No new cases

No new substantive patent cases were released last week.

No new cases

No new substantive patent cases were released last week.

Note that I generally only blog on substantive patent cases. A new decision in the ongoing saga between Apotex and Health Canada regarding Apotex's Indian facility was released: Apotex Inc. v. Canada (Health), 2018 FCA 147. To keep abreast of new decisions like this one, as well as procedural decisions and copyright and trade-mark cases, I recommend subscribing to the Daily Intellectual Property News service from Alan Macek's IPPractice.

Is the Law of Collocation Separate from Obviousness?

Eli Lilly Canada Inc v Apotex Inc 2018 FC 736 Manson J
            2,432,644 / prasugrel / EFFIENT / NOC

The claims at issue in this NOC application were to the combination of prasugrel and aspirin for treating blood clots [5], [13], [65], [66]. Manson J held the claims to be obvious, while rejecting attacks based on patentable subject matter, sufficiency and overbreadth. The obviousness holding turned on the facts, but the “subject matter” attack is of some general interest.

Prasugrel is a member of class of compounds known as “thienopyridines” which also includes ticlopidine and clopidogrel, all of which were known to have antiplatelet aggregation activity [11], [49]. Aspirin is well-known compound, which was also known to have antiplatelet activity, though it is not a thienopyridine. Ticlopidine and clopidogrel had previously been combined with aspirin to treat blood clots: Ticlopidine with aspirin was a standard antiplatelet therapy after stent implantation, and clopidogrel with aspirin had been shown to be even better, and was widely used [108], [117]. It was also known that clopidogrel with aspirin, at least, had synergistic effects [116]. The question was whether this made it obvious to try the new member of the class, prasugrel, in combination with aspirin for the same purpose. Manson J held on the facts that it was self-evident to try the combination, and that there was a reasonable expectation of success. The claims at issue were therefore invalid for obviousness [115], [121], [122].

What was referred to as the “subject matter” argument turned on the proposition that “it is essential to the validity of a patent for a combination that the combination should lead to a unitary result, and that such result should be different from the sum of the results of the elements,” [72], citing R v American Optical Co (1950), 13 CPR 87 at 98-99 (Ex CR). On the facts, this question turned into a debate as to whether the effect of the combination was additive or synergistic. The point of more interest is whether such a requirement is sound, at least as distinct from the requirement of obviousness. Certainly, there is ample support for the proposition. American Optical held that

It is essential to the validity of a patent for a combination invention, apart from considerations of novelty and inventive ingenuity that the combination should lead to a unitary result rather than a succession of results, that such result should be different from the sum of the results of the elements and that it should be simple and not complex. The elements may interact with one another provided they combine for a unitary and simple result that is not attributable to any of the elements but flows from the combination itself and would not be possible without it.

Essentially the same proposition has been recently affirmed by the House of Lords in Sabaf SpA v MFI Furniture Centres Ltd, [2004] UKHL 45, [24], [26]. The body of law to the effect that there is a distinct requirement of this type for a combination to be patentable is sometimes referred to as the “law of collocation.”

I must say that I find the EWCA decision in Sabaf [2002] EWCA Civ 976, [43], which held that “there is no separate law of collocation,” to be more persuasive, even though it was disapproved by the House of Lords on this point. In a seminal passage on the patentability of combinations, Green LJ in Albert Wood & Amcolite Ltd v Gowshall Ltd (1936), 54 RPC 37, 40 (CA) stated that “The real and ultimate question is: Is the combination obvious or not?” This passage has often been cited with approval by the Canadian courts, including the SCC in Wandscheer v Sicard Ltd, [1948] SCR 1, 12, and many times since. If the obviousness of the combination is truly the real and ultimate question, it is difficult to see how there can be a separate rule against collocation. As the Court of Appeal pointed out in Sabaf, [43]-[44], it is well accepted that “the act of combining known concepts may itself involve an inventive step,” but if there is a separate and prior step of determining whether the claimed invention is a true combination or a mere aggregation, a court may conclude that the claim is invalid without even considering whether it is obvious, thereby bypassing the real question. To the extent that the collocation analysis is a short-cut to the obviousness inquiry, it is a dangerous short-cut. Of course, it might be that Green LJ was wrong, and the real question is not simply whether the combination was obvious. But to my mind, neither Sabaf nor American Optical provides an adequate justification for a distinct requirement that has the effect that a combination that is new, useful and non-obvious invention should nonetheless be held to be invalid. The HL in Sabaf asserted that if there is no interaction or synergy, then the separate parts of the combination are separate inventions, and the obviousness inquiry should therefore be applied to each part separately. But I cannot see how this is consistent with the principle that a combination of known parts may be an invention if it would not have been obvious to combine them. Green LJ’s statement that the real question is the obviousness of the combination, was intended precisely as a warning against the danger of a “dissection of a combination into its constituent elements and the examination of each element in order to see whether its use was obvious or not.” As he pointed out, it is “the obviousness or otherwise of each act of selection” that is at issue in a combination invention, and not the obviousness of the individual components. To my mind, Sabaf does not respond adequately to Green LJ’s point.

In any event, the point is moot in the context of this particular case, as Manson J concluded that the 644 patent did disclose an effect that is “more than the mere sum of the effects of the two agents taken alone” [90].

Standard of Review for Attributes of POSITA

AFD Petroleum Ltd v Frac Shack Inc 2018 FCA 140 Gleason JA: Webb, Laskin JJA rev’g 2017 FC 104, 2017 FC 274 Manson J

2,693,567 / Fuel Delivery System and Method

At trial in Frac Shack v AFD, Manson J held several claims of Frac Shack’s 567 patent to be valid and infringed. On appeal, the FCA has reversed in part, holding that Manson J made a palpable and overriding error in his definition of the POSITA [41]. The invention relates to a system for refueling fracking equipment while the engines are running (see here for a summary), and Mason J had initially described the POSITA as having experience designing fueling equipment for fracking systems, but had omitted this aspect of the POSITA’s from his explicit findings: [42] (contrasting FC [142] with FC [144], [154]). This was important to the subsequent analysis of obviousness, because a novel fuel delivery system might be obvious to a person with expertise in designing fracking fueling equipment, but not to a party without such expertise [43]. In light of the error, the FCA remanded obviousness and related questions to Manson J for redetermination [46]. I’m not sure much will change, as one of the Frac Shack’s experts, whose evidence was largely accepted by Manson J [FC 245], did have expertise in designing fueling equipment for fracking systems [FC 64], and the expert for AFD, whose evidence was less persuasive, did not [FC 247].

Of more general interest is the FCA’s summary of the standard of review. The FCA held that “the impugned findings in the instant case regarding the attributes of the POSITA and the extent of the POSITA’s common general knowledge are matters of fact or mixed fact and law from which a legal issue cannot be extricated” [38] and therefore subject to review only for palpable and overriding error (some citations omitted):

[39] In Mylan Pharmaceuticals ULC v. AstraZeneca Canada Inc., 2012 FCA 109, 432 N.R. 292, this Court noted that issues of construction are matters of law and therefore reviewable for correctness. However, the Court went on to note at paragraph 20 that:

[…] any assessment of the evidence (concerning the state of scientific knowledge at the relevant time, or how a reasonable POSITA would understand the patent, for example) made by the Judge in the course of reaching his conclusion on the construction of the patent is reviewable for palpable and overriding error.

[40] Similarly, in Wenzel Downhole Tools Ltd. v. National-Oilwell Canada Ltd., 2012 FCA 333, 443 N.R. 173, this Court stated at paragraph 44 that the “weight to be given to the expert evidence as to how particular words would be understood by the POSITA is a question where the trier of facts is entitled to deference.”

“Make, Construct and Use” in Settlement Does Not Include “Sell”

Betser-Zilevitch v Nexen Inc 2018 FC 735 Brown J
            2,584,627 /

This case is on the margins of what I normally blog about: the issue is whether a settlement agreement had been reached between the patentee Betser-Zilevitch, and the defendants, Nexen. The leading case on whether a settlement agreement has been reached is Apotex Inc v Allergan Inc 2016 FCA 155 Stratas JA; Trudel, Nadon JJA rev’g 2015 FC 367 Hughes J (which I did not blog about at the time). Here are a couple of the passages from Apotex Inc v Allergan Inc (citations omitted):

[32] The court is to view the specific facts of the case objectively in light of the practical circumstances of the case and ask whether the parties intended to be legally bound by what was already agreed or, in other words, whether an “honest, sensible business[person] when objectively considering the parties’ conduct would reasonably conclude that the parties intended to be bound or not” by the agreed-to terms. Put another way, looking not through the eyes of lawyers, but through the eyes of reasonable businesspeople stepping into the parties’ shoes, was there something essential left to be worked out? Another way of putting it is to ask how “a reasonable [person], versed in the business, would have understood the exchanges between the parties”.

[33] When courts find that there has been an agreement on essential terms, they will often imply non-essential terms into the agreement. The lack of agreement on non-essential terms will not stand in the way of a finding of an agreement. Put another way, “it is not necessary that the original contract include all the ancillary terms that are already implicit in its content”. “Even if certain terms of economic or other significance to the parties have not been finalized, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement”. For example, assuming an agreement on essential terms is otherwise in place, courts can imply terms concerning the granting of a release, the manner of payment and the timing of payment. Often these will be “mere formalities or routine language.”

In this case, Betser-Zilevitch had made a offer by letter dated January 25, 2017 [22], and Nexen replied that it “is prepared to agree in principle” to those terms  (all through counsel) [24]. Betser-Zilevitch’s counsel then wrote to the Court, with Nexen’s consent, stating that “We advise that a settlement has been reached, subject to formalization, review and execution by the parties of a formal settlement agreement” [26].

Further exchanges ensued as draft agreements were exchanged, with the parties objection to various details. Ultimately Betser-Zilevitch advised that “there was no agreement regarding settlement, that all prior settlement offers were withdrawn, and that all offers made by the Defendants were refused” [11]. The Defendants filed a motion seeking a declaration that a settlement had been reached.

Brown J granted the motion. The letter to the Court, in particular, was “convincing evidence” of the intent of the parties to create legal relations, as it was “unequivocal” in stating that a binding settlement had been reached [35]. The reference in the acceptance to an agreement “in principle” did not affect this conclusion, as that phrase must be understood contextually [31].

It was then left for Brown J to resolve the disputed terms, which he did largely by holding the parties to the terms in the offer in the letter of January 25, 2017. He found that most of the contested points were efforts by one party or the other to use the drafting process to vary the terms that had already been agreed upon.

The point of most general interest is that the offer letter specified that “Mr. Betser will agree to provide Nexen an up-front, fully paid up license to make, construct and use the invention” [22, emphasis added]. Nexen proposed that the formal agreement include the right to “sell” in addition [60]. Brown J disagreed, holding that the right to sell was not an essential term, and should not be implied:

[63] The parties were represented by counsel. They would or should have known that section 42 of the Patent Act identifies four key rights afforded to patent holders like Betser-Zilevitch. The four rights granted by section 42 may be granted or withheld as the patent holder wishes; they are property of the patent holder. Nexen accepted a settlement agreement that did not contain the Right to Sell.

Not Necessary to Decide Whether the Patent at Issue Is a Selection Patent

Apotex Inc v Shire LLC 2018 FC 637 Fothergill J
            2,527,646 / lisdexamfetamine [LDX] / VYVANSE / NOC

Shire’s invention at issue in this consolidated impeachment action and prohibition application [20] relates to the compound L-lysine-d-amphetamine aka lisdexamfetamine aka LDX, its pharmaceutical compositions and it use for treating ADHD [34]-[40]. Fothergill J found the 646 patent to be valid and not infringed by Apotex’s activities to date, on the basis of the defence of experimental or regulatory use, but he granted the order of prohibition on the basis that the patent would be infringed if Apotex were to obtain an NOC and market Apo-lisdexamfetamine. The decision raises some interesting issues relating to selection patents and obviousness, though they were not dispositive, and in the end the decision turned largely on the facts.

Amphetamines have long been used to treat ADHD, but they can be abused by snorting or injection [28]. There was therefore a need for a therapeutically effective abuse-resistant dosage form of amphetamine. LDX provides a solution to that problem in the form of a prodrug, namely an amphetamine covalently attached to a chemical moiety which is transformed into the active amphetamine in the body through a time-dependent process of hydrolysis, resulting in an extended release form that cannot be effectively circumvented by snorting or injection [31]. The claims as construed by Fothergill J were directly specifically to a conjugate of the amino acid L-lysine bound to d-amphetamine [74].

The main validity attack was based on AU Patent No 54168/65, which disclosed “a very large class of d-, l-, and dl-amphetamine amino acid conjugates, both protected and unprotected” [104]. None of the specific examples disclosed LDX itself [105]. The parties debated whether the 646 patent was a selection over the 168 patent [88], with Apotex arguing in particular that the 646 patent provided “insufficient description of its advantages over the purported genus patent to be classified as a selection from AU 168, citing Hoffman-La Roche Ltd v Apotex Inc, 2013 FC 718.” I am very pleased that Fothergill J cited my blog post “Time to Abandon the Doctrine of Selection Patents?” which critiqued that aspect of Hoffman-La Roche, saying that those criticisms “may be reason to approach Hoffman-La Roche with caution” [96]. (I’d point out that my post Genus Anticipates Species is perhaps even more directly relevant to the anticipation analysis in Hoffman-La Roche, as that is the post in which I argued that Hoffman-La Roche cannot be distinguished from Sanofi 2008 SCC 61.)

More importantly, in the post cited by Fothergill J, I had argued that the selection patent doctrine was arguably generating more heat than light, and it might be time to abandon the doctrine entirely. Forthergill J stated that “Professor Siebrasse’s general remarks regarding this potentially confusing area of patent law are worth bearing in mind,” and he went on to emphasize that

[97] By statute, the basis for assessing anticipation cannot depend on whether the patent is a selection patent or not. The jurisprudence does not imply that anticipation and obviousness in respect of a selection patent are to be assessed over the genus patent from which it is a selection, rather than over the prior art read as a whole. A selection patent “does not in its nature differ from any other patent” (Sanofi-Synthelabo at para 9), there is no reference to selection patents in the Patent Act, and the conditions for a valid selection patent do not constitute an independent basis upon which to attack the validity of a patent. A selection patent, like any other patent, is therefore vulnerable to any attack set out in the Patent Act, but no other.

This is a strong statement, though in the end he held that nothing turned on the point, so it was unnecessary for him to decide whether the 646 patent was a selection patent [98].

On the facts, Fothergill J concluded that the AU 168 patent did not anticipate the 646 patent, in part because the AU 168 patent did not disclose the mechanism or relevant properties of the prodrug, or even that it was a prodrug [106]-[108]. This reasoning is consistent with and tracks the analysis in Sanofi 2008 SCC 61 [38], [40]-[41], which emphasized disclosure of the special properties of the species. I would suggest that there is another route to the same end, which is that the genus does not anticipate the species unless the genus contains an individualised description of the species. That is the European position: see Dr Reddy’s [2009] EWCA Civ 1362 [23]-[33]. In my view, that is entirely consistent with established Canadian principles: a disclosure of genus which does not individually identify a species would not allow a skilled person to arrive at the species “in every case and without possibility of error” (Beloit 8 CPR(3d) 289, 297 (FCA)), nor would practising the genus necessarily result in infringement of the species patent. A person who has disclosed a genus and “planted his flag” by disclosing some representative species, does not plant a flag at every species within the genus: to plant a flag in L'Anse aux Meadows is to plant a flag in North America, but it is not the same as planting a flag in San Diego. I’d suggest the converse is also true. If the genus patent had individually disclosed a compound, that compound could not be the subject of a new claim as such, even if it’s unique properties were not disclosed, for the same reason that a party who discovered a new use for a known compound can claim the new use, but not the compound per se. But all that is an aside, given that in this case the claimed species was not individually disclosed.

Turning to obviousness, Forthergill J noted that the FCA in Ciba v SNF 2017 FCA 225 (blogged here) had raised questions as to the role of the “inventive concept” in the obviousness analysis [115]. Apotex went so far as to argue that “following Ciba, ‘inventive concept’ should no longer be used in the obviousness analysis, pending clarification of its meaning by the Supreme Court. Rather, the question of obviousness should be determined by reference to the claims alone” [116]. Fothergill J rejected this, noting that as a matter of stare decisis, Ciba cannot be understood to have overruled the SCC decision in Sanofi [117]. Moreover, as Fothergill J noted, in this particular case, “the inventive concept may be grasped without difficulty, and there is no danger of distraction or engaging in unnecessary satellite debate” [117]. While the FCA in Ciba v SNF was certainly very critical of the role that is sometimes played by the inventive concept, Forthergill J’s approach nonetheless strikes me as being consistent with both Ciba v SNF and Sanofi. Ciba v SNF counseled particularly strongly against the uncertainty which might arise from parsing the disclosure in a search for the inventive concept [74], but the Court did not say that the “inventive concept” should never be used. 

This does not detract from the criticisms of the role of the "inventive concept" raised by the Court in Ciba; it is only to say that they did not arise in this particular case. I have thought for some time that the European problem-solution approach may be a way of resolving some of those problems, and that it is consistent with the traditional Canadian approach to obviousness. Consequently, I found it particularly interesting to see Shire suggesting a European-style “problem-solution” analysis might be “viable” and consistent with Sanofi [120]. The Court of Appeal in Ciba suggested that it will be up to the SCC to develop “a workable definition of the inventive concept” [77]. But given that the SCC in Sanofi did not provide a workable definition, perhaps it is open to the Federal Courts to fill that gap, so long as it is done in a manner that is consistent with Sanofi and prior Canadian law.

Finally, on a minor point of interest, the claim construction adopted by Fothergill J implied that some claims were redundant, describing exactly the same compound either verbally or visually. Fothergill J noted that “[a]s a general rule, claims should be construed to avoid redundancy. However, claims may be repeated, and courts may even read claims as redundant when it is reasonable to do so,” and in this case he held that the best reading was to accept the redundancy [75]. It seems likely that the reason for the redundancy was an excess of caution—the drafter was likely worried that either the verbal or visual representation might be misconstrued, and so included both.

Arctic Cat v BRP Ignition Timing Decision Affirmed

Arctic Cat Inc v Bombardier Recreational Products Inc 2018 FCA 125 Gauthier, De Montigny, Gleason JJA aff’g 2016 FC 1047 Roy J
            2,322,738

At trial in Arctic Cat v BRP Roy J held that on a proper construction of the claims, Arctic Cat’s 738 patent relating to engine ignition timing was not infringed by BRP’s snowmobile engines, but if he was wrong as to the proper claim construction, so that BRP’s engines did infringe, then the claims at issue were invalid for obviousness: see previous posts on claim construction and damages. Arctic Cat appealed, and the FCA has now affirmed on the basis of obviousness, in a brief decision delivered from the bench.

“Ineffective Assistance of Counsel" as a Ground of Appeal

MediaTube Corp. v. Bell Canada 2018 FCA 127 Stratas JA

Stratas JA's decision on this motion provides a comprehensive review of “ineffective assistance of counsel” as a ground of appeal in civil matters. This ground of appeal is often asserted in appeals from criminal convictions. Even in criminal matters it will be “very difficult” to successfully advance this ground of appeal [36], as there is a “strong presumption” that counsel’s conduct fell within the “wide range” of “reasonable professional assistance” [30]. This presumption arises because “It is notorious that different counsel will handle situations in different ways and normally most of the ways will be the product of reasonable judgment calls.” Consequently the courts will be reluctant to use hindsight to second-guess the trial decisions of counsel [31].

It will be even more difficult to raise ineffective assistance of counsel as a ground of appeal in civil matters. The ground will succeed only in “the rarest of cases,” which is “just about the highest threshold imaginable under our law” [41]. In order to meet that threshold “an appellant must demonstrate some exceedingly special interest or truly extraordinary situation” [42]. The reason is that in civil matters, this ground of appeal enmeshes an innocent third party, the respondent, in what is really a dispute between the appellant and its former counsel [40]. The appellant will normally have an adequate remedy against the counsel directly [39]:

[62] There is a perfectly adequate forum for a litigant like MediaTube who is subject to a monetary judgment and who wishes to discover evidence of ineffective assistance: an action for negligence, breach of fiduciary duty, or both in the provincial superior court. There, full discovery can be had. If the litigant proves the cause of action, it can obtain up to full compensation—the amount of the monetary judgment in the Federal Courts system. If necessary and warranted, the litigant can come back and move for the judgment in the Federal Court to be set aside.

On the facts of this case, after losing comprehensively at trial (see 2017 FC 6 here and 2017 FC 495 here), MediaTtube launched an appeal, with new counsel. MediaTube’s subsequently brought this motion for leave to introduce “ineffective assistance of trial counsel,” as a ground of appeal, on the basis that its former counsel, Bereskin & Parr, “was in a conflict of interest, preferred the interests of another client, and did not prosecute MediaTube’s case in the Federal Court adequately” [2]. The allegation of conflict was that during much of the period that Bereskin & Parr represented MediaTube in its action against Bell Canada for patent infringement, it also represented Microsoft and filed several (unrelated) trademark applications on its behalf. Because Bell Canada’s product said to cause the infringement, Fibe TV, used certain Microsoft software known as Mediaroom, MediaTube argued that Bereskin & Parr had an interest in soft-peddling MediaTube’s case in the infringement action [65]. There was however, “no evidence that counsel was aware of the fact that Bereskin & Parr had filed trademark applications on behalf of Microsoft,” and consequently, “there is no basis to suggest that counsel had any incentive to soft-peddle MediaTube’s case or do anything other than put MediaTube’s interests first” [70]. Moreover, there was “no evidence that the Microsoft trademark filings were of such significance that counsel was in an actual conflict of interest or that the filings involved anything more than administrative work” [72]. Consequently, Stratas JA dismissed the motion on the basis that it was clear-cut that this ground of appeal was not arguable [14, [76].

As an aside, Stratas JA’s decision also has a vivid description of the pressure of litigation:

[33] In trials, turbulence and tumult often reign. Problems and questions often pop up unexpectedly, sometimes several at a time, often in need of quick answer. Some answers require knowledge of fine law and minutiae in the case, with nuances both elusive and tricky. Others draw upon something quite different, an art both mysterious and imprecise: assessing and predicting human behaviour. During trial, while events swirl about, ever present are the clients, sometimes anxious, sometimes emotional, always deeply invested in the case. Days go by to the exhaustion of all. Then the end is reached—except for the judge who is tasked to write the decision. Months can pass. During that time, memories fade while others are distorted by hope and expectation. At last, the decision arrives and with it, clarity and definitiveness. Some have won; some have lost. And some of the losers, looking for any way they can to reverse the decision, and armed with 20/20 hindsight, fuelled by disappointment, conclude that their lawyers were ineffective.

No new cases

No new substantive patent cases were released last week.

Unclear Whether Location of Server Outside Canada Avoids Infringement

Canadian National Railway Co v BNSF Railway Co 2018 FC 614 Locke J
            2,922,551 / 2,880,372 /2,958,024

CNR’s patents at issue claim a system for conducting an online rail-shipment inquiry system, which CNR alleges are infringed by two of BNSF’s online rail-shipment tools. The claims are variously framed as being to a method, a server arrangement and a computer [15]. BNSF brought a motion to strike based in part on the fact that its server is located in Fort Worth, Texas, where it is based, and consequently many of the steps in the claims in issue would be performed outside Canada [36]. Locke J held that this argument would not sustain a motion to strike, on the basis that it is not clear as a matter of Canadian law whether such claims may be infringed even if the server is located outside Canada:

[46] I agree with CN that the debate over whether all steps of the claims in issue must be put into effect in Canada for there to be infringement is a question of law, which should not be decided on a motion to strike. In my view, the jurisprudence on this question is not sufficiently settled that CN should be prevented at this stage from advancing its position. BNSF relies on Varco Canada Limited v Pason Systems Corp, 2013 FC 750 at paras 265-266, for the principle that patents are territorial and that Canadian patents cannot be infringed outside Canada. I agree with this general principle, but there remains the more specific question of whether infringement of a claim to a method (or a sever arrangement or a computer) can be avoided by locating one component thereof (a server) outside Canada. BNSF cites a US authority (Home Gambling Network, Inc v Piche, 2013 US Dist Lexis 141595 at 5-6 (D Nev)) in support of its view that this is indeed sufficient to avoid infringement. However, CN cites a UK authority (Menashe Business Mercantile Ltd v William Hill Organisation Ltd, [2002] EWCA Civ 1702, [2003] 1 All ER 279 at para 32) for the opposite conclusion. There does not appear to be a Canadian decision directly on point. BNSF argues that the UK law concerning the territoriality of patents is different from Canada’s, and that the US authority should be preferred. Having considered the authorities cited by the parties, I am not convinced that it is plain and obvious that CN’s position is without merit.

For the Third Time, Infringement of Claim 17 was Induced

Grenke v DNOW Canada ULC 2018 FC 565 Phelan J
            2,095,937

The original liability decision in this case was Weatherford v Corlac 2010 FC 602. This was largely affirmed on appeal, 2011 FCA 228, but remanded on the sole issue of inducement as it related to Claim 17. Phelan J’s decision on remand 2012 FC 76 (discussed here),was again remanded by 2012 FCA 261, on the basis that Phelan J had not properly appreciated the scope of the issues remanded. In particular, he did not revisit a crucial factual finding, considering it to be res judicata. The FCA clarified that it had intended him to consider the factual issue as well.

This decision is therefore Phelan J’s third time addressing this issue. The question is moot, as it has no effect on the damages decision (blogged yesterday), and the parties had urged Phean J not to address the issue. While acknowledging that the issue is moot, Phelan J felt bound by the instructions of the FCA to reconsider it [3]-[4].

As I noted in my post on the remand decision, “the factual finding was implicit in Phelan J’s original decision,” and consequently, “it would be surprising if his determination were to change now that he will be required to make it explicitly.” It is entirely unsurprising, therefore, that Phelan J on reconsideration has re-affirmed his original holding that the defendants induced infringement of Claim 17.

Compound Interest is Here to Stay

Grenke v. DNOW Canada ULC 2018 FC 564 Phelan J
            2,095,937

This decision is the damages portion of a bifurcated action, following Weatherford Canada Ltd v Corlac Inc 2010 FC 602,, in which Phelan J held the plaintiff Grenke’s 937 patent to be valid and infringed by the defendants. (Weatherford, a licensee of Grenke, has settled, and the names of various parties, including Corlac, have changed through acquisition and otherwise, which is why the case names are so different: [11]-[17]). The patentee elected damages rather than an accounting [2].

In oil production, a “stuffing box” is used to seal the top of an oil well and prevent leakage of the oil as it is being pumped out of the ground. The 937 patent claims a new type of environmentally-friendly seal assembly, which minimizes leakage [18]-[19]. There was substantial regulatory and environmental pressure to minimize leakage, and the patented technology was a game-changer [21], [45]. The decision is quite straightforward, and it is a good example of damages assessment in the context of a simple product, in which the patented technology contributed a major part of the value of the end-product. (This is in contrast to complex products, such as a smartphone, where any single technology contributes only a small part of the overall value.) Perhaps the most legally interesting aspects are that Phelan J allowed full recovery for convoyed sales, refused to grant punitive damages, and granted compound interest.

To begin, Phelan J emphasized the need to use a “broad axe” in assessing damages: while perfect compensation is the goal, the reality of litigation is that perfection can rarely be achieved: [71]-[73]. This point was repeated at a number of instances, though in most cases the inaccuracy in question would be small in any event: [84], [99], [101], [119], [130], [168]

The basic framework is to assess how many sales the patentee lost as a result of the infringing competition, and to calculate lost profits on those sales, and then to assess a reasonable royalty on all the remaining infringing sales. The parties did not really disagree on this framework, or indeed any major conceptual issues, but only on the application to the facts.

Phelan J accepted that market share was appropriately used by the plaintiffs in this case as a proxy for determining the plaintiff’s lost sales [91], [96], pointing out that “This is not a case with a small number of customers. . . which might require “customer-specific” evidence” [97]. Phelan J held on the facts that the appropriate market was “the ‘environmentally friendly stuffing box market’” [105]. There is something of a debate as to whether and when fixed costs can be deducted in calculating profits (see here, here, and here), but in this case the parties apparently agreed that only variable costs should be deducted [115].

Reasonable Royalty
With respect to the reasonable royalty, Phelan J remarked:

[136] In constructing the hypothetical negotiation of the royalty rate, it is important to take into account the realities on the ground. It is particularly relevant that GrenCo had market strength because of its technology and also important is that all the evidence suggests Grenke would have been an unwilling seller, difficult to deal with, and prepared to push the limits of “reasonableness” to the edge (and perhaps over). This all suggests a rate at the upper end of reasonableness. It is somewhat ironic that Grenke would be deemed, under this hypothetical negotiation, to accept any amount of royalty rate given his general intransigence to the point of “going down with his ship” rather than to settle. However, the Court must accept some of the realities in constructing the hypothetical negotiation and resolution.

There is indeed considerable artificiality in constructing a hypothetical negotiation in a case in which it is clear on the facts that the patentee would never have licensed in reality. But recall that a reasonable royalty is only assessed in respect of sales which the patentee would not have made in the real world; if the patentee can prove that it would have made the sale, then it will be entitled to lost profits. Sometimes, this will be because the infringer was selling into a market that the patentee had not entered. In this case, the parties were competing in the same market, and patentee is seeking lost profits on infringing sales that would not have been captured by the patentee, but which would instead have gone to a different competitor with a non-infringing product. That is, for reasons of pre-existing relationships, distribution, etc, if the particular customer had not bought from the defendant, it would have bought from a non-infringing third party. In that case it makes sense for the patentee to accept that since it would not have made the sale in any event, it would be better to allow the infringer to make the sale as a licensee, so that the patentee gets a return in the form of a royalty, rather than losing out altogether. The artificiality arises because it is only with hindsight that we know that the patentee would lose the sale in any event. At the time, it would have made sense for the patentee to fight for the sale, rather than license the defendant, because (unlike the case in which the defendant is selling into a different market), the patentee would rather have the profits on the sale than a royalty, and it can’t license only for those sales it won’t get, because it doesn’t know at the time that it won’t get the sale.

The larger point, perhaps, is that the objective is to assess a royalty which is reasonable in the circumstances, and a hypothetical negotiation is no more than a useful heuristic, which should not be taken too literally if problems arise in applying it. With that all said, I am not suggesting that it is wrong to assess a reasonable royalty “at the upper end of reasonableness” when the patentee was competing in the same market. I don’t have an opinion on that issue. My point is that the hypothetical negotiation framework is not particularly helpful in resolving the issue.

Turning to the calculation itself, the parties both used the “anticipated profits approach,” supplementing this analysis with the “minimum willingness to accept (MWA) versus maximum willingness to pay (MWP)” [135].

The anticipated profits approach supposes that the parties to a hypothetical negotiation, which takes place at the time of first infringement, split the profits they anticipate the infringer will make from the use of the patented technology. As noted by Phelan J, this approach has previously been used in Jay-Lor 2007 FC 358, and AlliedSignal 1998 CanLII 7464, 78 CPR (3d) 129 aff`d (1999) 86 CPR (3d) (FCA). In “A New Framework for Determining Reasonable Royalties in Patent Litigation,” (2016) 68 Florida Law Review 929, Tom Cotter and I argue that instead of anticipated profits, a split of the actual profits should be used. The difference is important only when actual profits are different from the profits that would have been anticipated at the time of first infringement. Despite the name “anticipated profits” approach, I believe that using actual profits would be consistent with Canadian cases. Note that the anticipated profits already relies on actual profits to a large extent. Profits are sales multiplied by profit margin per unit, and the “anticipated” profits approach normally (always, in Canadian cases) uses the actual sales, not anticipated sales, in calculating the “anticipated” profits. We argue that there is no good reason to use actual sales combined with anticipated profit margin. Further, it appears that in AlliedSignal, the calculation did use the actual profits [213]-[214],though it is a bit difficult to tell as the detailed calculations are in a confidential Appendix. (Note that AlliedSignal never used the “anticipated profits” terminology.) Jay-Lor did refer to anticipated profits, but in calculating anticipated profit margin, it appears that actual post-infringement costs (“over the past four years”) were used to assess the profits that would have been anticipated [142]. If that is right, Jay-Lor used an actual profits approach, with an anticipated profits terminology, or, at most, there was no difference between actual and anticipated profits. In this case, the details of the calculation are not discussed, as the parties were largely in agreement, so it is not clear whether actual or anticipated per unit profits were used. In summary then, if there is a case in which anticipated and actual profits are different, it would be open to Canadian courts to use an actual profits methodology, and in my view this would be preferable in principle, for reasons explained in detail in my article with Professor Cotter.

With respect to the MWP versus MWA analysis, Phelan J noted that in Merck v Apotex 2013 FC 751, (blogged here) “the Federal Court indicated that if there were no overlap between the MWA and the MWP, then the reasonable royalty is the MWA. The “minimum” of the MWA must, logically, be the lower end of the range – therefore, the application of Merck FC to this case leads to the conclusion that 8% is a reasonable royalty rate” [143]. Here again, I would suggest that we keep in mind that a reasonable royalty is being assessed only in respect of sales which the patentee would not have captured. In such circumstances, the patentee’s MWA will be its marginal cost, normally zero, because if the negotiation breaks down, the patentee will not make the sale itself, and so will not get any return at all. If the MWA is higher than the MWP, it must be that there was a conceptual error in assessing the MWA (assuming the patented technology is actually valuable, not detrimental, as was clearly true in this case). The details of the assessment of the MWA was not described. However, the MWP / MWA analysis gave much the same result as the anticipated profits analysis.

In US law, the most commonly used approach to assessing a reasonable royalty is to look to comparable licences. In this case, the defendants suggested that lower rates that had been negotiated in respect of the same technology by Weatherford should be used. Phelan J rejected this, correctly in my view, noting that the deal included cross-licensing which would have depressed the rates.

Phelan J also allowed recovery of lost profits for convoyed sales, on the basis of but for causation, without any further restriction:

[163] If compensation is not provided for such add-on items, then the patentee is not being put in the position that they would have been in but-for the infringement (resulting in less than perfect compensation). If the Plaintiffs can show, on a balance of probabilities, that such sales would have been made by the Plaintiffs in the but-for world, then in my view this is a loss for which they should be compensated. This approach is consistent with the limited Canadian case law on the topic, and I would reject the requirement suggested by the Defendants that such convoyed sales must have no function independent of the patented object.

In my view, Phelan J’s conclusion is sound for the reasons he gives. If the convoyed sales are reasonably foreseeable from the sale of the patented technology, as was clearly the case here, then the patentee would face a choice between charging a higher price for the patented goods, and losing some sales and convoyed sales, or charging a lower price for the patented good, in anticipation of profits from convoyed sales. These are just different strategies for realizing the value of the patented technology, and the damages award should not turn on which marketing strategy was chosen.

Punitive Damages
The plaintiff sought punitive damages. Phelan J noted that:

[186] At the liability phase of this action, the Court found that the Defendants:

a) intentionally set out to create a product which they knew or ought to have known would infringe the Patent;

b) have used a stuffing box design which is the same as the Grenke design, and profited from the sale of the infringing articles over a 10 year span (until enjoined by this Court from further infringement);

c) were considered by this Court to have been unjustified and egregious; and

d) had denied infringement of the Patent, yet at the same time claimed ownership in the Patent and argued that the Plaintiffs had in fact infringed their patent rights.

Phelan J refused to award punitive damages, emphasizing that “patent infringement alone, even knowing infringement, is not sufficient to ground an award of punitive damages,” [185] (citing Bauer Hockey 2014 FCA 158 [29]), and similarly, “there must be something more than knowing infringement to support an award of punitive damages”[189]. The various allegations regarding infringement and validity were considered part of the “brawl” over rights in the technology. No doubt this can be distinguished on the facts from Martineau J’s Eurocopter decision (blogged here), but it does evince the traditional reluctance of the Canadian courts to award punitive damages.

Interest
The Federal Court has historically been reluctant to grant compound pre-judgment interest, in part for the very good reason that the relevant statutes relating specifically to interest did not allow compound interest: see Federal Courts Act, s 36(4)(b), as noted by Phelan J at [205] (and the discussion here). There has been a recent and welcome trend to granting compound interest nonetheless, based not on the interest provisions, but on the basis that the loss is recoverable as an element of compensation, under s 55(1). The rationale is that in reality, a party with more money in its pocket will put that money to work, and reinvest the profits, which will also go to work, and compound interest is therefore required to provide full compensation. That is the approach taken by Phelan J at [193], [209] following Zinn J in Eli Lilly / cefaclor, 2014 FC 1254 (discussed here). Phelan J stated that “I concur with Justice Zinn’s comments that in today’s world, compound interest is an accepted form of redress” [194].

An interesting point arises from the approach of awarding compound interest on the basis of s 55(1). Phelan J began his discussion of interest by noting that the award of interest under s 36 of the Federal Courts Act is subject to judicial discretion to disallow interest under s 36(5), which discretion is “to assist the court in controlling the litigation process and to avoid inappropriate compensation” [191], quoting Apotex v Merck 2006 FCA 323 [140]. Phelan J also stated that compound interest was also awarded “[a]s a matter of discretion taking into account the equities and the conduct of the Defendants” [211]. But s 55(1) is normally understood as entitling the patentee to its legal damages, with only equitable remedies, such as an accounting, being subject to discretion. If compound interest is awarded as compensation under s 55(1), can it be discretionary? I’m not sure of the answer to this question, particularly in light of the argument for allowing the court to use its discretion in order to control the litigation process. The question did not arise in this case, as Phelan J did not exercise his discretion to disallow compound interest for the period for which it was claimed, but it presents something of a conundrum. No doubt the best solution would be updated interest provisions in the Federal Court Act, but there is little prospect of that happening, and I expect the issue will have to be resolved judicially.

Last Spasms of the Corpse of the Promise Doctrine

Safe Gaming System v Atlantic Lottery Corporation 2018 FC 542 McVeigh J
             2,331,238 / Safe Gaming System

The corpse of the promise doctrine has given a post-mortem gurgle in a problematic utility analysis in Safe Gaming System v Atlantic Lottery Corp. Nonetheless, I doubt this presages a zombie return.

The invention of the ‘238 patent pertains to a system for controlling online gambling. The general scheme of the invention includes an Internet Web site which serves as a portal to Internet-based gambling sites. The user sets up a profile specifying parameters, such as the amount of time spent gambling online or the amount of money lost, and the system cuts the user off from gambling sites when the parameters are triggered. The core of the decision is McVeigh J's holding that the asserted claims are invalid for lack of utility [136]. She also held them to be invalid for insufficiency [159], but not invalid for obviousness [180] or anticipation [184], but the problematic utility analysis permeated her conclusions on the other issues. She also held on the facts that the patent was not infringed by the defendant’s My-Play system [200].

Testing is not Invention

MIPS AB v Bauer Hockey Ltd 2018 FC 485 Gagné J
            2,798,542 [MIPS Patent]
            2,784,316 / 2,821,540 / 2,838,103 / 2,847,669 [Bauer Patents]

MIPS v Bauer concerns an invention near and dear to me, namely sports helmets designed to absorb rotational energy in order to minimize brain injury. (I do a lot of cycling, and all of my current helmets are equipped with MIPS technology.) Both Bauer and MIPS had developed and patented technology addressed at this problem. In this litigation, MIPS alleged that it was a co-inventor of the Bauer technology; that the Bauer products infringed the MIPS patent, and that the Bauer patents were invalid. In response, Bauer attacked the validity of the MIPS patent. The decision, that the MIPS employees were not co-inventors of the Bauer technology, the MIPS patents were valid but not infringed, and that the narrower claims of the Bauer patents were valid, turned on the facts and claim construction.

MIPS was an early leader in this technology, which is at the core of MIPS’ business. MIPS was founded in 2001 [15], and a patent for its first generation technology (MIPS I) was granted in Sweden in 2002. MIPS I used a sliding facilitator apparatus to allow rotational movement between the hard outer shell of the helmet and the inner energy-absorbing layer [13]. Its first product using this technology, an equestrian helmet, was launched in 2007 [16]. MIPS II technology was developed starting in 2009 [19], to address in-mold helmets, in which the inner energy absorbing layer is fused directly to the outer shell, making it impossible to place a sliding facilitator between the two. MIPS II technology uses an “attachment device” (3) as an interface between the wearer’s head and the inner energy absorbing layer, allowing relative rotation between the head and the inner layer.




Concussions are an increasing concern in hockey, and around the same time as MIPS was developing MIPS II, Bauer was also developing a technology to address rotational impact, specifically in hockey helmets, known as RE_AKT, using a SUSPEND-TECH floating liner.

Rotational impact is a relatively new concern in helmet design, and older testing equipment had been made to test only linear impact. The inventorship dispute arose because part-way through its development cycle, Bauer lost its academic partner responsible for testing, and Bauer, which had become aware of the MIPS I helmet, approached MIPS with the aim, as Gagné J held, of having MIPS test the Bauer designs. Gagné J’s decision recounts the details of the collaboration, but at the end of the day, she held that the MIPS team were not co-inventors of the Bauer product. The legal principle is that a party who tests an invention does not thereby become a co-inventor [93], and in this case Bauer employees had wholly conceived of the inventive concept, which had only been tested by MIPS [94], [100]. She noted that a series of events and coincidences (such as the fact that the inner liner on both products happened to be made of yellow material) had contributed to MIPS’ misperception of the facts [91].

On the issue of infringement, the MIPS products use an attachment device which is fixed securely to the head, with elastic fixation members between the attachment device and the inner energy absorbing layer. The attachment device and inner layer slide freely against one another, and energy absorption is achieved by deformation of the fixation members. The Bauer helmets, in contrast, have a floating liner, which is not securely attached to the head, and there are no fixation members as such, but rather energy absorption is provided by friction between the liner and the inner layer [184]. As Gagné J noted, to determine infringement, the defendant’s product is compared with the patent, not with the plaintiff’s product, even if that product embodies the invention. She held that using friction as a mechanism for absorbing rotational energy did fall within the broadest claims of the MIPS patent [163]. However, she also held that the claimed attachment device had to be coupled to the head, both before and during impact, and Bauer’s SUSPEND-TECH floating liner did not operate in that manner [192]. In effect, MIPS had not invented the concept of permitting rotation decoupling between the head and the helmet, but only one way of achieving that decoupling, and Bauer had independently developed another method. Because the attachment device was a crucial element of the claims, the Bauer products did not infringe [192], [197]. (MIPS also lost on other independent points, so the finding of no infringement did not rest on this issue alone [219].)

Bauer’s attack on the MIPS patent on the basis of anticipation and obviousness failed in large part because MIPS got caught in an infringement / validity squeeze [231], [243]. Because the court construed the “attachment device” more narrowly than MIPS’ experts, the validity attacks failed but so did infringement claim. A broader interpretation of the element would have led to a finding of invalidity [244]. (An overbreadth attack also failed on the facts [256].)

MIPS attacked the Bauer patents as being obvious in light of the MIPS II technology, which was on sale before the Bauer patent application was filed [257]. The broadest Bauer claim was held to be invalid for obviousness, on the basis that it would have been obvious to a skilled person to put a MIPS attachment device inside a hockey helmet, and that would fall within the claims [286], [287]. However, the narrow claims, addressed to Bauer’s specific implementation, were upheld [294].

Formal Protective Orders Largely Unnecessary in Light of the Strength of the Implied Undertaking Rule

Seedlings Life Science Ventures LLC v Pfizer Canada Inc 2018 FC 443 Tabib J

While I do not normally blog on procedural decisions, Tabib J’s opinion in Seedlings Life Science v Pfizer is an important decision on an important point, namely the exchange of commercially sensitive information in litigation.

In her decision in Live Face on Web, LLC v Soldan Fence and Metals (2009) Ltd, 2017 FC 858 Tabib J held that, given the existence of the implied undertaking rule, the Court ought no longer to routinely issue consent protective orders [4]. In this case, Pfizer nonetheless sought a formal protective order. Pfizer did not attempt to distinguish Live Face on Web, but in effect asked Tabib J to overrule her own recent decision [6]. Unsuprisingly, Tabib J refused to do so, and consequently she refused to grant the order sought. But Pfizer nonetheless largely achieved its purpose. Pfizer’s concern was that notwithstanding Live Face on Web, there remains such uncertainty as to the scope, application and enforceability of the implied undertaking rule, that the clarity and certainty provided by an express protective order is necessary [37]. Tabib J acknowledged the merit of Pfizer’s “thoughtful and helpful” submissions, which “highlighted the specific areas where intellectual property practitioners may have had concerns as to the scope and certainty of application of the implied undertaking rule” [66]. Rather than issuing a protective order for clarification, Tabib J clarified the law itself.

Tabib J reviewed the history and meaning of a variety of mechanisms which can be used to protect sensitive information. These include the implied undertaking rule, “pursuant to which a party to whom documents or information are transmitted in the course of pre-trial discovery is taken to have given an undertaking to the Court that he or she will not disclose or use them for any purpose other than the litigation in which they are produced. Any collateral or ulterior use constitutes a contempt of court” [3]. Tabib J explained the distinction between a protective order, relating to information that the parties will exchange between themselves in the pre-trial phase of an action, and a confidentiality order, which allows information which would be filed with the court, and so would otherwise be available to third parties, to be filed under seal. In addition, she noted that private agreements between the parties can also be used to supplement these other mechanisms.

The gist of Tabib J’s decision is that generally, the implied undertaking rule, supplemented by a private agreement between the parties, will provide adequate protection, so routine protective orders are no longer useful or necessary, and absent special circumstances they should be avoided as wasteful of the Court’s time and resources [67], [73], [74].

As to the scope and application of the implied undertaking rule, Tabib J emphasized that the sanctions for breach of the implied undertaking rule are every bit as clear and immediate as for breach of a formal protective order [60]. Further, she reiterated her holding in Live Face on Web, to the effect that [34]

an express agreement between the parties, whereby they recognize that such measures constitute undertakings given to the Court as additional protection to their privacy interest for the purposes of the litigation, is amenable to enforcement by this Court, including by way of contempt proceedings, without the need to be first acknowledged by the Court or enshrined in an order:

(See also [75].) This is very important to her broader conclusion that protective orders are generally not needed, as she held that, given that an express agreement between the parties is enforceable by the Court, many of the specific concerns raised by Pfizer could be addressed in that manner rather than by a protective order. For example, limits on the number or categories of people who can access designated information can be addressed by supplementary undertakings.

Tabib J further clarified that the implied undertaking rule binds third parties, such as experts, consultants and service providers:

[40] Discovery information is primarily disclosed to and controlled by the parties and their solicitors. Pursuant to the implied undertaking, they have no right to disclose that information to anyone, including third party experts, consultants or service providers, unless it is necessary for the conduct of the litigation. In that role, these third parties act as agents or sub-contractors for the parties. It would be unthinkable that these agents would not be bound by the same obligation as their principals. To entertain the contrary would be to accept that the important protection intended to be afforded by the implied undertaking could be defeated and rendered nugatory simply by allowing a party to act through an agent.

She further held that the law is clear that:

[49] A person who is aware of the application of the implied undertaking rule or of any order issued by this Court, whether or not they have given an express undertaking to attorn to the Court’s jurisdiction, is under a duty to this Court not to interfere with justice by acting in such a way as to breach the intent and purpose of the rule or order

She acknowledged that it may be difficult to enforce the implied undertaking rule on persons outside the Court’s jurisdiction, but she noted that that difficulty stems from the fact that it may be difficult to enforce a contempt judgment in a foreign jurisdiction. But that difficulty is not addressed by granting a formal protective order, which is also ultimately enforceable through contempt [50]. She suggested that consequently “a party may be more likely to obtain effective relief against breach of protective measures by asking the foreign court to recognize and enforce the underlying obligation” [50].

She also held that “the case law has clearly recognized that the implied undertaking does not prevent use of information that was obtained from other [non-confidential] sources [59].

She did leave open the question of whether protective orders should be issued in proceedings other than actions, in which the implied undertaking rule might not be applicable [58].

In concluding, Tabib J suggested that some misconceptions about the nature of the implied undertaking rule may stem from the “climate of uncertainty” as to the nature of the rule up to the 1990s, before clarifying jurisprudence had developed, and as a result of familiarity with US practice. Tabib J emphasized the distinction from US practice, “where the concept of the implied undertaking does not exist and where, as a result, protective orders are routinely issued” [67]. She emphasized the need for lawyers dealing with clients who are familiar with US practice to educate those clients “of the existence of the implied undertaking rule, of the restrictions on the use of this information and of the penalties they may face if the restrictions are breached, even in the absence of a formal order or agreement” [69].

No new cases

No new substantive patent cases were released last week.

Formal Confidentiality Order Not Always Required

MediaTube Corp. v. Bell Canada 2018 FC 355 Locke J
            2,339,447 / Internet Protocol Televsion / Fibe TV, FibreOp

This decision raises a couple of interesting points regarding procedure and substantive law of confidentiality orders. As discussed here, MediaTube's infringement action against Bell fell apart during discovery, and Locke J’s decision on the meritslargely addressed costs: 2017 FC 6. (And see 2017 FC 495 discussed here further clarifying the costs order.)

During the trial, in an exchange with the Court, Bell identified certain exhibits and transcripts that it felt should be treated as confidential. MediaTube did not object at that time, but it did object after retaining new counsel, and just after the trial decision was issued, MediaTube filed a motion seeking a declaration that these exhibits and transcripts are part of the public domain, and that they be made available to the public [4]-[6]. (The Court of Appeal has indicated that the hearing of the appeal would not be scheduled until after a decision on this motion [7].)

No formal evidence was submitted on the issue of confidentiality and no formal Confidentiality Order had ever been granted, but Bell had raised the issue of confidentiality several times during the trial, asking that certain material be treated as confidential, and Locke J had agreed [15], [16], [18]. Thus the issue of confidentiality had been duly raised, considered and decided at trial [20], and Locke J held that the matter was therefore res judicata notwithstanding the absence of a formal order (citations omitted):

[20] The fact that no formal Confidentiality Order was issued does not render null my rulings on confidentiality, and does not impede the application of the principle of res judicata. In addition, I am concerned about potential negative effects on the efficient conduct of trials in the future if I were to give weight now to Bell’s failure to make a formal motion, supported by formal evidence, for a formal Confidentiality Order. . . . The issuance of the order sought by MediaTube, and the consequent loss of confidentiality of Bell’s information, would likely prompt future litigants with information that all parties agree is confidential to devote unnecessary resources to obtain formal Confidentiality Orders.

This is not to say that a formal order is never advisable, but only that the need for a formal order at trial should be left to the trial judge [20].

MediaTube also relied on the fact that the court had not been formally closed when the confidential testimony was heard. After noting that it was unlikely that any member of the public had actually had access to the confidential evidence [23], Locke J rejected this argument as well, for similar reasons of judicial economy:

[24] As with the issue of Bell’s failure to request a formal Confidentiality Order, I am concerned about potential negative effects on the efficient conduct of trials in the future if I were to give weight now to Bell’s failure to request that the courtroom be formally closed during discussion of confidential information during trial. Requiring a party to take this step when it has no practical effect would impede the efficient conduct of trial.

The decision also raised a significant point on the substantive law related to confidentiality. In Sierra Club of Canada 2002 SCC 41, the SCC held that a confidentiality order should only be granted when it is necessary “to prevent a serious risk to an important interest, including a commercial interest.” The SCC elaborated by saying “In order to qualify as an ‘important commercial interest’, the interest in question cannot merely be specific to the party requesting the order; the interest must be one which can be expressed in terms of a public interest in confidentiality” [53], [55]. While the primary basis for his decision is that the matter was res judicata, Locke J also remarked that

[22] . . . I am satisfied that, where a party that finds itself involved in litigation (especially as a defendant in an action that is without merit) and is compelled by the rules of discovery to divulge sensitive and confidential information, there is a strong public interest in that party being able to maintain the confidentiality of that information. Otherwise, no confidential information is safe. I am satisfied that the salutary effects of maintaining the confidentiality of the information in question in the present motion, outweigh its deleterious effects on the right to free expression, including the public interest in open and accessible court proceedings.

This strikes me as a sensible interpretation of the SCC’s remarks.