Friday, October 11, 2019

Blogging Update

I'm back from my break, but there is a lot of substance in Manson J's decision in Canmar Foods Ltd v TA Foods Ltd 2019 FC 1233, and writing on it is taking longer than usual. I'll have a couple of posts on that decision early next week. Then I'll turn to Pfizer Canada Inc v Amgen Inc 2019 FCA 249 (which I haven't yet had a chance to read).

Monday, September 30, 2019

Blogging Break

I'll be taking a short break from blogging this week. I'll be back next week, starting with any cases I missed in the interim.

Friday, September 13, 2019

Continuing Disagreement over Unessential Settlement Terms Is Immaterial

Betser-Zilevitch v Nexen Inc 2019 FCA 230 de Montigny JA: Stratas, Webb JJA aff’g 2018 FC 735 Brown J
            2,584,627

The parties in this case were engaged in settlement negotiations and advised the Court that “a settlement has been reached, subject to formalization, review and execution by the parties of a formal settlement agreement” [FC 26]. The parties were not able to agree on the details and Betser-Zilevitch purported to withdraw its offer. Nexen moved for a declaration that a settlement had been reached. In the decision under appeal, Brown J found that the parties had indeed entered into a binding settlement agreement covering all essential terms, and he determined the non-essential terms upon which the parties disagreed: see here. The FCA has now affirmed in a brief decision holding that Brown J made no reviewable error [4]. The FCA noted that “The mere fact that the parties disagreed on some of the terms of the agreement when they undertook to formalize it does not make those terms any more essential than those terms over which they agreed. As this Court stated in Allergan [2016 FCA 155, the leading case on when a settlement has been reached], ‘continuing disagreement over unessential terms is immaterial’” [5].

Tuesday, August 20, 2019

First Mover Exclusivity for First Generic to Serve an NOA Not Relevant to Procedure under PM(NOC) Regulations

Bayer Inc v Teva Canada Limited 2019 FC 1039 Pentney J
            2,547,113 / 2,624,310 / 2,823,159 / rivaroxaban

This motion to add defendants in a trial of common issues under the PM(NOC) Regulations raises the issue of whether the first generic to serve an NOA can get a practical head start in the market over later generics. Under the US Hatch-Waxman patent linkage system, the first applicant to challenge a drug patent is entitled to 180 days of exclusivity against subsequent generic applicants: 21 U.S.C. § 355(j)(5). The theory is that initiating and defending an action will be expensive for the first generic, but all subsequent generics will benefit at no cost or risk to themselves if the patent at issue is declared invalid with in rem effect. The 180 exclusivity is intended to provide an incentive for the first generic to bear the cost of litigation. There is no equivalent statutory exclusivity period in the NOC Regulations, but the first generic to get its NOC will nonetheless get a practical head start. This means that whether a generic gets any period of exclusivity turns on the procedural details under the Regulations.

The background to this motion is that Teva and Apotex served NOAs on Bayer arising from their applications for an NOC for a generic version of rivaroxaban. These NOAs were served within a month of each other, and Bayer responded by launching actions against Teva and Apotex, again within one month of each other [4]. The claims relate to the same drug, the same patents, and same issues of invalidity [1] and in Bayer v Apotex 2019 FC 191 Tabib J ordered a common hearing of the common issues [2]. A few months later, Taro and then Sandoz also served NOAs on Bayer relating to the same drug, and Bayer commenced actions against them as well [4]. The claims in all four actions are “virtually identical” [34].

In this motion, Bayer, Taro and Sandoz sought to have Taro and Sandoz added as defendants in the trial of common issues already set for Teva and Apotex [1]. Teva and Apotex objected, on the basis, inter alia, that Taro and Sandoz were late in serving their NOAs, and Teva and Apotex should not be required to cede the potential commercial advantage they might gain by having their action decided first. “Adding Taro and Sandoz now as defendants to the common hearing would allow them, in effect, to ‘leapfrog’ the expected sequence of events within the 24-month timeline fixed by the Regulations, and thereby re-gain the commercial advantage they have lost” [7].

Pentney J rejected this argument, agreeing with Tabib J’s remarks at [7] in Bayer v Apotex [13]. Tabib J made two main points. First, the Regulations themselves do not provide any exclusivity period for the first generic to serve an NOA. The US model, including its 180-exclusivity period, must have been considered when the new Regulations were drafted, and as Taro argued, “the Court should not create such a guarantee by its procedural rulings” [15]. Further, as a practical matter, refusing to order a common hearing would not guarantee that the first generic to serve would be the first to come to market.

These are both compelling points. The question remains whether the Canadian system provides an adequate incentive to challenge a patent by serving an NOA. The answer to this question is not clear. While the theory behind the US approach is logical, I’m not sure exactly how different the systems are in practice. I understand that a full 180 day exclusivity can be quite elusive in the US, with the exclusivity often shared among multiple generics; and conversely, in this case Taro and Sandoz are not simply free-riding off the efforts of Teva and Apotex, but will have to bear some of the litigation costs as well. No doubt the US 180 day exclusivity does create some real practical differences, but there is no simple theoretical answer to which system is better.

With this argument rejected, Pentney J decided the matter by reference to the usual considerations of balancing judicial economy against potential prejudice to the parties, and he concluded by adding Taro and Sandoz as defendants in the hearing of common issues.

Wednesday, August 14, 2019

Background Information in the Specifications May Be Evidence of the CGK

Corning Cable Systems LLC v. Canada (Attorney General) 2019 FC 1065 McVeigh J
            2,679,996 / 2,754,149 / Optical Splitter Module

In this decision McVeigh J, applying a reasonableness standard, upheld the Commissioner’s decision to refuse the 996 and 149 applications on the ground of obviousness [107]. The decision applied settled law to the facts.

The applications at issue relate to a “Local Convergence Point” which is a box that receives a cable supplied by an internet service provider as an input and splits and distributes that cable to several units in a building [5]. The claimed invention took advantage of recently developed “bend performance optical fibers,” which can be bent to a smaller radius than traditional fibers without incurring a marked loss in signal quality [6]. This permitted design of a smaller box. As the application explained as part of the “Background of the Invention” “Conventional LCPs . . . require large, expensive LCPs that may be difficult to install and/or transport. In addition, conventional LCPs often require skilled technicians to install the LCP and route the associated subscriber cables. Therefore, a need exists for LCPs that are cost-effective, are relatively small in size, and may be installed and maintained by relatively unskilled technicians” [15]. The Commissioner relied on this statement in finding that identifying the need for a smaller box was common general knowledge [47].

Corning argued that adopting information provided in the background of the patent applications as CGK, without some evidence beyond information in the patent applications themselves, was an error of law [51], [53]. While the decision was not entirely explicit on this point, as I understand it, this issue was important because Corning wanted to argue that identifying the problem – the need for a smaller box – was or contributed to the inventive step necessary to support a patent. I must say that arguing that it was inventive to thinking of trying to shrink the size of electronic equipment strikes me as pretty desperate. In any event, McVeigh J held, correctly in my view, that this point had been settled by Newco Tank 2015 FCA 47, which held, on essentially identical facts, that it was “open to the Board to conclude that the skilled person’s CGK was reasonably described by reference to the language presented as background information in the Patent” [62], quoting Newco at [13] (and see my post on Newco here). McVeigh J did note, however, that “This is not to say that it is always appropriate for the Commissioner to find that information presented in the specifications of a patent application is the CGK of a person skilled in the art. While I disagree with Corning that concluding that such information is CGK – without further evidence – necessarily amounts to a reviewable error, there may certainly be cases in which such a finding is unreasonable” [64].

Corning also argued that the Commissioner erred in finding that actually implementing the smaller box did not require inventive ingenuity. McVeigh J affirmed that this finding was reasonable, noting that “it was insufficient for Corning’s counsel to set forth, during the requisition process and at the hearing, a number of alleged experimental difficulties without concrete evidence” [105].

Friday, August 2, 2019

Should a PAE Be Entitled to Elect an Accounting?

T-Rex Property AB v Pattison Outdoor Advertising Limited Partnership 2019 FC 1004 Manson J
            2,252,973 / Digital Information System

In comparison to the US, we have not seen a lot of litigation by patent assertion entities (PAEs) in Canada, but some actions are now starting to work their way through the system. This decision of Manson J upholding a bifurcation order and affirming the scope of a protective order granted by Steele J, while routine in many ways, raises some interesting points as to how the Canadian litigation system will deal with PAEs.

A first point is that Manson J explicitly referred to the plaintiff, T-Rex Property, as a “non-practicing entity” [27] (NPE). It appears that T-Rex is not just an NPE, but more specifically a patent assertion entity (PAE). The distinction is that an NPE is any entity that does not practice the patent, while a PAE is an entity whose only business is enforcing patents. While PAEs are all NPEs, the converse is not true. Small research based firms and universities that develop new technologies and licence it to others for commercialization are NPEs but are generally not considered PAEs.

A second point is that Manson J noted that “the question of whether a non-practicing entity is entitled to elect between damages or profits appears to be a novel legal issue” [27]. This is interesting simply because Manson J explicitly framed the question as turning on the nature of the plaintiff as a PAE. I think this is the first time I have seen it suggested that a PAE should be treated differently in law, at least in Canada. In US practice “district courts appear to have adopted a de facto rule against injunctive relief for PAEs and other patent owners who do not directly compete in a product market against an infringer” (Seaman, “Permanent Injunctions in Patent Litigation After eBay: An Empirical Study,” 101 Iowa L Rev 1949 at 1953); but doctrinally, at least, this is not a distinction based on status, but is rather because it is more difficult for a PAE to prove irreparable harm in the eBay test.

Apart from the framing, the question of whether an NPE, and particularly a PAE, should be allowed to elect an accounting is very interesting. A successful patentee is entitled to damages as of right, but an accounting is discretionary. Patentees are typically permitted to elect an accounting more or less routinely, but it is not unheard of for an election to be refused. The principles governing whether an accounting should be permitted are quite underdeveloped: it is not even clear whether a successful patentee is presumptively entitled to elect an accounting (see here and here), nor is it clear what factors should be taken into account in the exercise of the court’s discretion. The question of whether a PAE, or an NPE, should be entitled to elect an accounting would not merely be a question of applying established principles, but rather one of developing those principles. Without expressing any view on this difficult issue, I would say that this is an issue where the distinction between a PAE and an NPE is potentially important one.

The procedural points at issue in the motion may also be significant in shaping PAE litigation. The defendant Pattison sought an order bifurcating the damages portion of the action, and T-Rex resisted. Bifurcation orders are commonly granted in patent cases to avoid wasting money and court resources on an issue that will be moot if the patentee loses on the merits. No new points were raised by Manson J in affirming Steele J’s decision to grant the motion. The more interesting question is why T-Rex opposed the bifurcation. Different PAEs have different litigation strategies (see this FTC Study), but one strategy that is used by some PAEs, especially when the case is weak on the merits, is to offer to settle for less than the defendant would need to spend to defend the case. In aid of this approach, some PAEs will try to impose substantial discovery costs on the defendant in order to gain settlement leverage; this strategy can work because discovery costs tend to be asymmetrical, especially when the patentee is a PAE, and so does not have information as to how the invention was developed. A PAE which uses this strategy might want to resist bifurcation in order to increase settlement pressure with discovery related to the damages issue. Perhaps that is what is going on here — though that’s pure speculation, as I don’t know anything about T-Rex apart from what I’ve read in this decision.

Costs are also an important aspect of PAE litigation, and I’ve heard it suggested that we have seen less PAE litigation in Canada because we follow the English rule of costs-in-the-cause. When the PAE’s case is weak on the merits and the PAE is aiming to settle on a litigation cost basis, costs on motions are even more important than any ultimate costs order. In this decision, Steele J required T-Rex to pay costs for the motion immediately, despite T-Rex having posted security for costs [41]. Manson J upheld this “quintessentially discretionary” decision [42], though remarking that “I may not myself have awarded costs payable forthwith in these circumstances” [44]. To the extent that T-Rex might be employing a litigation cost settlement strategy, the order to pay costs on the motion forthwith might help tilt the settlement leverage back in Pattison’s favour (or at least less against Pattison). While Manson J made no reference to T-Rex’s status as a PAE in this part of his decision, it strikes me that costs on motions might be an issue where the PAE status of the patentee is relevant, and Steele J’s order might be justified on that basis, even aside from its discretionary nature.

With all that said, I’m not sure if tailoring procedural rules to PAEs is desirable (though to be clear, I’m not sure it’s undesirable either). PAE litigation strategy highlights aspects of the patent system that arise to some degree in all types of patent litigation, so in principle, sound general rules should suffice. But PAE litigation may also highlight areas where the general rules need to be developed, as with the principles applicable to an election of an accounting.

Wednesday, July 31, 2019

Infringement of Use Claim by Manufacture

Eli Lilly Canada Inc v Apotex Inc 2019 FC 884 Tabib J
            2,226,784 / 2,371,684 / 2,379,948 / tadalafil

This procedural decision raises the question of whether a claim in the form of “a composition for use in the treatment of” a disorder can be infringed by manufacture of the composition intended for treatment of the disorder, even if the composition is not actually used. The broader question is the extent to which relatively subtle differences in claim structure can result in substantive differences in what constitutes infringement.

Lilly’s 784 patent has claims of the general form “a composition for the treatment of ED comprising tadalafil.” Lilly won in NOC proceedings against various generics based on its 784 patent, which were therefore prohibited from obtaining an NOC until its expiry. When the 784 patent did expire, several generics received their NOC and immediately launched. Lilly brought an action for infringement based on several patents, including the 784 patent, even though no product was sold until after the 784 patent expired.

In this motion Lilly sought leave to amend to add an allegation that the generics infringed by reason of the manufacture, import and stockpiling of tadalafil for the treatment of ED prior to the expiry of the 784 Patent [13]. The defendant generics opposed the amendment. None of them sold or could sell their product in Canada until the expiry of the ‘784 patent, so the question is whether manufacture and stockpiling could constitute infringement of a claim of this type. The generics argued in effect that because the 784 patent is a “use” patent, they could only infringe by inducement, and since direct infringement is an element of inducement, and there was no actual use, and therefore no direct infringement, prior to the expiry of the 784 patent and launch of the generic product, it followed that there could be no infringement by manufacture and stockpiling [18]. While the issue arose because of the particular facts, the question is of more general significance, because if Lilly is right, a claim to a composition for treatment of a disorder can be directly infringed by manufacture for that purpose, without the need to establish use.

Tabib J rejected the defendants’ argument. She noted the potential distinction between claims of the form “a composition for use in the treatment of” and those drafted as “use of a composition in the treatment of” [23]. The former claim is arguably a claim to the composition itself, which might therefore be infringed by manufacture and stockpiling. Without going through the cases reviewed by Tabib J, her conclusion that it is reasonably arguable that a claim to “a composition for use” is a composition claim [33], strikes me as clearly correct. With that said, there is merit to the basic argument made by the generics, that both types of claim are really directed to a second medical use. If the substance of the invention is the same, it would seem to be undesirable that idiosyncratic differences in claim structure could lead to substantive differences in outcome. But maybe the answer to that is that claim to “use of a composition in the treatment of” should also be infringed by manufacture for purpose of the claimed use.

In the end, Tabib J allowed the amendment by Lilly, subject to bifurcation to address scheduling issues.

Wednesday, July 24, 2019

Claim Construction Not Applied in Infringement Analysis

Evolution Technologies Inc v Human Care Canada Inc 2019 FCA 209 Laskin JA: Dawson, Stratas JJA rev’g 2018 FC 1302 supplementary reasons 2018 FC 1304 Elliott J
            2,492,392

At trial, Elliott J held that Human Care’s 392 patent related to “rollators” – a “walker” with wheels, primarily used to assist the elderly with mobility issues – was valid and infringed by Evolution Tech: see here. The FCA has now reversed, on the basis that Elliott J erred in law because her finding of infringement was not based on the construction she had arrived at in the claim construction analysis [4], [24], and there was no evidence to support a finding of infringement on the basis of that construction [26]. The FCA accordingly held that infringement was not established, and allowed the appeal. Evolution had relied in part on the prosecution history, invoking the recently enacted subsection 53.1(1) of the Act [3], but this played no part in the FCA’s reasoning.

Thursday, July 18, 2019

Revised Paper on Overbreadth In Canadian Patent Law

I have just posted a revised version of my draft paper on Overbreadth In Canadian Patent Law. In the earlier version I had somehow overlooked Apotex v AstraZeneca 2017 FCA 9, a key FCA decision on the “roads to Brighton” problem. That section of the paper is re-written, but my overall conclusions are not changed; on the contrary, Apotex v AstraZeneca strengthens my view that overbreadth is not required as an independent ground of invalidity

Wednesday, July 17, 2019

Claims May Be Construed with Reference to the Entire Specification

Tetra Tech EBA Inc v Georgetown Rail Equipment Co 2019 FCA 203 Dawson JA: Pelletier, Webb JJA rev’g Georgetown Rail Equipment Co v Rail Radar Inc 2018 FC 70 Fothergill J
             2,572,082 / 2,766,249

In Georgetown Rail v Rail Radar (blogged here), Fothergill J held that Georgetown’s 082 and 249 patents were valid and infringed by Tetra Tech EBA Inc, dismissing the main validity attack, that was based on obviousness. The FCA has now reversed.

The appeal relating to the 249 patent turned on claim construction. The FCA reversed Forthergill J on claim construction, presumably applying a correctness standard,given that claim construction is a matter of law [89]. In NOVA v Dow 2016 FCA 216 [15] the FCA suggested that in some circumstances, particularly where claim constructions turns on the trial judge’s assessment of expert evidence concerning the meaning of terms used in the claims, trial judges might be given “some leeway” in claim construction. Dawson JA made no reference to this quasi-deferential standard, but her decision is not inconsistent with it. In this case, the disputed construction did not turn on an appreciation of expert evidence, but rather on the interplay between the disclosure and claims; that is, a quintessentially judicial function of interpreting a written document. The obviousness of the claims alleged to have been infringed followed straightforwardly from the new claim construction [125]-[130].

A controversial point related to claim construction is whether having recourse to the disclosure as an aid to construing the claims is always permissible, or is permissible only if the claims are ambiguous when read on their own: see here and here. Dawson JA did not directly address the controversy, but she began her analysis by remarking (my emphasis):

[104] I begin the construction exercise with the Patent’s disclosure, mindful that while claims may be construed with reference to the entire specification, the disclosure may not be used to enlarge or contract the scope of a claim as written.

This passing remark strikes me as a succinct statement of the correct approach. It is always permissible to construe claims with reference to the disclosure, but it is never permissible to use the disclosure to change the scope of the claims, once the claims have been construed in light of the disclosure. (That is, absent any invocation of essential elements or Actavis-style expanded protection.) The line between construing the claim in light of the disclosure and importing limitations from the disclosure into the claims may sometimes be a bit blurry, but the law is full of lines that are sometimes blurry. This particular distinction strikes me as conceptually sound and easy enough to apply in most cases.

The appeal relating to the 082 patent turned on obviousness, with the key point being that the common general knowledge must be taken into account in assessing obviousness [13]. This, of course, does not represent new law.

The patents related to an automated system and method for inspecting railroad track using a laser and camera to collect information about the railroad track, plus a processor to analyze the information according to a specified algorithm: FC [16], [31]. The individual components were known and there was no suggestion of inventive ingenuity in adapting those components to implement the algorithm: FC [146]. One of the problems addressed by the 082 patent was identifying “plate cut” which occurs when a tie plate, which fastens the rail to the wooden crosstie, cuts into the crosstie as a result of the vibration of the passing trains. Fothergill J noted that all of the components and technology used by the claimed invention were known in the prior art, but “none of the prior art identifies plate cut or rail seat abrasion as problems to be solved, or suggests solutions similar to those disclosed by the 082 and 249 Patents”: FC [146]. However, as Dawson JA emphasized, this statement was based on the six items of prior art that were submitted in Tetra’s expert report, and did not consider whether those elements were found in the common general knowledge as accepted by Fothergill J: FCA [60], [62]. So, plate cut itself was well known in the prior art, and indeed was required to understand the undefined term “sunken plate” (a plate that has sunk into the tie through plate cut) used in the patent itself [18], so it must have been obvious to identify plate cut as a problem [66]. There was also a problem in how to identify plate cut, because plate cut is hidden when viewed from above since it occurs under the tie plate. The 082 patent solved this problem by comparing the height of the crosstie with the height of the tie plate [67]. But, as Dawson JA noted, “This was the very measurement human inspectors took when trying to identify plate cut” [68]; Georgetown’s own expert testified to that effect [70]. Thus the method of identifying plate cut was known in the prior art, and Forthergill J had found that there was nothing inventive in the way that that known solution was implemented by the automated system.

The strength of these points is illustrated by Georgetown’s strained response, that “although defects such as plate cut and rail seat abrasion were defects known to ‘railway people’, these defects were not held by the Court to be within the common general knowledge of the person skilled in the art” [22]. That is, the problem and solution adopted by the patent would not have been obvious to a person such as myself, wholly ignorant of railways. But Dawson JA had no difficulty in dismissing this argument, both in light of Fothergill J’s express findings regarding the common general knowledge, and in light of the general principle that “[t]he identification of the ordinary person skilled in the art should be consistent with the specification of the patent” [26].

Forthergill J’s failure to address obviousness in light of the common general knowledge was an error of law [63]. The principle applied by the FCA is well established and the decision does not reflect any change in the law.

Wednesday, July 10, 2019

Patent Remedies and Complex Products: Toward a Global Consensus

I’m very pleased to announce the release by Cambridge Univ. Press of Patent Remedies and Complex Products: Toward a Global Consensus (Brad Biddle, Jorge L. Contreras, Brian J. Love & Norman V. Siebrasse eds., Cambridge Univ. Press 2019). Here is the description:

Through a collaboration among twenty legal scholars from eleven countries in North America, Europe and Asia, Patent Remedies and Complex Products presents an international consensus on the use of patent remedies for complex products such as smartphones, computer networks and the Internet of Things. It covers the application of both monetary remedies like reasonable royalties, lost profits, and enhanced damages, as well as injunctive relief. Readers will also learn about the effect of competition laws and agreements to license standards-essential patents on terms that are 'fair, reasonable and non-discriminatory' (FRAND) on patent remedies. Where national values and policy make consensus difficult, contributors discuss the nature and direction of further research required to resolve disagreements.

The book is the work of the project on International Patent Remedies for Complex Products (INPRECOMP), which brought together the aforementioned twenty scholars for two workshops, plus innumerable rounds of collaborative work in drafting the individual chapters. At the second workshop, a panel of prominent judges and practitioners with experience in complex products litigation provided feedback on a draft version of the work, and the book is aimed not only at academics but also lawyers, judges, and other professionals involved in the global patent system.

Patent Remedies and Complex Products is available in print from Amazon or direct from Cambridge U Pr and also in an open-access version which provides the full text in pdf and html for free download and viewing.

The project was managed through the Center for Law, Science and Innovation (CLSI) at Arizona State University's Sandra Day O'Connor College of Law and primarily funded by a gift to CLSI from Intel.

While I’m on the subject of patent remedies for complex products, I’ll mention my book chapter with Professor Tom Cotter, "Judicially Determined FRAND Royalties," in Jorge L Contreas (ed), The Cambridge Handbook of Technical Standardization Law: Competition, Antitrust, and Patents (Cambridge University Press, 2017), Chapter 23. It is a comprehensive review of the basis for calculation of FRAND royalties in all the cases that were decided by the time it was written (which still includes most of the leading cases), and I suggest it would be of interest to any lawyer involved in FRAND royalty litigation

Wednesday, June 26, 2019

Recovery of Loss from Displaced Sales

Arysta Lifescience North America, LLC v AgraCity Crop & Nutrition Ltd 2019 FC 530 Pentney J
            2,346,021 / flucarbazone sodium herbicide / EVEREST

In Arysta v AgraCity the patentee, Arysta, sought, and was granted, an interim injunction, on the basis that AgraCity’s sale of a generic herbicide would infringe Arysta’s 021 patent. Yesterday’s post discussed the ability-to-pay aspect of the irreparable harm issue. On a separate point, AgraCity argued Arysta would not suffer substantial damages because the 021 patent only covers the granular or powder form of the herbicide.

AgraCity’s product is a generic of the EVEREST 1.0 granular product formerly sold by Arysta [9], but Arysta no now only sells a new and improved liquid product, EVEREST 3.0 [54]. AgraCity argued that because Arysta no longer sold a product embodying the patented invention, “any losses that may flow to Arysta from the sale of its generic product must be limited to a reasonable royalty” [54]. Pentney J rejected this argument, essentially on the basis that the patentee is entitled to any losses caused by the infringement; if the sale of the generic granular product displaced sales of Arysta’s liquid product, those losses would be recoverable [68]. I won’t go through Pentney J’s analysis in detail, except to say that it strikes me as entirely correct.

Monday, June 24, 2019

Standard for Proving Irreparable Harm Due to Inability to Pay

Arysta Lifescience North America, LLC v AgraCity Crop & Nutrition Ltd 2019 FC 530 Pentney J
            2,346,021 / flucarbazone sodium herbicide / EVEREST

It is notoriously difficult for a patentee to obtain an interlocutory injunction in Canada, primarily because of the stringent test applied in the Federal Courts in respect of irreparable harm, the second branch of the tripartite test for an interlocutory injunction set out in RJR-MacDonald [1994] 1 SCR 311. In this decision, the patentee, Arysta, was able to overcome that hurdle. Pentney J granted Arysta’s motion for an interim injunction, after finding that Arysta had established irreparable harm [72], the other elements of the RJR-MacDonald test were satisfied [40], [80] and also that the matter was urgent, as is required for an interim injunction [3], [81].

Despite the result, this decision does not, on its face, mark any relaxation of the stringent test for irreparable harm. Pentney J noted and accepted the FCA jurisprudence that establishes the threshold for irreparable harm as “very high” [21], and he emphasized the “particular circumstances of this case” [3], [81]. The decision nonetheless raises a question as to whether any different approach will be applied when the alleged irreparable harm stems from the defendant’s inability to pay a damages award, as it was here.

The case can be distinguished straightforwardly on the facts from the more typical Federal Court patent cases in which an interlocutory injunction is denied. In such cases the key question on irreparable harm is whether damages will be fully compensatory: see here for a review of some of the recent decision. In principle, of course, damages are intended to provide full compensation, so the question is whether, on the facts of the case, damages are so difficult to assess as to make it likely that the patentee will be undercompensated, should it win at trial. In this case, the focus was not the court’s ability to assess damages accurately, but rather on the defendant’s ability to pay any damages which might be awarded.

At first blush, such a distinction makes perfect sense: even if the court assesses damages perfectly, the plaintiff will clearly suffer irreparable harm if it is unable to actually recover the amount awarded. However, it is not clear that the distinction supports a different approach to irreparable harm in a case such as Arysta. The high threshold for irreparable harm in the Federal Courts stems, in principle, from an evidentiary principle. The FCA has consistently held that “the evidence as to irreparable harm must be clear and not speculative”: ICI v Apotex (1989) 27 CPR (3d) 345 (FCA) 351. That is, the jurisprudence does not say that difficulty in assessing damages can never in principle amount to irreparable harm, but rather that the difficulty in assessing damages must be established on a firm evidentiary basis. The rule that “the evidence as to irreparable harm must be clear and not speculative,” on its face applies to any allegation of irreparable harm, whether the substantive issue is difficulty of quantification or ability to pay.

So, when the patentee alleges irreparable harm based on the defendant’s inability to pay a damages award, it would seem that this inability to pay must be established on the basis of evidence which is clear and not speculative. However, Pentney J’s analysis did not turn on this general principle. Instead, he reviewed the jurisprudence on the evidentiary standard relevant to inability to pay in particular:

[46] The concern about an inability of the defendant to pay a damages award will be difficult to establish, since the information relevant to the question will be largely in the control of the defendant. The onus on the plaintiff for establishing irreparable harm on this basis has been variously expressed as: “a very serious doubt” (Bulman Group Ltd v Alpha One-Write Systems British Columbia Ltd (1981), 54 CPR (2d) 171, at p 172); or “strong indications that a substantial judgment would be uncollectable” (Dyckerhoff & Widmann AG v Advanced Construction Enterprises Inc, [1986] 1 FC 526, at p 534 (TD); or “reasonable grounds for concern that it is unlikely that any substantial monetary judgment… could be collected or enforced” (Titan Linkabit Corp v SEE See Electronic Engineering Inc (1993), 48 CPR (3d) 62, at p 78 (FCTD)).

It’s reasonable enough to cite authorities on the issue of ability to pay specifically, as that is a narrower subset of the more general question of irreparable harm, and so cases on that point should be more directly applicable. But cases on a narrower point should nonetheless reflect the application of the broader principle on the more specific facts, and it is not clear to me that the standard articulated in these cases is consistent with the more general requirement that the evidence of irreparable harm must be established on the basis of evidence that is “clear and not speculative.” The standard of “reasonable grounds for concern” (Titan Linkabit) seems to me to be clearly lower. “Strong indications” (Dyckerhoff) also strikes me as a lower standard, though perhaps “a very serious doubt” (Bulman) is closer to “clear and not speculative.” None of these cases explains how these standards fit with the modern requirement that the evidence of irreparable harm must be “clear and not speculative,” and indeed none of them mentions that standard, nor any of the current leading cases. No doubt this is simply because the “clear and not speculative” standard was not fully established when they were decided.

Nor does Pentney J clearly explain the relationship between these standards. On the facts, he held that irreparable harm had been established because Arysta had demonstrated “serious reason to doubt” whether AgraCity would be able to pay a damages award [50], and also that “Arysta has demonstrated, through clear and non-speculative evidence, that there is a substantial risk” that AgraCity would not be able to pay a damages award [53].

The phrase “serious reason to doubt” used at [50] seems to me to be a clearly lower standard than “clear and not speculative.” The evidence reviewed by Pentney J related to AgraCity’s ability to pay at [47], strikes me as somewhat speculative, at least by the standards normally used in establishing irreparable harm, though certainly adequate to raise a serious doubt. This suggests that Pentney J was applying a “serious reason to doubt” standard rather than a “clear and not speculative” standard, though of course he may simply have viewed the evidence differently, particularly given that I don’t have the benefit of the full record.

Pentney J’s statement at [53] seems to imply a distinction between the degree of risk (“substantial”) and the evidence (“clear and not speculative”). Perhaps that is a sound basis for reconciling the various standards, but I’m not sure such a distinction is consistent with the jurisprudence dealing with cases where the concern is quantification, rather than ability to pay.

If there is some kind of different standard, perhaps it is justifiable on the basis that “the information relevant to the question will be largely in the control of the defendant” [46]. A similar point was made in Bulman, when the court remarked that the serious doubt arose because “[t]here was in effect a refusal [by the defendant] to divulge information as to financial responsibility” (172). This does strike me as a principled evidentiary reason for distinguishing cases involving ability to pay from those involving difficulty of quantification. It is also an evidentiary point, which might therefore be taken as a refinement of the general evidentiary rule. Perhaps the principle is that the plaintiff must establish irreparable harm on the basis of evidence that is clear and not speculative, unless the relevant evidence is largely in the control of the defendant, in which case it is enough to raise a serious doubt. With that said, even if this point is consistent with Bulman, I don’t see it as driving the result in Bulman, which took a more holistic approach — indeed, Bulman considered ability to pay in the context of the balance of convenience as much as in the context of irreparable harm. And I don’t see this evidentiary point as explaining Titan Linkabit or Dyckerhoff, neither of which mentioned such any evidentiary difficulty.

In summary, Pentney J’s analysis of the significance of ability to pay is consistent with the cases he cited, which were on point, but those cases are relatively old, and it is not clear to me they are consistent with the modern requirement that the evidence of irreparable harm must be clear and not speculative. I do not mean this as any criticism of Pentney J. On the contrary, apart from this narrow issue, his application of the relevant principles to the facts strikes me as entirely sound. And to the extent that the decision illustrates a tension in the standard for irreparable harm, I am not suggesting that the older cases should be rejected, as I have long been critical of the current approach to irreparable harm: see Norman Siebrasse, ‘Interlocutory Injunctions and Irreparable Harm in the Federal Courts’ (2010) 88 Canadian Bar Review 517.

Wednesday, June 19, 2019

Obviousness Analysis Need not Focus on the Inventive Concept

Tearlab Corporation v I-MED Pharma Inc 2019 FCA 179 de Montigny JA: Nadon, Gleason JJA aff’g 2018 FC 164 Manson J
            2,494,540 / TearLab System / i-Pen System

In the decision under appeal, Manson J held certain claims of TearLab’s ‘540 patent to be infringed, but invalid due to anticipation and obviousness: see here. On appeal, TearLab essentially just argued that Manson J had erred in his claim construction and in his conclusions, with the usual attempt to elevate these criticisms into an error of law, eg by arguing that Manson J had erred in how he had applied purposive construction on the facts [2], [36]. The FCA has dismissed the appeal, affirming Manson J’s holdings, either on the basis of the applicable deferential standard of review [27], or on the basis that Manson J’s conclusions were correct [80].

There are a few legal points of passing interest. In light of the uncertainty as to the nature of the “inventive concept” and its role in the obviousness inquiry, the recent FCA decisions have “downplayed the importance of the ‘inventive concept’ as an analytical tool in the context of an obviousness analysis,” and consequently it is not an error for the trial judge to focus on the claims rather than the inventive concept in the obviousness analysis [76]-[78].

Second, as discussed here, in Aux Sable 2019 FC 581 Southcott J held that the state of the art for the purposes of an obviousness attack includes all prior art, and not just that discoverable in a reasonably diligent search. In the TearLab appeal, TearLab argued that “the judge erred in not determining whether the prior art at issue was citable, ie whether it would have been located using a reasonably diligent search” [54]. The FCA dismissed this point on the basis that the relevant evidence was indeed discoverable [55]–[58], which implies that the reasonably diligent search test is indeed applicable. However, nothing much can be made of this, as the legal point does not appear to have been argued, and was not addressed by the FCA.

Third, on another point related to obviousness, TearLab argued that “the judge failed to take into account relevant secondary indicia of obviousness, such as the ‘long-felt want or need’” [67]. It is sometimes suggested that secondary evidence is necessarily substantively secondary to the “primary” evidence of expert witnesses who testify as to whether the invention would have been obvious to a POSITA: see eg Mölnlycke AB v Procter & Gamble Ltd [1994] RPC 49 (CA), 113. I have argued that this position is unsound; secondary evidence has both advantages and disadvantages as compared to the evidence of experts, and one or the other might be more persuasive on the particular facts of a case: see ‘“Secondary” Evidence of Obviousness is Not Secondary’ (2012) 28 CIPR 279 (draft version here); and various blog posts. The FCA dismissed TearLab’s argument, but not on the basis that secondary evidence is necessarily of lesser importance, rather because “the commercial success of a patented product is never conclusive, in and of itself, and is clearly not sufficient to save an obvious claim,” [68] and more specifically because

[69] to the extent the evidence of commercial success and industry praises put forward by the appellant related not to the invention disclosed in the patent itself, but rather to the TearLab System, and that no nexus was clearly shown between the two, it was irrelevant to the obviousness inquiry.

This illustrates one of the substantive limitations of commercial success, namely, for commercial success to be relevant, it must be shown that the success was due to the patented invention, and not to other aspects of the product embodying that invention.

Tuesday, June 18, 2019

Professional Judgment and Subject Matter

Aux Sable Liquid Products LP v JL Energy Transportation Inc 2019 FC 581 Southcott J
            2,205,670

A final point raised by Aux Sable concerns patentable subject matter. Southcott J held Claims 9-10 to be invalid as being addressed to non-patentable subject matter, on the basis that “practice of claims 9-10 to a successful outcome within the ranges of compositions prescribed does depend on the exercise of professional judgment” [238]. In so holding, Southcott J relied on the dosage range cases such as Axcan 2006 FC 527 [232], [238]. I have criticized this line of cases at some length in this post, and I note that in Cobalt v Bayer [YAZ] 2015 FCA 116 [101] the FCA remarked that my posts had “forcefully advanced arguments of policy and logic against the current position.” Southcott J’s discussion was very brief — a single paragraph — and he remarked that “little turns on the outcome of this analysis,” as he had already held these claims invalid for other reasons [238]. Consequently, Aux Sable does not add any weight to the existing line of cases, particularly in light of the concerns expressed by the FCA.

Monday, June 17, 2019

A Person of Ordinary Skill Is Not a Person of Ordinary Skill

Aux Sable Liquid Products LP v JL Energy Transportation Inc 2019 FC 581 Southcott J
            2,205,670

I’ve already written posts discussing issues related to obviousness, utility, overbreadth and anticipation that were raised in Aux Sable, but there are still a couple of outstanding issues of minor interest.

One is that when it comes to obviousness, the legal person of ordinary skill in the art is not a person of ordinary skill in the art. Several of the expert witnesses in this case were confused on this point (emphasis added):

[27] However, I do find merit to the concern that JL Energy raises about [Aux Sable’s expert] Dr. Sharma’s understanding of the Skilled Person. Dr. Sharma was clear in his testimony that his conception of the Skilled Person was an engineer with an average level of inventiveness. This conflicts with the description of the Skilled Person by Mr. Justice Rothstein, in Sanofi-Synthelabo Canada Inc. v. Apotex Inc., 2008 SCC 61 [Sanofi] at para 52, as a “… technician skilled in the art but having no scintilla of inventiveness or imagination …”.

A similar error was made by JL Energy’s experts, Dr. Monnery [34] and Dr Ryan [39]–[40]. All three made the error of thinking the POSITA would have some degree of inventiveness; this error is quite understandable, given that the words “person of ordinary skill in the art” do suggest, well, a person of ordinary skill in the art, and all three experts believed that an ordinary engineer of average skill would have some degree of inventiveness — a belief no doubt shared by anyone who has ever interacted with actual engineers or scientists.

This view, while entirely understandable, is an error of law, as pointed out by Southcott J [34]. The POSITA does not reflect a person of ordinary skill, but rather a “mythical” being, described in Beloit (1986), 8 CPR (3d) 289, 294 (FCA) as having “no scintilla of inventiveness or imagination; a paragon of deduction and dexterity, wholly devoid of intuition; a triumph of the left hemisphere over the right” – that is, a being nothing much like an actual ordinary scientist or engineer. Southcott J capitalized Skilled Person in his reasons, which helps remind us that we are not talking about a skilled person.

The legal point made by Southcott J is not new, but the experts’ confusion should give us pause. The original statement of the test for obviousness, which is the ultimate source of the test set out in the Act, was the famous Cripps question, formulated by Stafford Cripps, KC, in argument in Sharp & Dohme v Boots Pure Drug Co (1928) 45 RPC 153 (CA), 162–63 and adopted by Lord Hanworth MR at 173:

‘The real question is: was it for all practical purposes obvious to any skilled chemist in the state of chemical knowledge existing at the date of the patent which consists of the chemical literature available (a selection of which appears in the Particulars of Objections) and his general chemical knowledge, that he could manufacture valuable therapeutic agents by [the process specified in the patent]…’

This, on its face, appears to be a factual inquiry about a skilled chemist, who is hypothetical in representing an average person, rather than any particular individual, but otherwise actually ordinary in the degree of skill. How then was the “skilled person” of patent law transformed from a person of average ingenuity, to one with no scintilla of inventiveness? To answer this question is beyond the scope of a blog post, but the confusion of the experts in Aux Sables is a reminder of this puzzle.

Tuesday, June 11, 2019

Amfac Approach to Overbreadth Applied

Aux Sable Liquid Products LP v JL Energy Transportation Inc 2019 FC 581 Southcott J
            2,205,670

The overbreadth doctrine holds that a claim that exceeds the scope of the invention disclosed in the specification is invalid. A key question in assessing overbreadth is therefore how to determine what constitutes “the invention.” In my draft paper on Overbreadth in Canadian Law, I argue that an approach to overbreadth which focuses solely on the disclosure in assessing the nature of the invention is likely to result in arbitrary and erroneous results. I particularly criticized Amfac Foods (1986), 12 CPR (3d) 193 (FCA), as being wrongly decided, both in the result and, more importantly, in its approach. In Aux Sable, Southcott J held two claims to be invalid, primarily on the basis of overbreadth. In so holding, Southcott J relied on Amfac [57], [73], and in my view, his analysis reflects the weaknesses identified in my article. While Amfac is regularly cited for the general proposition that a claim will be invalid if overbroad, I believe that Aux Sable is the first time since Amfac that the method used in Amfac has been applied.

The invention at issue in Aux Sable relates to the transportation of natural gas by pipeline. Finding ways to pump gas more efficiently, thereby using less energy, is evidently desirable. Natural gas is primarily methane, CH4, with one carbon atom. Heavier weight hydrocarbons, such as ethane and propane are referred to as C2 and C3 hydrocarbons because they have two and three carbon atoms, respectively. Ethane and propane require more energy to transport than methane because they are heavier, but they are more compressible, which makes them easier to pump. The inventors of the 670 patent discovered that because of this tradeoff, it turns out that the right amount of heavier weight hydrocarbons can provide a net benefit, so the gas requires less energy to pump [5]-[6]. Recall that Aux Sable, the accused infringer, is the plaintiff in this impeachment action, while JL Energy, the patentee, is the defendant [10].

The key parameter for determining the energy reduction is the “zMw product” (the product of the molecular weight (Mw) and the compressibility (z) [7]). Claim 1 of the 670 patent claims a method of transporting natural gas by adding sufficient C2 and C3 hydrocarbons so as to ensure the zMw product is lowered [51]. Claims 2-8 are dependent claims particularizing various parameters. All of these claims were held to be valid [2]. Claim 9 is to the gas mixture itself, specified in terms of temperature, pressure and hydrocarbon composition. Claim 10 is dependent with further particularization. Crucially, Claims 9 and 10 do not include the two elements of adding C2 and/or C3 and evaluating zMw [52]-[54].

Both Claims 9 and 10 were held to be invalid, primarily for overbreadth [2], in the sense that it was the first ground considered by Southcott J, and he remarked that “it is not strictly necessary for me to consider other grounds of invalidity” [74], though he did so nonetheless for completeness.

Most of Southcott J’s analysis of overbreadth was spent in dismissing various objections by JL Energy, such as the argument that the promise doctrine was being improperly imported [62]-[71]. The substance of the overbreadth analysis was quite brief. The key passage from Amfac was paragraph 32, quoted by Southcott J at [57] (my emphasis):

32 … The weakness in the claim in issue here is that the claim failed to mention essential elements disclosed as part of the invention. . . . While there can be no question that a patent must be fairly construed, if such fair construction reveals that an essential element (in this case a limitation) has not been claimed, the omission is fatal to the claim’s validity.

This is fine so far as it goes, but the crucial question is how to determine the essential elements of the claim. This is equivalent to defining “the invention”.

[58] Aux Sable’s argument, in relation to claims 9 and 10 of the 670 Patent, is that the claims are broader than the invention disclosed in the patent. As claims 9 and 10 claim natural gas mixtures regardless of whether ethane or propane was added to the mixture and regardless of whether the zMw product is reduced after such addition. Aux Sable argues that the elements necessary to limit claims 9 and 10 to the invention of the 670 Patent are missing.

Southcott J then observed that the evidence was to the effect that the addition of C2 and/or C3 and the zMw limitation were essential elements: for example, “Dr. Ramsay’s report expressly refers to each of the addition of C2 and/or C3 and the zMw limitation as an ‘essential limitation’ that is omitted from claims 9-10” [73]. Southcott J’s conclusion that the claims were invalid for overbreadth followed directly [74].

So, Claims 9-10 were held to be invalid simply because they did not contain any reference to the addition of C2/C3 and monitoring zMw. Now, in one sense it is true that adding C2/C3 and monitoring zMw were essential to the invention, for all the reasons given by Southcott J and the experts on which he relied. But they were essential in the sense that they reflect the inventive concept. Thus Southcott J’s holding amounts to saying that the inventive concept must be explicitly present in the claims. There is no such requirement.

For example, a compound with no known use is unpatentable, even if it is novel. If the inventors discover it is useful in treating cancer, the compound may be patented as such; the claim itself need not mention the use. That is true even if the compound is easy to synthesize, so that the inventive concept lies solely in the discovery of the new use; if the compound is new, it may be claimed as such, without reference to the use. As another example, if the invention is an enantiomer of a known racemic compound which was known to be useful, and the inventive step lay in discovering a way to separate the enantiomers, the enantiomer may be claimed as such, without reference to the method of separation: Sanofi 2008 SCC 61; Lundbeck [2009] UKHL 12. In Aux Sable, the discovery of the importance of the zMw product is the inventive concept, and Claims 9-10 to the gas mixture itself, as the product of that inventive method, are analogous to claims to the compound per se, which are produced by an inventive process of adjusting the zMw product. (Claims 2-8 are analogous to claims to the method of separating enantiomers.) (I should add that there is a discussion at [66]-[68], that I find difficult to understand, but which might be taken to suggest that the claimed gas mixture was not in fact the product of the inventive method of adjusting zMw. If so, then the claims should normally be invalid for lack of utility in any event, as Southcott J suggests. This was not a key point in Southcott J’s analysis.)

In the great majority of cases in which overbreadth is invoked, as discussed in my Overbreadth paper, the “essential elements” means the elements of the claim that ensure it is new, useful and non-obvious. So, in BVD Co v Canadian Celanese Ltd [1937] SCR 221, 237 the Court remarked that “the inventor did not state in his claims the essential characteristic of his actual invention,” which was the use of a thermoplastic woven into yarn, but the result was that the claims also encompassed thermoplastic in the form of sheets, and the Court went on to emphasize that the specification made it clear that the use of thermoplastic woven into yarn was an essential aspect of the invention, and that the claims themselves omitted any reference to this essential feature (228-30). But the reason all of this was relevant is that “[u]nless the claims…can properly be narrowed by the introduction of a limitation to the use of the cellulose derivative in the form of yarns, filaments or fibres, they are, we think, clearly anticipated [by two prior art patents]” (230). The Court then spent more than several pages detailing how the prior art patents anticipated the patent at issue, if the claims were not limited to the use of woven thermoplastic yarns (230-33). So, exactly the same facts which meant the claim was anticipated also meant it was overbroad. The essential element was the element that made the disclosed invention new; omitting this element was fatal to the claim because it meant the invention claimed was not new, even though the invention disclosed in the specification was new. In short, the claims were overbroad because they were anticipated, and they were anticipated because they were overbroad. A claim may similarly be overbroad because it claims material which is obvious, or useless, or not sufficiently disclosed. That is true in the great majority of cases invoking overbreadth; in effect, overbreadth is used as a compendious way of saying that the claim claims subject matter which is not an invention.

Used this way, the “essential elements” of the claim are those which would be identified as essential in a claim construction exercise under Free World. Southcott J considered this point and rejected it:

[72] I appreciate that, as explained in Free World Trust v Électro Santé Inc., 2000 SCC 66 [Free World Trust] at paras 20-23, it may be necessary, for consideration of both validity and infringement allegations, to identify essential and non-essential elements of the claims of a patent in the course of the antecedent claim construction. However, this is clearly not the same analysis that is contemplated by paragraph 32 of Amfac Foods. That paragraph refers to essential elements disclosed as part of the invention and the need to consider whether such elements are mentioned in the patent’s claims. Such analysis does not involve whether a particular element is an essential or non-essential component of the claims (the process contemplated by Free World Trust), but rather considers whether the element is found in the claims at all.

Southcott J is correct in his observations regarding Amfac. This is not inconsistent with my remarks above. The problem is how to identify the “essential elements” for the purpose of overbreadth. I said that in “the great majority of cases” the term is used to mean the elements which are essential to patentability. There is also a handful of overbreadth cases, raising the “roads to Brighton” problem, in which a patentee who has discovered one method of achieving an end result which is known to be desirable, claims the end-result itself: see eg Biogen [1996] UKHL 18, Lundbeck v Apotex 2009 FC 146, aff’d 2010 FCA 320. And then there is Amfac, which is an outlier. As I read the cases, Amfac is the only case to hold claims invalid for overbreadth based solely on the identification of the essential elements from the specification, without regard to whether the putative overbreadth also resulted in anticipation, obviousness or some other statutory ground of invalidity.

Now, in some ways, Southcott J’s approach is more principled than that in Amfac. Southcott J at least identified the essential elements with the inventive concept as identified by the expert evidence, whereas in Amfac, the essential elements were identified as those which appeared to be emphasized by the specification, without regard to whether it actually reflected the inventive concept. Nonetheless, both approaches raise the same problem, in that they potentially invalidate claims to subject-matter which is new, useful and non-obvious. If the specification sufficiently discloses how to make and use that subject matter, the patentee has fulfilled its end of the patent bargain. What justification is there for striking down the claims? The question is particularly pressing given that overbreadth has no clear basis in the Act. In cases such as BVD, the answer is clear, as the justification for striking down the claim for overbreadth is exactly the same as that for striking it down for lack of novelty. But that straighforward justification was not available in Amfac, as there was no suggestion that the claims which were held to be overbroad would otherwise have been invalid on any statutory basis.

Now, Southcott J also held Claims 9-10 to be invalid for anticipation, lack of utility, and unpatentable subject matter, but these were independent considerations, which might well have gone the other way on the facts. This is different from cases such as BVD, along with most other overbreadth cases, in which the basis for holding the claims overbroad was exactly the same as the basis for holding it to be anticipated.

In summary, the overbreadth analysis set out in Amfac can result in invalidation of claims to subject-matter which is new, useful, non-obvious and sufficiently disclosed. No justification for this result is evident. The key to the problem is the identification of “essential elements” in the context of overbreadth. Aux Sable is the first case to actually follow the Amfac approach, as opposed to simply citing Amfac for the proposition that a claim is overbroad if essential elements are omitted, and the results are similarly problematic.

Thursday, June 6, 2019

Rule Against Joinder in NOC Actions Is Strict

Teva Canada Innovation v Pharmascience Inc 2019 FC 595 Tabib J
            2,702,437 / glatiramer acetate

In this motion to strike, some unusual facts have given Tabib J the opportunity to clarify aspects of the relationship between an action under the new PM(NOC) Regulations and an action under the Patent Act. In particular, Tabib J held that it is clear that the prohibition on subsequent actions for infringement under s 6.01 applies only to a drug made in accordance with the specific SNDS which was the subject of the NOA; it is also clear that the rule against joinder of non-NOC actions is strict, with no room for discretion; but it is not clear – at least not clear enough to survive a motion to strike – whether a s6(1) action continues to be predicated on the allegations in the NOA, or whether it now looks to the content of the SNDS and whether a drug made in accordance with that submission would infringe a listed patent. (Note that I have a couple more posts on Aux Sable that aren't ready yet.)

Teva is the licensee* of the 437 patent, which claims glatiramer acetate for use in treating multiple sclerosis. Teva holds NOCs in relations to 20mg/mL and 40mg/mL dosages, but it only listed the 40mg dosage on the Register [3]. Pharmascience obtained an NOC for the 20mg dosage without having to address the 437 patent, and has been marketing it under the name Glatect for a couple of years [4], [6]. Pharmascience has now sought an NOC for the 40mg dosage, and has accordingly served Teva with an NOA addressing the 437 patent by alleging non-infringement and invalidity [6]. In its statement of claim responding to the NOA, Teva sought a declaration that both Glatect 20 mg and 40 mg would infringe, and seeking damages — not merely an order of prohibition – for past and current infringement in respect of Glatect 20mg [7]. Pharmascience moved to strike all aspects relating to Glatect 20mg [8].

The principal issue, therefore, was “whether it is reasonably arguable that Teva has a cause of action pursuant to section 6(1) of the Regulations in respect of Glatect 20 mg, and if so, whether that cause of action includes a cause of action for past and current infringement” [14].

The first issue is whether Teva has a reasonably arguable cause of action in respect of Glatect 20 mg pursuant to section 6(1), even though the 437 patent was not listed on the Register against the 20mg dosage, and Pharmascience had already obtained an NOC for it. Teva relied on the plain wording of s 6(1), to argue that “The cause of action contemplated in section 6(1) is. . . no longer predicated on the content of the NOA and on whether the allegations are justified, as it was under the old regime, but on the content of the submission and on whether a drug made in accordance with that submission would infringe a listed patent” [21]. Pharmascience used a purposive interpretation to argue that the scheme of the Regulations require “a clear relationship between the rights of action conferred by section 6(1) and the obligation of second person to serve a NOA” [22]. Tabib J refused to strike, not on the basis that Teva’s argument was correct, but that it was a complex issue of statutory interpretation which should not be decided on a motion to strike while the law respecting the new Regulations is in an “embryonic state” [23].

The next question was whether Teva has a reasonably arguable cause of action under section 6(1) in respect of past or current infringement by Glatect 20 mg. The answer is pretty clearly “no” on the face of s 6(1), but Teva made a purposive argument that the answer must be “yes” because otherwise it would be barred by s 6.01 from subsequently asserting those claims in an ordinary infringement action [26]. Section 6.01 is part of the scheme for addressing the “two kicks at the can” problem which arose under the old scheme, where the same issues could be litigated in relation to the same drug and same patent, once under the Regulations and again under the Act. In broad terms, s 6.01 provides that if the patentee does not respond to an NOA served under the Regulations in respect of a particular SNDS, it cannot subsequently bring an infringement action. Teva argued that in this case, if it could not bring its claim for damages under the Regulations, it would be barred from doing so in an action under the Act. Tabib J rejected this argument, holding that it was clear on the text of the provision that the prohibition on subsequent actions for infringement is only in respect of a drug made in accordance with the specific SNDS which was the subject of the NOA [28]-[30], in this case the 40 mg dosage.

A third question was whether Teva’s allegations related to Glatect 20 mg should be struck as improper joinder, contrary to s 6.02 of the Regulations, which, broadly, prohibits joinder of an ordinary infringement action with an NOC proceeding. Teva argued that on the facts of this case, joinder should be permitted, given that “the same patent, the same invalidity allegations, the same medication and substantially the same infringement allegations are at issue” [45]. Tabib j rejected this argument, noting while the Federal Court Rules give the court discretion in joinder decisions:

Section 6.02 is clear and mandatory. Unlike many other provisions of the Regulations, it does not provide for the exercise of the Court’s discretion to modify or depart from its provisions. Accordingly, the Court is bound to apply it, irrespective of any efficiency that might otherwise be gained [47].

However, Tabib J suggested that “scheduling the trial of common issues to proceed simultaneously” would not be contrary to s 6.02 [47].

*The patentee is Yeda, and strictly, the decision says only that Teva has obtained NOCs and listed the 437 patent on the Register with the consent of the Yeda, without referring to a formal licence [3]. However, Teva also asserts that it would be able to bring an infringement action under the Act and this was not contested [26]. This implies Teva is a person “claiming under” the patentee, presumably a licensee.