Friday, November 26, 2021

Strict PM(NOC) Time Limits are Still Strict

Merck Canada Inc v Canada (Health) 2021 FCA 224 Gauthier JA: Locke, Leblanc JJA affg Merck Canada Inc v Canada (Health) 2021 FC 345 Fothergill J

             2,830,806 / pembrolizumab / KEYTRUDA

Subsection 4(6) of the PM(NOC) Regulations permits a person to submit a patent for listing on the patent register within 30 days after issuance. Merck submitted the 806 patent for listing a day or two late [14]. Merck argued that the Minister had the discretion to extend the time limit, and, as a secondary argument, that the Covid-19 Time Limits Act applied to extend the deadline. The Minister rejected both these arguments and refused to list the 806 patent. Merck sought judicial review, arguing that the Minister’s decision was based on an unreasonable interpretation of the relevant provisions. Fothergill J at first instance found that the Minister’s determination on both these points was reasonable, as noted here. On appeal, Gauthier JA for FCA affirmed that Minister’s decision was reasonable.

The main substantive point emerging from the FCA decision is that the time limits under the PM(NOC) Regulations have always been strict, and nothing in the 2017 amendments changed this: [35]–[38]. The time limits are still strict, and the Federal Court is not going to be sympathetic to attempts to get around those limits, either now or in the future: see eg [25], [35]. It seems clear that this Minister’s decision would have been upheld even on a correctness standard.

Merck also argued that the Court has a general power to grant equitable relief which should be exercised in this case. Gauthier JA rejected this argument on the basis that it had been raised for the first time on appeal, and it was not appropriate in the circumstances for the FCA to consider it [63]–[66]. While Gauthier JA therefore did not expressly consider the merits of the argument, my sense is that she was distinctly unsympathetic (see [60]–[61]), and I would not hold out much hope for this argument even if it is properly raised in a subsequent case.

On an administrative law point, Gauthier JA noted that it is not unreasonable for the Minister to fail to consider cases that were not cited to it by Merck: “the decision maker is not required to embark on an analysis that would cover any possible line of reasoning (Vavilov at paras. 120 and 127). Regard must be given to the submissions made to the Minister” [22] and similarly [42].

Wednesday, November 24, 2021

Reasonableness Review Not Possible Without Reasons

Catalyst Pharmaceuticals, Inc. v. Canada (Attorney General) 2021 FC 505 St-Louis J

amifampridine / RUZURGI / FIRDAPSE

In this case Catalyst sought judicial review of the Minister of Health’s decision to issue an NOC to Médunik’s with respect to Médunik’s NDS for RUZURGI, on the basis that the NDS relied on a comparison with Catalyst’s innovative drug FIRDAPSE, contrary to the Data Protection Regulations, C.08.004.1 of the Food and Drug Regulations. Médunik’s NDS for RUZURGI and Catalyst’s NDS for FIRDAPSE proceeded in parallel, so that both products were being considered at the same time. This gave rise to a timing problem; the underlying issue in this case is exactly when a data protection for a drug product is triggered under C.08.004.1. St-Louis J quashed the Minister’s decision, but not because the Minister’s interpretation of the data protection regulations was unreasonable; rather, the problem was that the Minister did not provide any reasons at all for its decision which could have enabled meaningful review [193]. In the circumstances, St-Louis J declined to give any prospective guidance as to the proper interpretation of the provisions [194]–[196].

Catalyst’s FIRDAPSE NDS was filed on 6 Nov 2019, seeking an NOC and also data protection [13]. On November 19, 2019, the Minister informed Catalyst that FIRDAPSE appeared to be an “innovative drug,” eligible for data protection [13]. The NOC was issued on 31 July 2020 [17].

Médunik’s RUZURGI NDS was submitted in December 2019 [15]. The Product Monograph originally submitted made reference to FIRDAPSE [16] (though the exact nature of the reference is not clear). The RUZURGI PM as approved on 5 Aug 2021, did not refer to FIRDAPSE. The NOC was issued on 10 Aug 2020.

So, the RUZURGI NDS made reference to FIRDAPSE at a time when FIRDAPSE application was in process, and FIRDAPSE was considered by the Minister to be an innovative drug, but by the time the RUZURGI NOC was issued, the application no longer referred to FIRDAPSE. The substantive question was whether the data protection regulations are triggered in those circumstances.

The NOC issued to Médunik in respect of RUZURGI contained no reasons. It merely confirmed that the NDS complied with the relevant provisions of the Regulations [21].

In the absence of reasons, the AG tried to justify the Minister’s decision by introducing evidence of the internal process used by Health Canada, including eg the kind of internal checks of the Register of Innovative Drugs, when those checks were carried out etc — in effect, the court was provided with a flowchart of the approval process [65]–[119]. The AG essentially argued that the process disclosed by the evidence was consistent with a reasonable interpretation of the Regulations. As I understand it, Health Canada argued that the Minister interpreted the regulations to mean that a product can only be subject to data protection once the product is listed on the Register of Innovative Drugs that is currently marketed in Canada, which does not happen until the NOC is granted: [85]–[86], [115]. Put another way, the AG argued that a comparison that is made prior to “the designation of an innovative drug” is not captured by the Regulation: [180t].

But the specifics of the AG’s view of the Regulation ultimately did not matter. In the absence of reasons, St-Louis J did not have any evidence of the Minister’s actual interpretation of the provisions at the time the decision was made [135], [195]. In effect, she was being asked to review the AG’s post hoc speculation as to the Minister’s interpretation, rather than the Minister’s interpretation itself. This is not a proper basis for judicial review; in the absence of evidence of the Minister’s rationale, the Court cannot perform its role on judicial review [178]. Moreover, St-Louis J was not persuaded that the process outlined in the evidence was in fact followed in approving the RUZURGI NOC [180].

St-Louis J remarked that she was not persuaded that the procedure outlined in evidence was consistent with the Regulations even on a reasonableness review [179], but neither did she hold that it was not. In the circumstances, she held that it would be inappropriate for her to provide prospective guidance as to the interpretation of the Regulations [194]–[196].

Wednesday, November 17, 2021

Routine Correction of Inventorship

Secure Energy (Drilling Services) Inc v Canadian Energy Services LP 2021 FC 1169 Zinn J

            2,508,339 / Drilling Fluid and Methods of Use Thereof

This was a routine correction of inventorship under s 52, with Zinn J ordering the records of the Patent Office varied to remove one of the two named inventors from Secure Energy’s 339 patent. The error arose because the patent agent who prepared the application had simply asked one of the named inventors, Levey, for the names and addresses of all the inventors, without informing him of the test for inventorship [24]. Levey and the other named inventor, Ewanek, discussed the matter between themselves and decided that both should be listed, without either having the benefit of advice as to who would legally be considered an inventor [25]. In light of Levey’s uncontested evidence of the course of invention, based on his lab notebooks, Zinn J had no difficulty in finding that Levey was the sole inventor [34]–[41].

There was a minor complication because Ewanek, the named inventor who was removed from the 339 patent, was also the sole named inventor in a different patent for a related invention (the 2,624,834 patent), that was being asserted against Secure Energy by Canadian Energy Services. Secure asserted that it was the true owner of the 834 patent [6]. Because of this relationship, CES was a party to this proceeding. While CES did not contest the change in inventorship of the 339 patent, it wished to ensure that no findings would be made on the evidence relevant to both patents that might prejudice its position with respect to ownership of the 834 patent. Fortunately, Zinn J was able to decide the issue of the ownership of the 339 patent without recourse to any of the contested material [17], [34].

Tuesday, November 2, 2021

Blogging break

Next week is our fall reading week, and I'll be taking a vacation and a blogging break, resuming blogging around the 22nd.

Wednesday, October 20, 2021

NOC s 8 Regime is Still a Complete Code

Apotex Inc v Pfizer Ireland Pharmaceuticals 2021 ONSC 6345 Diamond J

            2,163,446 / sildenafil / VIAGRA

This decision is one more short chapter in the saga of Apotex’s attempts to avoid the limitation on recovery of damages under s 8 of the NOC regulations. Bigger news will be coming in the new year, with the appeal of Schabas J’s decision in Apotex v Eli Lilly 2021 ONSC 1588 (here) scheduled for February [22]. In the meantime, Diamond J’s decision in this motion for summary judgment followed Schabas J in dismissing Apotex’s claims, on the basis that the NOC regime provides a complete code governing recovery in respect of the statutory stay provisions of the NOC regime.

Under the patent linkage system established by the PM(NOC) Regulations, a patent that is ultimately held to be invalid can keep competitors off the market for two years by operation of the statutory stay pursuant to s 7(1)(d). If the generic prevails, s 8 provides a remedy in the form of damages for the losses suffered from having been kept off the market by the statutory stay. But if the generic is unsuccessful in the NOC proceeding, it cannot claim s 8 damages, even if the patent is subsequently held invalid in an infringement action: 2013 FCA 282 (here). In an attempt to get around this and other limitations on s 8 recovery, a number of actions have been brought in provincial superior courts (mostly by Apotex), pleading a variety of causes of action other than s 8. So far these attempts have been largely unsuccessful, with the courts generally expressing the view that s 8 provides a “complete code” in respect of recovery pursuant to the statutory stay: see Low v Pfizer 2015 BCCA 506 [46]–[72], and see here, here and here. The most recent decision is that of Schabas J in Apotex v Eli Lilly / Zyprexa 2021 ONSC 1588, relating to olanzapine / ZYPREXA (see here), with an appeal to the ONCA scheduled for February 2022 [22].

The principle that the legislature intended s 8 to be a complete code governing the relationship between generic and innovators implies that the generic cannot recover under any cause of action other than s 8, even if the generic otherwise had a good claim under the alternative cause of action. This is apparent both in Schabas J’s decision, in which he held that the claims were not tenable even before considering the specific causes of action [122], as well as in Low v Pfizer, in which the BCCA [67] addressed the specific causes of action in the alternative, assuming that s 8 was not a complete code. Thus, while some causes of action have survived a motion to strike, they are doomed to fail if the complete code argument is accepted by the ONCA.

In this decision Diamond J came to the same conclusion as Schabas J, in a case related to sildenafil / VIAGRA. (The scheduled trial had been adjourned in light of Schabas J’s decision to allow the matter to be decided by a motion for summary judgment: see 2021 ONSC 1860.)

Diamond J relied on principles of comity, which indicate he should follow the decision of Schabas J unless it was clearly wrong: [15]–[26]. But comity did not play a pivotal role: Diamond J concluded that Schabas J’s decision was not clearly wrong, and “on the contrary, I agree with it” [28]. While Diamond J agreed generally with Schabas J’s analysis, he seemed to place particular emphasis on the point that all of Pfizer’s acts were legally permissible pursuit of the interest under the Patent Act and related legislation: eg “It is the provisions of the Patent Regime itself that precluded Apotex from competing with Pfizer through the development and sale of generic drugs, and not by reason of any alleged wrongful act or omission on the part of Pfizer” [30], and “There is no evidence in the record before me that Pfizer took any steps other than employing the regular legal process set out in the Patent Regime to its conclusion” [36].

Diamond J expressly noted that his conclusion that the patent regime is a complete code was sufficient to dispose of the matter even without the need to consider the merits of the specific causes of action that had been pleaded by Apotex [41]. He nonetheless briefly addressed the two additional common law causes of action advanced by Apotex which had not been raised in Schabas J’s Zyprexa decision, namely unjust enrichment and nuisance.

With respect to unjust enrichment, Diamond J noted that “[t]here is no causal connection between Pfizer’s alleged enrichment and Apotex’s alleged deprivation, as there was no ‘transfer of wealth’ from Apotex to Pfizer,” and more importantly, the patent regime provides a juristic reason for the enrichment [43]. With respect to nuisance, Diamond J stated that “There is nothing alleged to have been done on the part of Pfizer that substantially interferes with Apotex’s use and enjoyment of its property. The right to manufacture generic drugs is not a land right” [45].

Friday, October 15, 2021

Interpretation of CSP Provisions Must Take Into Account Their Purpose

Merck Canada Inc v Canada (Health) 2021 FC 1015 McHaffie J

            2,670,892 / suvorexant / BELSOMRA

A Certificate of Supplementary Protection (CSP) grants patent-like rights which effectively extends the term of the patent as it relates to the medicinal ingredient covered by the patent. The CSP “is intended to partly compensate for time spent in research and obtaining marketing authorization”: CSP RIAS (Background); CSP RIAS pdf p3294; [11]; and see 2020 FCA 135 [4]. An application for a CSP is permitted only if, inter alia, two requirements are satisfied: the patent pertains to a drug “for which an [NOC] was issued” —the “authorization for sale requirement”—and, if marketing authorization was sought first in a foreign country, “the application for the [NOC] sale was filed [within 12 months of the foreign application]”—the “timely submission requirement”: s 106(1)(c),(f); CSP Regs s 4, 6(1), [13]. The underlying issue in this case relates to the interaction of these two requirements.

The drug at issue is suvorexant, an insomnia medicine sold by Merck as BELSOMRA. Merck’s American affiliate filed an application for approval of BELSOMRA in the US in August 2012 (and the application was approved in 2014) [20]. This was before any Canadian application, so it set the clock running on the timely submission requirement. Merck then filed an NDS for Canadian approval in November 2012—well within the 12 month window [12]. So far, so good. However, in response to the NDS, Health Canada asked for more information that would require additional clinical trial data which Merck could not supply. Merck therefore withdrew that NDS in 2014 [22]. Two years later, after Health Canada indicated that other post-market data could satisfy the need for additional safety evidence, Merck filed a second NDS. It contained largely the same data and information that was in the first NDS, together with further safety evidence [23]. Health Canada ultimately issued an NOC for BELSOMRA based on the second NOC in 2018 [23].

Merck then applied for a CSP for the ’892 Patent in relation to BELSOMRA. The Minister initially refused, essentially on the view that “the [NOC]” in the timely submission requirement must be the same as “an [NOC]” in the authorization for sale requirement [27]. In response, Merck submitted to the Minister that the two NOC’s need not be the same, so long as an NOC was applied for in a timely manner, and an NOC was ultimately granted. Merck made submissions based on the text of the relevant provisions [30], but crucially for the purpose of this appeal, Merck also made purposive arguments supporting this interpretation. According to the CSP RIAS, the purpose of the timely submission requirement is “[t]o incentivize the early introduction of innovative drugs into the Canadian market,” and Merck noted that it had pursued the Canadian NOC diligently [29], even though the initial application had not been successful. More importantly, Merck noted that the purpose of the CSP requirements is to compensate for regulatory delay, and in this case, it was denied the CSP because of regulatory delay. Given the Minister’s refusal to grant an NOC based on the first application, it would be impossible for Merck to obtain a CSP for BELSOMRA, because the NDS that led to the NOC being granted was applied for outside the 12 month window [27]. The result, as Merck put is, is that “The [Minister]’s interpretation of the CSP regime results in a denial of CSP rights on the basis of the exact harm a CSP is intended to address” [29].

The Minister nonetheless issued a final decision refusing the CSP, again on the basis that both requirements must be satisfied by the same NOC [32]. Crucially, the Minister did not address Merck’s arguments related to the purpose of the provisions, either in the initial letter or in the final decision letter [41].

Merck appealed, and McHaffie J allowed the appeal on the basis that the Minister had failed to address Merck’s arguments related to the purpose of the provisions [41].

McHaffie J noted that according to Vavilov 2019 SCC 65 [127] “[t]he principles of justification and transparency require that an administrative decision maker’s reasons meaningfully account for the central issues and concerns raised by the parties”: [43]. If a decision maker “fails entirely to consider a pertinent aspect of [the provision’s] text, context or purpose” and this failure “may well” have affected the result, this can render a decision unreasonable: [42], quoting Vavilov [122]. McHaffie J held that Merck’s arguments regarding the object and purpose of the legislation were sufficiently material that a reasonable interpretation of subsection 106(1) had to take them into account [45].

While the Minister’s decision was unreasonable, this does not necessarily mean that the Minister’s interpretation was unreasonable. To hold that the Minister’s decision was unreasonable, it was enough for McHaffie J to conclude that purposive considerations “may well” have changed the result; he did not need to conclude that they would necessarily have done so. McHaffie J noted that “it may sometimes become clear in the course of reviewing a decision that the interplay of text, context and purpose leaves room for a single reasonable interpretation of the statutory provision”: [48], quoting Vavilov [124], but in this case, McHaffie J was “not satisfied the question is so clear that I should reach the conclusion that there is room for only a single reasonable interpretation” [50]. He therefore remitted the matter to the Minister for redetermination [51]. He deliberately refrained from making any comments on the reasonableness or correctness of either party’s interpretative arguments [51]–[52].

Consequently, while Merck won this battle, that doesn’t mean it has won the war. As McHaffie J noted, “Merck and the Minister each suggest that there is only one reasonable interpretation, namely their own” [49]. We’ll see if the Minister changes their mind on reconsideration.

Tuesday, September 28, 2021

Gillette Defence and Prior User Rights

Kobold Corporation v NCS Multistage Inc 2021 FC 742 Zinn J

            2,919,561

At one level this is a mundane procedural decision denying a motion to file expert reply evidence on the basis that the issue ought to have been anticipated [10]. But the effect is to hold that a Gillette defence cannot be based on prior use rights found in s 56 of the Act, with the consequence that the underlying motion for summary judgment was also derailed [19]. This is problematic in light of the “culture shift” in favour of simplified procedures endorsed by the SCC in Hryniak v Mauldin 2014 SCC 7 [2] that has been embraced by the Federal Courts in several recent decisions, most recently Canmar Foods 2021 FCA 7 affg 2019 FC 1233 (here). I suggest that a purposive analysis of the provision in question indicates that there may be a way to permit a motion for summary judgment to proceed in similar future cases.

After being sued for infringement of the 561 patent by Kobold, NCS brought a motion for summary judgment on the basis that the allegedly infringing procedure it currently uses is the same procedure that it had used prior to the claim date [5], [6]. NCS’s argument is similar to the so-called “Gillette defence,” established in Gillette Safety Razor (1913) 30 RPC 465 (HL), which permits the defendant to prove that the alleged infringement was practised in the prior art, so that either the alleged infringement does not fall within the claims of the plaintiff’s patent, or if it does, the patent is invalid for anticipation. (The Gillette defence may also turn on obviousness.) As Locke JA explained in Western Oilfield 2021 FCA 24 [77] the Gillette defence is not actually a distinct defence under the Act, but is rather “a shortcut around the often difficult and time-consuming process of construing the claims of a patent, and then determining whether those claims are valid and whether they have been infringed.” So, if the defendant can prove that it was only doing what it had always done publicly, which is purely a matter of fact, the claims asserted against it must either be invalid or not infringed. Crucially, this makes it unnecessary to construe the claims and assess anticipation; the whole point of the Gillette defence is that it avoids the cost of construing the claims and assessing validity in favour of a purely factual inquiry. The Gillette defence is often less helpful in practice because it is rare that a defendant will be willing to put all its eggs in that basket—but this suggests that the Gillette defence is a prime candidate for a summary trial, where determination of a single factual issue can determine the case.

That was NCS’s position in this case. NCS argued that the procedure it uses today is the same procedure it used prior to the claim date. But NCS did not rely on the Gillette defence as such. The allegedly infringing device was a bottom hole assembly used in oil and gas drilling and I suspect that NCS was concerned that it might not be able to establish that its prior use had made its device available to the public so as to be prior art for the purposes of anticipation under s 28.2. NCS instead sought to rely on the prior user rights granted by s 56, the effect of which is to allow a person to continue to do any act that it had done prior the claim date, even if its prior use had not been public.

More particularly, s 56(1) provides that “if—before the claim date of a claim in a patent—a person. . . committed an act that would otherwise constitute an infringement of the patent in respect of that claim. . . it is not an infringement of the patent. . . if the person commits the same act on or after that claim date.” The difficulty for NCS lay in the phrase “that would otherwise constitute an infringement of the patent.” In support of its motion for summary judgment based on s 56, NCS filed a fact affidavit of one its employees, evidently to the effect that NCS’s allegedly infringing bottom hole assembly was the same as NCS had used prior to the claim date [3]. In response, Kobold filed an expert affidavit going to infringement and (apparently) to claim construction [4]. NCS then brought a motion seeking to file expert reply evidence.

The Rules do not expressly allow for evidence in reply and such evidence is permitted only in special circumstances: Amgen v Apotex 2016 FCA 121. NCS argued the reply evidence should be permitted because it could not have anticipated that Kobold would file evidence on claim construction, because claim construction was irrelevant to the question of whether the bottom hole assembly it currently uses is the same as the assembly it used before the claim date [6]. Zinn J rejected this argument, saying that issues related to claims construction and whether NCS’s device was infringing ought to have been anticipated by NCS:

[10] These are two of the very issues at the heart of this litigation. Moreover, they are the very issues to be addressed when relying on section 56 of the Patent Act, unless a party admits that its tools and procedures do breach the relevant patent, but argues that they have been in use prior to the patent claim date.

The key point is that s 56 is available only in respect of “an act that would otherwise constitute an infringement.” As Zinn J put it, NCS’s position

ignores the express wording of section 56, which. . . speaks to a defendant committing an act before the claim date “that would otherwise constitute an infringement of the patent in respect of that claim.” This language brings directly into issue both claims construction and infringement. [11]

The effect of this holding is that a Gillette defence is available based on a prior public use, but not based on a prior secret use; while a defendant can avoid addressing claim construction and infringement when its prior use was public, it cannot avoid addressing those issues when its prior use was secret.

This also effectively means that a summary judgment is not available based on prior user rights. If the NCS’s device would not constitute an infringement, s 56 is not available, and unless NCS admits infringement, validity and infringement are therefore in issue. To get a summary trial focusing on the purely factual issue of prior use, NCS must admit infringement. It is of course a very risky proposition to put all its eggs in that basket.

This is somewhat counter-intuitive. In either case, the argument is that the defendant should be permitted to keep doing what it had always been doing, on the basis that the act must either be non-infringing, or permitted, either because the patent is invalid by anticipation, in the former case, or by prior user rights under s 56, in the latter case. Why should there be a functional difference between the two scenarios?

To answer that question we should look to the purpose of the key phrase. Why does s 56 apply only to an act “that would otherwise constitute an infringement of the patent”?

The long-standing provisions of the Act relating to prior user rights were replaced by entirely new provisions in 2018. It appears that the new provisions were modeled on the corresponding provisions of the UK Patents Act 1977, namely s 64. While there are some significant differences in the overall provision, this particular passage is very similar. It appears that the intent of this phrase in the UK Act is to ensure that prior uses which are non-infringing by virtue of statutory exceptions under s 60(5) of the UK Act, eg an experimental use, are not protected by the prior use provisions: see Terrell on Patents §14-203. It seems reasonable to suppose that the purpose of the parallel phrase in the Canadian Act is the same. (The main exceptions under the Canadian Act appear to be use authorized to respond to a public health emergency under s 19.4(7); regulatory use under s 55.2; and experimental use under s 55.3. There are also third party rights under s 55.11 which give rise to an exception under certain circumstances, but these have their own prior use provisions.)

That is, it appears that the intent of the key phrase is to ensure that the statutory exceptions to infringement do not give rise to prior user rights. An experimental use, for example, is a limited exception to infringement, which does not confer unlimited rights to make, sell and use the invention; consequently, an experimental use prior to the claim date should not give rise to a general right to make, sell and use the invention after the claim date. The defendant who was engaged in experimental use prior to the claim date is nonetheless entitled to continue engaging in the same limited experimental acts after the claim date, not by virtue of the prior user rights provisions, which are inapplicable, but by virtue of the experimental use exception itself. Extending the prior user rights acts to prior experimental use is therefore both unnecessary and undesirable.

If that is indeed the purpose of the key phrase, I suggest that the defendant need not admit infringement in order to take advantage of s 56; it should be enough for the defendant to admit that its acts do not fall within any statutory exception to infringement. On a motion for summary judgment, if NCS could then establish the factual point that the prior use was the same as the current use, while admitting that it was not subject to any exception—including eg that the use was not experimental—this would establish that NCS was entitled to the prior use defence without requiring it to admit infringement.

Tuesday, September 21, 2021

Reasonable Royalty Requested Conditional on the Quantum of an Accounting

Deeproot Green Infrastructure, LLC v GreenBlue Urban North America Inc 2021 FC 501 McDonald J

2,552,348 / 2,829,599 / Integrated Tree Root and Storm Water System

Deeproot’s 348 and 599 patents relate to a landscaping system to promote healthy urban trees using a subsurface structural cell system that supports the hardscape (eg sidewalk and paving), enables stormwater retention and filtration as well as allowing tree roots to grow in uncompacted soil [227]. McDonald J held Deeproot’s patents to be valid and infringed, in a straightforward decision which turned entirely on the facts. Damages were not bifurcated, and one point of note is that “DeepRoot seeks an accounting of GreenBlue’s profits. Alternatively, if the Court determines that GreenBlue’s profits are less than $145,000.00, then DeepRoot seeks a reasonable royalty payment” [270]. I don’t think I’ve seen that kind of request in the alternative before. On the facts, McDonald J first examined the evidence related to GreenBlue’s profits. She was not satisfied that GreenBlue had in fact made a profit on the infringing sales, and she accordingly awarded reasonable royalty damages.

The determination that GreenBlue had not made any profits apparently turned in part on the holding in Nova v Dow 2020 FCA 141, discussed here, that “the ‘full costs’ approach should always be available to an infringer” [145]. Leave to the SCC has been granted in Nova v Dow and that issue may be addressed. However, the discussion was very brief and it is not clear how significant this was.

Friday, September 17, 2021

Purpose of s 53.1 Explained

Bauer Hockey Ltd v Sport Maska Inc (CCM Hockey) 2021 FCA 166 Locke JA: de Montigny, Rivoalen JJA affg 2020 FC 624 Grammond J

2,214,748 / FC Prosecution History

In this decision, the FCA affirmed Grammond J’s holding that the claims at issue were obvious, essentially on the basis of the deferential standard of review applicable to conclusions of mixed fact and law [16]. The most important aspect of the decision are Locke JA’s obiter comments on the interpretation of s 53.1 regarding the use of prosecution history. He provide a succinct analysis of purpose of the provision which will no doubt inform its interpretation in future cases.

In the decision under appeal, Grammond J held that no valid claims of Bauer’s 748 patent were infringed. The invention at issue relates to hockey skates. The uppers were traditionally made with two “quarters” that were sewn together. The 748 patent essentially claimed a one-piece quarter. It may seem obvious that the two pieces should be joined together, and this is exactly what Grammond J held [FC 154-58], [FC 184]. Grammond J addressed the “Beloit question,” [FC 146], referring to Beloit (1986), 8 CPR (3d) 289 (FCA) 295, to the effect of “If it was so easy, why was it not done before?” His answer was that one-piece quarters were expensive when implemented with directional material, such as leather, and became commercially feasible with the development of non-directional skate materials [FC 162–64]. The FCA affirmed, essentially on the basis of the deferential standard of review applicable to conclusions of mixed fact and law [16].

Locke JA noted that Grammond J began his discussion of obviousness by referring to the Sanofi 2008 SCC 61 [67] framework. Locke JA remarked (citations omitted):

[6] The Federal Court further noted, and I agree, that this framework should not be applied in a rigid manner. The only mandatory considerations are those laid out in section 28.3 of the Patent Act, which is concerned with obviousness to a person skilled in the art or science to which the invention pertains, having regard to “information disclosed before the [relevant date] in such a manner that the information became available to the public in Canada or elsewhere.”

The Sanofi framework has proven to be contentious and even unhelpful in some cases, particularly at the step of either identifying the inventive concept or construing the claims—see here, here and here—and this remark by Locke JA might be seen as the FCA starting to step back from reliance on the Sanofi framework. But I wouldn’t read too much into this statement, as the Sanofi framework has never been considered mandatory, and this was a case in which identification of the inventive concept was easy, so that whatever guidance might be provided by that framework is less significant.

On another point of passing interest, Bauer made the novel argument that “where inferences from findings of fact involve an evaluation of numerous factors (as with obviousness), intervention by an appellate court may be more appropriate in cases where the fact-finding judge is inexperienced” [17], relying on Actavis v ICOS [2019] UKSC 15 [78]–[79], where the UKSC stated (my emphasis) “Where inferences from findings of primary fact involve an evaluation of numerous factors, the appropriateness of an intervention by an appellate court will depend on variables including the nature of the evaluation, the standing and experience of the fact-finding judge or tribunal, and the extent to which the judge or tribunal had to assess oral evidence.” Bauer argued that less deference should be given to Grammond J’s inferences of fact because he had only previously been involved in one other patent infringement case [17].

Locke JA rejected this argument, noting that “To set the degree of appellate intervention based on the experience of the judge at first instance would require an appeal court to consider the judge’s background on every appeal. This would result in standards of review in a spectrum, rather than the two standards defined in Housen” [18]. Locke JA also noted that Actavis could be distinguished, as “Bauer proposes reduced deference in the case of a judge with limited experience, whereas Actavis was suggesting increased deference in the case of a judge with considerable experience” [19, original emphasis]. That is true, but it seems to me that giving relatively more deference to an experienced judge necessarily requires giving relatively less deference to an inexperienced judge; while Bauer’s argument is remarkable, but it does have a basis in Actavis. Accordingly, Locke JA did not rely on that distinction, but instead indicated that he would not be inclined to follow Actavis on this point: “In any case, I see no reason to modify the tools the Court already has to address decisions under appeal.” He noted that functionally, “[t]he advantages the judge at first instance has regarding assessment of factually-suffused issues, which prompted the Supreme Court in Housen to adopt a deferential standard, apply even to inexperienced judges” [19]. This strikes me as an entirely compelling point. I’d also note that following the Actavis line of reasoning leads to a morass. Not all appellate judges are experienced in patent litigation, so we might have four standards based whether the appellate judges are or are not experienced and whether the trial judge is or is not experienced.

Finally, the most important aspects of the decision relate to the interpretation of s 53.1 regarding the use of prosecution history. Grammond J had held that

[65] When an issue of claims construction arises, the patentee is always making representations to the Court as to the proper construction of the claims and the defendant is always attempting to rebut those representations. Therefore, in my view, as long as the issue is one of claims construction, section 53.1 applies and the prosecution history is admissible. In other words, there is no need to identify a particular representation and rebuttal every time a reference is made to the prosecution history. It is simply integrated in the interpretive process.

As Locke JA noted, “[t]his interpretation seems to open the door to unrestricted reference to the prosecution history to assist with claim construction,” and as such it is at odds with the text of the provision:

Subsection 53.1(1) is a detailed provision that contemplates admitting into evidence certain portions of a patent’s prosecution history for a certain purpose: “to rebut any representation made by the patentee in the action or proceeding as to the construction of a claim in the patent.” If this provision had been intended simply to brush aside the general prohibition against reliance on a patent’s prosecution history for the purposes of claim construction, it could have been much shorter.

This is not simply a textual point. The purpose of of s 53.1 “is to provide a tool to use against patentees who take one position concerning the meaning of a claim during prosecution of a patent application and another during litigation on the resulting patent. Accordingly, the concern relates to inconsistent statements” [37] (my emphasis). This limited purpose makes sense. On the one hand, it is particularly objectionable when the patentee wants to have it both ways, advancing a narrow interpretation during prosecution to obtain the patent, and then advancing a broad interpretation during litigation to expand the scope of its monopoly. On the other hand, permitting the general use of prosecution history, raises problems relating to “the public notice function of patent claims and the potential for inappropriately complicating litigation” [39], that were identified by the SCC in Free World 2000 SCC 66 [66] as reasons for refusing to allow the use of prosecution history for claim construction. Even though the legislature has now permitted some use of prosecution history, those concerns remain valid. The need to balance these considerations provides a purposive rationale for the limited nature of the exception, and that purpose is consistent with a straightforward reading of the text. While the legislature might reasonably have balanced these considerations differently, “it is not the role of the courts to participate in such a debate. Rather, we interpret and apply the legislation as written” [39].

Locke JA also noted that Grammond J’s interpretation seems to be inconsistent with the prior FC caselaw on s 53.1, specifically referring to Canmar 2019 FC 1233 affd 2021 FCA 7 (see here) and Lilly v Apotex 2020 FC 814. The interesting point here is that Locke JA did not refer to the decision of Crampton CJ in Allergan v Sandoz 2020 FC 1189, which, as discussed here, identified what appears to be a truck size loophole that is based squarely in the text of the provision. Crampton CJ’s decision certainly supports the point being made by Locke JA, namely that the exception is a limited one, and the text of the Act must prevail when it is clear. So the fact that Locke JA chose not to cite Allergan v Sandoz, while citing other FC caselaw, namely Lilly v Apotex, suggests to me that he did not want to be seen as approving Crampton CJ’s interpretation. I don’t take this as suggesting that Locke JA necessarily disagrees with Crampton CJ’s interpretation, but only that, given the magnitude of the loophole that Crampton CJ identified, the issue is best addressed by the FCA after the point is directly raised and argued, rather than by approving the decision in obiter comments.

Thursday, September 16, 2021

Anti-Suit Injunction Refused

 Seismotech Safety Systems Inc v Forootan 2021 FC 773 McHaffie J

2,199,189 / 2,364,081 / 2,551,847 / 2,551,854 / 2,552,603 / 2,621,287

Anti-suit injunctions, anti-suit injunctions and even anti-anti-suit injunctions, are a hot topic these days in the context of global SEP / FRAND proceedings: see eg Jorge Contreras, The New Extraterritoriality: FRAND Royalties, Anti-Suit Injunctions and the Global Race To The Bottom In Disputes Over Standards-Essential Patents, 25 BU J Sci & Tech L 251 (2019). On the other hand, Canadian anti-suit injunctions related to patents are rare—I think this is the first I’ve seen in the decade that I’ve been writing this blog. This adds interest to McHaffie J’s decision refusing Seismotech’s motion for an anti-suit injunction that would have prevented Mr Forootan from litigating a patent settlement agreement in California, though the circumstances of this case are very far removed from SEP / FRAND litigation.

Seismotech is owned by Reza Baraty, who invented disaster management technology that eventually gave rise to several Canadian and US patents. Mr Baraty is a BC resident and Seismotech is a BC company [8]. For convenience, I’ll refer to them collectively as Seismotech. Seismotech entered into a Purchase and Sale Agreement [PSA] with Mr Forootan under which Mr Forootan was to raise capital to assist in commercializing the technology [12]. The PSA includes a choice of law clause stating that the agreement “shall be governed by and construed in accordance with the laws of Canada, without giving effect to conflict of laws” [13]. As part of the PSA, Seismotech assigned the patents to Mr Forootan’s company [11].

The relationship soured and the parties began litigation. In 2015, Mr. Forootan filed a complaint in the California State Court [2015 California Action]. This was then settled by a Settlement Agreement in 2017, after mediation which took place in California [15], [16], [49]. Then things got messy. In January 2020, Mr Forootan filed a complaint in California District Court [the 2020 District Court Action] alleging breach of the Settlement Agreement, and seeking remedies including a transfer of the US and Canadian patents back to Mr. Forootan [21]. Five months later, Seismotech started an action against Mr Forootan in the Supreme Court of British Columbia [2020 BC Action], seeking a declaration that the US and Canadian patents belong to Seismotech. (So at this point we have parallel actions in US federal court and BC provincial superior court.) Now, as readers are aware, in Canada provincial superior courts have exclusive jurisdiction over purely contractual matters, though the Federal Court has jurisdiction over patent law. Contractual disputes involving patents are on the borderline, and cannot necessarily be heard in Federal Court. The US has a similar division, with state courts having jurisdiction over contractual disputes and the federal court system having jurisdiction over patent matters. Six months after Seismotech started the BC action, the 2020 District Court Action brought by Mr Forootan was dismissed for lack of jurisdiction, without prejudice to refiling in state court [23]. (Now we’re down to just the BC action.) As it turns out, just three weeks after Seismotech brought the 2020 BC Action, SALT v Baker 2020 FCA 127 was decided, holding that the Federal Court jurisdiction to hear contractual matters related to patents was broader than had previously been understood. Consequently, two weeks after Mr Forootan 2020 District Court Action was dismissed, Seismotech started an application in the Federal Court seeking declarations similar to those in the 2020 BC Action, though without formally discontinuing the BC action. (Now we have two Canadian actions, no US actions.) Two weeks after that, Mr Forootan started an action in the California state court [the 2021 California Action.] (Two Canadian actions, one US state court action.)

Seismotech then brought the present motion for an anti-suit injunction, seeking to prohibit Mr Forootan from pursuing the 2021 California Action as it pertains to the Canadian patents [48].

In deciding whether the anti-suit injunction should be granted, McHaffie J applied Amchem [1993] 1 SCR 897 and subsequent cases developing its principles. The first question is whether the Federal Court has personal jurisdiction over Mr. Forootan. McHaffie J held that requirement is satisfied. The underlying question in this litigation is who owns the Canadian patents on the basis of the Settlement Agreement. In light of SALT v Baker, McHaffie J was satisfied that the Federal Court has jurisdiction to hear such a matter, and that satisfies the “real and substantial connection” test [51].

At the next step, according to Amchem 931–32 (emphasis added):

the domestic court as a matter of comity must take cognizance of the fact that the foreign court has assumed jurisdiction. If, applying the principles relating to forum non conveniens outlined above, the foreign court could reasonably have concluded that there was no alternative forum that was clearly more appropriate, the domestic court should respect that decision and the application should be dismissed.

In this case, “[t]he question is thus whether the California State Court could reasonably have concluded there was no alternative forum (here, the Federal Court) that was clearly more appropriate” [54]. The California State Court has not yet actually made such a determination, so the question for McHaffie J was whether it could reasonably have done so.

While the Settlement Agreement does relate to some Canadian patents [58], there are many aspects which relate to the US. The Settlement Agreement arose from and resolved the 2015 California Action. “The parties to the Settlement Agreement agreed the California State Court ‘shall retain jurisdiction over the action for all purposes to enforce the terms of this Agreement.’ . . . Mr. Forootan is a California resident and SDRT, the registered owner of the majority of the patents, is a (suspended) California company” [56]. This was enough for McHaffie J to conclude that the California court might reasonably conclude that the Federal Court was not a clearly more appropriate forum [57].

McHaffie J also recognized that only the Federal Court can order records of the Canadian Patent Office to be varied, pursuant to s 52 [60]. However, he pointed out that “this does not mean the Federal Court is the only court that can address contractual issues relevant to title” [60]. The 2021 California Action Mr Forootan was seeking a declaration conferring all rights and title in the US and Canadian patents to Mr. Forootan [21], [62]. Prior to SALT, in the purely Canadian context, the Federal Court would often refuse to hear contractual matters related to title. As I understand it, the parties would seek a declaration of ownership in the provincial superior court, and then would take this declaration to the Patent Office, which would rectify the title accordingly, without an order being required. If the Patent Office declined to do so, the prevailing party could then apply to the Federal Court to have the register rectified in light of the judgment of the provincial superior court: see Lawther (1995), 60 CPR(3d) 510 (FC) 511–12. This is all to say that a purely declaratory remedy would be effective in practice.

McHaffie J also noted that the effect of granting the anti-suit injunction would not be to rationalize the litigation, but rather to divide it in two, as it would be litigated in the US in respect of the US patents and in Canada in respect of the Canadian patents [92]. This is even though ownership of both sets of patents is determined by the same Settlement Agreement.

McHaffie J also noted the importance of seeking a stay from the foreign court before seeking an anti-suit injunction: “a Canadian court should only rarely pre-empt a foreign court’s opportunity to address whether an action before them is properly brought: Amchem at pp 930–931. Either a stay should have been unsuccessfully brought in the foreign jurisdiction or there should be compelling reasons for not having done so” [82]. McHaffie J provided a thorough discussion of the caselaw illustrating what might constitute “compelling reasons”: [83]–[87]. He concluded that a compelling case had not been made out on the facts, but it was unnecessary for him to decide whether this was in itself sufficient reason to deny Seismotech’s request, given his conclusion on the main elements of the Amchem analysis.

Finally, there are some general comments that I’d like to highlight [citations omitted]:

[59] Contractual agreements pertaining to intellectual property will frequently cover rights in multiple jurisdictions, and even globally. Contrary to Seismotech’s submission, there is no requirement that the same provisions in the same contract be litigated separately in every jurisdiction in the world in which those intellectual property rights arise. I note that courts in Canada have been willing to interpret contracts as they pertain to international intellectual rights, even where those contracts are made under foreign law. A Canadian court may also be considered forum conveniens in respect of a transborder intellectual property dispute, even where relief is sought pursuant to the laws of the United States. As Professor Vaver summarizes, “IP-related activity that has a real and substantial connection with a country, province, or state can be handled by a court that is a convenient forum, whether or not the defendant accepts or is present within the jurisdiction.”

This is all very reasonable, but it goes considerably beyond the facts at hand. I’ll point out that the UKSC decision in Unwired Planet v Huawei [2020] UKSC 37, holding that a UK court may enjoin the sale of infringing products that incorporate an industry standard if the parties do not enter into a global license for patents covering that standard, has been very controversial: see eg here and here. There is a fear that there will be a race to the bottom, as patentees, and particularly patent assertion entities, will seek a global judgment from a patentee-friendly court. This may be exacerbated by the possibility of “forum selling”, in which courts compete to attract high-stakes litigation by making themselves increasingly patentee friendly. At some level these concerns call into question whether the strong presumption of comity that is reflected in Amchem is sound. There are also many differences between the SEP / FRAND litigation and this case—the validity of the patents is not at issue; infringement is not at issue; global licensing terms are not at issue—though these all go to substantive issues rather than the issues relating to the connection to the forum which are the focus of the Amchem anti-suit injunction analysis.

While I’m not an expert in this area, Seismotech strikes me as a relatively easy case; given the strength of the connection to California and the nature of the dispute, the California court is arguably more appropriate than the Canadian Federal Court. More contentious patent cases, such as the SEP / FRAND litigation, raise issues that may pose more of a challenge.

Tuesday, September 14, 2021

No Strict Rule that an NPE Cannot Elect an Accounting

Pfizer Canada ULC v Seedlings Life Science Ventures, LLC 2021 FCA 154 Locke JA: Gleason, Laskin JJA affg 2020 FC 1 Grammond J

2,486,935 / FCA Sufficiency / FCA Overbreadth / FC accounting / FC reasonable royalty / FC novelty and utility / FC claim construction / FC Overbreadth

My prior posts on Seedlings dealt with insufficiency and overbreadth. This one considers the issue of entitlement to an accounting. My prior posts were long, but I’ll keep this one short, given that I agree entirely with Locke JA’s discussion on this issue.

As discussed here, Grammond J at first instance indicated in obiter that a non-practising entity cannot be entitled to an accounting of profits: “where the patentee does not itself manufacture, distribute or sell the invention, it cannot be entitled to the profits made by the infringer with respect to those activities” [FC 252]. While Locke JA’s conclusion that the claims were invalid made it unnecessary to address the question of remedies, he nonetheless took the opportunity to do so, stating that there is no authority for a strict rule of that type: “none of the cited decisions provides firm support for the broad principle that a patentee that makes (or intended to make) profits by selling licenses to its patent should not be entitled to elect an accounting of profits” [78].

Moreover, a strict rule prohibiting a non-practising entity for electing an accounting would not be sound policy, particularly given that an entity that does not practice the invention is not necessarily a patent troll:

[79] I am particularly concerned about the potential effect of such a broadly defined principle on inventors who recognize that their specialty lies in inventing, and that production and marketing of their inventions are better left to different specialists. Such inventors will seek to license third parties to take their inventions to market as a matter of business efficiency. The broadly defined principle would force such inventors to choose between business efficiency and retaining a potential remedy for infringement of their patent rights. The value of a patent would therefore be reduced for specialist inventors. I see no reason to force such a choice. In my view, business efficiency should be encouraged.

This is not to say that it is irrelevant whether the patentee practices the invention itself, but only that it is not determinative.

[81] Certainly, a patentee’s decision to license its invention may be a factor for a court to weigh when considering whether to permit a patentee to elect an accounting of profits. However, I disagree that such a decision should necessarily deny a patentee the right to elect.

Friday, September 10, 2021

What is “the Core of the Invention”?

Pfizer Canada ULC v Seedlings Life Science Ventures, LLC 2021 FCA 154 Locke JA: Gleason, Laskin JJA affg 2020 FC 1 Grammond J

2,486,935 / FCA Sufficiency / FC accounting / FC reasonable royalty / FC novelty and utility / FC claim construction / FC Overbreadth

The FCA Seedlings decision is important for expressly affirming that overbreadth is an independent ground of invalidity and holding on the facts that the claims of interest were invalid for that reason. In my article Overbreadth in Canadian Patent Law: Part I (2020) 33 IPJ 21, I suggested that a revival of overbreadth as an independent ground of invalidity runs the risk of turning into a new kind of the promise doctrine, in which claims to perfectly good inventions will be invalidated based on an idiosyncratic parsing of the disclosure. Seedlings has done nothing to assuage my fears, and much to confirm them. Seedlings holds that a claim is overbroad if it omits elements which are at “the core of the invention.” Seedlings is express that “the core of the invention” is different from the essential elements of the claim, and, more importantly, Seedlings also makes it clear that “the core of the invention” is different from the inventive concept. Identifying the inventive concept has proven contentious enough and now we have a similar sounding but somehow different concept to wrestle with. The prior caselaw does not provide any assistance. As Locke JA acknowledges at [50], [52], in almost all of the prior cases, overbreadth overlaps with another ground of invalidity, so we cannot find guidance as to how overbreadth might apply as a distinct ground of invalidity. And indeed, in Seedlings itself, overbreadth overlaps with insufficiency both in the facts and in the reasoning. (See here for my post on insufficiency.) We are nonetheless assured that it is “a distinct ground of invalidity that must be considered separately” [50]. In this post I do my best to try to understand how overbreadth operates as an independent doctrine. Unfortunately, I come up empty-handed. It appears to me that to the extent that overbreadth is different from insufficiency, “the core of the invention” was identified largely arbitrarily.

With the FCA nonetheless expressly approving overbreadth doctrine, we will undoubtedly see overbreadth raised regularly in upcoming litigation. Given the very limited guidance provided by Seedlings, we can expect trial judges to struggle with how to apply the doctrine. I expect we will see a variety of approaches with more or less arbitrary results, which will ultimately have to be sorted out by the FCA. I have no idea where we will end up, but it will certainly be interesting times for patent litigators.

Tuesday, September 7, 2021

Enabling After-Arising Technology

Pfizer Canada ULC v Seedlings Life Science Ventures, LLC 2021 FCA 154 Locke JA: Gleason, Laskin JJA affg 2020 FC 1 Grammond J

2,486,935 / FC accounting / FC reasonable royalty / FC novelty and utility / FC claim construction / FC Overbreadth

The Seedlings decision is notable for holding that overbreadth is an independent ground of invalidity, but the discussions of insufficiency and entitlement to an accounting are also of interest. In this post, I’ll start with the insufficiency issue, which raises the very difficult issue of how the enablement requirement applies to after-arising technology. The post is long, but the bottom line is that the key holding, that “[t]he disclosure must teach the skilled person to put into practice all embodiments of the invention, and without exercising inventive ingenuity or undue experimentation” [68] This must be wrong, or any invention that is capable of improvement would be invalid for insufficiency. But this means that on its face, Seedlings raises some very obvious avenues of attack on almost any patent, particularly those relating to mechanical inventions. I suspect these attacks will mostly fail—unsurprisingly, there is a very large body of caselaw to the effect that a patent is not invalid simply because it encompasses improvements. Unfortunately, I don’t see a lot of wiggle room for a principled distinction on the facts. So the interesting question will be how the FCA will handle Seedlings going forward and how much the law will ultimately change as a result.

The invention at issue relates to an auto-injector, primarily intended for injecting epinephrine to treat anaphylaxis. The best known auto-injector is the EpiPen. The original EpiPen was relatively bulky—a cylinder about 15 cm long and 2.5 cm in diameter—which made it inconvenient to carry. Another problem was that the needle remained exposed after use, which is a particular concern in light of the risk of transmission of blood-borne diseases [FC 11]–[12]. The patented injector device solved these problems. It is flat and much smaller than the original EpiPen—the size of a thick credit card—so it is more easily carried and used [FC 63]; and it has an actuator that moves forward once the injection is complete to serve as a shield that protects the needle [FC 19]: see the video here. This second aspect of the invention, which I’ll refer to simply as the needle shield, is at the center of the holding on both insufficiency and overbreadth.

A number of claims were asserted, but the claims of particular interest are claims 40, 59, 60 and 62. Claim 40, which is representative of the claims of interest, “describes an auto-injector with a flat housing, that is front-actuated and that has an actuator that also serves as a needle shield. That is the ‘inventive concept’ of this claim” [FC 139]. These claims were invalidated by Grammond J solely on the ground of overbreadth. The FCA affirmed on overbreadth [56]–[65], but held that the claims were also invalid for insufficiency [66]–[72], reversing Grammond J [185]–[186] on that point. The claims were neither obvious nor anticipated ([FC 102], [FC 115], [FC 138] affd [40]–[45]), nor did they lack utility [FC 163]. Grammond J held that none of the asserted claims were infringed by Pfizer’s Next Generation Auto-Injector (NGA) Epipen, which is oval in cross-section, not flat [191], [208]. The FCA did not address infringement in light of its conclusion that the claims were invalid [74]. Consequently, the FCA holding on validity is not obiter, even in a technical sense.

Tuesday, August 3, 2021

Blogging break

 I'll be taking a couple of weeks off. Blogging will be a bit erratic after that until September.

Thursday, July 29, 2021

Presumption That Marginal Rate of Return Equals Average Rate of Return

Apotex Inc v Eli Lilly and Company 2021 FCA 149 Boivin JA: Webb, Near JJA affg 2019 FC 1463 Zinn J [Cefaclor Interest]

            1,133,0071,146,5361,133,4681,150,725 [the Lilly Patents]

            1,095,0261,132,5471,136,1321,144,924 [the Shionogi Patents]

Is the Cefaclor litigation finally winding to a close, 25 years after the action was commenced? In Cefaclor liability FC 2009 FC 991 affd Cefaclor liability FCA 2010 FCA 240, Gauthier J found that at least one valid claim of each of Lilly’s patents had been infringed by Apotex. After Gauthier J was appointed to the FCA, Zinn J was assigned to hear the damages reference. His lost profits damages award of $31m was affirmed by the FCA, except in respect of the interest calculation: Cefaclor Damages FC 2014 FC 1254 affd Cefaclor Damages FCA 2018 FCA 217. Zinn J had awarded compound interest on the basis of a presumption that a plaintiff would have generated compound interest [FC 118] (see here), and the FCA remitted on the basis that there is no such presumption [FCA 156] and “a loss of interest must be proved in the same way as any other form of loss or damage” [FCA 158] (as discussed here).

The decision under appeal in this case is the interest decision on remand, which I’ll call Cefaclor Interest FC. In Cefaclor Interest FC, Zinn J set the compound interest rate by assuming that Lilly would use the money it would have had in such a way as to maximize its rate of return [30], [FC 27]. That’s fine, but he also set the rate at a rate equal to Lilly’s average rate of return [72]. The problem, as discussed here, is that as a matter of financial logic, the marginal rate of return—what Lilly would have done with the extra money—is necessarily lower than the average rate of return. Now of course, this is a matter for financial evidence, not just financial logic, but Zinn J considered the evidence of the financial experts to be “unhelpful”, because they carried out their analysis on the assumption that the lost profits were “a sum separate and apart from the other Lilly profits” [12], [FC 53]. That is, he disregarded the expert evidence as to the rate of return precisely because they carried out a marginal analysis. He preferred the evidence of Lilly’s fact witness, which was to the effect that Lilly would have spread the extra money among the same investments that it had made in the real world [13], [FC 55–56]. But there is actually no conflict between the financial experts and the fact witness. That Lilly would have spread the extra money among the same projects does not imply that the rate of return on extra money spent on those projects would be the same as the average rate of return on those projects. On the contrary, as a matter of financial logic, even if it is true that in fact Lilly would have spread the money among the same uses, the marginal return from an extra investment in those uses would have been less than the average return from those uses, again as discussed here. So far as I can tell, there was no evidence on the issue of the marginal rate of return on the same projects, presumably because the experts had focused their analysis on treating the extra money as a separate sum. In effect, Zinn J applied a presumption that the marginal rate of return would be the same as the average rate of return: “Where that proposed use of the slightly larger pool of profits parallels the use Lilly made in the real-world, there must be a heavy burden on Apotex to show that there was something making it impossible for Lilly to do so again” [FC 57].

Where does this leave the law? The FCA decision establishes that a trial judge is entitled to find that the marginal rate of return is the same as the average rate of return. But the issue was treated as a matter of fact at both levels of court, so this doesn’t establish a legal rule that the marginal rate of return is equal to the average rate of return. There is a “heavy burden” on a party seeking to show that average and marginal rates of return are different, but presumably that burden can be discharged by evidence directly on point, which we now know is necessary.

Monday, July 26, 2021

Stare Decisis and Statutory Interpretation

Janssen Inc v Canada (Attorney General) Mactavish JA: Stratas, Rennie JJA 2021 FCA 137 affg 2020 FC 904 Zinn J

esketamine hydrochloride / SPRAVATO

The FCA decision in Janssen is a straightforward application of the doctrine of stare decisis, with a loose end that raises some interesting questions for the application of stare decisis in the context of statutory interpretation.

Data protection is available for an “innovative drug” pursuant to section C.08.004.1 of the Food and Drug Regulations. “Innovative drug” is defined to mean:

a drug that contains a medicinal ingredient not previously approved in a drug by the Minister and that is not a variation of a previously approved medicinal ingredient such as a salt, ester, enantiomer, solvate or polymorph.

In a split decision in Takeda 2013 FCA 13, the FCA held that this definition should be interpreted to mean that the enumerated variations—a salt, ester, enantiomer, solvate or polymorph—were per se ineligible for data protection, regardless of the effort necessary to develop the data: see here. Stratas JA, dissenting, would have held that data protection is available for an enantiomer or other enumerated variation if regulatory approval for the drug required the submission of confidential data generated by considerable effort and the medicinal ingredient is materially different in terms of safety and efficacy: [22], Takeda [92]–[93]. I described the interpretive issue as a “hard case” where the purposive considerations relied on by Stratas JA pointed in one direction, while the textual and contextual considerations relied on by the majority pulled the other way.

In this case, Janssen applied for data protection for SPRAVATO, in which the medicinal ingredient is esketamine hydrochloride, an enantiomer of ketamine hydrochloride. Ketamine hydrochloride is the medicinal ingredient in the previously approved drug KETALAR. The Minister refused Janssen’s application. In the decision under appeal, Zinn J dismissed Janssen’s application for judicial review of that decision: see here. Zinn J accepted that there were factual differences between the cases. In particular, in Takeda both drugs were developed by the same company and used in the same manner for the same indication [FC 25], while in this case the enantiomer is indicated for an entirely different use: KETALAR is a narcotic, while SPRAVATO is an antidepressant. Thus, as a matter of policy, there is a stronger case for granting data protection in this case than in Takeda. (Note that in Takeda Stratas JA did not hold that data protection should be available for the enantiomer at issue on the facts, but only that the matter should be remitted for redetermination: Takeda [104]–[107].) However, as Zinn J pointed out, these facts were not material to the majority reasoning in Takeda, which held that the listed variations were per se ineligible, regardless of the amount of effort involved in developing the data: [41], [FC 26], Takeda [141].

In this appeal, Janssen acknowledged that the decisions below were consistent with Takeda. Its primary argument was that Takeda was wrongly decided and that Stratas JA’s interpretation of the provisions was correct [42], [71]. The FCA rejected this argument on the grounds of stare decisis, which permits departure from prior decisions only in “exceptional circumstances”: [72]–[79]. The FCA provided a useful brief summary of the relevant principles, with the most basic being that “one panel of this Court ought not to come to a different conclusion from a different panel, merely because it is of the view that the first decision was wrongly decided” [73], citing Miller 2002 FCA 370. The fact that Stratas JA was a member of both panels makes no difference: [80]–[83].

I agree with this result on the facts of this case, but I’m not comfortable with the Miller test. The law of stare decisis involves a trade-off between legal predictability and accuracy. In the easy cases, there is no conflict; if the first decision to address a point of law is clearly correct, then we get both predictability and accuracy by following it. But what if the first decision is wrong? When should we sacrifice accuracy, by following a wrong decision, for the sake of predictability? The Miller criteria set a very high bar for departing from a prior decision, giving very little weight to accuracy. The prior decision may be overruled only when it is “is manifestly wrong, in the sense that the Court overlooked a relevant statutory provision, or a case that ought to have been followed”: [75] quoting Miller [10]. “Manifestly wrong” has a “narrow” meaning, which is tantamount to saying the decision was made per incuriam: Olanzapine 2013 FCA 282 [8]. (It is a bit odd that the test for whether the FCA must follow its own precedent is much the same as the test for whether a lower court must follow a higher court.) Miller does implicitly acknowledge the trade-off between predictability and accuracy, but it adopts a threshold test for accuracy; where accuracy is unimportant outside the narrow threshold of manifestly wrong. This means that with Miller there is significant room for a lock-in effect from the first decision, where the initial decision may be generally considered to be wrongly decided, but will be reinforced by subsequent cases because it does not rise to the point of being manifestly wrong.

An alternative might be some kind of balancing test, which would more explicitly consider how likely it is that the prior decision was wrongly decided, how important the consequences are, and how much actual loss of predictability there might be. It might be said that the very use of a balancing approach to precedent would undermine predictability, because it would always be uncertain how a later panel would assess that balance. But I’m not sure that’s so different from where we are now, where problematic decisions are ignored, or gradually distinguished into oblivion. (Though that is easier when the point is factually suffused, rather than a narrow point of law.) How much worse would it be to explicitly recognize that some precedent is better than others, rather than doing it sotto voce? Another possibility would be greater use of expanded panels or en banc review, or some other approach entirely. I don’t have any answers here, but I do see a problem.

The problem of wrong precedent being locked in is particularly important in the context of statutory interpretation. As Professor Nina Varsava puts it “Does the judiciary have legitimate authority to knowingly misinterpret and misapply statutory law?”: How to Realize the Value of Stare Decisis 30 Yale J L & Human 62 (2018) 118. If the first decision interpreting a statutory provision is “manifestly wrong,” it can be revisited, but I am not sure it is sound to stick with an interpretation that is generally considered to be wrong, even if it is not “manifestly” wrong.

I should emphasize that I don’t think the main source of potential inaccuracy is poor legal reasoning on the part of the first panel to decide the issue. On that score, I do think the Miller criteria, amounting to whether the decision was made per incuriam, is appropriate. That is what makes this case an easy one. As the Court noted, the point was fully argued in Takeda and “[b]oth the majority and the minority decisions are thorough and carefully reasoned” [76]. Moreover, the case was a close call—my own view is that the majority decision was correct—with good arguments on both sides. There is much to be lost in terms of predictability if different panels flip-flop simply because they weigh close arguments slightly differently, and little to be gained in terms of accuracy of interpretation, given that either decision is about equally likely to represent the notional true intent of the legislature.

There are two other potential sources of inaccuracy that are much more important. One is that the full implications of a decision may become apparent only over time, as they are applied to different factual scenarios. A decision may be entirely well-reasoned and “right” given the information available at the time it was decided, and yet turned out to be wrong with the benefit of hindsight. That is largely what happened when, in Hospira 2016 FCA 215, the FCA departed from Aqua-Gem 1993 CanLII 2939 (FCA) on the standard of review for discretionary decisions of prothonotaries. The first reason the FCA gave for departing from Aqua-Gem was that experience had shown that the Aqua-Gem standard was difficult to apply and had generated confusion that detracted from the effective review of discretionary orders made by prothonotaries (Hospira [46]–[50]). A second reason was the persuasiveness of the reasoning on the same question in the Ontario courts (Hospira [51]–[55]). As I argued in my comment on Hospira, the FCA did not follow Miller in deciding to overrule Aqua-Gem: neither of these factors is relevant under the Miller test. Aqua-Gem was not poorly reasoned at the time it was decided (Hospira [49]) and it certainly was not manifestly wrong. This illustrates that the Miller criteria are poorly suited to a situation where the hindsight that comes with time and experience shows a prior decision to have been “wrongly” decided, even though it was entirely reasonable on the information available to the court at the time. None of these concerns are relevant to this case, as Takeda was recently decided and, so far as I can tell, nothing in our subsequent experience would cause us to weigh any of the arguments any differently.

Another source of error is when the case is poorly argued. This is perhaps particularly a problem for trial decisions, because the sheer number of factual and legal issues to be addressed can mean that a point that turns out to be important is not fully argued. My sense is that comity is not as powerful in the Federal Court for that reason. If a novel issue of law has been decided in a single prior FC decision, a subsequent FC judge will generally make their own assessment of the arguments before them, with the prior decision considered as one factor with considerable persuasive effect. (I’m afraid I can’t put my hands on particular examples right now.) This strikes me as a good approach. There is not much loss of certainty in the law, because a holding of law by the Federal Court is always liable to be overruled by the FCA in any event, and once a novel point of law has been addressed once, it is likely to be more thoroughly argued the next time. The same kind of problem can arise at the FCA level as well, particularly in cases (unlike Takeda), where there are multiple legal and factual issues being appealed.

The problem of a poorly argued case is particularly troublesome in the context of statutory interpretation. It’s disquieting to think that the law might depart from the intent of the legislature simply because a private litigant had argued its case poorly in the first decision on the issue.

This brings me to the loose end in this case. Janssen argued that the FCA should admit new evidence on appeal with respect to the effect of the repeal of NAFTA and the coming into force of CUSMA, and the impact that CUSMA should have on the interpretation of the data protection provisions [44]–[45]. In particular, “Janssen points out that under CUSMA, Canada agreed to provide protection to “new pharmaceutical products”, which are specifically defined as products that do not contain a chemical entity that has previously been approved” [46]: see CUSMA Art 20.48–20.49. Further, “Janssen notes that OSIP explicitly found that the medicinal ingredient in SPRAVATO had not been previously approved in a drug in Canada, and that this would qualify SPRAVATO for data protection under CUSMA” [46]. The FCA refused to admit the evidence on procedural grounds. First, Janssen could and should have made the argument in the Federal Court: [49]–[52]. The FCA noted that CUSMA was finalized in December 2019 and came into force on July 1, 2020, just before Janssen served and filed its application record in the Federal Court on July 17, 2020, and before its application was heard on August 31, 2020. Janssen therefore had the opportunity to make substantive submissions that CUSMA had changed the data protection regime, but failed to do so. Second, the question facing the Federal Court “was not to decide whether esketamine hydrochloride should be entitled to data protection. Its task was to determine whether OSIP’s decision to refuse data protection for SPRAVATO was reasonable, based on the record before it. OSIP [the Office of Submissions and Intellectual Property] rendered its decision on April 25, 2019, more than a year before the coming into force of CUSMA and the exchange of correspondence between the parties. Consequently, the agreement and the documents could have had no bearing on OSIP’s decision with respect to SPRAVATO, and they were not relevant to the task that the Federal Court had to perform” [54]–[55]. Both of these points strike me as compelling so far as procedural fairness to Janssen is concerned.

But what happens next time the same issue arises? Substantively, Janssen’s argument strikes me as quite reasonable. It would certainly have been taken into account if the interpretative question has been argued for the first time after CUSMA had come into force and it is at least possible that it would have tipped the balance. But the interpretive question is no longer a matter of first impression. As a matter of stare decisis, is the coming into force of CUSMA an “exceptional circumstance” that would warrant departing from Takeda, even though the legislation itself has not changed? This question raises an interesting point of principle. Suppose that the CUSMA argument was a knock-down argument that made it clear that Stratas JA’s position was correct. (I should say that this is purely for the sake of argument; I really have no opinion how the CUSMA argument would play out if it were added to the interpretive mix.) If the enactment of CUSMA was not an “exceptional circumstance” as a matter of the law of stare decisis, the result would be that a clearly wrong interpretation of the legislation would prevail simply because a private party had failed to make the argument at its first opportunity. I find this to be a troubling possibility; though perhaps it is simply a reflection of the fact that the interpretation of legislation through private litigation inevitably means that the interpretation will be shaped in part by the litigation strategy of the parties. Professor Varsava goes to far as to suggest that we should abandon stare decisis in the context of legislative interpretation, in part for that reason: see Varsava, How to Realize the Value of Stare Decisis 30 Yale J L & Human 62 (2018) 117–18. I would not go that far, but the point is an interesting one.

Because the FCA decided on procedural grounds, it was not necessary to address this question, and the Court—wisely, in my view—did not discuss the substantive point even tangentially. The door therefore remains open for this argument to be made. I expect we will find out the answer in due course, after the CUSMA argument is properly made to OSIP and it winds its way back up to the FCA on a more complete record.