Sunday, September 24, 2017

No New Cases

No new patent / NOC / data protection cases were released last week.

Note that I generally only blog on substantive patent / pharma cases. If you want to keep abreast of all new Canadian decisions, including procedural decisions and copyright and trade-mark cases, I recommend subscribing to the Daily Intellectual Property News service from Alan Macek's IPPractice.

Tuesday, September 19, 2017

No New Cases

No new patent / NOC / data protection cases were released last week.

Friday, September 8, 2017

No New Cases

I'm back from vacation, but no new cases were released in the interim.

Saturday, August 19, 2017

Blogging Break

I'll be taking a break from blogging for a couple of weeks. I'll resume after Labour Day, starting with any decisions that might have been released in the meantime.

Monday, August 14, 2017

Is the Tariff System for Costs Broken?

Dow Chemical Co v Nova Chemicals Corp 2017 FC 759 Fothergill J
            2,160,705 / film-grade polymers / ELITE SURPASS

In this costs decision related to the remedies phase of this litigation, Fothergill J awarded Dow, the successful plaintiff, legal fees in the amount of $1,200,000.00. This was about 15% of Dow’s claimed costs, though Fothergill J found that the legal fees claimed by Dow were not adequately supported by evidence, and did not on their face appear reasonable [20]. Of more interest than the size of the award is that Fothergill J used his discretion to assess the award at three times the maximum specified under the Tariff (approximately $400,000.00) [22]. As discussed here, O’Keefe J also departed from the Tariff in awarding costs in the liability phase, 2016 FC 91 saying the Tariff award would be “totally inadequate” [26]. This suggests that the Tariff system is so outdated as to be effectively broken, at least for major patent litigation. The Federal Court has long since recognized this, with a Sub-Committee having been struck almost three years ago, in November of 2014, and a discussion paper issued in October of 2015. Perhaps I’ve missed it, but I haven’t seen anything more from that Sub-Committee since then.

Thursday, July 27, 2017

What is the Correct Date for Assessing Sufficiency?

Idenix Pharmaceuticals, Inc v Gilead Pharmasset LLC 2017 FCA 161 Rennie JA: Pelletier, Near JJA aff’g 2015 FC 1156 Annis J
            2,490,191 2,527,657 / sofosbuvir / SOVALDI
            FC Overview FC Sufficiency FC Inventorship FC ToC

At trial Annis J held the Idenix’ ‘191 patent invalid for lack of utility and insufficiency: see my posts on sufficiency and utility. Idenix appealed on both issues. The FCA affirmed on sufficiency [50], and consequently it was unnecessary to address utility [52]. As the Court noted, Idenix’s appeal “raises no new issues of principle or novel application of established principles to the facts” [3]. Idenix made the usual valiant attempt to unearth errors of law, but the FCA held either that the putative errors where not errors when read in context, or that they were inconsequential, or that were really an attempt to reargue the facts.

One point that caught my eye is the Court’s statement that sufficiency of disclosure is determined “as of the date of filing” [46], citing Viagra 2010 FCA 242, [79] (rev’g on other grounds 2012 SCC 60]. However, in Zoledronate 2013 FC 283, Hughes J, after consideration of the case law, held that the appropriate date for consideration of sufficiency was the date of publication, not the filing date [179]-[188] (aff’d 2013 FCA 244 without discussing this point). Kelen J 2009 FC 638, [108] in his Viagra decision held the same, relying on an earlier decision by Hughes J 2007 FC 596, [140-41] – though just as noted, on the same case on appeal, Viagra 2010 FCA 242, [79], the FCA held the correct date was the date of filing. (In that paragraph the FCA stated that some of Kelen J’s comments were “misguided” but it is not clear to me that the FCA was referring to his comments regarding the date for assessing sufficiency.) Hughes J’s logic in Zoledronate was that the purpose of the sufficiency requirement is to ensure that the invention is given to the public, and since it is directed at the public there is no point in considering a date before the public can actually see it. On the same logic, the SCC has held that the date for construing the claims, and more generally “the language of a patent” is is the date of publication: Free World 2000 SCC 66, [52]; Whirlpool Corp v Camco Inc 2000 SCC 67 [56]. It seems a bit odd to say that the words are construed at the date of publication, yet sufficiency is assessed at the same of filing, in light of how the words would be understood at the publication date, but it is perhaps not logically inconsistent, though there is the unifying point of principle that both are addressed to the public. I suppose the argument for using the filing date (which was not articulated in either FCA decision), is that the disclosure is not just addressed to the public, but also to the patent examiner; an application for a patent which does not sufficiently describe how to make the invention can be refused for that reason, and it seems wrong to hold the patent valid after it is granted, just because it slipped through the cracks on examination. That is particularly because if the patent was insufficient as of the date of filing, but sufficient at the date of publication, that will usually be due to the efforts of some party other than that patentee that has because common general knowledge.

I’m not really sure what to make of this. The decision of Hughes J in Zoledronate is the most fully considered decision on the issue, and the FCA holdings were stated without analysis of the case law. Moreover, in this case, nothing turned on the difference between the filing date and the publication date, and I believe the same was true in Viagra. But of course, the FCA is the higher authority. It’s probably a rare case in which the outcome turns on whether sufficiency is assessed at the claim date or the publication date, but it would be nice to have an FCA decision on this point which directly discusses Hughes J’s Zoledronate analysis, and so resolves the issue one way or the other.

Wednesday, July 26, 2017

Inducement to Induce Infringement

Elbit Systems Electro-optics Elop Ltd v Selex ES Ltd aff’d 2016 FC 1129 Martineau J aff’g 2016 FC 1000 Tabib J
2,527,754 / Fiber Laser Based Jamming System / MUSIC / MIYSIS

I don’t usually blog about motions to strike, since the bar for striking is so stringent that a refusal to strike is not very informative, but this one is worth a brief note as it raises a novel issue of potentially wide applicability: is inducement to induce infringement a permissible cause of action?

A subcontractor provided indemnity against patent infringement to a prime contractor who, in turn, provided an indemnity to the ultimate customer [24], [30]. The allegation is that but for the agreement to indemnify, the prime contractor would not have selected the subcontractor to provide the allegedly infringing product. If the prime contractor is inducing infringement, can the subcontractor be liable for inducing the prime contractor to induce infringement? The patentee is also suing the subcontractor, who is a direct competitor, for direct infringement. Both the prime contractor and the customer are alleged to directly infringe, but neither is named as a defendant, presumably because the patentee does not want to bring an action against a potential customer.

Tabib J refused to strike the relevant passages of the statement of claim on the basis that the defendant had not satisfy the court that a cause of action in “indirect inducement” did not have the slightest chance of success, and Martineau J affirmed [30].

Monday, July 17, 2017

Quantum, Proportionality, and Uncertainty in Punitive Damages

Airbus Helicopters SAS v Bell Helicopter Textron Canada Limitée 2017 FC 170 Martineau J [FC Damages]
            2,207,787 / helicopter landing gear

As I noted in my post on Airbus’ entitlement to punitive damages, most jurisdictions do not award enhanced or punitive damages for patent infringement, or for civil actions more generally, because, as explained by Lord Reid in Cassell & Co Ltd v Broome [1972] UKHL 3 [1972] 1 All ER 801, it is undesirable to expose a party to a quasi-criminal sanction when both entitlement and quantum are so vaguely defined. With respect to quantum, he noted “[t]here is no limit to the punishment except that it must not be unreasonable.”

In US patent law uncertainty regarding quantum is addressed by limiting the total award to a maximum of three times compensatory damages assessed: 35 USC § 284. This means that the punitive damages are limited to twice the compensatory damages. So, in this case, the award of $1,500,000, comprised of $500,000 in compensatory damages and $1,000,000 in punitive damages, would be the maximum allowable under US law.

In Canadian law there is no such hard limit, either with respect to patents or more generally, though this may be because punitive awards have tended to be more modest and less of often granted. In Whiten v. Pilot Insurance Co 2002 SCC 18, [70], the SCC recognized the problem of uncertainty relating to quantum:

[70 [T]he incantation of the time-honoured pejoratives (“high-handed”, “oppressive”, “vindictive”, etc.) provides insufficient guidance (or discipline) to the judge or jury setting the amount. . . . A more principled and less exhortatory approach is desirable.

See similarly [39]. Thus the purpose of the principled approach is to provide guidance in assessing quantum. Does it?

Thursday, July 13, 2017

Record Quantum

The Dow Chemical Co v NOVA Chemicals Corp 2017 FC 637 Fothergill J
            2,160,705 / film-grade polymers / ELITE, SURPASS

In the liability phase of this action, Dow v NOVA (No 1) 2014 FC 844 aff’d 2016 FCA 216, O'Keefe J held Dow’s 705 patent related to advanced film-grade “mLLDPE” polymers, to be valid and infringed by Nova. He also held that Dow was entitled to damages under s 55(2) of the Patent Act for pre-grant ‘infringement’, and that Dow was entitled to elect between damages and an accounting for post-grant infringement. Dow subsequently elected an accounting [107]. Fothergill J’s subsequent decision in the remedies phase, Dow v Nova (No 2) 2017 FC 350, addressed various issues to allow the parties’ accountants to calculate the actual sums owed by Nova to Dow [6]. (See my posts on reasonable compensation, springboard profits, fixed costs, and interest.) The parties were then able to largely agree on the quantum, but they returned to the court for further direction on three issues, which were addressed in this decision.

The first issue was whether Nova was entitled to deduct capital depreciation expenses for the division used to make the infringing product [5]. Fothergill J held it was not so entitled, as a matter of interpreting his own prior decision, without adding any substantive analysis [8].

Second, in Dow v Nova (No 2) [165], Fothergill J had allowed Nova to deduct a “proportional amount” of fixed costs, which he considered properly attributed to the production and sale of the infringing products. But what is “proportional”? Dow proposed an allocation based on relative production volumes [10], which Forthergill J accepted, noting that while Nova’s alternative proposals relied on “potentially valid distinctions,” Nova had not adduced evidence to support them [13]. As I suggested in my previous post on fixed costs, the theoretically ideal method is probably to allow full deduction of opportunity costs. Allowing a deduction of a portion of fixed costs is a half measure between that and refusing deduction entirely. Even though not ideal, that approach may be justified on the basis of practical administrability as compared with a full opportunity cost approach. If it is correct to say that deduction of proportional fixed costs is justified on that pragmatic basis, it is not surprising that there is no single theoretically appropriate basis for the apportionment.

The third issue is the timing of the conversion of certain capital expenditures from Canadian dollars to U.S. dollars for the purpose of calculating annual capital depreciation [15]. Nova sold most of its infringing product in the US and retained its profits in US dollars (Dow v Nova (No 2), [189]), and Fothergill J held the profits to be disgorged should be calculated in US dollars and converted to Canadian dollars as of the date of judgement (Dow v Nova (No 2), [176]). Nova was entitled to deduct some part of the depreciation on the plant that made the infringing product, but that plant was built in Canada and paid for in Canadian dollars. The question was how the depreciated amount should be converted to US dollars to be deducted from the annual profit, which was calculated in US dollars. Dow’s position was that the appropriate date for conversion was when the expenditure was incurred, so that the full capital amount would be converted into US dollars at the exchange rate for that year, then annual depreciation would be calculated in US dollars [16]. Nova’s position was that the annual depreciation should be calculated in Canadian dollars, and then converted to US dollars on an annual basis, using the exchange rate for the year of the deduction, on the view that the point of depreciation is to recognize that capital-related expenses are multi-year expenses [16], [18]. The issue was important because the exchange rate had fluctuated substantially over the relevant period, and “Dow complains that [Nova’s] approach results in a greater deduction for depreciation in USD than the costs Nova actually incurred in USD,” [17] I’m not sure I’m entirely persuaded by Nova’s point, since no one was taking issue with the depreciation itself, and even if it is true that capital-expenses are multi-year expenses, it does seem strange that the amount of the depreciation should be greater than the actual cost incurred. On the other hand, the conversion rate when the plant was built was unusually low [20], and Forthergill J was concerned that using it as the single point of conversion “would be punitive,” and he therefore adopted Nova’s approach, which was reasonable and supported by the evidence.

In the result, Fothergill J awarded Dow just under $645 million including pre-judgment interest to April 7, 2017, the date of judgment in Dow v Nova (No 2), plus pre-judgment interest to the date of this judgment. This seems to be a record award in reported Canadian patent cases.

Tuesday, July 11, 2017

Promise Doctrine Abolished

AstraZeneca Canada Inc. v. Apotex Inc. 2017 SCC 36 rev’g 2015 FCA 158 Dawson JA; Ryer, Webb JJA rev’g 2014 FC 638 Rennie J
            2,139,653 / esomeprazole / NEXIUM

In a unanimous decision, delivered by Rowe J, the SCC has abolished the Promise Doctrine in the Canadian law of utility [2], [24], [36], [37], [51]. I might almost leave it at that. Under law developed in the Federal Courts, Canadian utility doctrine had two branches: the long-established and uncontroversial “scintilla” branch, and the more recent and controversial Promise Doctrine. Because the scintilla branch was never in dispute, and the Promise Doctrine never served any purpose that wasn’t already better served by some other provision of the Act, the Court was able to simply abolish the Promise Doctrine. The result is surgical. The Promise Doctrine was a tumour, but one which had not metastasized. AstraZeneca has cut out the tumour, while leaving the body of utility law unchanged.

The Court’s decision was not based on a narrow technical analysis of the details of the Act or precedent. Rather, it was decided on the basis of fundamental principles. Rowe J called the Promise Doctrine “excessively onerous” [37] and “punitive” [51], and called it “incongruent with both the words and the scheme of the Patent Act” [36], and “antagonistic to the bargain on which patent law is based,” as well as noting that it “undermines a key part of the scheme of the Act” [51].

What is the Promise Doctrine?

Under the law developed by the Federal Courts, the utility requirement had two branches, as summarized in Lilly v Novopharm / Olanzapine (No 1) 2010 FCA 197, [76] (quoted by the SCC at [29], emphasis added by SCC):

Where the specification does not promise a specific result, no particular level of utility is required; a “mere scintilla” of utility will suffice. However, where the specification sets out an explicit “promise”, utility will be measured against that promise:

The first branch represents the traditional utility requirement, which is now generally described as requiring a “scintilla” of utility. The second branch, emphasized by the SCC, is the Promise Doctrine.

A key feature of the Promise Doctrine is that the promise can be found anywhere in the specification [30]. This means that the promise of the patent may be, and in practice normally is, found in the disclosure, as opposed to the claims. Further, if there are multiple “promises” found in the disclosure, the invention must satisfy all of them, or the entire patent will be held invalid [31].

The Promise Doctrine can serve to elevate the requisite utility, often very substantially, above the standard that is required by the Act, as the FCA explained in Plavix 2013 FCA 186, [54]:

An inventor whose invention is described in a patent which would otherwise be valid can nonetheless promise more for his invention than required by the Act so as to render his patent invalid.

In this case, for example, the ‘653 patent claimed esomeprazole, which was a proton pump inhibitor (“PPI”) used for treating gastric disorders [3]. It was uncontested that esomeprazole was indeed useful as a PPI [9], and that use as a PPI was sufficient utility to support a patent [62]. The patent was nonetheless held invalid in the decisions on appeal, on the basis that the disclosure also promised that esomeprazole would be a better drug than existing drugs, and would work better for a wider range of patients [9]. That is more utility than is required for patentability, as it is well established that a new invention need not be better than existing product, if it “affords the public a useful choice”: Consolboard [1981] 1 SCR 504, 525. The only reason to hold the ‘653 patent to this higher standard was a putative “promise” found in the disclosure [63].

Promise Doctrine conflates disclosure and definition

The fundamental problem with the Promise Doctrine is that it conflates disclosure of the invention and definition of the invention [38]. These functions are distinct, and governed by different sections of the Act. The requirement that the patentee disclose the invention to the public is set out in s 27(3), while the requirement that the subject-matter of the invention “be useful” is set out in s 2 [40]. The specification consists of two parts. The first is a narrative portion normally called the “disclosure” (though it is now defined as the “description,”), that, as the name suggests, is primarily responsible for disclosing the invention. The specification ends with “a claim or claims defining distinctly and in explicit terms the subject-matter of the invention for which an exclusive privilege or property is claimed” (s 27(4)). Because the claims define the scope of the monopoly, it follows that validity must also be assessed against the claims: Whirlpool 2000 SCC 67 [49(b)]. Thus the description discloses the invention, the claims define the invention, and it is the invention as claimed, not whatever might have been disclosed, that must satisfy the requirements for receiving the protection of a patent, including the requirement for utility set out in s 2 [40]. Because the Promise Doctrine requires that an invention must satisfy the standard for utility set out in the disclosure, not just the requirement set out in s 2, the Promise Doctrine “effectively imports s. 27(3) into s. 2,” [44] thereby conflating those provisions [38].

Promise Doctrine wrongly invalidates patents which satisfy the requirements of the Act

This is not a technical point. Under the Promise Doctrine, an inventor can be denied a patent, or have a granted patent held invalid, even though the patent satisfies all of the statutory criteria. This happened regularly under the Promise Doctrine; this case is but one example. (See my article, The False Doctrine of False Promise, (2013), 29 CIPR 3, 33 (available here in good draft form) for a summary of the cases up to 2012.) This result is “incongruent with . . . the scheme of the Patent Act” [36], because in Canadian law, a patent is a statutory right; an inventor is entitled to a patent if the invention satisfies the statutory requirements for patentability: Harvard Mouse 2002 SCC 76, [11], [119]; Monsanto [1979] 2 SCR 1108, 119-20. The judge-made Promise Doctrine was contrary to the scheme of the Act because it could result in the inventor being denied a patent to which it was entitled by statute.

Promise Doctrine discourages full disclosure

Thus the Promise Doctrine was inconsistent with the fundamental nature of the patent right under the Patent Act, with the result that inventors were denied patents to which they were entitled by statute. This is bad enough, but the Promise Doctrine also has more insidious effects, extending to patents which are not actually invalidated by the doctrine.

The description and the claims are not just separate parts of the specification, they are functionally separate: the claims define the scope of the monopoly, while the description tells the public how to use the invention. The requirement to both define and describe the invention had long been a part of patent law, but at one time, both functions were served by a single narrative. The difficulty, as was explained over a century ago by Fletcher Moulton LJ, is that “These two things—the delimitation of the invention, and full practical directions how to use it—are in their nature almost antagonistic” (British United Shoe Machinery (1908), 25 RPC 631, 650 (CA), cited at [51]). The patent bargain requires “fulsome disclosure” of how to make and use the invention [51], but defining the invention requires narrow precision, to avoid encompassing subject matter which does not meet the statutory requirements for an invention. This tension was resolved by adding distinct claims to the end of the specification, which serve to define the invention. While now required by statute (s 27(4)), claims were originally implemented by patentees, for their own benefit, so that the requisite fulsome disclosure could be made without any risk that the disclosure would be taken to define the invention, with invalidity as a result. (For a more detailed discussion of the evolution of separate claims and their function, see False Doctrine of False Promise, 43-46.) Hence the rule that “what is not claimed, is disclaimed” (Monsanto 2004 SCC 34, [123]; Whirlpool 2000 SCC 67 [42]). This rule benefits the public, who thereby know the scope of the exclusive rights, but it also benefits the patentee, by excluding statements made in the disclosure alone from the definition of the invention. Under the Promise Doctrine, statements in the disclosure that are intended to describe the invention may be taken to define it, re-creating the very problem that gave rise to claims in the first place: “Thus, the Promise Doctrine undermines a key part of the scheme of the Act” [51].

By undermining the key distinction between disclosure and definition, the Promise Doctrine undermines the disclosure function: “To invalidate a patent solely on the basis of an unintentional overstatement of even a single use will discourage a patentee from disclosing fully, whereas such disclosure is to the advantage of the public” [51]. This chilling effect primarily affects those patents in which the disclosure is limited to avoid the risk of falling afoul of the Promise Doctrine. The abolition of the Promise Doctrine means that patent applicants can make full disclosure without worrying that statements in the disclosure will raise the bar on utility. And, as a practical matter, it means that patent applicants who have drafted their application primarily with the requirements of European or US law in mind will not be taken by surprise on this point when their patent is litigated in Canada.

The Court also held that the Promise Doctrine runs counter to the Act “by requiring that where multiple promised uses are expressed, they all must be satisfied for the patent to meet the utility requirement” [47]; and see also [37]. I see this as largely a corollary of the first point. So, the Court noted that this is potentially unfair because is risks invalidity if all of the multiple promises are not satisfied [50]. But given that a patent must have a scintilla of utility under the first branch to be patentable, even a single elevated promise effectively holds the invention to multiple utilities, namely the “scintilla” which is always required, and the elevated promise. Multiple promises are an exaggerated form of the same problem.

Consolboard is not authority for the Promise Doctrine

If, as the Supreme Court explained, the Promise Doctrine is fundamentally incompatible with the scheme of the Patent Act, how did it emerge in Canadian law in the first place? The answer is that it found its “new home in the Federal Courts’ jurisprudence” [35] on the basis of a narrowly technical misinterpretation of the case law.

The primary Canadian case cited as authority for the promise doctrine is the following passage from the SCC decision in Consolboard [1981] 1 SCR 504, 525 (my emphasis):

. . . the Federal Court of Appeal erred also in holding that s. 36(1) [now s. 27(3) and (4)] requires distinct indication of the real utility of the invention in question. There is a helpful discussion in Halsbury’s Laws of England (3rd ed.), vol. 29, at p. 59, on the meaning of “not useful” in patent law. It means “that the invention will not work, either in the sense that it will not operate at all or, more broadly, that it will not do what the specification promises that it will do”. There is no suggestion here that the invention will not give the result promised. . . .
This passage, and the underlined phrase in particular, is the central authority for the proposition that the promise doctrine was part of the law of Canada: see e.g. Olanzapine (No 1) quoted at [29]. Consolboard is the only pre-2005 Canadian case ever cited by the Federal Courts as authority for the promise doctrine: see False Doctrine of False Promise at 23. (Of course, after 2005, the Federal Courts began citing their own post-2005 case law.)

The SCC in AstraZeneca firmly rejected the proposition that Consolboard is authority for the promise doctrine:

[43] While the above passage [from Consolboard] uses the word “promise” it does not refer to, nor does it embody, the Promise Doctrine.

The problem is that the courts citing Consolboard as authority for the Promise Doctrine seized on the word promise, while ignoring the context. As the Supreme Court emphasized in Consolboard itself, the central point of the decision was that “the Federal Court of Appeal has confused the requirement of s. 2 of the Patent Act defining an invention as new and ‘useful’, with the requirement of s. 36(1) [now s 27(3)] of the Patent Act that the specification disclose the ‘use’ to which the inventor conceived the invention could be put” (527). Indeed, the reason the Court in Consolboard quoted the passage in question was to emphasize this distinction (526). A case that stands for the distinct nature of the disclosure and definition requirements cannot possibly be good authority for a doctrine which runs them together. As Rowe J noted in AstraZeneca:

[38] [T]he Promise Doctrine runs counter to the scheme of the Act by conflating ss. 2 and 27(3) — the very confusion this Court sought to clarify in Consolboard.

The other pre-2005 authority cited by the Canadian courts was old English case law: see False Doctrine of False Promise at 23. However, that English case law is clearly not good authority for the doctrine in Canada, because the grant of a patent had a fundamentally different foundation than in Canadian law. When the English version of the Promise Doctrine developed, the grant of a patent was not a matter of right, but rather a discretionary exercise of the Crown prerogative, and the basis of the promise doctrine in English law was the “unwillingness of the courts to second-guess the Crown in the exercise of its discretion,” ([35], quoting False Promise of False Doctrine at 17.) As noted above, the grant of a patent is Canada is not discretionary, and it never has been: the Canadian Patent Act was originally based on the U.S. Patent Act, not on English law, and the non-discretionary nature of the grant of a patent in Canadian law follows the U.S. model. Thus the justification for the Promise Doctrine in English law is inapplicable in Canada. Indeed, citing the English case law as authority was especially misplaced because the Promise Doctrine is now “extinct” in English law [35]. It disappeared with the Patents Act, 1977, which formally made the grant of a patent a statutory right, as it always had been in Canada: see Siebrasse, Form and Function in the Law of Utility, (2015) 30 CIPR 109, 126-32 (available here in good draft form). So, Canadian courts were citing English cases as authority for a doctrine which no longer existed in English law. Moreover, the reason it no longer existed is that the scheme of the UK Act had changed to become more similar to that of the Canadian Act. In effect, it is backwards to cite the old English cases as authority for the Promise Doctrine in Canada; the real principle emerging from the English cases is that the Promise Doctrine is “incongruent” with a patent system, like the Canadian system and the modern English system, in which the grant of a patent is a statutory right.

Promise Doctrine serves no purpose not better served by other doctrines

The SCC noted that supporters of the Promise Doctrine assert that it is important to ensure patentees do not “overpromise” in their patent applications [45]. The Court rejected this argument in a brief paragraph. While overpromising is a “mischief” [45], this mischief is treated by the Act in multiple ways [46]. A patent that claims more than it discloses will be invalid for insufficiency under s 27(3), and if a statement in the specification is “willfully made for the purpose of misleading,” the patent will be void under s 53 [46].

I have seen some suggestions that this somehow opens the door to a more aggressive use of the disclosure requirement. In my view, that suggestion is entirely without foundation. This is not a call to arms. The SCC called overpromising a “mischief” not a scourge, and it gave a few examples – “for instance” – of the way the law already “treats” that mischief [46]. The Court gave not the slightest suggestion that these existing treatments were inadequate. Nor, really, did it say the contrary. The Court’s explicit point is that the Promise Doctrine is not the appropriate mechanism for addressing this issue, and other mechanisms exist. To read anything more into the brief discussion would be an error indeed, the same type of error as was made in building the Promise Doctrine out of a single acontextual phrase from Consolboard.

Correct approach to utility

The SCC’s legal analysis concluded by setting out the correct approach to utility. There is nothing surprising in this discussion, given that the Promise Doctrine has been rejected.

The Court reaffirmed that a “scintilla” of utility is all that is required. While that term has been commonly used in the Federal Court for the last decade, I believe this is the first time the SCC has used the term “scintilla” to describe the standard for utility. It is nonetheless consistent with the older jurisprudence holding that “very little will do”: see e.g. Wandscheer [1948] SCR 1, 24. The Court also noted that “A single use related to the nature of the subject-matter is sufficient.”

The Court also affirmed the holding from Consolboard that “a patentee is not required to disclose the utility of the invention to fulfill the requirements of s. 2” [58]. However, in my view, when the utility would not be evident to a skilled person on the basis of their common general knowledge, or from the nature of the claimed invention itself, as may be the case for a new chemical compound, it may be necessary to disclosure the utility in the specification: see Siebrasse, Must the Factual Basis for Sound Prediction Be Disclosed in the Patent?, (2012) 28 CIPR 39, 56-59. Arguably this is required not as a matter of s 2, which requires only that the invention be useful, but rather to satisfy the disclosure requirement that the inventor describe the invention so that persons skilled in the art can “use the invention as successfully as the inventor could himself” (Consolboard, 526, quoting R. v. American Optical Company). In any event, what is more important for present purposes is that AstraZeneca does not change anything on this point, one way or the other. The question of whether utility has to be disclosed was not at issue in this case, and the Court is simply reaffirming the point already made in Consolboard.

The Court stated that “utility must be established by either demonstration or sound prediction as of the filing date,” citing AZT [55] (my emphasis). This is significant in affirming the filing date, not the priority date, as the appropriate date for assessing utility. AZT itself was ambiguous, or rather inconsistent on this point, referring to both the filing date and the priority date as being the appropriate date. (There was no debate between the parties in AZT on this point, which no doubt accounts for the confusion). Subsequent Federal Court decisions have settled on the filing date: Ramipril 2005 FC 1283, [91]-[96] aff’d 2006 FCA 64, [30]; Quinapril 2007 FCA 209, [153]. Here, the SCC is apparently accepting the filing date as the correct date. The point was not argued in this case – both parties accepted the filing date as the correct date for establishing utility – so the authority is somewhat weaker than if the point had been in dispute, but given the consistent FCA holdings and this statement by the SCC, the point seems settled.

The Court noted that the purpose of the utility requirement is to “avoid granting patents prematurely, and thereby limiting potentially useful research and development by others” [56]. This is a helpfully clear statement, which is consistent with prior caselaw: see e.g. AZT, [56], Wandscheer v Sicard Ltd, [1948] SCR 1, 5, 10. It is also consistent with the position in the US, Europe, and the UK: see Brenner v Manson, 383 US 519 (1966); T 0870/04, BDP1 Phosphatase / Max-Plank, [21]-[22]; T 0898/05 Hematopoietic cytokine receptor / Zymogenetics, [7]; HGS v Lilly, [2011] UKSC 51, [ 91], [102], [107]. This raises the question of how early is too early? The Court went on to say that the utility requirement “is to be interpreted in line with its purpose — to prevent the patenting of fanciful, speculative or inoperable inventions” [57]. This indicates that the line is drawn quite far upstream, as it is only “fanciful, speculative or inoperable inventions” which are excluded. This is consistent with the low “scintilla” standard for utility. But again, we should not read too much into this statement. The question at issue in AstraZeneca was the Promise Doctrine, not the question of how high the bar is for the scintilla standard. The Court’s general statement reaffirms the prior case law and provides helpful guidance in principle, but it does not address, nor does it purport to address, such details.

One general point made by Rowe J is that a use which is acceptable to satisfy the utility requirement must be related to the claimed subject-matter: “a proposed invention cannot be saved by an entirely unrelated use” [53]. That general statement is clarified by the example: “It is not sufficient for a patentee seeking a patent for a machine to assert it is useful as a paperweight” [53]. While I’m not sure I’ve seen that point made in quite this way before, the principle is entirely consistent with established Canadian law; no doubt the reason it has not arisen directly is that no patentee has had the temerity to argue, for example, that a new chemical compound with no known use should be considered useful as landfill. It corresponds to the requirement in US law for a “specific” utility – since any machine could be used as a paperweight, such a use would not be considered specific to the invention (unless, of course, its main purpose was as a paperweight): see Brenner v Manson, 383 US 519 (1966).

The Court also set out a two step analysis for approaching the utility requirement:

First, courts must identify the subject-matter of the invention as claimed in the patent. Second, courts must ask whether that subject-matter is useful — is it capable of a practical purpose (i.e. an actual result)?

The first point is that the utility inquiry is directed to the invention as claimed. In context, this is in contrast with assessing utility on the basis of the invention as disclosed in the specification. The second branch just repeats the utility requirement.

The result in this case

Rennie J at trial had accepted that esomeprazole was useful as PPI (on the basis of sound prediction) [62], and he had held the patent invalid solely on the basis of the failure to meet the elevated promise [62]. Consequently, with the Promise Doctrine disposed of, it was straightforward for the Court to hold the ‘653 patent valid [63], without any need for remand.

Conclusion

The most obvious consequence of AstraZeneca is that patents for good inventions will no longer be invalidated on the basis of a doctrine which “has no basis in the Act” [51]. Legal uncertainty will be substantially reduced, as the actual process of determining the promise of the patent was unpredictable and arbitrary, as I described in The False Doctrine of False Promise, at 35-40. It often happens that when a case reverses or clarifies a problematic doctrine, there is a subsequent period of uncertainty as the law settles into its new form. That should not be a concern in this instance. Because the Promise Doctrine was so idiosyncratic and out of step with the scheme of the Act, its excision leaves no gap to be filled. With the abolition of the Promise Doctrine, Canadian patent law is also brought more into line with our major trading partners. (For example, the Promise Doctrine is one reason the US put Canada on the Special 301 Report Watch List. The SCC decision entirely resolves that concern.)

This does not mean that all is well in Canadian utility law, or that no differences remain between our law and European or US law. Outside of Canada the phrase “promise doctrine” is sometimes used to refer to the entire constellation of quirks in Canadian utility law, but Promise Doctrine dealt with in AstraZeneca refers only to an elevated standard for utility imported from the disclosure. In particular, one point of considerable controversy is the enhanced disclosure requirement for utility based on sound prediction, which requires the factual basis and sound line of reasoning supporting the prediction to be set out in the patent itself (see generally my article, Must the Factual Basis for Sound Prediction Be Disclosed in the Patent?). That doctrine is unaffected by this decision. (The issue was raised at first instance, but only in obiter, and it was not addressed by the Supreme Court.) I have seen it suggested that AstraZeneca overturns that enhanced disclosure requirement, on the basis of the Court’s statement at [58], that a patentee is not required to disclosure utility. The argument, presumably, is that if the patent must disclose the factual basis for utility, the patent must necessarily disclose the utility, but since disclosure of utility is not required, it must follow that disclosure of the factual basis for utility is not required. While there is logic to this reasoning, in my view it is not plausible that the Court intended to eliminate a doctrine that is controversial yet well-established at the Federal Court level, purely by implication, without even referring to it directly. Perhaps there is an inconsistency between the enhanced disclosure requirement and the rule that the patentee is not required to disclose the utility of the invention, but if so, that inconsistency existed ever since the enhanced disclosure was developed, which was long after Consolboard. Put another way, if the enhanced disclosure is bad law, that is because it has always been bad law, and not because AstraZeneca has changed the relevant law. The Promise Doctrine arose as a result of an acontextual over-interpretation of a few words in Consolboard. That is a mistake which should not be repeated in interpreting AstraZeneca.

Friday, June 30, 2017

A Three-part Test for a Permanent Injunction?

Google Inc. v. Equustek Solutions Inc. 2017 SCC 34

In this case the SCC, in a 7-2 decision, affirmed an order requiring Google “to globally de-index the websites of a company which, in breach of several court orders, is using those websites to unlawfully sell the intellectual property of another company” [1]. The case is not directly patent related, so I won’t go through all of it (though I did blog here on the BCSC decision). This post will consider only a statement in the dissent of Côté and Rowe JJ that, if accurate, has implications for patent law.

The order was formally interlocutory, in that it was was effective “until the conclusion of the trial of this action” [51]. As it turned out, by the time it reached the SCC, Equustek had still not taken any action to proceed with the action, even by way of obtaining a default judgment, in the five years since the order was made [61]. The dissent was of the view that the order was, "in effect, a permanent injunction," [64], and consequently it should have been – or at least, it should now be – treated as one. (I must say that this whole line of reasoning strikes me as strange. I don't see why Fenlon J in the BCSC would have had any reason to believe that the effect of the order would be final, so she didn't make any error in treating as interlocutory. Nor did the dissent explicitly say that she had erred; the opinion avoided the question by using the passive voice. But it would seem very odd for an appellate court to reverse a decision for having applied the wrong test, if the application judge, when she made her decision, hadn't actually applied the wrong test. I would have thought that if the defendant was aggrieved by the effectively final nature of the interlocutory order, it should have applied to Fenlon J to have the order lifted.) 

 In any event, that reasoning led the dissent to the following statement:

[66] The Google Order also does not meet the test for a permanent injunction. To obtain a permanent injunction, a party is required to establish: (1) its legal rights; (2) that damages are an inadequate remedy; and (3) that there is no impediment to the court’s discretion to grant an injunction (1711811 Ontario Ltd. v. Buckley Insurance Brokers Ltd., 2014 ONCA 125, 371 D.L.R. (4th) 643, at paras. 74-80; Spry, at pp. 395 and 407-8).

This statement of law, if correct, would be potentially revolutionary. Compare the test introduced by the USSC in eBay (2006) 547 US 388, 391:

[A] plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

The key point is that under eBay there is in principle no presumptive entitlement to injunctive relief, and, under the first and second factors the plaintiff faces the hurdle of showing irreparable harm / inadequacy of damages before a permanent injunction will be granted. (The first two factors are generally seen as being indistinguishable, both conceptually and empirically: see Gergen et al, The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions, 112 Colum L Rev 203 (2012), discussing conceptual equivalence, and Seaman, Permanent Injunctions in Patent Litigation After eBay: An Empirical Study, 101 Iowa L. Rev. 1949, 1994 (2016), showing the factors are strongly correlated empirically.) The consequence of eBay in the US is that permanent injunctions are often denied to successful patentees on the basis that irreparable harm has not been established: see generally Seaman, Permanent Injunctions After eBay. The same structure as in eBay, and indeed the same language, is reflected in the second factor of the dissenters putative test in Equustek. Moreover, the test for an interlocutory injunction in Canada also has a requirement that the applicant show it would suffer irreparable harm if the application were refused ( RJR-MacDonald [1994] 1 SCR 311, 347, following American Cyanamid [1975] UKHL 1), and the Federal Court effectively invariably refuses to order an interlocutory injunction in patent cases, on the basis that this requirement has not been satisfied. Unless there is some distinction to be drawn between “damages are an inadequate remedy,” and “irreparable harm,” it seems that if the test for a permanent injunction stated by the dissent in Equustek really was the law, permanent injunctions should no longer be granted to a successful patentee in Canada.

Fortunately, the putative test stated by the dissent is not the law. First consider the cited case, 1711811 Ontario v Buckley Insurance 2014 ONCA 125 [74]-[80]. That passage addresses whether the test for a permanent injunction is different than the test for an interlocutory injunction, and concludes that they are indeed different. In this, the decision supports the dissent’s basic point. But as to the test itself, the relevant paragraph is 79, quoting Cambie Surgeries 2010 BCCA 396, [27]-[28], which notes that “irreparable harm and balance of convenience are relevant to interlocutory injunctions,” and then continues:

In order to obtain final injunctive relief, a party is required to establish its legal rights. The court must then determine whether an injunction is an appropriate remedy. Irreparable harm and balance of convenience are not, per se, relevant to the granting of a final injunction, though some of the evidence that a court would use to evaluate those issues on an interlocutory injunction application might also be considered in evaluating whether the court ought to exercise its discretion to grant final injunctive relief.

Well, that’s embarrassing. This passage stands for exactly the opposite proposition from that for which it is cited.

Consider then Spry, The Principles of Equitable Remedies (2014). The only relevant passage at 395 states that “Before the discretionary considerations according to which perpetual injunctions are granted or refused are considered, it is necessary to set out the circumstances in which the court declines to intervene because a remedy at law, such as that of damages, is considered to be adequate.” This is very far indeed from saying that adequacy damages is the second stage of a four-factor test, particularly as Spry goes on to provide 6+ pages of nuanced discussion, including the observation that “gradually there has developed a tendency not to regard damages as constituting adequate remedy for prospective injury to existing property of the plaintiff or his person,” and “it must now be accepted as settled ‘the rule that where the plaintiff has established the invasion of a common law right, and there is ground for believing that without an injunction there is likely to be a repetition of wrong, he is, in the absence of special circumstances, entitled to an injunction against such repetition.’” (397). This, he explains, is the source of what is effectively a strong presumption in favour of injunctive relief for violation of property rights in land. The same reasoning extends to property rights generally, hence the traditional position, still observed in Canada, that a permanent injunction will normally be granted to a successful patentee. Pages 406-07 are even further from stating a four-part test. Rather Spry emphasizes the need for a risk balancing exercise to assess “whether it is just, in all the circumstances, that an injunction should be granted.” And this considers only the authorities cited by the dissent itself. Much the same point is made by Sharpe JA in his authoritative treatise on Injunctions and Specific Performance, where he notes, for example, that “when the plaintiff complains of an interference with property rights, injunctive relief is strongly favoured. . . . [I]n practical terms, the conventional primacy of common law damages over equitable relief is reversed” [§4.10].

The fact is that, contrary to the statement by the dissent, there is no general test for a permanent injunction. There are general principles of equity, which have themselves evolved over time, particularly in light of the functional change wrought by the fusion of law and equity, and which have also been elaborated differently in various contexts, so that the approach to trespass is different from nuisance, is different from positive contractual covenants, is different from negative contractual covenants.

I was of half a mind not to write this post at all. The statement that concerns me was made almost in passing, in the dissent, and what was important for the dissent’s argument was not the precise test, but the fact that the approaches to interlocutory and permanent injunctions are different, which is true. But sometimes passing comments by the SCC have an outsized influence (see R v Henry 2005 SCC 76 [57], discussing when the Court’s statements are binding). My own view is that it would be a mistake for the Canadian courts to follow the eBay approach to permanent injunctions in the patent context: I much prefer the proportionality approach used by the English courts: see eg HTC v. Nokia (No. 2)[2013] EWHC 3778 (Pat). But If the Canadian courts do follow eBay, it should be as a result of a considered decision, and not on the basis of this tangential and poorly considered statement in Equustek.

Thursday, June 29, 2017

Which Goes First: Litigation, or Re-examination?

Camso Inc. v. Soucy International Inc. 2016 FC 1116 Roy J
            2,822,562 / 2,388,294 / Track Assembly for an All-Terrain Vehicle

The question in this decision was whether re-examination of Camso’s ‘562 patent pursuant to s 48.1- 48.5 of the Patent Act should be stayed pending final judgment in an infringement action involving the same patent brought by Camso against Soucy. In this case, the arguments raised in re-examination, related to novelty and obviousness, were the same as those raised by Soucy in its invalidity counterclaim in the action [20], [48]. While Brouillette + Partners, the law firm which had filed the re-examination request, was not the same as Soucy’s litigation counsel [22], [57], Soucy and Brouillette + Partners were acting in concert and their interests were the same[27], [48], to the extent that Soucy’s litigation counsel appeared on this motion on behalf of Brouillette + Partners [22]. (There was no impropriety involved [23]. It seems that Soucy simply hired different firms to handle the re-examination and the litigation.)

Thus the question was really which forum was appropriate for litigating these issues, the Federal Court, or the re-examination board established by the Commissioner of Patents. In the result, Roy J granted the stay, thus giving priority to the judicial proceeding [29], [65].

The basic argument in favour of giving priority to the re-examination procedure is one of judicial economy, as the re-examination procedure is designed to be a “relatively summary and inexpensive alternative to a full blown impeachment process by litigation”: Prenbec Equipment v Timberblade 2010 FC 23 [46]; and similarly [27], [51]. The basic argument in favour of giving priority to the court action is that it allows for more complete evidence, as the evidence in a re-examination is limited to “patents, applications for patents open to public inspection and printed publications” (s 48.1(1); [4]). In other words, the re-examination process reduces cost by sacrificing accuracy.

The superior quality of the evidence in the action is the main reason given by Roy J for staying re-examination: [48], [50], [52], [53], [58], [62]. The difficulty with the judicial economy argument is that while it would simplify the litigation if certain claims were invalidated in the administrative proceeding, that simplification would not be in the interest of justice if they claims were wrongly invalidated on the basis of inferior evidence [58].

Both the result and the reasoning are consistent with Prenbec, in which de Montigny J stayed re-examination proceedings. In Prenbec, de Montigny J noted that “the invalidity arguments made by the defendants raise an issue of credibility that cannot be assessed by the Re-examination” [37], so the problem of an erroneously invalidating the patent was acute. Indeed, de Montigny J noted that the defendant in Prenbec had initiated the re-examination precisely in order to avoid having to deal with the issue of credibility [44]. Brouillette + Partners sought to distinguish Prenbec on the basis that it was confined to issues of credibility [28]. Roy J rejected this argument, noting, correctly in my view, that the principle in Prenbec was to prefer the proceeding with the better evidence [62], and the issue of credibility was simply the specific instantiation of that principle.

Taken together, Camso and Prenbec, suggest that the FC will be strongly inclined to stay a re-examination which raises the same questions as are raised in an action. Compare this with the US situation. Re-examination corresponds approximately to ex parte review in the US, and a similar question has arisen in the US both in that context and with respect to inter partes review. In the US, I believe it is not uncommon for the courts to give priority to the re-examination proceeding. However, there is an important difference in the legal context. If I understand correctly, in the US only the PTO has the ability to stay its own proceedings and it is generally disinclined to do so. The question before the US courts is therefore whether the court should stay the infringement action pending the outcome of the PTO proceeding. In Canada, in contrast, the Federal Court has the power under s 50 of the Federal Courts Act to itself stay the re-examination proceeding: Prenbec [21]-[25]. Thus in the US the question facing the courts is whether to allow potentially duplicative proceedings to both go ahead, whereas Canadian courts, given that they also control the own procedure, implicitly face the more palatable choice of which of the two proceedings should go ahead first. Thus it is understandable that the Canadian courts would prefer a single, comprehensive procedure, while at the same time the US courts prefer the simpler re-examination to go ahead in preference to allowing duplicative proceedings.

This decision does raise a couple of questions. First, if the defendant fails in its validity attack at trial, can it try again in re-examination? The proceedings are separate, so the question is whether the outcome of the litigation gives rise to an estoppel against the same party in interest in the re-examination, once the stay is lifted. Roy J raised the issue, but did not decide because it was not discussed [57]. (Note that in the US inter partes review gives rise to an estoppel in subsequent litigation, by statute, while ex parte review does not. The question here is the converse, and since the statute is silent, the answer would turn on general principles.)

Second, assuming there is no estoppel, what happens if the patentee prevails in the infringement action, then the re-examination proceeds once the stay is lifted, and the claims that were the basis for the infringement are invalidated? The effect of re-examination is to invalidate the claims ab initio (s 48.4(3)), so the defendant might in principle be subject to damages for having infringed claims that never existed. The patentee can appeal the re-examination (s 48.5) to the Federal Court, but the FC may have to show deference on the appeal [53],so it is possible in theory that the FC could hold that the patent is valid, and subsequently affirming a decision of the re-examination board that it is not. This problem will likely remain purely theoretical, but it will be an interesting conundrum if it does arise.

Tuesday, June 27, 2017

Entitlement to Punitive Damages, Revisited, Revisited. . .Revisited

Eurocopter v. Bell Helicopter Textron Canada Limitée 2013 FCA 219 Mainville JA: Noël, Trudel JJA [FCA Liability] aff’g 2012 FC 113 Martineau J [FC Liability]

Airbus Helicopters SAS v Bell Helicopter Textron Canada Limitée 2017 FC 170 Martineau J [FC Damages]
            2,207,787 / helicopter landing gear

I have to admit, I’m not doing very well with this case. Monday’s post tried to correct a misinterpretation in my post on the 2013 FCA Liability decision affirming that Airbus / Eurocopter was entitled to punitive damages, and only a few hours after posting, I added an addendum to reflect another new interpretation. Maybe I should declare defeat and move on. But quantum of punitive damages and entitlement are intimately linked – entitlement to punitive damages turns on the court’s outrage at the infringer’s conduct, and the quantum must be proportionate to that same outrage – which is why I had to reexamine the Liability decision in order to blog on the punitive damages aspect of the Damages decision. And the issue is an important one. Punitive damages have traditionally been awarded only in exceptional circumstances in Canadian patent cases, and Bell is the case which comes closest to typical infringing behaviour. (Contrast the previous leading case, Lubrizol, in which the infringer breached an interlocutory injunction). Because punitive damages are a quasi-criminal sanction (Whiten 2002 SCC 18, [36]), parties must be able to predict, and so avoid, conduct that will attract punitive damages. So in this post, I will try, once again, to what substantive rules governing entitlement to punitive damages emerge from FCA Liability 2013 FCA 219 aff’g FC Liability 2012 FC 113. Consider this the post that I should have written on the punitive damages aspect of the 2013 FCA Liability decision.

Monday, June 12, 2017

Punitive Damages and Infringer’s Belief that Patent is Invalid

Airbus Helicopters SAS v Bell Helicopter Textron Canada Limitée 2017 FC 170 Martineau J
            2,207,787 / helicopter landing gear

This Bell Damages decision follows the decision of Martineau J in the liability phase of this bifurcated trial, Bell Liability 2012 FC 113, aff’d 2013 FCA 219, in which he had held one of the claims of the 787 patent, owned by Eurocopter (now the helicopter division of Airbus), to be valid and infringed. In the Damages decision, Martineau J awarded $500,000 in compensatory damages and $1,000,000 in punitive damages, plus pre-judgment and post-judgment interest [2], [108]. After writing two long posts on the compensatory damages award in March (see here and here), I procrastinated on writing a third post, which I knew would be just as long, on the punitive damages issue. Now that I have returned to the case, I realize that I didn’t deal properly with the FCA Liability decision on the issue of whether the infringer will avoid punitive damages if it believes that the patent is invalid. In this post, I will deal with that issue.

To recap my post on the Bell FC Liability decision, Martineau J held that Bell’s conduct was sufficiently egregious to justify awarding punitive damages to Eurocopter, in large part because Bell had intentionally copied the landing gear, when it knew or should have known that it was patented:

[433] This is a case of wilful blindness or intentional and planned misappropriation of the claimed invention. Eurocopter has proven that the infringement of the ‘787 Patent by the making and use of the Legacy gear was not innocent or accidental.

Now, we can certainly imagine a more innocent infringement. A infringer might have independently invented the invention, and practiced it in complete ignorance of the patent until approached by the patentee. Or it might have independently invented it, and then discovered the patent, and chosen to go ahead nonetheless. It might have copied the technology without realizing it was patented. But, as I argued in my posts on both the FC and FCA decisions, even copying and intentional infringement of a technology which the infringer knew to be patented, is not necessarily objectionable. I was (and remain) concerned with the chilling effect on validity challenges if that conduct alone were sufficient to justify punitive damages. Suppose a pharmaceutical patentee has tried to evergreen a valuable drug patent by product-hopping to a new version protected by a formulation patent that claims and enteric coating or extended release, and, after a detailed assessment of the patent, a generic company reasonably concludes that the patent is probably invalid for obviousness — after all, such patents are regularly, though not invariably, held to be invalid by Canadian courts. The generic then launches a competing version which it knows will infringe. Surely, this infringement, though planned and deliberate, does not constitute misconduct worthy of punitive damages, even if the generic's reasonable and good faith opinion that the patent was invalid ultimately turns out to be wrong. On the contrary, the generic is doing a public service by attacking a patent that is wrongly increasing the burden on the health care system.

The situation is arguably quite different if the defendant infringes a patent which it believes to be probably valid. That is the position taken by the FCA is the Bell FCA Liability decision. This is where I misinterpreted the FCA decision. In my post on the FCA decision, I said the main reason the FCA held punitive damages were justified was “simply the factual finding that Bell intentionally infringed.” While the FCA did refer to Martineau J’s finding of intentional infringement [186], the FCA summarized by saying (my emphasis) that

[192] Where a person infringes a patent which it knows to be valid, appropriates the invention as its own, and markets it as its own knowing this to be untrue, punitive damages may be awarded. . .

In my post I said that the FCA reasoning “does imply that punitive damages would not be available if the infringer had had a good faith belief that the patents it knew it was infringing were invalid.” Saying it was an “implication” is much too weak. The Court began its discussion by saying this (my emphasis):

[185] [Bell] submits that infringing a patent is not conduct which intrinsically merits punishment where the infringer did not know of the existence of the patent or reasonably held that the patent was invalid. I agree that it would be difficult to uphold a punitive damages award in such circumstances. However, these are not the circumstances applicable to this case.

Moreover, [192] came at the end of the FCA’s summary of the evidence in this case, so the reference to a person infringing a patent which it knows to be valid is not a general statement about possible scenarios, but rather a statement about this particular case.

Thus, contrary to the statement in my earlier post, according to the FCA, intentional infringement of the patent alone will not normally justify punitive damages; what is required is intentional infringement of a patent which the infringed believes to be valid. In this case, according to the FCA, punitive damages were justified because Bell deliberately infringed a patent which it knew to be valid, and marketed the invention as its own.

Here is my excuse for my misreading. The evidence reviewed by the FCA at [186] as supporting the award of punitive damages, establishes that Bell intentionally copied the landing gear which it knew or should have known was patented (see FC Liability [431-34]), but I do not see any finding by Martineau J that Bell believed the patent to be valid, or that it’s belief to the contrary was unreasonable, either in the cited paragraphs, or anywhere else in either the FC Liability decision or the FC Damages decision. So far as I can see, the question of whether Bell believed the patent to be invalid during the time it infringed was never addressed by Martineau J; indeed, it seems not to have been raised at all. My statement that the main reason the FCA approved the award of punitive damages was simply intentional infringement, was based on the evidence reviewed by the FCA, rather than the statements in [185] and [192].

I’m not really sure to make of this. Maybe the FCA read the cited paragraphs of the Liability decision differently from me, and sees them as finding that Bell believed the patent was valid. Maybe there is something else in the record that isn’t reflected in the FC Liability decision which establishes that Martineau J did indeed find that Bell believed the patent to be valid, though it would be surprising for a key factual issue not to be referred to. [Addendum: At [185] the FCA said that this is not a case in which it was established that the infringer reasonably believed the patent was invalid. It has just occurred to me that this is strictly true on a straightforward reading of Martineau J's Liability decision, since there was no finding one way or the other on that point. That implies that in order for the infringer to escape punitive damages, the onus is on the infringer to establish that it reasonably believed the patent was invalid (or, presumably, that it reasonably believed that its product would not infringe). On that view, the FCA decision is consistent with Martineau J’s finding. If that is the correct interpretation, it would have been helpful for the FCA to have spelled this out more explicitly.]

In any event, the point to emphasize is that, according to the FCA, an award of punitive damages will rarely be justified in a case in which the infringer reasonably believed the patent was invalid.

The argument for awarding punitive damages is stronger when the infringer believed the patent to be valid, than in my hypothetical scenario of an objectively weak patent. Whether the infringer believed the patent to be valid is a distinction with a difference. Nonetheless, I am not persuaded that intentional copying of an invention which the infringer believes to be valid, in itself justifies punitive damages. A requirement that the infringer believed the patent to be valid is relevant and important, because it mitigates the chilling effect; but the chilling effect is not eliminated. If Canadians are spending millions of dollars annually on a product protected by a patent that is 70% likely to be valid, there is a 30% chance that those millions of dollars are being wasted on a product that should be available far more cheaply. The expected benefit to Canadians if the patent is invalidated may well outweigh the burden on the patentee of having to litigate. the rule that punitive damages are awarded on a showing that the infringer intentionally infringed a patent which it believed to be valid is essentially the US rule (treble damages for willful infringement), and that rule has not been an unqualified success. It adds to complexity of patent trials, by raising the question of the infringer’s belief as to validity, which is otherwise irrelevant; it adds legal costs by increasing the need for opinion letters, whose main purpose may be to defeat a potential claim for treble damages; it increases uncertainty as to potential liability, as the quantum turns on this difficult to prove consideration. factor; and it may deter innovators from reading and learning from issued patents, as a protection against a finding of willfulness. That doesn’t mean that punitive damages are never warranted in patent cases, but in my view there should be some egregious element beyond knowing infringement, even if the patentee believes the patent to probably be valid. Lubrizol Corp. v. Imperial Oil Ltd, 58 C.P.R. (3d) 167, (FCTD) rev’d [1996] 3 FC 40, 67 CPR(3d) 1 (FCA) is an example, in which the punitive damages were assessed primarily because the infringer had acted in callous disregard of an injunction. In this case, the fact that Bell presented the invention as its own is an additional factor, though whether that factor alone would have justified punitive damages if Bell had believed the patent to be invalid, is a different question, and I'm not sure that question was answered by either the FC or the FCA.

Update: see my more recent post for a more complete discussion of this decision.