 115 Gauthier JA: Mactavish, Leblanc JJA varg 2021 FC 190 Fothergill J

2,549,087 / Electrical Theft Detection System

Gauthier JA’s decision for the FCA in dTechs involves “the application of known principles to a very unusual set of facts” [7]. While it did not set out new law, the unusual facts provided an opportunity for a helpful discussion of the principles and procedure related to the introduction of new evidence on appeal [20]–[30], and the proper role of counsel in preparing expert reports [32]–[37]. There is also a helpful nugget on claim construction.

The patentee, dTechs, lost comprehensively at trial: see here. During the costs assessment, dTechs obtained invoices and working agreements relating to BC Hydro’s expert witness, Mr. Shepherd, which led dTechs to believe that Shepherd did not author his reports. dTechs formed the view that the reports had instead been ghostwritten by a Mr Falany, the President of the corporation which provided Shepherd’s services [41]. There was also some suggestion that first drafts of the reports may have been written by counsel for BC Hydro [45]. dTechs consequently argued that the trial decision was unreliable as it was based on tainted evidence.

A motion to allow these documents to be introduced as new evidence on appeal was granted by a motion judge. Gauthier JA’s extensive discussion on the law and practice relating to the role of the motion judge on such a question [20–[30] will be essential reading for anyone pursuing a similar motion in the future.

Gauthier JA then went on to address the role of counsel in the preparation of expert reports. She noted that “In patent cases, it is not unusual for expert reports to be prepared in close collaboration with counsel in an effort to present the substantive opinion of the expert in a manner and format that is helpful to the Court in light of the complexity of the issues raised” [32], and “[a]s a practical matter, it is known that extensive notes are taken during meetings with experts to help prepare the draft reports, and that counsel are actively involved in putting these reports together” [33]. However, “[t]his does not inevitably mean that those drafts do not reflect the substantive and objective opinion expressed by the expert during those meetings.” A “high level of instruction by lawyers to expert witnesses” is not necessarily objectionable in patent cases [53]. While there are limits to the involvement of counsel, the important point is not who puts the words to paper: “I know of no cases where an expert report was excluded in a patent case on the sole ground that the first draft of said report was penned by counsel after meetings with the expert to discuss their opinions in detail” [34]. The key point is that “the Court must ultimately be presented with the substantive and objective opinion of the expert” [34].

Gauthier JA also noted that any potential overstepping of the proper limits on the role of counsel will normally be revealed on cross-examination at trial, and that is the appropriate place to raise such objections, so that it may be considered by the trial court in assessing the evidence [34]–[35]. The FCA will not be sympathetic to parties trying to raise this kind of argument on appeal [37].

Further, the degree of involvement of counsel will go to weight rather than admissibility, unless it is established that the expert “is unable or unwilling to comply with the duty to give fair, objective and non-partisan opinion evidence” [49]. Consequently, “[t]he Federal Court could not conclude that there was a reasonable basis for refusing to admit Mr. Shepherd’s expert evidence simply because the first drafts of his reports were penned by counsel after many hours of consultation with him” [55]. However, the fact that Shepherd might not have drafted the reports himself might have affected the weight that the trial court would have given to his evidence [56].

The weight to be given to the evidence is a matter for the trial court, not the FCA [56], but even so, the fact that the new evidence might have affected the weight to be given Shepherd’s reports was not in itself sufficient to require sending the matter back for redetermination [57]. There is a second question, whether the trial conclusions would remain unchanged, taking the view most favourable to dTechs. Gauthier JA therefore considered whether “based on the other evidence adduced at trial, the distinct findings and conclusions of the Federal Court would remain unchanged, such that the outcome of the trial would not be affected” [57], even if no weight were given to Shepherd’s evidence [58].

Gauthier JA therefore turned to the question of whether the result would have been the same without Shepherd’s evidence. This required a detailed look at the construction of the claims. While most of the discussion turned on the facts and evidence, Gauthier JA made some more general points.

The most basic point is that claim construction is ultimately a matter of law [68]. “[T]he role of the expert is not to interpret the patent claims per se, ‘but to put the trial judge in the position of being able to do so in a knowledgeable way’” [69], primarily by providing evidence to the court as to the meaning of technical terms. Conversely, this means that the interpretation of non-technical terms, or a fortiori, legal terms of art, are for the court, not for experts. This point arose in considering the term “further comprising”. After hearing evidence on this point, the trial judge had remarked that “certainly claim construction is a matter for the Court, and I’m not sure that terms like ‘further’ or ‘wherein’ require the input of an expert witness” [78]. Gauthier JA affirmed that “I fully agree with the trial judge that if the words ‘further comprising’ are terms of the art, it is in the art of claim drafting, one that none of the experts were qualified to opine on, and in respect of which the judge did not require expert guidance” [80].

On the facts, Gauthier JA concluded that giving Shepherd’s evidence no weight could not have impacted the holding that the 087 patent was not infringed, but it might have affected the validity of one claim (Claim 4), which had been attacked by way of counterclaim. The appeal on infringement was therefore dismissed, but the appeal on validity was allowed in part, amending the judgment to the extent that Claim 4 is not declared to be invalid [118]–[120]. The defendants are entitled to a retrial on the validity of Claim 4, if they so chose.

Case Management May be Preferrable to Summary Disposition

Noco Company, Inc v Guangzhou Unique Electronics Co, Ltd 2023 FC 208 Pallotta J2,916,782 / Portable Vehicle Battery Jump Start Apparatus

Pallotta J’s decision refusing a motion for summary disposition is an interesting contribution to the developing jurisprudence on this issue. There is no new law as such and the decision ultimately turned on the facts, but Pallotta J’s analysis is noteworthy for emphasizing that in some circumstances case management may serve the goal of just and efficient dispute resolution more effectively than summary adjudication.

As an initial point, there was a dispute as to whether the motion was actually a motion for summary judgment under Rule 215, or instead a motion for summary trial under Rule 216 ”[13]. The mere fact of the confusion illustrates that the distinction is fuzzy. While Pallotta J concluded that it was indeed a Rule 216 motion, she pointed out that there is overlap in the factors to be considered [91] and she noted that “judges faced with a motion for summary disposition based on a paper record may be guided by similar factors to decide whether the matter is suitable for summary adjudication, regardless of whether the motion is made under Rule 215 or Rule 216" [93]. On the facts, her decision to dismiss the motion did not turn on the “true nature” of the motion [95]. Her comparison of the requirements under the two Rules is very helpful in clarifying the similarities and differences in requirements for each [91]–[97].

One of the main reasons Pallotta J dismissed the motion is the standard ground that “the Moving Defendants have not presented a sufficiently narrow and well-defined non-infringement issue that is suitable for summary adjudication” [97]. She noted that:

[99] The Moving Defendants’ . . . have not limited their arguments to the claim terms that must be construed in order to make a finding of non-infringement based on a single essential element of claim 1. Instead, they have advanced what appear to be all possible non-infringement arguments for claim 1.

[105] The Moving Defendants presented multiple non-infringement arguments, and a range of possible non-infringement declarations that this Court could make, with the expectation that the Court could decide the motion on a narrower basis or re-define the relief. The issues raised and the expert and fact evidence that was adduced required NOCO to respond to a full-scope non infringement action extending beyond the allegedly infringing products in NOCO’s pleading, before any oral or documentary discovery had taken place. In my view, such an approach is inconsistent with the values underlying summary adjudication as a means for proportionate, cost effective, and timely dispute resolution that fairly balances expediency with a just resolution of the issues in dispute.

It seems that the strategy of “throw mud at the wall and see what sticks” backfired, by broadening the issues beyond what was suitable for summary disposition.

Pollatta J also referred to the importance of trial in cases where there are serious issues with respect to the credibility of the witnesses, which is another well-established factor, recently re-emphasized by the FCA in Gemak 2022 FCA 141 (see here): [122]–[124].

While these are well-established concerns, Pallotta J also noted that summary disposition is not necessarily more efficient. She emphasized that case management can also promote efficient dispute resolution, and may do so more effectively than summary disposition:

[109] Motions for summary judgment or summary trial are time-intensive, and do not necessarily provide an “express route” to resolving a dispute: ViiV at para 41. Proportionality is inevitably comparative; even slow and expensive procedures can be proportionate when they are the fastest and most efficient alternative: Hryniak at para 33.

[110] Procedural steps leading to trial, including documentary and oral discoveries, may also serve to streamline a case, narrow the issues for trial, and promote settlement. The evidence on this motion demonstrates that there are serious issues with respect to the underlying factual basis for deciding infringement, including whether the [exemplary product] is representative of [the Defendants] Products. In my view, allowing the discovery process to unfold is a more proportionate and efficient way to address these issues, particularly under case management.

[111] Restricting judgment to the [exemplary product] alone, without deciding whether it is representative of other products, is not an efficient way to proceed and amounts to litigating in slices. This approach would not narrow the issues for discovery with respect to other products at issue, including the products of defendants who are not parties to this motion. Furthermore, deciding the issues the Moving Defendants have raised without understanding how the findings would affect other products at issue may result in repetition or even complicate the issues to be determined at trial on a more complete factual record.

In concluding, she again emphasized the problem of “litigating in slices” and held that “Allowing the discovery process to unfold provides a more just and proportionate way to streamline the case and narrow the issues for trial” [131].

The entire decision is well worth reading for anyone dealing with a summary disposition motion.

Commissioner Overlooks an Essential Element

Coca-Cola Company v Canada (Attorney General) 2023 FC 424 Furlanetto J

            2,718,279

Coca-Cola’s 279 application relates to plastic beverage and food containers and methods for making them from PET polymers, where the PET polymer comprises a component derived at least in part from bio-based materials [3]. The application was refused on the basis of obviousness [1]. In this decision Furlanetto J held that the Commissioner had erred in law in its assessment of the inventive concept of certain method claims (Claim 18 being representative), because the Commissioner had failed to consider one of the essential elements of the claims in question, namely recyclability of the container [44], [47]. Furlanetto J therefore sent the application back for reconsideration of the affected claims. The finding of obviousness was otherwise upheld.

While the error was one of law, there doesn’t seem to have been any legal principle at stake. Rather, the error seems to have arisen because of a procedural slip. The claims at issue were introduced very late in prosecution; after the Final Action, after the response to the Final Action, after the application was sent to the PAB for review, and after the PAB provided its preliminary review letter that the claims were obvious [11]–[15]. It was only in its response to the preliminary review that Coca-Cola proposed the method claims at issue, in which recyclability was an essential element [16]. After the hearing the Commissioner released the Decision, which “adopted the recommendations of the PAB” [18] and which relied on the preliminary review letter in describing the inventive concept [19]. Since the preliminary review letter had been written before the new claims had been proposed, it did not consider the inventive concept of those specific claims. So, the Commissioner’s decision seems to have been a bit sloppy in having relied on the preliminary review rather than reassessing the inventive concept of the newly proposed claims in question, though of course I don’t know the extent to which the point was emphasized in the hearing.

No Entitlement to s 8 Damages Unless the Generic Prevails on the Merits in the Underlying s 6 Proceeding

Apotex v Eli Lilly 2023 ONSC 1968 Koehnen J

2,209,735 / atomoxetine / Strattera

Under the patent linkage system set out in the PM(NOC) Regulations, a 24-month statutory stay is triggered when a patentee brings proceedings against a generic seeking to obtain an NOC by relying on a comparison between its product and the patentee’s product. Under s 8 of the Regulations, the generic is entitled to damages for having been kept off the market during that 24-month period if the proceeding is “discontinued or dismissed.” This decision holding that Apotex was not entitled to damages under s 8 of the PM(NOC) Regs is interesting for two points. First, it applies the established rule that a generic is not entitled to s 8 damages if the patent is invalidated in separate proceedings to facts which present a slight twist on the prior cases. Second, it is an interesting example of the independent application of the “would” branch of the “could and would” test for assessing damages.

Apotex had filed an ANDS for generic atomoxetine in Feb 2008. At that time, it indicated on Form V that it would not challenge Lilly’s 735 patent, and would instead wait for its expiry before launching. A few months later, Teva began an action to impeach the 735 patent. Shortly thereafter, Apotex served Lilly with an NOA challenging the validity of the 735 patent, and Lilly responded with an application pursuant to s 6 for a prohibition order (this was under the old Regs), thereby triggering the statutory stay. Both the Teva action and the Lilly application were heard before Barnes J. In the Teva action, released first, Barnes J held that the 735 patent was invalid for lack of utility: Novopharm / atomoxetine 2010 FC 915 affd 2011 FCA 220. In the Apotex proceeding, released six weeks later, he held that the Apotex’s allegations of invalidity failed: Apotex / atomoxetine 2010 FC 1065. Different evidence and a different approach to the issue meant that Apotex failed in its utility argument even though Teva had succeeded: 2010 FC 1065 [96]. But because the 735 patent had already been invalidated in the Teva action, Apotex had already received its NOC by the time the Apotex / atomoxetine decision was released. The proceeding was an application for an order of prohibition under the old Regs, and Barnes J therefore dismissed Lilly’s application “on the ground of mootness” [104]; the judgment was that “this application for an order prohibiting the Minister from issuing a NOC is dismissed.” Apotex then sought s 8 damages. Apotex argued that since the Lilly application had been “dismissed,” which is what is required under [then] s 8(1), it was therefore entitled to s 8 damages even though it had not been successful on the merits.

There is obvious merit to Apotex’s submission on the text of s 8(1). The provision says the generic is entitled to damages if “an application made under subsection 6(1) is . . .dismissed by the court hearing the application,” which indeed it was. But Koehnen J pointed out that a purely textual approach to the interpretation of the provision is not sufficient; context and the purpose of the regulation must also be taken into account [28].

Koehnen J pointed out that it is well-established that a generic cannot claim s 8 damages if the patent is invalidated in a subsequent action. This “no reach back” rule was established in cases such as Apotex / Olanzapine 2010 FC 952 and Ratiopharm 2009 FC 1165 and by the FCA in Syntex / naproxen 2010 FCA 155 affg 2009 FC 494 and re-affirmed in Ratiopharm / amlodipine 2011 FCA 215 (see here). The cases illustrated a few variations on the theme. In Syntex / naproxen, the generic seeking s 8 damages had been unsuccessful in the NOC prohibition application, and the same generic was subsequently successful in having the patent declared invalid in a different proceeding. In Apotex / Olanzapine 2010 FC 952 the generic (Apotex) had been unsuccessful in the NOC prohibition application, but the prohibition order was subsequently lifted when the underlying patent was declared invalid in an action involving a different generic (Teva).

This case presented another variation, because the invalidity holding came before the decision in the s 8 action, rather than after. Koehnen J held this was not a good basis for distinguishing the prior authorities. He noted that if Barnes J had released the Apotex decision before the Teva decision, the no reach back rule would clearly have applied to bar Apotex’s s 8 claim. The fact that Barnes J had released the Teva decision first, rather than second, was not sufficient reason to come to a different conclusion: “Results of cases should turn on matters more substantive than the order in which a judge chose to release reasons in related cases” [48].

Koehnen J also noted that “Apotex wants damages not for anything that occurred as a result of its Notice of Allegations or the prohibition proceeding that followed. It wants damages for something that Teva accomplished in a different action even though Teva is not entitled to damages for what it had accomplished” [33]. This seems to be a kind of fairness argument. While the point is reasonable enough, I don’t find it particularly persuasive, as the Regs are primarily motivated by incentives and balancing interests, rather than fairness.

I find the flip side of this point more compelling:

[47] The importance of the second person’s Notice of Allegations cannot be overstated in this analysis. When a second person decides to issue a Notice of Allegations, it chooses what allegations to make. The nature of those allegations inevitably affects the first person’s decision about whether to commence a prohibition application or whether to let the NOC issue and then pursue the second person for breach of patent. The combination of the allegations Apotex made and the prohibition application Lilly commenced led Barnes J. to conclude that the Minister should be prohibited from granting Apotex a NOC until the 735 Patent expired. Once that issue has been decided, Apotex should not get a second chance to raise new and better arguments that might have led to a different outcome.

The innovator cannot make an informed decision of whether to resist a particular generic’s application unless its exposure to s 8 liability turns on the allegations made in that particular NOA.

Koehnen J therefore concluded that Apotex’s right to s 8 damages had not been triggered [62].

Koehnen J went on to address the damages, in case he was reversed on appeal on the entitlement point. His analysis raised an interesting application of the general principle that events in the real world are good evidence of what would have happened in the but for world (see eg Teva v Sanofi-Aventis 2014 FCA 67 [83]). It is also an interesting example of the independent application of the “would” branch of the “could and would” test. On the could branch of the test, Koehnen J found that Apotex could have manufactured product and entered the market early in the s 8 compensation period [91]. However, he held that it would not have done so. Recall that when Apotex originally filed its Form V in the real world, it stated that it would not challenge the 735 patent, but would instead wait for its expiry. Presumably, this is because Apotex was of the view that the likelihood of prevailing was not great enough to offset the cost of the proceeding. Koehnen J noted that in the hypothetical world in which Apotex was not kept off the market by the statutory stay, it would still have been exposed to an infringement action brought by Lilly, and “Apotex’s risk exposure in a patent infringement action was significantly larger than its exposure in a prohibition proceeding” [96]. This implies that “[i]f Apotex preferred to wait for the 735 Patent to expire before incurring the risk of even a prohibition action, it was even more likely to wait for the 735 Patent to expire before incurring the much larger risk of a patent infringement lawsuit” [97]. Koehnen J therefore found that Apotex would not have launched any earlier in the hypothetical world that it would have in the real world [107]. (This analysis raises some interesting issues about what Teva would have been doing in the but for world, which I won’t pursue since the discussion is all strictly obiter.)

Sufficiency, Overbreadth, or Utility?

Eli Lilly Canada Inc v Teva Canada Limited 2022 FC 1398 St-Louis J

2,226,784 / tadalafil / CIALIS / NOC

I’m back to blogging again after an end of term vacation—still catching up on the backlog from my longer hiatus over the winter. In my last post on this case I discussed the meaning of “or”. This post turns to validity. St-Louis J held the 784 patent to be invalid for overbreadth [120] and insufficiency [149], while declining to address utility. I have argued that overbreadth is almost always functionally duplicative of another established ground of invalidity, and this case illustrates that point once again, as the facts supporting the finding of overbreadth were the same as those supporting insufficiency.

The facts are reasonably straightforward. The 784 patent relates to the use of tadalafil for the treatment of ED. Claim 2, which is representative for present purposes, is to a pharmaceutical composition for the treatment of ED in a male animal, comprising “[tadalafil] or a physiologically acceptable salt or solvate thereof.” All asserted claims include the phrase “or a physiologically acceptable salt.”

St-Louis J found on the facts that it is not possible to make a physiologically acceptable salt of tadalafil [118]. Tadalafil does not have an ionisable functional groups and consequently it is very difficult to make a salt form [103]. It may be possible to make one or two salts, but only under extreme conditions that would result in the degradation of the tadalafil such that the resultant salt would not be sufficiently pure and stable to be considered physiologically acceptable [118]. As a result, St-Louis J held the 784 patent to be invalid for overbreadth [120] and insufficiency [149], while declining to address utility.

As discussed in my last post, St-Louis J concluded that a physiologically acceptable salt is an essential element of the claim. While I have my doubts about that conclusion, once we accept that, the claim is effectively to a physiologically acceptable salt of tadalafil, and insufficiency then follows directly from the fact that it is not possible to make even one physiologically acceptable salt. This is the classic “how to make” variety of sufficiency. If you claim “Compound X” you have to tell a skilled person how to make Compound X, or the claim is invalid for insufficiency. The traditional view is that the purpose of the disclosure is to ensure that the public would have benefit of the invention after the term expired: see eg Minerals Separation [1947] ExCR 306, 316. If a skilled person cannot make the claimed compound with the guidance provided by the specification, the patentee could get the benefit of patent protection during the term, while keeping its monopoly through secrecy after the term expired. There is an extremely difficult question as to whether the invention has to be enabled across the full scope of the claim. But that doesn’t concern us here, as the specification did not provide sufficient instruction to allow a skilled person to make any physiologically acceptable salt.

A standard statement of the sufficiency requirement is that the specification must enable the skilled person to practice “the invention” [133]; citing s 27(3) and Teva 2012 SCC 60 [51]. But what is “the invention”? That term is notoriously ambiguous: “The word ‘invention’ has many meanings and nuances,” as Henderson pointed out in Patent Law of Canada (1994) 7–8. It can mean the inventive concept, which is to say the information disclosed in the patent which is the quid pro quo for the grant; it can means the invention as claimed, which is the set of all existing or future embodiments of the claimed invention; or it can mean a particular embodiment: see British United Shoe Machinery Co Ltd v A Fussell & Sons Ltd (1908) 25 RPC 631 (CA) 649–51. This led to a debate in this case in which Lilly argued that insufficiency was not available as an attack because the Defendants had not established the nature of the invention [139]. Lilly’s argument isn’t fleshed out in enough in St-Louis J’s decision for me to fully understand it, but I suspect the point is that the inventive concept was the discovery that tadalafil is an effective treatment for ED, and not the discovery of how to make a salt form of a compound that was already known to be effective. If that is indeed what Lilly was arguing, it is effectively another angle on the “or” argument, and one which, in my view, is better framed in terms of claim construction (as discussed in my last post) rather than sufficiency. So, given St-Louis J’s conclusion on the meaning of “or”, I would say she was right to reject Lilly’s argument on this point [143], to focus on whether the specification instructed how to make the salt [144]–[148]. And since the answer to that on the facts is “no,” I agree with her conclusion that the patent is invalid for insufficiency [149] (given her conclusion on the construction of “or”).

With all that said, the ambiguity as to the meaning of “the invention” made this part of the decision more convoluted that it needed to be. Given the ambiguity of the phrase “the invention, I suggest it might be desirable for the courts to simply stop using it altogether, in any context in which precision is necessary—which is to say, especially in defining validity doctrine. Instead, the law should specify “the invention as claimed” or “an embodiment of the invention,” or “the inventive concept,” as appropriate to the particular doctrine. That is a clarification that would probably have to be done by the FCA, since many authoritative statements of the law use the ambiguous term “invention.”

On that note, I would also point out that the law of sufficient disclosure has several threads that need to be disentangled, and the meaning of “the invention” isn’t necessarily the same for each aspect of the disclosure requirement. The SCC in Consolboard [1981] 1 SCR 504, 518, noted that the statutory provision, s 27(3) “gives the impression of a mélange of ideas gathered at random rather than an attempt to enunciate, clearly and concisely, a governing principle or principles.” While the Court in Consolboard at 518 suggested that the haphazard nature of the statutory provision might be the product of amendment over a period of many years, I think the truth is that the case law gives a similar impression of a mélange of ideas. This is illustrated by Thorson P’s well-known summary of the disclosure requirement established by the case law in Minerals Separation [1947] ExCR 306, 316–17. I won’t repeat it here, but it is plain on its face that it runs together several concepts that are sometimes only tangentially related.

Moving on, St-Louis J also held the asserted claims to be invalid for overbreadth:

[120] As I conclude that it is more probable than not that physiologically acceptable salts of tadalafil cannot be made I conclude, as the Defendants argue, that such a salt was not invented. The Asserted Claims therefore claim broader than what was invented and are thus invalid for overbreadth.

In my article Overbreadth in Canadian Patent Law: Part I (2020) 33 IPJ 21 and Part II (2021) 33 IPJ 147, I argued that a finding of invalidity for overbreath is almost always redundant with another established ground of invalidity. And so it is here. All the evidence St-Louis J reviewed in the context of overbreadth went to the question of whether went to whether a physiologically acceptable salt could be made [114]–[119]. Exactly the same facts that results in a finding of insufficiency—that the claim compound could not be made—was also the basis for the finding of overbreadth.

The problem with overbreadth is that it remains ill-defined. St-Louis J noted that “There are two (2) ways that a patent claim can fail for overbreadth (or overclaiming): it can be broader than the invention disclosed in the specification, or it can be broader than the invention made by the inventor” [109]. It seems that in this case she was relying on the second prong, as she noted that

Under the claims broader than invention made, it is a question of fact as to what the inventor actually invented [112].

But what does “actually invented” mean? As I argued in my Overbreadth article, if the patentee has sufficiency disclosed and claimed subject-matter that is new, useful and non-obvious, how could it be said that they had not “invented” the claimed subject-matter? Overbreadth has an air of being something distinct only because of the ambiguity in the phrase “the invention.” It sound very reasonable to say that the patentee cannot claim more than it invented, but if we try to define exactly what is meant by “invention,” it is difficult to give this proposition any content that is independent of the standard grounds of invalidity.

In any event, as noted, this is another case in which overbreadth is redundant as turning on the same analysis as another ground of invalidity, in this case insufficiency.

The third issue is as to utility. The utility argument turned entirely on the point that a physiologically acceptable salt could not be made: the Defendants argued that “the failure of the 784 Patent to indicate which of the many possible salts can be made as a physiologically acceptable salt of tadalafil” renders the asserted claims invalid for a lack of utility [154], while Lilly argued that “the Defendants have not met their burden to establish that a physiologically acceptable salt of tadalafil cannot be made” [159]. That is, the argument was that the invention lacked utility because a physiologically acceptable salt could not be made; it really just recapitulated the sufficiency argument. To my mind, this conflates utility and sufficiency. (This is not a criticism of St-Louis J, as this is the way the case was argued.) I have to admit, this conflation is very common. There was really no distinction between the two in early English practice, before the development of claims; if the specification describes a device that is not operable, there is no distinction to be made between a case where the patentee had devised a useful invention but failed to disclose it and a case where the specification disclosed the invention precisely, and the invention itself was useless, unless recourse is had to extrinsic evidence.

But with the advent of claims, we can distinguish between the two. The utility requirement asks whether the claimed invention works (or can be soundly predicted to work). Sufficiency asks whether the claimed invention can be made. These are different. Suppose, for example, that in the early days of genetic engineering, the patentee claims “Pure human insulin.” The claimed subject-matter, pure human insulin, is undoubtedly very useful. If the patentee cannot actually make it, the patent is invalid for insufficiency, but not for lack of utility. On the other hand, it may be easy to make something that lacks utility. If the patent claims “Oregano oil for the treatment of cancer,” the claim is sufficient, because oregano oil can be made and administered with the intent of treating cancer, but invalid for lack of utility because oregano oil does not in fact treat cancer. Applications for impossible inventions, like a perpetual motion machine, are traditionally rejected for both lack of utility and insufficiency; in my view, they should be rejected for insufficiency alone. After all, a device with greater power output than input would be extraordinarily useful—if it is could be built. With all that said, I acknowledge that there is a lot of confusion in the caselaw on this issue, stemming ultimately, in my view, from the fact that the distinction could not be drawn prior to the introduction of claims.

Ultimately, St-Louis J, wisely, in my view, declined to address the utility argument. The Defendants argued that”a claim must fail if, in addition to claiming something that is useful, it also claims something that is useless” [173]. In other words, the question is whether utility has to be established across the full scope of the claim. St-Louis J reviewed the caselaw and noted the uncertainty on the question of whether a claim is invalid if it claims a single inoperable species [175]–[178]. Given that she had already held the asserted claims invalid on two other grounds, she refrained from deciding this point of law, and so she declined to rule on the utility ground [178]. This is a difficult question, which is better left to a case in which it is the focus of the argument.

Counterclaim Against Non-Asserted Claims Available By Right in NOC Action

Boehringer Ingelheim (Canada) Ltd v Sandoz Canada Inc 2023 FC 241 Fothergill J

2,557,801 / 2,606,650 / 2,696,558 / 2,751,833 / 2,752,435 / 2,813,661 / empagliflozin / JARDIANCE / NOC

In Janssen v Apotex 2022 FCA 184 Locke JA held that the validity of non-asserted claims may be attacked in an action under the PM(NOC) Regs with the leave of the court, but he explicitly left open the question of whether a defendant may challenge non-asserted claims “by right”:” see here. That open question was raised in this case, in which Boehringer sought summary judgment on a question of law dismissing the Defendants’ counterclaims respecting any patent claim that was not asserted in the s 6(1) actions [3].

Fothergill J noted that while the question had been left open, Locke JA's decision in Janssen v Apotex provided considerable guidance [36]. Fothergill J noted that the arguments made by Boehringer in this case were very similar to those made in Janssen [36] and Boehringer did not establish any principled basis for distinguishing the two contexts [41], [43], [51].

Fothergill J therefore granted summary judgment in favour of Sandoz, holding that the defendants “may counterclaim by right against the Non-Asserted Claims in the actions commenced by Boehringer under s 6(1) of the PM(NOC) Regulations” [59]. However, he noted that “this does not mean that the counterclaims in respect of the non-asserted claims will necessarily be permitted to proceed to trial. Boehringer remains at liberty to bring a motion pursuant to Rule 221(1) to strike the counterclaims against the non-asserted patent claims on any of the enumerated grounds” [5]; and similarly [58], [59]–[60].

What Does “Or” Mean?

Eli Lilly Canada Inc v Teva Canada Limited 2022 FC 1398 St-Louis J

2,226,784 / tadalafil / CIALIS / NOC

This decision raises an important point as to the meaning of the word “or” in a claim, which I will address in this post. It also raises a variety of issues relating to validity, which I’ll address in my next post. For some reason, the decision is not available on the FC website, so I have linked to a version made available by Smart & Biggar.

The facts are quite straightforward. The 784 patent relates to the use of tadalafil for the treatment of ED. Claim 2, which is representative for present purposes, is to a pharmaceutical composition for the treatment of ED, comprising “[tadalafil] or a physiologically acceptable salt or solvate thereof.” All asserted claims include the phrase “or a physiologically acceptable salt.”

St-Louis J found on the facts that it is not possible to make a physiologically acceptable salt of tadalafil [118]. Tadalafil does not have any ionisable functional groups and consequently it is very difficult to make a salt form [103]. It may be possible to make some salts, but only under extreme conditions that would result in the degradation of tadalafil such that the resultant salt would not be sufficiently pure and stable to be considered physiologically acceptable [118]. As a result, St-Louis J held the 784 patent to be invalid for overbreadth [120] and insufficiency [149]; I’ll discuss the invalidity holdings in my next post.

But what about the “or”? Even though tadalafil salts could not be made, there was no suggestion that tadalfil itself could not be made. If the patentee had eliminated the word “or” by doubling the number of claims, with one set directed to the salt forms, and separate parallel claims to tadalafil itself without the phrase “or a physiologically acceptable salt,” it seems clear that the claims to tadalafil would have been valid. In ordinary English, the word “or” is usually used to link alternatives, so one might think that drafting one claim with “or” should have the same effect as drafting two separate alternative claims.

It seems that Lilly did raise this argument, but too late [78]–[79]. St-Louis J nonetheless went on to briefly address the merits of the argument (citations omitted, original emphasis):

[80] In any event, even assuming that Lilly’s argument is properly before the Court, I find Lilly has not met its burden to demonstrate that the element is non-essential. Claim elements are presumed to be essential and a party alleging otherwise bears the onus of establishing non-essentiality. Also, and given my conclusion on [Lilly’s expert’s] credibility and reliability, the opinion he stated at paragraph 150 of his affidavit alone is insufficient to convince me that the formulation “or a physiologically acceptable salt” means such a salt could or could not be present, and that this element is non-essential. Conversely, [the Defendant’s expert] has found it to be necessary. Since Lilly has not met its burden to establish it is non-essential, I find the “physiologically acceptable salt” to be an essential element of the Asserted Claims.

This strikes me as a strange way of framing the issue. As I see it, the issue isn’t whether the phrase “physiologically acceptable salt” is essential, it is about the meaning of the word “or.” Lilly is not asking the court to read “physiologically acceptable salt” out of the claim, which is normally what happens with an non-essential element. It seems to me that what Lilly really wants is for the court to read “or” to mean “or.” Given that the issue was framed in terms of essentiality, I can't fault St-Louis J's analysis, but, in my view, this obscures the real issue. 

The other point that bothers me is St-Louis J’s reliance on expert evidence as to the meaning of the word “or”. The specification and claims must be construed as they would be understood by a skilled person, but at the same time, “claims construction is a matter of law for the judge”: see eg Whirlpool 2000 SCC 67 [61]. What this means is that expert witnesses must educate the judge as to the meaning of technical terms, but it is for the judge, armed with that knowledge, to decide on how the claim should be construed. The US Supreme Court put it this way in Teva v Sandoz 574 US 318 (2015) 332, quoting Markman  Markman 517 US 370 (1996) 388:

Where technical terms are used, or where the qualities of substances ... or any similar data necessary to the comprehension of the language of the patent are unknown to the judge, the testimony of witnesses may be received upon these subjects, and any other means of information be employed. But in the actual interpretation of the patent the court proceeds upon its own responsibility, as an arbiter of the law, giving to the patent its true and final character and force.

In this case, expert evidence was needed to educate the court as to what is meant by the technical term “physiologically acceptable salt,” but once the judge is armed with that knowledge, the interpretation of the interpretation of the ordinary English word “or” is a matter for the court, and expert evidence on this point is not necessary.

This claim drafting style is very common. If this result stands, it will have a major impact on drafting practice, as patent drafters will have to consider avoiding the word “or” in favour of separate claims, which will be problematic in light of the new excess claim fees. In the meantime, it will create uncertainty. In my view, it would have been much preferable if St-Louis J had rejected the argument on the basis that it had been raised too late, without going on to address it on the merits.

Second Prong of Corlac Does Not Require “But For” Causation

Teva Canada Limited v Janssen Inc 2023 FCA 68 Stratas; Gleason; Woods JJA varg Janssen Inc v Teva Canada Ltd 2020 FC 593 Manson J

2,655,335 / paliperidone palmitate / INVEGA SUSTENNA / NOC action /

FC Infringement / FC Inducement

This decision represents a significant and welcome clarification of the law of inducement. It will be the new leading case on the second prong of the Corlac test, making it clear in order to establish inducement is it enough to show that the product was sold along with instructions to use it in an infringing manner. A couple of points regarding the construction of use and Swiss-type claims are also clarified.

The 335 patent relates to a dosing regimen for long acting injectable paliperidone palmitate formulations for treatment of schizophrenia. It has three sets of claims. Claims 1 to 16 are “product” claims that relate to prefilled syringes containing paliperidone palmitate adapted for administration in accordance with the claimed dosing regimens [15]. Claims 17 to 32 are “use” claims directed towards use of a dosage form according to the same regimen [16], and Claims 33–48 are Swiss-type claims to the use of paliperidone “for the preparation [or manufacture] of a medicament” [17] according to the same regimen. All claims were asserted.

In the judgment under appeal, Manson J found the asserted claims to be not obvious and valid. He also found that Teva would directly infringe the product and Swiss-type claims, but not the use claims. However, he found that Teva would not induce infringement of any of the claims [2]. Teva appealed on obviousness and direct infringement, and Janssen cross-appealed the finding of no inducement. Teva’s appeal on obviousness was dismissed for reasons specific to the case: [56]–[67].

Claim Construction

Product claim “for” use

Claim 1, which is representative of the product claims, is to prefilled syringes adapted “for administration” according to the dosage regimen [FC 124]. As discussed here, at first instance Teva had argued that it did not directly infringe the product claims because it did not actually prescribe or administer medications [FC 234]. Manson J rejected this argument on the basis that it is enough that “the capable, approved and intended use” for the Teva product incorporates the essential elements [FC 252]. The FCA affirmed, saying

[77] In the context of product claims like those in claims 1 to 16 of the 335 Patent (i.e., claims to a pharmaceutical preparation for use in the treatment of a condition), evidence that a generic company proposes to make or sell its product for the patented use (even if it is only one use among others) is enough to establish direct infringement in an action brought under section 6 of the PMNOC Regulations

In effect, a claim to a product “for” a use covers a product adapted and intended for that use, and not just the product when actually so used. The clarification is welcome. The FCA cited AB Hassle 2001 FCT 1264 [6], [33], [35–36] 2002 FCA 421 and Lilly v Apotex 2019 FC 884 [24–33] (discussed here). Both do stand for that proposition, but AB Hassle found that the product was not intended for the patented purpose, and Lilly v Apotex only concerned a motion allowing Lilly to amend its pleadings, so this seems to be the first time we have the point confirmed at the FCA level.

Swiss-type claim

In Novartis 2013 FC 985, Hughes J held, in effect, that a Swiss claim should be construed as a use claim, even though a Swiss claim is a product claim on its face: see here. At trial in this case, Teva urged Manson J to adopt the same position: [FC 159]. Relying on Hospira 2018 FC 259 [152–153], [268–323] affd 2020 FCA 30 [16–18], Manson J held that Swiss-type claims should be interpreted as being infringed if the medicament “is adapted for” administration according to the claimed dosing regimen [FC 163]. (So, the use claims and the Swiss claims both encompass products adapted for the infringing use.) The FCA affirmed:

[78] Similarly, in the context of Swiss-type product claims like those in claims 33 to 48 of the 335 Patent (i.e., claims to the use of a drug for the preparation of a medicament for use in treatment of a condition), evidence that a generic company proposes to make or sell its product for the patented use (even if it is only one use among others) is enough to establish direct infringement in an action brought under section 6 of the PMNOC Regulations

While the point was already established by Hospira, this is helpful in succinctly summarizing the law. It is also helpful in reaffirming the law, which can now be considered settled.

Inducement

The most important aspect of the decision relates to infringement by inducement, and in particular the second prong of the test for inducement set out in Corlac 2011 FCA 228, which requires that the act of direct infringement was influenced by the alleged inducer. The second prong was determinative at first instance; Manson J found that Janssen had established the first of Corlac factor, namely direct infringement, but not the second, that the acts of direct infringement would be influenced by the alleged inducer [48]. (He did not go on to consider the third factor, the knowledge requirement.)

The FCA reversed Manson J on the second prong, after a thorough review of the caselaw which greatly clarified the nature of the “influence” requirement. It is also significant that this was a decision by the Court, rather than by a single judge with concurrences, as is more usual. The decision is evidently intended to settle this point.

The second step of the Corlac test requires that [46]

the completion of the act(s) of infringement were influenced by the acts of the alleged inducer to the point that, without the influence, direct infringement would not take place.

On its face this seems to articulate a “but for” test, such that inducement is only established if the direct infringement would not have occurred but for the influence of the indirect party. Accordingly, Manson J explicitly characterized Corlac as requiring “but for” causation [FC 263], as have other cases, such as Bayer 2015 FC 797 [31] and Janssen 2019 FC 1355 [234] (both cited by Manson J). However, in my paper “Is 'But For' Causation Necessary to Establish Inducement?” (available on SSRN), I argued that the jurisprudence is not as clear on the standard for influence as this articulation of the test suggests. There are very few cases which actually apply a “but for” standard. The strongest case supporting a strict “but for” requirement is Slater Steel (1968), 55 CPR 61, 87, which stated that the influence must be the “sine qua non” of the infringement, and even that case is problematic authority, for a variety of reasons addressed in my paper. (And see also Nycomed 2011 FC 1441 affd 2012 FCA 195.) On the other hand, there are other cases, such as Novopharm 2006 FC 1411 affd 2007 FCA 251 and Genpharm 2003 FC 1443 affd 2004 FCA 413, that support a weaker “encouragement” standard.

As discussed here, Manson J acknowledged this apparent split in the caselaw [FC 259–64]. He explained it as a split is between the “earlier cases” [FC 264], and the “more recent cases” [FC 262], saying the earlier cases only required “some nexus” to the generic company [FC 261], while “in more recent cases,” the Court has “scrupulously” applied the Corlac test, “with particular focus on the second prong” [FC 262]. The implication is that Corlac changed the law, or at least the existing standard has been applied more stringently since Corlac. In particular, Manson J stated expressly that “[t]he ‘but for’ influence required in the second prong of the Corlac test requires a higher threshold for establishing inducement than was applied in the earlier cases” [FC 264].

The FCA reversed (all bold is my emphasis):

[82] We agree with Janssen that the Federal Court erred in law in holding that the decision of this Court in Corlac changed the law by incorporating a higher degree of causality at the second step of the analysis for inducing infringement. This error led the Federal Court to incorrectly apply an unduly onerous requirement at the second prong of the analysis for inducement and to incorrectly focus only on the skill and judgement of prescribing physicians to the exclusion of the role played by Teva in inducing infringement of the use claims in suit.

This statement by the FCA is clearly referring to Manson J’s remark at [FC 264], stating that “but for” was a higher standard for causation than had previously been required.

As discussed here, due to redactions in Manson J’s decision, it was not clear to me whether the “but for” element was crucial to his holding, but whether or not it was crucial to the outcome, it is clear that he applied a “but for” standard for causation. The FCA in the above paragraph described this standard as “unduly onerous.” Further, this statement is clearly referring to Manson J’s remark at [FC 264], in which he stated that “but for” was a higher standard than had previously been required. So, while the point might have been made more explicitly, putting these together, this implies that the influence exerted by the inducer need not be the “but for” cause of the direct infringement.

In the course of a thorough review of the caselaw, the FCA also specifically approved two cases articulating an “encouragement” standard. The FCA at [97] quoted with approval Novopharm 2006 FC 1411 [40], [42] affd 2007 FCA 251, in which von Finckenstein found inducement on the basis of a Product Monograph which “would be an encouragement” to infringe. The FCA [98] also quoted a passage from the same decision in which the application judge found the PM would “have the effect of inducing or encouraging” physicians to prescribe for the patented indications. The FCA at [95]–[96] also approved Genpharm 2003 FC 1443 affd 2004 FCA 413, in which “Justice Layden-Stevenson concluded that references (some of them subtle) to the patented use of omeprazole in Genpharm’s PM was sufficient to establish that Genpharm would infringe AB Hassle’s patent if Genpharm’s drug were allowed onto the market” [95] (my emphasis). These references reinforce the view that the FCA is endorsing an “encouragement” standard rather than a “but for” standard at the second prong. Conversely, in discussing Slater Steel, the FCA made no mention of the “sina qua non” passage, but quoted only passages referring to a more ambiguous “induced or procured” test [86].

The FCA also quoted with approval from Hospira 2018 FC 259 [326]–[327], [332]–[333], in which Phelan J held that “Infringement by inducement may be established by inferences reasonably drawn from the contents of the product monograph,” so that the second prong can be established when “the product monograph amounts to instructions or directions for infringement” [333]. In my article, I had suggested that this and other similar cases established a presumption that the physician would follow the directions in the PM, leaving open the possibility that this presumption could be rebutted by evidence showing eg that physicians never read the PM. That is, I took these cases to be saying that inducement “may” be established by showing that the PM instructs infringement, not that it necessarily “would” be established by such a showing. However, the FCA did not make any reference to a presumption, which is noteworthy in itself, as it suggests that these cases are not to be understood as turning on a presumption; the implication is that the instructions to infringe will in themselves establish infringement without the aid of a presumption. The FCA also pointed out that in Windsurfing (1985) 8 CPR(3d) 241 (FCA), the FCA had affirmed a finding of inducement when the inducer had sold a kit accompanied by instructions to assemble the components into a patented product, saying “I think it beyond dispute that the only inference to be drawn from the voluminous evidence in this case is that the respondent knew and intended that the ultimate purchaser would utilize the sailboard parts for the assembly of a usable sailboard which, upon assembly, would infringe the appellant’s patent” [85]. This also implies that strict but for causation is not required; it is enough that the inducer knew and intended the direct infringement.

In light of all this, the FCA reversed Manson J on the basis that he had made an error law at the second step of the Corlac test. The FCA stated:

[110] In the case of a generic drug, inclusion as one of the recommended uses within the PM for the drug of the alleged infringing use, among others, has been found to be sufficient to constitute the requisite encouragement to satisfy the second prong of the test for inducement in Hospira, AB Hassle, and Novopharm. In such circumstances, the infringing use is one of the bases for approval of the generic drug by Health Canada and one of the uses recommended to physicians. . .

This expressly states that all that is required is “encouragement.”

[112] Here, the Federal Court found that the capable, approved and intended use for the Teva product incorporated all the dosing and administration elements of the product claims, including the use of the continuous maintenance doses claimed in the 335 Patent. This finding inevitably leads to the conclusion that Teva would induce infringement of the use claims. Had the Federal Court properly understood and applied the test for induced infringement, no other conclusion was possible.

The reference to the approved use in [112] and [110] evidently reflects the PM. This is an explicit statement that if the PM instructs infringement, the second prong of the Corlac test is established.

The FCA did not explicitly state that “but for” causation is not required at the second prong, and indeed the Court repeated the Corlac test in very similar terms [109]. Nor did the Court expressly adopt an alternative “encouragement” test. Nonetheless, taken as a whole, it is now clear that in order to establish inducement, it is not necessary to establish that the influencer is or would be the “but for” cause of the direct infringement. It is now clear that the sale of a product accompanied by instructions to use the product in an infringing manner will be sufficient to establish the requisite influence. (Indeed, that is ultimately what happened on remand in Corlac itself: Corlac 2012 FC 76 [16]–[17].) This does not turn on any rebuttable presumption that the end-users will read the instructions and use the product accordingly, as no such presumption was mentioned by the FCA.

This will not affect the outcome in most cases; in the past, a party who sold a product accompanied by instructions to infringe would almost invariably be found to have caused the direct infringement. But the clarification should simplify the litigation. In the past we have seen a number of cases debating whether direct infringers, such as physicians and pharmacists, actually read the PM: see Abbott v Novopharm 2006 FC 1411 [40]; Solvay 2008 FC 308 [192]; Aventis 2006 FC 861 [44]; Allergan 2011 FC 1316 [161]. Presumably such evidence is now irrelevant.

I would also say that the FCA in this case truly did clarify the law. Manson J was not off on some frolic of his own; the view that “but for” causation was required at the second prong had a clear basis in Corlac, and was no doubt the most widespread reading of that decision. On the other hand, this is not a case in which the FCA reversed itself in the guise of clarification. The statement in Corlac was not necessary to the result, and was in tension with the holding and results in other cases, creating a real ambiguity in the law, which has now been resolved.

Finally, I will repeat a point I made in my article, which is that there is a separate question of causation with respect to damages. If infringement by inducement is established, the court may, and almost invariably will, grant injunctive relief. But in order to establish damages, it is necessary for the patentee to prove it suffered losses caused by the infringement, and “but for” causation must be established at that stage. (If an accounting is sought, “Nova v Dow” causation must be established.) In other words, encouragement to infringe is enough to get an injunction, but not enough to get damages.

Nova v Dow: What Role for “But For” Causation in Identifying the NIO?

Nova Chemicals Corp v Dow Chemical Co 2022 SCC 43 Rowe J: Wagner CJ, Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ concurring; Côté J dissenting affg Nova Chemicals Corporation v Dow Chemical Company 2020 FCA 141 Stratas JA: Near, Woods JJA affg Dow Chemical Co v Nova Chemicals Corp 2017 FC 350, 2017 FC 637 Fothergill J

2,160,705 / film-grade polymers / ELITE SURPASS

The Intuition / The Legal Background / Causation as a Matter of Fact / The Concession

In Nova v Dow, Rowe J held that when an accounting is granted, the infringer must disgorge all profits caused by the invention. While the argument turned on whether “but for” causation was the applicable causation concept, Rowe J never addressed this question; he did not explain what it means for profits to be “caused” by the invention, except to say that causation is a matter of fact. In my last post, I noted that Rowe J implicitly rejected the position that the differential profits rule from Schmeiser reflected the direct application of “but for” causation; it is necessary to apply the three-step test which Rowe J set out in Nova v Dow in which causation is addressed at Step 2. However, Rowe J did not address the nature of the causation requirement at that step. This post considers what role, if any, there is for the application of “but for” causation at Step 2 of the three-step test.

Step 2 requires the court to “[d]etermine whether there is a non-infringing option [NIO] that can help isolate the profits causally attributable to the invention” [15]. In my last post, I noted that we cannot infer anything about the causation concept from the holding on the facts, as it turned entirely on a concession made by Nova at trial.

It is nonetheless clear that “but for” causation is not the exclusive causation concept in identifying the NIO. Rowe J expressly rejected Nova’s submission that “an infringer’s ‘best non-infringing option’ is synonymous with the infringer’s ‘most profitable’ alternative option” [41]. Rowe J also endorsed the use of conventional canola as the appropriate non-infringing option in Rivett, while emphasizing that conventional canola was in fact unavailable to the infringer: [64]. Rowe J also rejected a hypothetical proposed by the intervener CGPA Canadian Generic Pharmaceutical Association which clearly applied “but for” causation: [41]. Further, the structure of the three-step test implicitly rejects “but for” causation as the sole causation concept, because Step 2 asks “whether” there is an NIO that can help isolate the profits causally attributable to the invention; if “but for” causation were the causation concept being used, then there is always a non-infringing option, namely what the infringer would in fact have done but for the infringement.

This makes it clear that the NIO is not determined solely by finding what the infringer would in fact have done but for the infringement. However, none of the foregoing excludes the possibility that “but for” causation might be helpful in identifying the NIO in some circumstances. Other aspects of the decision imply that “but for” causation may indeed play a role in identifying the NIO at Step 2. As discussed here, Rowe J suggested that even on the facts in Nova v Dow, commodity grade plastic might have been an appropriate comparator if Nova had not made its concession to the contrary at trial [72]. This is consistent with his definition of the NIO as any product that “helps” identify the profits caused by the invention [58]. Further, Rowe J also relied on “but for” causation in holding that springboard profits are recoverable [81]. This shows that “but for” causation is not entirely excluded from the accounting analysis.

Putting all this together, it is clear that the causation concept at issue at Step 2 is not “but for” causation as such; that is, the NIO is not to be identified simply by asking what the infringer would have done but for the infringement. At the same time, “but for” causation is not entirely irrelevant either; what would have happened but for the infringement might be used at Step 2 if the trial judge finds it helpful in identifying the profits causally attributable to the invention.

For example, suppose there is a case in which documentary evidence is introduced showing that the infringer had narrowed down its expansion plans to two options, Option A, which involved novel technology (which turned out to be infringing) and Option B, which is within the tried and tested technical capability and expertise of the company, but which is otherwise unrelated to Option A. A PowerPoint presentation from the meeting at which the decision was made is introduced into evidence. It shows that the infringer’s expected profit is $30m under Option A and $20m under Option B; and that even Option B is more profitable than another other course of action. A summary slide says:

Choice narrowed to Option A or Option B.

In favour of Option A

The value to us of the novel technology is $10m.

In favour of Option B

Tried and tested technology

If Option A turned out to be infringing, it seems reasonably clear that it would be open to a trial judge, applying Nova v Dow, to find this evidence helpful in assessing the value of Option A to the infringer. Certainly that would be true if Option B was similar to Option A, either technically or from a consumer market perspective (as discussed in more detail in the forthcoming paper), but Rowe J’s reference to the “pail and crate” market implies that it would also be open to the court to find such evidence helpful even if Option B is very different from Option A.

Of course, I have constructed this to be a particularly compelling example where “but for” causation seems helpful in establishing the value of the non-infringing option; but that is enough to establish the principle.

So, I would suggest that evidence as to what the infringer would have done but for the infringement should normally be admissible and relevant as one factor in determining what constitutes the NIO, even though it will not be determinative. I will consider other potentially relevant factors in my full article, which is forthcoming in the IPJ, and in subsequent posts.

Nova v Dow: The Concession

Nova Chemicals Corp v Dow Chemical Co 2022 SCC 43 Rowe J: Wagner CJ, Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ concurring; Côté J dissenting affg Nova Chemicals Corporation v Dow Chemical Company 2020 FCA 141 Stratas JA: Near, Woods JJA affg Dow Chemical Co v Nova Chemicals Corp 2017 FC 350, 2017 FC 637 Fothergill J

2,160,705 / film-grade polymers / ELITE SURPASS

The Intuition / The Legal Background / Causation as a Matter of Fact

In Nova v Dow, Rowe J held that when an accounting of profits is granted, the infringer will be required to disgorge all profits caused by the invention. He set out a three-step test to “conceptualize” an accounting of profits. The principles of causation are applied at the Step 2, which requires the court to “[d]etermine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer’s profits not causally attributable to the invention — i.e., differential profits.” [15]. In my last post on Nova v Dow I explained how Rowe J avoided addressing the causation concept by characterizing the central issue of causation as being a matter of fact. We should nonetheless expect the lower courts to scrutinize the decision closely for guidance as to the nature of the causation requirement before giving free reign to their own common sense and intuition in selecting an “non-infringing option” [NOI]. Accordingly, the next few posts, starting with this one, will examine the decision to see what more can be learned about the causation concept from the facts and examples approved by Rowe J.

Unfortunately, the holding on the facts in this case is not particularly informative because it turned in large part on a concession made by Nova at trial. Nova argued that had it not infringed it would have made approximately $300m in profits on commodity grade “pail and crate” plastic, which, on the “but for” causation approach to an accounting, should therefore be deducted from its actual profits to arrive at the amount to be disgorged. The main question on appeal was whether that deduction should be permitted [2]. There was no finding at trial that Nova would in fact have made such profits, though there were findings that made it plausible: it was undisputed that Nova enjoyed a substantial cost advantage in the production of ethylene, and the trial judge found that if Nova had not made the infringing products, it would have made and sold pail and crate plastic: Nova v Dow FC [137], [158]. The trial judge, affirmed by the Court of Appeal, had refused to allow the deduction. That the Supreme Court affirmed without sending the matter back for a determination of the quantum would normally allow us to infer that the deduction was not permitted as a matter of law.

Matters are not so simple in this case. As noted in a previous post, Dow had characterized the post-Schmeiser FCA cases as restricting the use of the differential profits to cases in which the infringer’s alternative was a “true market substitute[] for the patented invention.” What I didn’t mention in that post is that Nova agreed that the “non-infringing alternative” referred to in the Court of Appeal’s elaboration of the differential profit approach was restricted to a true market substitute: Nova Factum FM010 [26]. Consequently, Nova had conceded at trial that there “there were no ‘direct non-infringing alternatives’ available for the purpose of applying the ‘differential profits’ approach”; in particular, Nova agreed that commodity grade plastic was not a “non-infringing alternative”: see Nova v Dow FC [146]. Because of this concession, Rowe J held that the differential profits approach did not apply: [70]–[73].

However, Nova also argued that the “non-infringing alternative” used in the FCA caselaw was different from the “non-infringing option” referred to in Schmeiser, and that the differential profit approach as set out in Schmeiser itself was directly based on “but for” causation. Nova therefore argued that “but for” causation should be used directly to determine the quantum to be disgorged: see Nova Factum [27], [37], [56], [59], [100]–[103]. While Rowe J held that the differential profit approach did not apply, he did not directly address Nova’s alternative argument that “but for” causation should be applied even if the differential profit approach could not be applied; however, since he affirmed rather than sending the matter back for a determination of whether Nova would in fact have made such profits in the pail and create market, the direct implication is that this argument was rejected.

Thus, Rowe J held, at least implicitly, that “but for” causation cannot be used directly to assess the quantum to be disgorged in an accounting; it is necessary to apply the three-step differential profit test which Rowe J set out, with causation to be addressed at Step 2. However, Rowe J did not explicitly reject the application of “but for” causation at Step 2, as his holding that any profits from the commodity grade could not be deducted at Step 2 turned entirely on Nova’s concession. My next post considers what role, if any, there is for the application of “but for” causation as part of the three-step test, in particular, at Step 2.

Costs and Settlement Proposals

Pharmascience Inc v Teva Canada Innovation 2022 FCA 207 Monaghan JA: Gleason, Mactavish JJA

2,702,437 / 2,760,802 / glatiramer acetate / Copaxone / Glatect / NOC /

I don’t usually blog on procedural issues, but this decision on an appeal from a costs award affirms a simple point: “settlement proposals or offers that do not meet the conditions of Rule 420 may be considered under Rule 400 in making a costs award” [18].

Nova v Dow: Causation as a Matter of Fact

Nova Chemicals Corp v Dow Chemical Co 2022 SCC 43 Rowe J: Wagner CJ, Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ concurring; Côté J dissenting affg Nova Chemicals Corporation v Dow Chemical Company 2020 FCA 141 Stratas JA: Near, Woods JJA affg Dow Chemical Co v Nova Chemicals Corp 2017 FC 350, 2017 FC 637 Fothergill J

2,160,705 / film-grade polymers / ELITE SURPASS

The Intuition / The Legal Background

In Nova v Dow the SCC addressed the method of calculating an accounting of profits in the patent context. This is the third in a series of posts summarizing my case comment on Nova v Dow, which is forthcoming in the IPJ. In Schmeiser 2004 SCC 34 [102] the SCC held that the preferred method for calculating an accounting of profits is the “differential profit” approach, in which “[a] comparison is to be made between the defendant’s profit attributable to the invention and his profit had he used the best non-infringing option.” The question that developed in the subsequent FCA decisions is whether the non-infringing option—or the non-infringing alternative, as the FCA usually called it—represents what the infringer would have done had it not infringed, in which case the differential profits approach simply reflects “but for” causation; or whether there is something special about the non-infringing option, and if so, what that something special might be.

As discussed here, the FCA caselaw was at least consistent with the “but for” approach until the FCA decision in Nova v Dow, in which Stratas JA, writing for the majority, rejected the “but for” approach to an accounting. On appeal to the SCC, Rowe J, for the majority, affirmed Stratas JA’s decision, though without specifically approving his reasoning.

Rowe J at [15] set out a three-step test to “conceptualize” an accounting of profits:

Step 1: Calculate the actual profits earned by selling the infringing product — i.e., revenue minus (full or differential) costs.

Step 2: Determine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer’s profits not causally attributable to the invention — i.e., differential profits. It is at this step that judges should apply the principles of causation. . . .

Step 3: If there is a non-infringing option, subtract the profits the infringer could have made had it used the non-infringing option from its actual profits, to determine the amount to be disgorged.

Rowe J noted that the principal issue on appeal was Step 2 [16]. There are two key issues at Step 2: (1) the nature of the causation requirement; and (2) the nature of the non-infringing option—for convenience, the “NIO.”

The nature of the causation concept is central, as it allows us to determine what constitutes an appropriate NIO. Rowe J repeatedly affirmed the centrality of the causation concept. He stated that it is a “fundamental principle” that the infringer must disgorge all profits causally attributable to the invention, and only those profits [4], [48]. Rowe J repeated the need for a causal connection more than two dozen times. The causation requirement is crucial because infringers must be deterred, but not punished: [44–45]. If too little is disgorged, an accounting will not serve its deterrence function; if too much is disgorged, it will have a chilling effect on innovation [4]. The right balance is struck by requiring the infringer to disgorge all profits causally attributable to the invention, but no more.

The most prominent legal causation concept is “but for” causation. (The other well known causation concept is material contribution: no one has ever suggested that it is appropriate in this context.) Stratas JA expressly rejected “but for” causation [40], [76], as did the respondent Dow in its submissions to the SCC: FM020 50, 54, 55. Côté J, dissenting, expressly endorsed “but for” causation (paras 91, 138, 146, 162, 171, 183, 185), as did both interveners, the CGPA FM030 [12–13], [18], [22], [28]; Bell FM040 [2], [17–26], and the appellant, Nova, which put “but for” causation at the heart of its argument: FM010 [52–56], [59]. The applicability of “but for” causation was therefore at the heart of the appeal.

Remarkably—indeed, astonishingly—Rowe J never directly addressed the causation concept. He did not explicitly affirm or reject “but for” causation; rather, as Côté J pointed out at [184], he simply avoided referring to it. Nor did he specify any alternative causation concept. This means that some very basic questions are left unanswered. What is the causation concept in identifying the NIO? What is the causation concept if there is no NIO? What role is there, if any, for “but for” causation in either context? What is the causation concept if it is not “but for” causation?

These questions will be addressed in subsequent posts. This post addresses a preliminary question: if “but for” causation was so central to the appeal, how was it possible for Rowe J to avoid talking about it?

The answer is that he characterized causation as being a matter of fact, quoting Lovastatin Damages 2015 FCA 171, in turn quoting Snell v Farrell [1990] 2 SCR 311, 328:

[15] Causation “need not be determined by scientific precision: it is ‘essentially a practical question of fact which can best be answered by ordinary common sense.’”

With due respect, the notion that the causation concept is purely a matter of fact is quite untenable. The SCC has a whole series of cases in which the central question of law was as to the correct causation concept, including decisions which overruled the trial judge on a question of law for having applied the wrong causation concept: see Clements v Clements 2012 SCC 32 [5], [11] (overruling the trial judge); Resurfice v Hanke 2007 SCC 7 [19], [21], [22]; Blackwater v Plint 2005 SCC 58 [78]; Athey v Leonati [1996] 3 SCR 458 [12] (holding the trial judge had applied the wrong causation concept, but it had not affected the outcome); Snell v Farrell, [1990] 2 SCR 311, 319–20. In none of these cases has it ever been suggested that the causation concept itself is purely a matter of fact. Indeed, the cases cited by Rowe J as authority in the passage quoted above, the Court of Appeal decision in Lovastatin Damages [45] and the SCC decision in Snell v Farrell, 319–20, both explicitly adopt “but for” causation.

Of course, it may be difficult to apply the causation concept on the facts of a particular case: as the FCA explained in Lovastatin Damages [45]:

The legal test for establishing causation is the “but for” test. A plaintiff must show on a balance of probabilities that “but for” the defendant’s wrongful conduct, the plaintiff would not have suffered loss. This is a “factual inquiry” to be established on the evidence. The “but for” test for causation is to be applied in a “robust common sense fashion”

As this paragraph makes clear, it is the application of the causation concept to the facts that is a matter of common sense, not the causation concept itself. As I discuss in the case comment, the various cases that led to this “common sense” approach to causation, generally involved difficulties in drawing causal inferences on the facts: eg the question in Snell was whether the plaintiff’s optic nerve atrophy was caused by negligent eye surgery several months prior.

So, it is entirely true that the application of the law to the facts is not subject to strict rules and requires common sense. This does not imply that there is no legal causation concept; as Côté J noted at [193], causation “is, and must be, a question of mixed fact and law.” In holding that causation is a question of fact to be addressed with common sense, Rowe J conflated the legal test with its application to the facts. The failure to engage with the causation concept resulted in an implicit rejection of “but for” causation, without anything principled to replace it with. That is a point for future posts.