Monday, September 28, 2020

Ovrebreadth Argument Rejected as Being Akin to the Promise Doctrine

Eli Lilly Canada Inc v Apotex Inc 2020 FC 814 St-Louis J

2,492,540 / tadalafil / CIALIS ADCIRCA

In this case, Lilly asserted that the processes used by Apotex to make tadalafil infringed Lilly’s 540 process patent. In addition to non-infringement, Apotex argued that the 540 patent was invalid for anticipation, obviousness, lack of utility and overbreadth. St-Louis J held that while the 540 patent would be infringed if it were valid, it was invalid for anticipation and obviousness, though the attacks based on lack of utility and overbreadth failed [204]. So far as I can tell, the holdings of invalidity on the basis of anticipation and obviousness turned on the facts and not on any point of law, though I have to say that the facts were quite complex and it is possible that I missed an issue.

There were a few other points of interest: (1) St-Louis J rejected an overbreadth attack as being akin to the promise doctrine; (2) there was a discussion of the presumption relating to process patents; and (3) there was a discussion of obvious errors in a claim, which related to the utility argument.

Overbreadth

Apotex argued that the 540 patent was overbroad on the basis that a particular (redacted) solvent has been tested and found not to work, but the disclosure nonetheless stated that it was useful [350].

St-Louis J rejected this argument, saying:

[356] The way that Apotex articulated the allegation of overbreadth in this case appears indeed very akin to the promise doctrine, abolished in AstraZeneca SCC. What Apotex really asks the Court to do is to parse the disclosure, conclude that [redacted solvent] promises to be useful for the PSR, import [redacted solvent] into Claim 1 in the absence of any ambiguity, and strike Claim 1 as a result.

She noted that the SCC in AstraZeneca SCC warned against this, and stated that “As such, the doctrine of overbreadth should not be applied in the manner suggested by Apotex, akin to the promise doctrine” [358].

St-Louis J’s comments strike me as entirely sound (with the caveat that her description of Apotex’s argument at [350] is very brief, so that can’t assess for myself her characterization of it at [356]). I have a paper on “Overbreadth in Canadian Patent Law” forthcoming in the IPJ, in which I argue that the approach to overbreadth adopted in Amfac (1986), 12 CPR (3d) 193 (FCA) “if widely adopted, risks invalidating patents for inventions which are new, useful and non-obvious, on the basis of an arbitrary parsing of the disclosure, in a manner reminiscent of the promise doctrine.” A draft version is available on SSRN (note that this draft was updated on 10 June from the first SSRN version). In that paper, I also show that overbreadth is almost always redundant, as merely restating a statutory ground of invalidity (most commonly lack of sound prediction of utility). In this case, if I understand Apotex’s argument correctly, it would appear that the preferable statutory basis for the attack would have been s 53(1); if St-Louis J had allowed the attack to go forward on the basis of overbreadth, this would have side-stepped the statutory requirements and related case law requiring wilfulness and materiality.

Presumption regarding a process patent

The 540 patent is a process patent, and Lilly argued that the burden should be reversed, so that Apotex would have to prove non-infringement on the basis of s 55.1, which provides that when the claim is to a process for obtaining a “new product” it should be presumed that the product was produced by the patented process. Lilly wished to argue that “new” meant that the product had not been sold on the market before, while Apotex argued it mean “new” in the sense of being previously known, whether or not it had received marketing authorization: [37], [38]. The prior caselaw at the FC level is against Lilly, which therefore did not press the point, but merely sought to preserve its rights on appeal [41].

Lilly also argued that the burden should be reversed on the basis of the common law rule that is more or less to the effect that “when the subject-matter of the allegation lies particularly within the knowledge of one of the parties, that party must prove it, whether it be an affirmative or negative character” [42]. The exact nature of the common law presumption is unsettled. In Cefaclor, 2009 FC 991, [221], Gauthier J held that the presumption would have applied “given the particular circumstances of this case,” if “Lilly had taken reasonable steps to obtain this information.” St-Louis J relied on this to hold that the presumption did not apply because there was the evidence did not alow her to conclude “that Apotex did not diligently seek to provide the requested process documents, nor that Lilly diligently sought further information from Apotex” [45]. This is reasonable enough as an application of Gauthier J’s holding to the facts of this case, though the caveat in Cefaclor regarding “the particular circumstances of this case,” suggests that the holding might be a fairly narrow one. It will be interesting to see how this line of reasoning develops in future cases.

Obvious Error in the Claim

Claim 12 had an obvious error. It read:

12. A method of preparing [tadalafi] comprising the steps of: . . .

(b) reacting [C] with [D] to provide [E];

            (c) reacting the product of step (b) with [F] and [G] to provide [E]; . . .

The product of step (b) is E, so reacting it with F and G would clearly not provide E. In fact, step (b) would not produce E, but rather a different compound, not otherwise mentioned in the claim [197]. The claim was otherwise correct, so that carrying out step (c) on the product of step (b) would indeed produce E.

It appears Apotex acknowledged that the error was obvious [343], and St-Louis J found on the facts that indeed a skilled person “would understand Claim 12 to bear [sic] a mistake, and would make tadalafil by following the sequence of actions” [349]. Nonetheless, Lilly did not ask the court to correct the error [197], [347]; instead “they are asking the Court to simply accept the evidence of the experts providing how a skilled person would read Claim 12c. Essentially, Lilly argue that the skilled person understands the error and accordingly understands the scope of the claim, which accords with the purposive approach construction” [197]; and see [347].

There is ample authority holding that an obvious error this type will not affect the construction of the claims: see eg Procter & Gamble (1979), 42 CPR (2d) 33, 36-37 (FCA); Cefaclor 2009 FC 991, [159]; Lovastatin 2010 FC 1265, [99]. Varco 2013 FC 750; Azithromycin 2005 FC 1421, [36]. The notion that the claim is not being “corrected” but merely read as a skilled person would read it is a technical distinction which is somewhat difficult to grasp.

In Procter & Gamble at 37 the FCA simply held that “the claims should be interpreted in the only way that makes sense”; in Cefaclor at [159] Gauthier J stated that a skilled person would “understand” the claim to apply as it should have been written; in Lovastatin at [99], Snider J held that the error “would not change the meaning ascribed to the phrase by the skilled addressee”; in Azithromycin at [36] Mosely J stated that the incorrect word in the claim is a typographical error “and is of no moment.” These statements are all a bit ambiguous as to whether the error was being “corrected” or rather that the claim was being read as a skilled person would read it. Phelan J in Varco at [336], on the other hand, expressly held that the error would be corrected: “[the plaintiff’s expert] opined that a Skilled Person would see the error and make the necessary corrections; and would not be confused or misled. [The defendant’s expert] all but admitted the same. Even a judge hearing this case could see the error and make the correction” (my emphasis).

In any event, a person untrained the law would say that an obvious error in the claim will be corrected. Even for a lawyer, that’s the easiest way to remember the rule. However one phrases it, the rule is very well established, with St-Louis J’s decision adding to the already ample authority.

 

Friday, September 25, 2020

Time to Relegate IG Farbenindustrie to the Dustbin of History

 Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC 2020 FC 816 St-Louis J

            2,371,684 / tadalafil / CIALIS ADCIRCA

Yesterday’s post discussed the issues raised by the anticipation analysis of this decision. This post discusses the issues related to selection patents.

To repeat the background from yesterday’s post, Lilly markets 2.5mg, 5mg, 10mg and 20mg strengths of tadalafil for the treatment of erectile dysfunction [11]. The defendants in this action are various generics that want to sell tadalfil in those dosage forms [13] The asserted claims of the 684 patent are to dosage forms of tadalafil for treating ED, namely doses from 1 to about 20 mg, as well as specific doses within that range, including 2.5, 5, 10 and 20 mg doses: [197-213].

The question in this case was whether the 684 patent is valid over the prior art 2,226,784 application, which claims tadalafil for the treatment of ED, and discloses unit doses of tadalafil from 0.2 to 400 mg. St-Louis J held on the facts, that starting from the knowledge that doses from .02 to 400 mg were useful, it would be routine for the skilled team to carry out the trials necessary to narrow that down to the range providing the best balance between efficacy, and safety and tolerability, and they would be motivated to do so [325-28]. The claimed invention was therefore obvious to try [323, 330].

While that much was straightforward, the decision has a long discussion of whether the 684 patent is a selection patent, ultimately concluding that it is not [116–136]. Everyone, including St-Louis J and both parties, seems to have been of the view that this was central to the assessment of validity: “the determination that a patent is not a selection patent has consequences, as the purported advantages relied upon by the patentee, if not in the claims, may not be considered in the assessment of novelty and inventiveness, as examined later on” [128]; the defendants argued that “the 684 Patent is necessarily anticipated and invalid unless it is a selection patent” [226], on the basis that “a dosage range out of a broader disclosure is anticipation, unless the patent qualifies as a selection” [229]. See also [136], [235], [238], [263], [306], [310], and throughout, distinguishing cases depending on whether or not they related to a selection patent (see eg [286–88]).

In my view, this wrong. In Lilly / olanzapine 2010 FCA 197, [4], [27], [33], the FCA emphatically affirmed that the conditions for a valid selection patent set out in IG Farbenindustrie (1930), 47 RPC 289 (Ch), and approved by the SCC in Sanofi at [9]-[11], do not constitute an independent basis upon which to attack the validity of a patent. The argument in this case seems to be that these conditions can nonetheless be an independent basis upon which to uphold the validity of a patent, though not to attack it, because the putative advantages can be considered if it is a selection patent, but not otherwise. This must be wrong.

In the first place, as the FCA pointed out in Lilly / olanzapine “the Act contains no reference to invalid selection” [29]. This point cuts the other way: validity is determined on the basis of the statutory conditions, not otherwise. It doesn’t matter whether selection patents are uniquely susceptible to attack, or uniquely immune from attack, because neither option has any basis in the Act.

Further, the distinction between attacking and upholding a patent on the basis of it being a selection is not tenable. St-Louis J relied on the IG Farbenindustrie conditions as setting out the requirements that must be met before an unexpected advantage can be considered [129]. She held that because those conditions were not satisfied, the unexpected properties could not be considered [136]. So, failing to satisfy the IG Farbenindustrie conditions is not in itself a ground for invalidity, but failing to possess these qualities may result in a patent being held invalid because the unexpected properties that might be invoked to save the patent if the conditions were satisfied, cannot be considered. To my mind, this is simply a roundabout way of invalidating the patent for failure to satisfy the IG Farbenindustrie requirements. Consequently, this analysis is contrary to the FCA holding in Lilly / olanzapine 2010 FCA 197. (I expect that St-Louis J’s analysis was influenced by the decision of de Montigny J in the NOC proceedings involving the same patent, 2015 FC 125, which has some of the same problems (see eg [147–48], even though he started off by emphasizing, correctly in my view, that “the jurisprudence has established that a selection patent is like all other patents and is governed by the same legal principles” [108].)

St-Louis J’s determination on the facts of whether the 684 patent was a selection patent also demonstrates problems with the whole approach. Her discussion is quite brief. “I note first that the 684 Patent, filed in 2000, makes no mention of the 784 Application, published in 1997" [131]. The difficulty with this observation is that it is not set out in IG Farbenindustrie, or anywhere else that I know of; it is certainly not based on the Act.

Next, and “[m]ore importantly”:

[132] in regards to Lilly’s argument that the substantial advantage of the 684 Patent lies in the better than sildenafil flushing side effect at 2 to 20mg, I conclude that there is nothing in the specification, or the claims themselves, to the effect that the advantage is peculiar to this particular dosage to the exclusion of any other unit dose, nor does it assert that a larger number of unselected doses do not possess the same advantage, which is an essential characteristic of a selection patent.

This evidently addresses the third IG Farbenindustrie requirements, which is that “The selection must be in respect of a quality of a special character peculiar to the selected group. . . . if research showed that a larger number of unselected compounds possessed the same advantage, the quality of the compound claimed in the selection patent would not be of a special character.”

An initial difficulty is that St-Louis J’s statement could be construed as saying that the fact that the patent does not state that the advantage was peculiar to the particular dose is in itself fatal, whether or not the advantage is in fact peculiar to the dose. If so, it is a novel requirement.

It is more likely that St-Louis J is simply saying that that the evidence did not establish that the third condition is satisfied. This suggestion is taken up at [133]. The difficulty here is that the third condition has no clear statutory basis. The FCA in Lilly / olanzapine stated at [32] that “the notion of selection permeates the entire analysis in relation to each of the grounds of alleged invalidity”: which statutory basis for invalidity is permeated by St-Louis J’s holding in [132]? Applying the third requirement without a statutory basis is particularly problematic, given that the EWCA in Dr Reddy’s [2009] EWCA Civ 1362 [39] has rejected it as being unsound in principle.

In Sanofi at [11] the SCC remarked that “Maugham J.'s analysis [in  IG Farbenindustrie] is consistently referred to and is well accepted.” This was no longer true: just a year after Sanofi was decided, the EWCA in Dr Reddy’s rejected reliance on the IG Farbenindustrie requirements, in part because they had no statutory basis [36]-[38], and in part because of substantive criticisms [39]. Jacob LJ stated that “the best thing to do is to regard them as part of legal history, not as part of the living law” [37]. In my view, we should do the same in Canada. The SCC in Sanofi did not require the use of the IG Farbenindustrie factors, but only said “it is a useful starting point for the analysis to be conducted in this case” [11]. In practice, the IG Farbenindustrie requirements have turned out not to be helpful at all; on the contrary, they have added confusion and complexity to the law, with a concomitant likelihood of error. Moreover, while the SCC endorsed the IG Farbenindustrie requirements, it did not actually apply them in its analysis on the facts; the SCC relied on IG Farbenindustrie only for the proposition that “A system of genus and selection patents is acceptable in principle” [19]. Otherwise the SCC relied entirely on universally applicable principles of anticipation and obviousness. I suggest that the the Federal Courts should take the same approach: a system of genus and selection patents is acceptable in principle, but whether any particular patent is valid depends on the standard principles of anticipation and obviousness, and not on whether the patent at issue can be characterized as a selection patent.

Wednesday, September 23, 2020

Does a Range Anticipate a Point Within the Range?

 Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC 2020 FC 816 St-Louis J

            2,371,684 / tadalafil / CIALIS ADCIRCA

Lilly markets 2.5mg, 5mg, 10mg and 20mg strengths of tadalafil for the treatment of erectile dysfunction [11]. The defendants in this action are various generics that want to sell tadalfil in those dosage forms [13] The asserted claims of the 684 patent were to dosage forms of tadalafil for treating ED, namely doses from 1 to about 20 mg, as well as specific doses within that range, including 2.5, 5, 10 and 20 mg doses [197-213].

The question in this case was whether the 684 patent is valid over the prior art 2,226,784 application, which claims tadalafil for the treatment of ED, and discloses unit doses of tadalafil from 0.2 to 400 mg. St-Louis J held on the facts, that starting from the knowledge that doses from .02 to 400 mg were useful, it would be routine for the skilled team to carry out the trials necessary to narrow that down to the range providing the best balance between efficacy, and safety and tolerability, and they would be motivated to do so [325-28]. The claimed invention was therefore obvious to try [323, 330].

So far, so good, and I wish I could stop the post here. However, St-Louis J also held that the 784 application anticipated the 684 patent, which, with due respect, is clearly wrong. I’ll address that issue in this post. There is also some problematic discussion of selection patents, which I will discuss in the next post. And there are some difficulties with the discussion of the role of the inventive concept in the obviousness analysis, which I won’t address, as it did not seem to impact the obvious-to-try conclusion. St-Louis J, and the parties, appear to have been guided by the decision of de Montigny J in NOC proceedings involving the same patent, Lilly v Mylan 2015 FC 125, which has similar problems, though again the basic obvious-to-try analysis was not affected.

Friday, September 11, 2020

CIPO's Approach to Patentability of Computer-Implemented Inventions

 Choueifaty v Canada (Attorney General) 2020 FC 837 Zinn J rev’g and remanding CD 1478

            Application 2,635,393

The vexed issue of patentable subject matter has reared its head once again. Choueifaty applied for a patent for a computer-implemented method for selecting an investment portfolio with the lowest level of risk for a given return [CD 25]; in brief, a computer-implemented business method. CIPO, applying its problem-solution approach to claim construction set out in MOPOP 12.02.02e [13], determined that the “essential elements” of the invention “are directed to a scheme or rules involving mere calculations used to construct the anti-benchmark portfolio and thus not directed to patentable subject matter” [CD 52], [16]. In CIPO’s view, the computer itself was not an essential element; had it been, the claim would have been allowed [17]: PN 2013-03.

In a brief decision, Zinn J reversed on the basis that the problem-solution approach is not the correct way to determine the essential elements of the claim; rather, the approach set out by the SCC in Whirlpool 2000 SCC 67 and Free World 2000 SCC 66, must be used [40]. CIPO relied on Genencor 2008 FC 608 for the proposition that the Whirlpool test is not applicable to patent examiners [34]. In light of the subsequent FCA decision in Amazon 2011 FCA 328, [43] which expressly held that CIPO must use the Whirlpool approach, Zinn J held that Genencor “is no longer good law” [35]. Zinn J therefore remitted the application to the Commissioner for reassessment in accordance with his reasons.

In my view, Zinn J’s decision is entirely correct so far as it goes, but in this post I want to step back and take a brief look at the bigger picture.

Wednesday, September 9, 2020

Default Judgment Requires Evidence

 Tatuyou, LLC v H2Ocean Inc 2020 FC 865 Little J

            2,739,837


In this decision, Little J dismissed a motion for default judgment on the basis of insufficient evidence to meet the burden of proof on the balance of probabilities.


It is well established that “On a motion for default judgment in [the Federal] Court, all of the allegations in the statement of claim are to be taken as denied” [9]; Little J noted that “This standard is different from the requirements for default judgment under the rules in some provincial superior courts in Canada” [10], several of which provide that a defendant noted in default is deemed to have admitted the facts alleged in the statement of claim.


Consequently, even if the defendant has not filed a statement of defence, the plaintiff must provide evidence sufficient to establish infringement on the balance of probabilities [12]: “bald assertions” are not sufficient [14]. Little J indicated that the evidence must go to both validity and infringement [16], [17], [19], but presumably in the absence of evidence to the contrary, validity would be adequately established by the presumption of validity under s 43(2). In any event, the reference to validity was merely in passing, as the specific deficiencies noted by Little J went to infringement. In particular, there was no evidence from a skilled person on claim construction [19], but only statements by the plaintiff’s CEO that the defendant’s product is “substantially similar” to the plaintiff’s product and that it “includes all of the elements” of the asserted claims [20]. These statements amounted to little more than bald assertions, particularly given that the CEO “does not profess to be a person ordinarily skilled in the art” and there was no explanation as to how she arrived at these conclusions.


The evidence was also insufficient to establish that the defendant, an American company, had been selling the product in Canada [22]. There was an assertion to that effect, but again, no explanation of the basis for that assertion. A reference on the defendants’ .com website to “where customers in Canada can purchase [the allegedly infringing product],” unsupported by other evidence of actual sales, was not sufficient establish that anyone has actually purchased or attempted to purchase the product from the defendants’ website using a computer in Canada.


The bottom line is that because allegations in the statement of claim are taken to be denied, the mere fact that the defendant did not file a statement of defence after being served is not sufficient to obtain a default judgment in the Federal Court. Bald assertions of infringement are not sufficient to support a default judgment; at the very least, the plaintiff must provide an explanation for the basis for those assertions.

Friday, September 4, 2020

Silos or Not?

 Canada (Health) v Glaxosmithkline Biologicals SA 2020 FCA 135 Rivoalen JA

TFI Foods Ltd v Every Green International Inc 2020 FC 808 McHaffie J


In Canada (Health) v Glaxosmithkline [Shingrix] Rivoalen JA refused to grant the Minister of Health’s request for a stay of pending appeal of 2020 FC 397 (here). In TFI Foods McHaffie J granted an interlocutory injunction in a trademark case. Both, of course, use the same tri-partite test from RJR-MacDonald [1994] 1 SCR 311. I won’t go into the details of either case (for what it’s worth, I agree with both decisions).


Rather, I’ll make one observation. In TFI Foods, McHaffie J stated that “The elements of the RJR-MacDonald test are conjunctive, in that the moving parties must satisfy all three to obtain relief. However, they are not independent silos, and a stronger finding on one or more of the elements may lower the threshold for the other elements” [5]. In Shingrix, Rivoalen JA stated that “All three questions must be answered in the affirmative, and failure on any single question is fatal to the motion for the stay” [9]. Both positions have ample support in the case law. The silos approach is the normal in the Federal Courts, with the irreparable harm factor being the most prominent hard silo, which applicants often fail to escape. The “no silos” approach is dominant in most other Canadian jurisdictions: see eg Potash Corp 2011 SKCA 120 [57]-[58]; Apotex Fermentation 1994 CANLII 16694 (Man CA); Circuit World 100 OAC 221 (ON CA); Imperial Sheet Metal 2007 NBCA 51 [7].


So, silos or not?

Wednesday, September 2, 2020

Rule 420 Doubling Applies to Lump Sum Costs

 Bauer Hockey Ltd. v. Sport Maska Inc. (CCM Hockey) 2020 FC 862

2,214,748


In recent years we have seen costs awards turn away from the outdated and inadequate tariff, in favour of lump sum awards. This decision by Grammond J provides a nice summary of the principles that are emerging to guide the determination of quantum in awarding lump sum costs. Grammond J’s decision also clarifies the impact of an offer to settle on lump sum costs. I expect parties seeking or resisting lump sum awards will want to review this decision carefully, so I will just hit some highlights. This decision is consequent on Grammond J’s determination in 2020 FC 624 (here) that CCM had not infringed any valid claims of Bauer’s 748 patent.


● The tariff is dead

At least in complex patent cases. “Where the nature of the case is such that the parties are justified in expending a significant amount of legal fees, the tariff simply does not provide a level of indemnification sufficient to further the purposes of costs awards” [10].


● 25% of fees is the baseline

While there is “no rigid guideline. . . . In the interests of consistency and predictability, I proposed to set the starting point at 25% and to analyze whether the circumstances of a specific case warrant a higher or lower number” [14].


● Litigation conduct does not necessarily affect the percentage

This is not because litigation conduct is irrelevant to costs, but rather because a percentage costs award already captures an element of litigation conduct: “For example, if a party fails to admit facts that should have been admitted, this presumably results in an increase of the other party’s legal fees” [17].

 

● Do not reargue the merits

This further supports the view that litigation conduct does not necessarily affect the percentage of fees awarded. Parties are often tempted to argue that the other side should be penalized for having run an argument that was without merit, or for having failed to admit certain facts. However, “one should always remain conscious of the difficulties associated with judging litigation conduct. After a judgment on the merits is rendered, it is tempting to criticize steps taken by the parties in the proceedings with the benefit of hindsight. During the trial, however, parties must make decisions in a state of uncertainty” [18]. Further, trial judges “are not expected to keep a tally of penalties to be reflected in a costs award,” [20] and judging litigation conduct, in particular, pre-trial conduct, “requires information that is often unavailable to the trial judge” [20]. Moreover, “it does not assist a party to suggest that the case was close or that it did not expect to lose. Neither are costs awards a way to obtain an opinion on issues that the Court did not need to address in its judgment on the merits” [21]. See also his application of these principles to the facts [31]-[32].

 

I particularly like Grammond J’s pithy statement that a costs decision is not the occasion for an “autopsy of the trial” [20].


● Litigation conduct does not normally preclude a lump sum

“[Bauer] it asserts that CCM’s litigation conduct disentitles it from claiming a lump sum. I disagree with Bauer. Litigation conduct is taken into account when determining the percentage of recovery” [23].


● Complexity does not generally justify an increased percentage

Increased costs resulting from increased complexity will automatically be reflected in a higher costs award, even if the percentage itself is not adjusted [28].


● Percentage recovery doubled when Rule 420 applies

On this point, Grammond J clarified the law. Rule 420 provides that if a defendant makes an offer to settle that is refused, the defendant is entitled to doubled costs if the judgment is less favourable. Rule 420 was triggered in this case [40], but the case law was not clear as to how an offer to settle should be considered in the context of a lump sum costs award, and in particular whether it should be only one factor to be considered [37]. Grammond J noted that the purpose of Rule 420 is to provide an incentive to settlement, and “[t]his incentive will be ineffective if the doubling of costs is subject to unstructured discretion.” He therefore held that Rule 420 is indeed applicable in the context of lump sum costs, and “when rule 420 applies, the percentage of recovery should be doubled for the period after the refusal of an offer, save in exceptional circumstances” [38]. I am persuaded by Grammond J’s point that predictability is important to ensure that Rule 420 has the intended effect [36] [38]. It will be interesting to see whether other members of the court follow his lead on this point.


● A modest offer may nonetheless embody an element of compromise

The case law on Rule 420 requires a genuine offer that includes an element of compromise [39]. Grammond J held that the mere fact that the offer is very low does not in itself imply there is no element of compromise. (CCM’s offer in this case was $500k, against Bauer’s claim of $80m [41]; $500k is nonetheless substantially better than nothing, which is what Bauer ended up with.) “The parties’ decisions are based on their assessment of their chances of winning and the value of the claim. By nature, this assessment is probabilistic. By raising the stakes, however, rule 420 prompts the parties to be as objective as possible, although some uncertainty inevitably remains” [42].


The fact that the offer is less that the legal fees expended to the time of the offer is not relevant [40].


“[T]he doubling of costs provided by rule 420 does not depend on an after-the-fact evaluation of the reasonableness of the parties’ positions. All that matters is that the offer be genuine and contain an element of compromise. In this case, it did” [42]. On the facts, this led Grammond J to double the percentage award, from 25% to 50%, for the period after the refusal of the offer [43].


A final point of interest is that Grammond J denied Bauer’s request that the obligation to pay the cost award be spread evenly over a period of twelve months, in light of financial distress caused by the shutdown of the sports industry as a result of Covid-19 [60]. Grammond J noted that “[i]It must be assumed that the situation described by Bauer affects all players in the sporting goods industry, including CCM. One fails to see why the financial burden of the costs award should be borne, for the next year, by the party who won the case, even though it must be equally affected by the COVID-19 pandemic” [64].

Thursday, August 27, 2020

Blogging Break

 I'll be taking a short break from blogging for some end of summer vacation and to get ready for classes. 

Thursday, August 20, 2020

Data Protection Provisions Triggered by Indirect Comparison with Innovative Drug

Natco Pharma (Canada) Inc. v. Canada (Health) 2020 FC 788 McHaffie J


This application for judicial review addressed whether the data protection provisions of the Food and Drug Regulations are triggered when an ANDS is based on a comparison to a drug product that was in turn approved based on a comparison with an “innovative drug,” even though the direct comparator is not itself an innovative drug. McHaffie J held Health Canada’s decision refusing Natco’s ANDS to be reasonable and indeed “inevitable” [4], and he consequently dismissed Natco’s application for judicial review.


The decision is interesting for three reasons. First is the substantive holding, that the data protection provisions are triggered on the basis of “indirect” comparison, when the generic product is compared to a drug product that was in turn approved on the basis of a comparison to an innovative drug. Secondly, this decision follows close on the heels of ViiV Healthcare 2020 FC 756 (here) and Shingrix 2020 FC 397 (here), which held the Minister of Health to have adopted an unreasonable approach to statutory interpretation of the CSP Regulations. The contrast in Health Canada’s approach to these provisions is noteworthy. Finally, the decision raises a narrow point of statutory interpretation, holding that the same phrase may have a different meanings in different but broadly related regulations, in light of purposive and contextual considerations.


The key operational provisions of the data protection regulations provide for a six year “no file” period and an eight year market exclusivity period if a manufacturer seeks an NOC on the basis of a “direct or indirect comparison” between the new drug and an innovative drug: [10], C.08.004.1(3)(a),(b). Natco submitted an ANDS for a generic version of Gilead’s DESCOVY, a HIV/AIDS drug that contains a combination of tenofovir alafenamide hemifumarate (TAF) and emtricitabine. The ANDS accordingly identified DESCOVY as the Canadian reference product [26]. DESCOVY is not an “innovative drug” under the data protection regulations. However, TAF is also contained in Gilead’s GENVOYA, along with emtricitabine and two other medicinal ingredients [2], and GENVOYA is an “innovative drug” [14]. DESCOVY was approved after GENVOYA, which is why it is not an “innovative drug.” Crucially, in McHaffie J’s view, the data to support DESCOVY was based on a comparison with GENVOYA [68], [80]. Health Canada refused Nacto’s ANDS on the basis that it “makes comparisons to DESCOVY, which benefits from the data protection term for GENVOYA, an innovative drug,” and as such the ANDS cannot be accepted until the expiry of the “no file” period for GENVOYA, in November 2021 [38].


McHaffie J ultimately held that by seeking an ANDS using DESCOVY as the reference product, Natco was making an indirect comparison with GENVOYA:

 

[108] That is, the “direct or indirect comparison” to an innovative drug that forms the trigger for data protection provisions may include a manufacturer’s comparison to a drug product that in turn was compared to the innovator product for approval


The parties agreed that the standard of review under Vavilov 2019 SCC 65 was reasonableness, so question at issue was not the interpretation of the data protection provisions as such, but whether the Health Canada’s decision was reasonable [8]. Health Canada’s analysis focused primarily on the intent of the regulations and the obligations under the trade agreements [43]-[50]. These are important considerations, and Health Canada’s analysis was reasonable “as far as it went” [50], but the decision jumped directly from there to the conclusion that drugs containing the same medicinal ingredient must benefit from the same period of data protection, without full consideration of the text of the provisions itself [51], [56]. This led Health Canada to the questionable conclusion that data protection of an innovative drug “necessarily extend[s] to these additional products also containing the new chemical entity during the data protection term for the original innovative drug” [56]. That is, the main thrust of Health Canada’s decision was that the data provision provisions protect the new chemical entity itself – “The obligations to protect the new chemical entity exist for the entire duration of the data protection term” [33] – and therefore a combination drug containing a new chemical entity that was the basis for an innovative drug designation will also benefit from any term of the data protection for the innovative drug [35]. However, as McHaffie J noted, it is the data, not the new chemical entity itself that is protected: for example, the data protection regulations would not be triggered if Natco had filed an NDS based on independent clinical trials [57], or if DESCOVY had been approved based on independently filed studies rather than on the basis of a comparison with GENVOYA [59].


Consequently, if Health Canada had arrived at its conclusion solely on the basis of the fact that DESCOVY contained TAF, the decision would have been unreasonable [60]. However, as “further support,” for its conclusion, Health Canada noted that the approval of DESCOVY had relied on the data for GENVOYA [69]. This was not a secondary consideration, as suggested by Health Canada’s decision, but a crucial point: it was unchallenged that the data to support DESCOVY was based on comparative bioavailability studies for DESCOVY as compared to GENVOYA [68], [80]. Because of this, Natco’s comparison of its product with DESCOVY constituted an indirect comparison with GENVOYA [72]. And while Health Canada’s analysis was not as clear as it might have been, McHaffie J concluded that, read contextually and with due allowance for the administrative context [75], the decision is “fairly read as Health Canada making the determination that Natco’s ANDS indirectly compared its drug to GENVOYA” [73], without impermissible ex post addition of arguments on judicial review that are not contained in its decision [78]. McHaffie also pointed out that in some places Health Canada did recognize that the obligations under the treaties was to protect “undisclosed test or other data,” and so he concluded that Health Canada did not misunderstand the intent of the regulations [67], though its conclusions were poorly expressed.


The ultimate issue was the interpretation of subsection C.08.004.1(3). While Health Canada’s decision did not actually address that question directly, it did implicitly base its decision on a reasonable interpretation of the provision [108]. Indeed, not only was the interpretation reasonable, this was the type of case, adverted to in Vavilov 2019 SCC 65 [124], in which “the ‘interplay of text, context and purpose leaves room for a single reasonable interpretation’” [108]. Consequently:

 

[108] [T]he “direct or indirect comparison” to an innovative drug that forms the trigger for data protection provisions may include a manufacturer’s comparison to a drug product that in turn was compared to the innovator product for approval.


Given that it was undisputed that this was true on the facts [108], “the outcome that Natco’s ANDS could not be accepted for filing was inevitable” [108].


What, if anything, can we make of the difference between Health Canada’s approach in this case, and the unreasonable decisions in ViiV Healthcare 2020 FC 756 and Shingrix 2020 FC 397? The two unreasonable interpretations by the Minister related to the Certificate of Supplementary Protection Regulations and went against the patentee, while the decision at issue in this case related to the data protection provisions, and went in favour of the innovator. Also, in ViiV Healthcare the Minister erred in her interpretation by ignoring the trade agreement that the CSP Regulations were intended to implement (see here), while in this case, Health Canada’s interpretation put too much emphasis on the underlying trade agreements ([4], [51]), though the interpretation was ultimately reasonable nonetheless. Maybe there is no overarching lesson, other than that the Health Canada doesn’t always get its statutory interpretation right; but my sense, especially in light of ViiV Healthcare, is that, for some reason, the Minister is antipathetic to the CSP regulations in particular.

The third point of interest in this decision is that it illustrates that the same textual phrase may have a different meaning in different regulations, once purpose and context are taken into account, even when the regulations are related. At the same time that the data protection provisions were amended to introduce the requirement of a “direct or indirect” comparison, the PM(NOC) Regulations were also amended, such that the provisions are triggered under s 5(1) when the generic seeking an ANDS “directly or indirectly compares” its drug with an innovative drug. In the NOC Regs, the phrase is interpreted as meaning that the provisions are triggered only when generic compares its product to the equivalent innovative drug [97-98]; Natco’s “strongest argument” was that a similar interpretation should apply to the same phrase in the context of the data protection provisions [86]. While this is a good argument prima facie, McHaffie J noted that a “different purpose informs the interpretation of the language of the provisions in the two regulations” [93]. This is revealed through the structure of the provisions [94-95], and also in light of the trade agreements which they implement [96], as well as through the jurisprudential background [99]. The NOC Regs were amended to add the directly “or indirectly” language because of concerns that a generic seeking an NOC might compare its product to a previously approved generic drugs, rather than to the original product; that is, the word “indirectly” encompasses a comparison mediated by an intervening generic product that is also equivalent to the same innovative product [101]. The data protection provisions, on the other hand, were amended because the earlier trigger required the Minister to “examine” and “rely on data” contained in the application for the innovative drug. In fact, when a generic drug is approved based on an ANDS, Health Canada does not normally directly rely on the data originally submitted with the innovative product, but only verifies that the generic product is pharmacologically equivalent to the innovative product [99]. Thus, the comparison is “indirect” because it is mediated by the innovative drug itself; the RIAS accompanying the data protection provisions nonetheless made it clear that the intent was to protect the underlying data [99-100]. Given that statutory interpretation requires consideration not just of the text, but also context and purpose, it is not unprincipled to attribute different meaning to very similar text, but it is nonetheless unusual, particularly when the provisions are broadly related. 

Monday, August 10, 2020

Jurisdiction of the Federal Court to Interpret Contracts Relating to Patents: A Fresh Start

SALT Canada Inc v Baker 2020 FCA 127 Stratas JA: Near, Woods JJA rev’g 2016 FC 830 Boswell J

            2,222,058

In a direct and vigorous decision, Stratas JA for the FCA has held that the Federal Court always has jurisdiction to determine who has title to a patent in an application under s 52 of the Act [12], [47], [49], expressly repudiating a line of cases holding that the FC does not have jurisdiction if determination of ownership of the patent is “primarily” a matter of contractual interpretation [27]-[31]. This a very welcome development that will simplify litigation in this area. This issue has been a pet peeve of mine ever since the trial decision in SALT v Baker four years ago and I am very pleased to see the issue dealt with so clearly. There is, however, one loose end, namely the effect on Innotech (1997) 74 CPR (3d) 275 (FCA) rev’g 72 CPR(3d) 522 (FCTD), holding that the Federal Court does not have jurisdiction when a contract relating to patent ownership is used as a sword, rather than a shield. Innotech is formally distinguishable, in that it did not involve an application under s 52, but the holding is extremely difficult to reconcile with Stratas JA’s reasoning in this case. In my view, Innotech is no longer good law, but some uncertainty remains, as it is an FCA decision and was not directly addressed in SALT v Baker.

As discussed here, SALT v Baker involved conflicting assignments of rights in the ‘058 patent from the inventor, Dr Markels. The first was a complex series of assignments which ultimately led to the respondent, Baker. Baker registered his ownership with the Patent Office. Some of the assignments in this series included provisions requiring the ‘058 patent to be reassigned to Markels if certain conditions were breached. Believing that the conditions had indeed been breached, in 2015 Markels assigned title to the Applicant, SALT. Markels also prepared a reassignment from Baker to Markels, which was, however, never executed by Baker. SALT sought to have its ownership registered, but the Patent Office refused on the basis that the assignment was not executed by Baker, the registered owner [3]-[9]. SALT then brought this application for a declaration under s 52 that the register be varied to list SALT as the owner of the ‘058 patent (as well as other additional and alternative relief). A key substantive question related to the interpretation of the various agreements, and whether the conditions in the first series of assignments had been breached, such that Markels was entitled to a reassignment [24].

Boswell J at first instance, relying primarily on Lawther (1995), 60 CPR(3d) 510 (FC), held that the Federal Court “lacks jurisdiction where determination of the ownership of a patent depends upon the application and interpretation of contract law principles” [20]. The question is whether the matter at hand “relates primarily to contract or to patent law: this Court will have jurisdiction over a case that primarily concerns the latter, but not the former” [21].

The FCA has now reversed. The reasoning of Stratas JA was straightforward. The basis of the FC jurisdiction is the grant by Parliament. The text of s 52 of the Patent Act is clear [8]:

[5] Section 52 of the Patent Act provides that the “Federal Court has jurisdiction…to order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged”. The application before the Federal Court sought just that. On the plain language of . . . section 52 of the Patent Act, the Federal Court had jurisdiction over the appellant’s application.

There is no constitutional objection to the grant of jurisdiction under s 52 [49].

Wednesday, August 5, 2020

Is Harm to Third Parties Taken into Account at the Second or Third Step of the RJR-MacDonald Test?

Arctic Cat, Inc v Bombardier Recreational Products Inc 2020 FCA 116 Rivoalen JA

2,350,264


Yesterday’s post provided an overview of the facts in Rivoalen JA’s decision to deny Arctic Cat’s application for a stay pending appeal. This posts focuses on a purely legal issue: is harm to third parties taken into account at the second or third step of the RJR-MacDonald test for an interlocutory injunction / stay? Why does it matter?


To recap the facts, AC and BRP are competitors in the snowmobile market. BRP sued AC for infringement of various patents and finally prevailed in a decision released in June: 2020 FC 691 (here). AC then sought a stay pending an appeal, which is the subject of this decision. The stay will determine whether AC can ship infringing machines for the upcoming winter season (summer-fall 2020 is the crucial window [13]). Since the patent expires next June, AC will be able to return to this design for the following season, regardless of the outcome of any appeal, which will affect only damages. The sleds that are affected have already been manufactured and are stored in US warehouses [9]. AC submitted that it would not be be possible to redesign them for the upcoming season [9] and Rivoalen JA’s decision proceeded on that basis [34], [35].


As usual in the FC approach to the RJR-MacDonald [1994] 1 SCR 311 test, whether AC would suffer irreparable harm was a key issue. In addition to the harm that AC argued it would suffer directly, AC argued that their dealers would suffer irreparable harm, especially because many are single-line dealers who may not be able to supply a competing product because of territorial exclusivity agreements [27].

On this issue, Rivoalen JA found that irreparable harm to the dealers had not been established on the facts [31], but:


[32] More importantly, whatever harm the dealers may suffer personally cannot be relied upon by the appellants to establish irreparable harm. Only harms suffered directly by the appellants can be considered in the second branch of the RJRMacDonald test. This Court has refused attempts to rely on third-party harms, other than by charities.


As authority, Rivoalen JA cited Glooscap 2012 FCA 255 at [29-30], [33-34]; Air Passenger Rights v Canada 2020 FCA 92 at [30], and Chinese Business Chamber of Canada 2006 FCA 178 at [6-7]. These decisions (none of which concern patents), do indeed state that the interests of third parties can only be considered at the third stage of the test, the balance of convenience, relying on RJR-MacDonald [1994] 1 SCR 311 at 341, in which the Court stated that the public interest, and by implication harm to third parties, “is more appropriately dealt with in the third part of the analysis.” (Metropolitan Stores [1987] 1 SCR 110 at 128 is also relied upon, but that statement is much more ambiguous.)


On the other hand, there are cases such as Marketing International (1977) 35 CPR(2d) 226 at 231 (FCA), Procter & Gamble Co v Bristol-Meyers Canada Ltd (1978), 39 CPR(2d) 171 at 177 (FCA) and, post-RJR-MacDonaldAstraZeneca Canada 2005 FCA 208 [20], holding that it is proper to take harm to the public into account at the irreparable harm stage.

Monday, August 3, 2020

Stay Pending Appeal Denied in the Absence of an Undertaking

Arctic Cat, Inc v Bombardier Recreational Products Inc 2020 FCA 116 Rivoalen JA

2,350,264

In this decision, Rivoalen JA denied Arctic Cat’s application for a stay pending appeal. That in itself is not so unusual, but what is odd is that there is no suggestion that the patentee, BRP, provided an undertaking in damages to address the issue of irreparable harm. From the complete absence of any discussion of the point, I have to suspect that an undertaking was not even requested by AC, or offered by BRP. In any event, the absence of an undertaking substantially affects the analysis, and accordingly, I will focus on that issue in this post.

As discussed here, the patents at issue related a “significant breakthrough” in snowmobile design made by BRP, that moved rider weight forward. BRP’s “Rider Position Patents” covered the forward position itself, and the 264 “Frame Construction Patent” relates to a frame assembly that facilitates the construction of sleds with the rider forward position. The litigation started when BRP filed its statement of claim in December of 2011 [43]. The trial started in 2015, with Roy J’s decision 2017 FC 207 following in 2017. Roy J held the Rider Position Patents to be invalid, and the Frame Construction Patent to be not infringed. On appeal, Roy J’s decision on the invalidity of the Rider Position Patents was upheld, but the FCA 2018 FCA 172 reversed on claim construction in respect of the Frame Construction Patent and remanded to Roy J to determine validity and infringement on the correct construction. Finally, on 15 June 2020, eight years after litigation started, and with less than a year left on the term of the 264 patent, BRP prevailed, with Roy J’s decision on remand, 2020 FC 691, holding the Frame Construction Patent to be valid and infringed. Roy J granted a permanent injunction, as is normal, over the objections of AC: see here.

Wednesday, July 29, 2020

Minister Intends Narrow Interpretation of CSP Regulations

ViiV Healthcare ULC v Canada (Health) 2020 FC 756 Fuhrer J

2,606,282 / JULUCA / dolutegravir and rilpivirine

In this judicial review of the Minister of Health’s decision denying ViiV’s application for a Certificate of Supplementary Protection (CSP) in respect of its 282 patent, Fuhrer J, applying reasonableness review [9], found the Minister’s approach to the interpretation of the relevant statutory provisions to be unreasonable. Fuhrer J’s legal analysis was straightforward: s 3 of the CETA Implementation Act provides that the regulations implementing the CSP regime must be interpreted harmoniously with CETA itself, but the Minister failed to consider CETA at all, relying instead on the RIAS for the CSP Regs and associated the Guidance Document, neither of which are law. This is the second decision relating to the new CSP regime, following Glaxosmithkline 2020 FC 397, and it is the second decision in which the Federal Court has found the Minister to have adopted an unreasonable interpretation of the relevant provisions: see here. Moreover, in this case the Minister has clearly signaled that she intends to interpret the CSP Regulations as restrictively as possible. Unfortunately, in light of these decisions, we cannot say that she intends to interpret them as restrictively as reasonably possible; it appears rather that the Minister intends to interpret the provisions as restrictively as the courts will allow. The CSP forecast is calling for a steady rain of judicial review applications.

Friday, July 24, 2020

Routine Correction of Inventorship

Alfasigma SPA v Canada (Attorney General) 2020 FC 561 Grammond J

            2,538,546


This was a routine correction of inventorship under s 52. One inventor has been named on the Italian priority application, but his name had inadvertently been left off the PCT application [3]. The application was supported by affidavits of all the other inventors [4]. No interesting issues were raised and the application for correction was granted [5].

Monday, July 20, 2020

Summary Trial Instead of Markman Hearing in the US

IPKat has a post today about order made by Judge Alsup canceling a Markman hearing and effectively ordering a summary trial instead. This may be of interest in light of recent emergence of summary trial / judgment decisions we have seen here.

Wednesday, July 15, 2020

The underlying facts were NOT in fact disclosed

Apotex Inc v Wellcome Foundation Ltd / AZT 2002 SCC 77, aff’g [2001] 1 FC 495 (FCA), var’g T-3197-90, 79 CPR (3d) 193 (FC) Wetston J

            1,238,277

The law of utility has become much quieter since AstraZeneca 2017 SCC 36, so I’ve been spending some time reviewing the case law to see where we have ended up. One issue that remains contentious relates to the enhanced disclosure requirement that arises when utility is established on the basis of a sound prediction. In Wellcome / AZT 2002 SCC 77 at paragraph 70 the SCC remarked that:

Normally, it is sufficient if the specification provides a full, clear and exact description of the nature of the invention and the manner in which it can be practised. It is generally not necessary for an inventor to provide a theory of why the invention works. Practical readers merely want to know that it does work and how to work it. In this sort of case, however, the sound prediction is to some extent the quid pro quo the applicant offers in exchange for the patent monopoly.

This suggests that something other than the normal disclosure is required, though the SCC did not go on to explain what that might be. This passage has been interpreted as requiring a heightened disclosure requirement in the case of a sound prediction, such that the factual basis for the prediction must be disclosed, or at least referred to, in the patent itself: Raloxifene 2011 FCA 220 [46]-[47] aff’g 2010 FC 915 [116]-[17]. This enhanced disclosure requirement is substantively controversial: see Gauthier JA’s remarks in Clopidogrel 2013 FCA 186 [132] and Rennie J’s remarks in Nexium 2014 FC 638 [158-59]. Even parsing the SCC’s statement is not easy: see Rennie J’s careful discussion in Nexium [139-60] arguing that “this sort of case” refers to a new use, not sound prediction generally.

In this post, I am not going to tackle either the interpretation of paragraph 70 or the substantive merits of an enhanced disclosure requirement. Instead, I will focus on a purely factual point. The reason the SCC gave for not elaborating further is that the precise disclosure requirements “do not arise for decision in this case because both the underlying facts (the test data) and the line of reasoning (the chain terminator effect) were in fact disclosed, and disclosure in this respect did not become an issue between the parties” [70, my emphasis]. Similarly, the SCC said that “[t]he trial judge has found that the inventors possessed and disclosed in the patent both the factual data on which to base a prediction,” as well as the line of reasoning necessary to support a sound prediction [75, my emphasis]. In this post I will show that the SCC’s statement that the underlying facts supporting the sound prediction “were in fact disclosed,” is, in fact, false.

This is a purely factual point, involving a comparison between what was disclosed in the patent with the evidence that was found to support a sound prediction. The bulk of this post is devoted to supporting my claim that the factual basis was not disclosed by going through the decision and the patent in rather pedantic detail. It may seem at times that I am belabouring the obvious, but since I am arguing that the SCC made a factual error, I would like to be clear as to the basis for my assertion. I’ll finish by considering the doctrinal implications of this observation.

I should stress that I am not disagreeing with any of the key holdings in AZT. I am arguing that the SCC’s statement at [70] was based on a factually erroneous premise; but that statement was expressly obiter. Given that the remarks were obiter, it is understandable that the SCC was perhaps not as careful in dealing with the issue as it might have been. An obiter comment of this type is clearly not binding in any event: R v Henry 2005 SCC 76 [57]. My argument is that the underlying factual error is one more reason for not placing significant weight on this obiter comment in the future development of the law on this point.

Monday, June 22, 2020

Overbreadth in Canadian Law: Revised Version

A revised version of my paper “Overbreadth in Canadian Patent Law” is now available on SSRN. It is substantially revised from the previous version, though the underlying message is the same. Here is the abstract:

Under the overbreadth doctrine, a claim that exceeds the scope of the invention disclosed in the specification is invalid. While the doctrine is well established, it is redundant in the great majority of cases in which it is invoked, as an overbroad claim typically encompasses subject-matter which is not new, lacks utility, or is obvious. When overbreadth is not redundant, a puzzle arises: what is the principled justification for striking down a claim to an invention which is in fact new, useful, non-obvious and sufficiently disclosed? In such a case, how can it be said that the claim is broader than the invention? This article argues that overbreadth properly arises as an independent ground of invalidity in the context of the “roads to Brighton” problem, in which the question is whether the first inventor to achieve a result known to be desirable may claim the result itself or only their particular method of achieving it, but current Canadian law on this point does not require or invoke an independent overbreadth doctrine. Overbreadth was also applied as a truly independent ground of invalidity by the Federal Court of Appeal in Amfac Foods Inc. v Irving Pulp & Paper, Ltd. This article argues that Amfac was wrongly decided, both on its facts, and in its approach to overbreadth. The article warns that the Amfac approach, if widely adopted, risks invalidating patents for inventions which are new, useful and non-obvious, on the basis of an arbitrary parsing of the disclosure, in a manner reminiscent of the promise doctrine.

Wednesday, June 17, 2020

Display to the Public Not Enabling

Bombardier Recreational Products Inc v Arctic Cat, Inc 2020 FC 691 Roy J
            2,350,264
This litigation originally concerned four patents, three rider position patents and one frame construction patent. In his initial trial decision, 2017 FC 207 Roy J held the rider position patents to be invalid for insufficiency (see here), and this was upheld by the FCA: 2018 FCA 172 (here). Roy J had held that the frame construction patent was not infringed, but the FCA reversed on a point of claim construction, held that the frame construction patent was infringed, and remanded to Roy J for determination of validity and remedies [3]. No new law was applied, but there are a few points of interest: Roy J was strongly disinclined to apply issue estoppel based on foreign litigation to a question of validity; he was inclined to view claim construction points that had not been appealed as res judicata; the prior art was not enabling because public display after races without opportunity for inspection was not disclosure to the public; and lost profits were refused because of the difficulty of establishing a causal link between the single infringed patent and the lost sales.

Foreign issue estoppel
An initial question arose because Arctic Cat sought to argue that the frame construction patent was anticipated as a matter of issue estoppel, which applies to preclude re-litigation of an issue which has been conclusively and finally decided in previous litigation between the same parties or their privies [23]. In particular, Arctic Cat argued that issue estoppel applied because of a jury verdict in US District Court in Minnesota, finding that the asserted claims were anticipated and obvious [23], [30]. After carefully reviewing the relevant cases on foreign issue estoppel, Roy J held that this argument had no reasonable prospect of success [71]. He noted that while some cases had suggested that issue estoppel based on a foreign decision might be potentially be applicable regarding purely factual findings [52], [64], no cases had actually gone so far as to apply foreign issue estoppel even on a factual issue. Further, the great weight of authorities is to the effect that determinations of validity of a patent in a foreign court are not helpful and cannot be the basis for an estoppel argument [51], [66]. In short, Arctic Cat “has not been able to refer to one patent case where the proposition it advances has had even a measure of success” [64]. Nonetheless, Roy J did not (quite) hold that foreign issue estoppel could never apply to a determination of validity, but rather that:

It would take, it seems to me, a very strong demonstration in order to accept that the issue has been conclusively decided by a jury in a foreign jurisdiction with its own law applied by its own courts, such that the verdict would bar litigation before a Canadian court, preventing it from considering the validity of a Canadian patent, using its own substantive and procedural laws, and hearing Canadian admissible evidence.

On the facts, there was not nearly enough evidence, in particular related to whether the US law of anticipation is the same as that in Canada, for the argument to have any prospect of success [68].

Reconsideration of claim construction on remand?
An interesting procedural issue was raised. The construction of several terms was at issue in the first trial [77], but only the term “engine cradle” was considered on appeal [FCA 13], and it was on the construction of that term that the FCA reversed. The question therefore arose as to whether the construction of other contentious terms should be reconsidered in light of the FCA’s construction of “engine cradle.” The issue was important because one element of prior art, the “T/S sled,” did not anticipate on the original construction of the key issues, but might if the construction of certain terms was reconsidered. Roy J was inclined to the view that the construction of the other terms was res judicata [79], but he did not need to decide as he concluded, after reconsideration of the other terms, that the outcome was the same [80], [103]. The argument that the T/S sled anticipated therefore failed in light of the claim construction [108].

Disclosure to the public
One interesting point arose in respect of anticipation. Roy J held that even if the T/S sled embodied the claimed invention (which it did not), it would not anticipate because the enablement branch of anticipation was not satisfied. This is because the evidence was that the T/S sled was only on display after races and the essential elements of the invention would not have been apparent to a skilled person on mere visual inspection [112]. This strikes me as correct; anticipation requires that the invention be made available “to the public,” and while it is enough that the public had opportunity to access the invention, in this case even that opportunity was not established. This case is quite similar to Bauer v Easton 2010 FC 361 aff’d 2011 FCA 83 in which hockey skates embodying the invention were worn in a public arena by skaters subject to an obligation of confidence; this was held not to anticipate as visual inspection at a distance was not sufficient to provide an enabling disclosure of the invention, and members of the public were not free in law and equity to carry out a close examination of the skates that would have disclosed the essential elements of the invention.

The obviousness attack failed on the facts [124]. Roy J therefore held the frame patent to be valid and infringed [125]. 

Remedies
Turning to remedies, BRP sought lost profits for sales that it would have made but for the infringement and a reasonable royalty in respect of the remaining sale. 

The claim for lost profits failed, because BRP’s case on damages “was largely built on the four patents-in-suit having been infringed.” In light of the holding that only one patent was infringed, it was too difficult to make out the necessary causal link between the infringement of that single patent and the lost sales, as the rider position patents that had been held to be invalid, were a major driver of the lost sales [128], [136], [138], [144], [151].

The parties agreed that the hypothetical negotiation methodology was appropriate for establishing a reasonable royalty with a 50% split of the incremental profits attributable to the infringed patent [166], [174]. The key issue was therefore the assessment of the incremental profit. On this point Roy J preferred the evidence of BRP’s expert.

BRP sought the usual permanent injunction. Unsually, Arctic Cat resisted, not merely on the basis that there was no prospect of future infringement; on the contrary, it appears that it was Arctic Cat’s position that it should be permitted to continue to infringe: [183]. Arctic Cat advanced a variety of reasons why a permanent injunction should not be granted [183], all of which were rejected by Roy J [184]-[191], noting that “(a)n injunction normally will follow once the Court has found that a patent is valid and has been infringed” [185], quoting Abbvie 2014 FC 489 [35]. Roy J’s analysis was brief and I agree entirely, so I won’t recap it. I will plug the recent book I co-edited with Brad Biddle, Jorge Contreras, an d Brian Love, “Patent Remedies and Complex Products: Toward a Global Consensus” (open access) and especially Chapter 4 on Injunctive Relief, where we recommend that a permanent injunction be refused “if the negative effects of the injunction on enjoined parties would be disproportionate to the nature of the infringement and any noncompensable harm that the patentee will experience as a result of the absence of an injunction.”