Wednesday, February 13, 2019

Airbus v Bell Punitive Damages Award Upheld

Airbus Helicopters S.A.S. v. Bell Helicopter Textron Canada Limited 2019 FCA 29 de Montigny JA: Pelletier, Boivin JJA aff’g 2017 FC 170 Martineau J
            2,207,787 / helicopter landing gear

In Eurocopter v. Bell Helicopter Textron Canada Limitée 2012 FC 113 aff’d 2013 FCA 219 Martineau J held that one of the claims of the 787 patent, owned by Eurocopter (now the helicopter division of Airbus), to be valid and infringed. The patent covers sleigh type skid landing gear for helicopters [8]. In the subsequent Airbus Damages decision, Martineau J awarded $500,000 in compensatory damages (see here and here) and $1,000,000 in punitive damages, plus pre-judgment and post-judgment interest. (I wrote far to much on the punitive damages aspect of the trial decision, trying to analyze the relevant principles. I won’t repeat that here, but for those who are interested the posts are here, here, and here.) Airbus appealed, arguing that the award of punitive damages should have been higher, alleging a variety of errors [29]. Bell cross-appealed on the basis that the award of punitive damages was too high [71]. A few general principles arise from the FCA decision.

The standard of review is deferential

The Court noted that:

[30] It is now well established that appellate intervention with respect to an award of punitive damages will only be warranted where the trial court made an error of law or a “wholly erroneous assessment” of the quantum of damages (Richard v. Time Inc., 2012 SCC 8, [2012] 1 S.C.R. 265 at para. 190 (Time)). In Cinar Corporation v. Robinson, 2013 SCC 73, [2013] 3 S.C.R. 1168 (Cinar), the Supreme Court summarized the applicable standard of review in the following way:
In [Time], this Court held that an appellate court may only interfere with a trial judge’s assessment of punitive damages (1) if there is an error of law; or (2) if the amount is not rationally connected to the purposes for which the damages are awarded, namely prevention, deterrence (both specific and general), and denunciation …
                                    Cinar at para. 134.

Airbus argued that Martineau J had not attached sufficient importance to various factors, such as the blameworthiness of the respondent’s conduct, and the financial means of the defendant [39]. However, Martineau J “correctly identified the factors going to the proportionality of a permissible quantum of punitive damages, and properly applied them to the facts of this case” [50]. So long as that is done, the FCA will not be inclined to reweigh the relevant factors itself [39], [45]-[52], [57].

Prior awards may be used as guideposts

Airbus argued that “the judge’s determination of the quantum of punitive damages was based on his erroneous belief in the existence of a $2,000,000 ceiling” on punitive damages awards [34]. The FCA concluded that Martineau J had not in fact felt himself limited by any such ceiling [36], [38]. Rather, “he saw this scale simply as a helpful indication of the range of punitive damages previously awarded” [36]. Moreover (emphasis added):

[37] In my view, there is nothing untoward or inappropriate in using a range of previous awards, as guideposts, in assessing the quantum of punitive damages. Even the Supreme Court, in Whiten, took such a range into account, when it concluded that the award was “certainly at the upper end of a sustainable award on these facts but not beyond it” (at para. 4). It is, in fact, a very common practice, and a sound one for that matter, to consider previous awards in assessing the quantum of punitive damages in a particular case.

Lubrizol is of limited precedential value

In Lubrizol 58 CPR(3d) 167 (FCTD) rev’d 67 CPR(3d) 1 (FCA) the FC had initially awarded $15,000,000 in punitive damages. This was overturned on appeal because the quantum of the compensatory damages had not been considered in the analysis [40] and they had not yet even been assessed. As the FCA stated in Lubrizol, “the Court cannot decide whether exemplary damages are required until after it decides whether the general damages were insufficient for punishment and deterrent purposes.” Airbus argued that nonetheless the FCA in Lubrizol had “implicitly agreed” that $15,000,000 was appropriate [41]. The FCA in this case rejected that reading of Lubrizol [41], and went on to state that

[43] Lubrizol was decided almost 25 years ago and does not seem to have been given much precedential value. I have been unable to find any other case where such a large award of punitive damages has been made, and counsel has not drawn our attention to any such case. [On review of other awards] Lubrizol would therefore appear to be the outlier in terms of the significance of the award in punitive damages, and the judge was certainly entitled to distinguish that decision from the present case.

Post infringement mitigating conduct should be considered

Bell had originally used the infringing gear, known as the “Legacy” gear, but after an infringement action was brought in Canada and other jurisdictions (including the US and France), had switched to non-infringing Production gear [10]. Martineau J had taken this into account as a mitigating factor in assessing punitive damages. Airbus argued that doing so was an error of law. It argued, based on the discussion of “potential harm” in Whiten 2002 SCC 18 [117], that “the seriousness of the prejudice must be assessed at the time of the wrongful behaviour, whether or not actual prejudice ensued” [60]. This FCA rejected this, pointing out that it was clear from the SCC discussion in Whiten that “what the Court really wanted to prevent was for bare luck to be considered as a mitigating factor” [61].

Further, the FCA held that “it was open to the judge to regard the steps taken by the respondent after the infringement as a mitigating factor” [62], and indeed,“[n]ot taking into account the conduct of the respondent after being notified of the violation would be antithetical to [the holistic and balancing approach endorsed in Whiten]” [63, my emphasis]: and see [64].

Sanctions for the same infringement in other jurisdictions may be taken into account

Airbus argued that Martineau J had erred in law in considering other penalties, in particular the likelihood of damages for infringement in parallel US and French proceedings [65],[66]. (And see [FC 435], [FC 440]. The FCA held that this may be taken into account, at least so long as the proceedings related to the same infringement [66] and are actually likely to result in a sanction [67]. (Though in any event, on the facts Martineau J appears to have considered this factor to be neutral [69].)

Finally, Bell cross-appealed on the basis that the award of $1,000,000 was more than the minimum necessary to meet the purposes of punitive damages [71]. The FCA rejected this argument, holding that on the facts, it was open to Martineau J to conclude that substantial punitive damages were warranted [75].

Monday, February 11, 2019

Patent Listing Timing Turns on Date Submission is “Administratively Complete”

Eli Lilly Canada Inc. v. Canada (Attorney General) 2019 FC 5 Lafrenière J
            2,812,704 / pegbovigrastim / IMRESTOR

The PM(NOC) Regulations allow patents to be listed against a drug. The basic rule is that only patents which pre-date the NOC application are eligible for listing, on the rationale that subsequent inventions should not extend the duration of the linkage [12]. The Regulations implement this timing requirement with two provisions. Subsection 4(5) states that the patent list must be submitted at the time of filing the NDS, so that only patents that have already been granted can be listed under this provision. But is not necessary that the patent has already been granted, so long as it has been applied for. Subsection 4(6) provides that a patent is eligible for listing if it has a Canadian filing date prior to “the date of filing of the [new drug] submission.” The question in this case is what is the date of filing of the NDS: is it the date at which the NDS is “administratively complete” or the date at which is it substantively or technically complete? Short answer: the former.

On June 21, 2011, Elanco submitted a Drug Submission Application form and some related forms, which got the ball rolling on the application process [20]. This material was received on June 24, 2011 and determined to be “administratively complete” as of that date. It was common ground that the submission was not substantively complete, in the sense that the efficacy data, animal safety data, etc required by subsection C.08.002(2) was not provided [20]. Elanco had been permitted to engage in a rolling submission process [19], and the bulk of the substantive information was provided over the year from March 2012 to March 2013. The Canadian patent filing date was September 22, 2011 [22], between these two dates. Thus, if it is enough that the NOC application is administratively complete, then the ‘704 patent was not eligible for listing as the patent filing date was after the NDS filing date. But if the NOC application has to be substantively complete, the timing requirement would be met, and ‘704 would be eligible for listing.

Health Canada’s position is that the date of filing is when the NDS is administratively complete. Accordingly, it refused to list the ‘704 patent. Elanco appealed. Lafrenière J, applying a deferential standard of review [50], upheld Health Canada’s position. (To be eligible for listing under s 4(6), it is also necessary that the patent be submitted for listing within 30 days of issuance. That requirement was met, and was not at issue [31].)

A key point is that “[n]either the Patent Act, the NOC Regulations or the FD Regulations define the term “date of filing” of a submission, nor do they establish rules for determining that date” [58]. Elanco relied on C.08.002(2) of the FD Regulations, which specify “A new drug submission shall contain sufficient information and material to enable the Minister to assess the safety and effectiveness of the new drug, including...” Elanco argued that “shall” was a mandatory provision. However, as Lafrenière J noted, “Subsection C.08.002(2) simply speaks to the contents of a NDS and not to when a NDS may be considered filed. All the provision does is to set out the information that a first person is required to provide in order for a submission to be processed” [59]. If it were mandatory in terms of timing, then the practice of allowing rolling submissions would not be permitted [60].

In the absence of governing statutory provisions defining the date of filing, it was open to the Minister to allocate a filing date for submissions [63]. Moreover, the rationale for using the date the filing is sound, because it promotes certainty [66]. Adopting a requirement of substantive completeness would introduce considerable uncertainty, both in light of rolling submissions and supplementary submissions.

Thursday, February 7, 2019

Crystalline Form Not Obvious to Try

Apotex Inc v Pfizer Canada Inc 2019 FCA 16 Boivin JA: Webb, de Montigny JJA aff’g 2017 FC 774 Brown J
Teva Canada Ltd v Pfizer Canada Inc 2019 FCA 15 Boivin JA: Webb, de Montigny JJA aff’g 2017 FC 777 Brown J
2,436,668 / desvenlafaxine (ODV) / PRISTIQ / NOC

In ODV the FCA has affirmed Brown J’s finding that Claims 8 and 9 of the ‘668 patent, to Form I ODV succinate (a particular crystal form of a particular salt of the compound ODV), were not obvious. The decision turns on the obvious-to-try analysis: see here for a review of the facts. The FCA decision does not apply new law, but it is another helpful discussion of the obvious-to-try analysis applied to the particular facts. It is useful to contrast this case, in which the crystalline form was found not to be obvious on an obvious-to-try analysis, with Dasatinib 2017 FCA 190 aff’g 2017 FC 296, holding the claims at issue to be obvious-to-try: see here for a discussion. These are companion cases, and the reasons are largely the same. This discussion will refer primarily to the Apotex decisions, simply because it is the one I happened to read first.

As the FCA discussed in Atazanavir 2017 FCA 76 (see here), as well as in Ciba v SNF 2017 FCA 225 (see here), the role of the inventive concept in an obviousness analysis has been problematic. In this case, it was uncontested that the inventive concept of the relevant claims is Form I ODV succinate. Apotex’s main argument was that “the Federal Court Judge erred when he made reference to the properties of ODV succinate – and specifically Form I – in his reasons as they are not part of the inventive concept” [37]. This is an important point. An obvious to try analysis is likely to be appropriate “where advances are often won by experimentation” (Sanofi [68]). In such a case, the detailed properties of the invention normally cannot be predicted in advance. If the detailed properties are part of the inventive concept, then the claimed invention would never be obvious, even though it was obvious to try and succeeded without the need for inventive ingenuity, as, for example, in Dasatinib. The FCA acknowledged this concern:

[38] I am mindful that our Court cautioned in Atazanavir to not implicitly adopt a definition of the inventive concept that focuses on properties if the properties are not part of the inventive concept (Atazanavir at para. 74).

In the Teva appeal, the Court noted that there was no dispute between the parties that the inventive concept does not include properties [32]. (This is not to say that the properties can never be part of the inventive concept, as the Court indicated in [38].)

Apotex’s complaint did have some basis in Brown J's reasons; in places, he did discuss the properties of ODV in a way that could be taken to imply that it would have been necessary to be able to predict its properties from the prior art: see eg the passages quoted at [38]. However, when read as a whole:

the Federal Court Judge did not find non-obviousness on the basis that the properties were not predictable in the manner seemingly suggested by Apotex. Indeed, although the Federal Court Judge discusses properties in various parts of his reasons, his conclusion that Form I ODV succinate is not obvious does not rest solely on the unpredictability of the properties of a salt form. Rather, the Federal Court Judge relied on evidence that demonstrated that a skilled person could not have known or predicted that the Form I ODV succinate – i.e., the crystal form itself – could be made or even existed:

So, Brown J found that “the number of experiments required to move from the acceptable pharmaceutical salts to the Form I ODV succinate was extremely large, as Dr. Myerson deposes at para 102 of his affidavit, and in the nature of a research program, not routine experimentation” [FC 230] quoted at [38]. Sp, on the facts, actually making the crystal form required inventive ingenuity, quite aside from whether the properties are part of the inventive concept, or could have been predicted.

The FCA also affirmed that the jurisprudence “does not establish any “hard and fast rules” on obviousness when it comes to evaluating whether or not a salt screen or any other form of experimentation is obvious or not” [42]. Whether salt forms, polymorphs or crystalline forms are obvious will turn on the facts of the case.

Friday, February 1, 2019

No new cases

No new substantive patent cases were released for the week of 28 January.

Wednesday, January 30, 2019

No new cases

No new substantive patent cases were released last week.

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

Thursday, January 17, 2019

Ownership Can Be Raised as a Defence but Not as a Counterclaim

Farmobile, LLC v Farmers Edge Inc 2018 FC 1269 Mactavish J aff’g 2018 FC 915 Ring J
            2,888,742 / Farming data collection

Farmobile, the patentee in this action, sued Farmers Edge (FE) for infringement of the 742 patent. FE asserted, by way of both defence and counterclaim, that it was the rightful owner of the patent [915-3]. The defence and counterclaim were both based on the same facts [14], [914-38], to the effect that the right in the invention had been assigned to it [8]-[12], [914-4]. Farmobile sought to strike the allegations related to ownership from both the Statement of the Defence and the Statement of Counterclaim, which were considered separately. Ring J granted the motion to strike the counterclaim, but allowed the same allegations to stand as a defence (see here). Mactavish J has now affirmed.

In affirming that the allegation of ownership may stand as a defence, Mactavish J established what appears to be a novel point, albeit a minor one, namely that ownership of the patent by the defendant is indeed a defence to a claim of patent infringement which may be asserted in Federal Court, like non-infringement, invalidity and use pursuant to a licence [31]. This was in the face of Farmobile’s argument that the Federal Court lacked jurisdiction to entertain ownership in any context; it asserted that “while ownership is indeed a defence to a claim for patent infringement, it is not one that can be asserted in this Court” (Mactavish J’s emphasis). As Mactavish J pointed out, it is well-established that a licence to use is a valid defence, notwithstanding that assessing the merits of such a defence involves a matter of contractual interpretation, and “A licence is, after all, merely one form of contract” [32]. This holding seems clearly correct, but it is nonetheless a relief.

At the same time, Mactavish J affirmed that the Court does not have jurisdiction to consider exactly the same issue, based on exactly the same facts, by way of counterclaim. Mactavish J held that the contracts relating to ownership may be used a shield, but not as a sword [26], [35], [50]. The rationale is that in the defence, the essence of the litigation is patent infringement, while in the counterclaim, the essence of the litigation is patent ownership. This distinction does have support in the cases, in particular Innotech (1997) 74 CPR (3d) 275 (FCA), relied on by Mactavish J [34],[43]-[50]. And it is also reasonable to say the that the Federal Court can determine ownership when raised as a defence to an infringement action, even if it does not have jurisdiction to do so when ownership is raised independently.

However, the shield / sword distinction does not address, or affect, the more fundamental issue as to whether the Federal Court has jurisdiction to consider patent ownership when raised indepednently. If the Federal Court does not have such jurisdiction, then the sword / shield distinction makes sense; but if it does have such jurisdiction, then it doesn’t. Mactavish J’s reasoning is sound if one accepts that the Federal Court does not have jurisdiction to determine patent ownership on its own, but nothing in her decision addresses that fundamental point, one way or the other.

In previous posts, here and here, I have argued that the Federal Court does indeed have such jurisdiction, in light of s 20(2) of the Federal Court Act which gives the Federal Court “concurrent jurisdiction in all cases. . . in which a remedy is sought under the authority of an Act of Parliament or at law or in equity respecting any patent of invention.” In Kellogg [1941] SCR 242 the SCC interpreted the predecessor provision of the Exchequer Court Act as follows:

It will be noticed that subsection (c) deals with the "remedy" which is sought. And it enacts that the Exchequer Court shall have jurisdiction between subject and subject in all cases where a "remedy is sought" "respecting any patent of invention" "under the authority of any Act of the Parliament of Canada or at Common Law or in Equity." The remedy sought by the appellant, as a result of paragraph 8 of its statement of claim, is evidently a remedy in Equity respecting a patent of invention. The appellant claims that remedy as a consequence of the facts alleged in its paragraph 8 [that the appellant was owner by assignment]. It claims the remedy as owner deriving its title from the same alleged inventor of whom the respondent claims to be the assignee, through other assignors. In such a case, the invention or the right to the patent for the invention is primarily the subject-matter of the appellant's claim, and the remedy sought for is clearly "respecting any patent of invention." And this is covered by subsection (c) of section 22 of the Exchequer Court Act, as it stands at present.

Mactavish J interpreted Kellogg as holding that the Federal Court “may resolve contractual issues raised in an action that is in ‘pith and substance’ within the Court’s jurisdiction” [20]. I’m not sure that is exactly right: what the above passage says is that a party has jurisdiction when seeking a remedy respecting any patent of invention; which, of course, is what s 20(2) of the Act says on its face.In any event, whatever the broader principle, it seems to be to say quite explicitly that the Court does have jurisdiction in the circumstances at hand.

The argument endorsed above was made in the alternative (though that does not detract from its authority, as it was "obviously intended for guidance" and so should be accepted as authoritative: R v Henry 2005 SCC 76 [57]). Mactavish J implicitly distinguished Kellogg by saying that in that case the “primary issue” was a matter of patent law, not that alternative argument, citing pages 249-250. The exact “matter of patent law” at issue in Kellogg at 249 was as follows

the appellant is entitled to the benefit of the invention because John L. Kellogg, Jr. [the putative inventor], at the time when he is alleged to have made it, was in the employ of the appellant and then carrying out work which he was instructed to do on the plaintiff's behalf, and that, by virtue of his contract of employment and the circumstances under which the invention was made, he became and is a trustee of the invention for the company; if it be true further that, by reason of his being such a trustee, he was unable to transfer any right, title, or interest in the invention to any other party, and that the plaintiff is now the owner of any invention so made by John L. Kellogg, Jr., this would be one of the reasons why the appellant should be declared entitled, as against the respondent, to the issue of a patent including the claims in conflict as applied for by it.

That is, the "matter of patent law" is the question of who is the true owner of the patent in light of the contract of employment. This is exactly the question at issue in Farmobile: see the allegations [915-4], reproduced in my post on Ring J’s decision. The argument which I have previously discussed, based on what is now s 20(2), was an argument in the alternative. The primary basis for the decision in Kellogg, which Mactavish J acknowledged was a matter of patent law, is that ownership of a patent by virtue of contractual assignment and related circumstances, is essentially a matter of patent law and so the Federal Court has jurisdiction by virtue of that fact. This is entirely apart from any authority to award a remedy under s 20(2), or vary the Register under s 20(1). This aspect of Kellogg strikes as even more fundamental and directly on point. I cannot see how it is distinguishable from the facts at hand.

I remain perplexed by the Federal Court’s unwillingness to accept jurisdiction in these situations. When SCC precedent is unsound, I can understand that the Federal Court would resist its application by looking for tenuous distinctions. Indeed, that is in part how the common law “works itself pure.” But to my mind Kellogg makes perfect sense. The Federal Court consistently recognizes that it is “inconvenient” to require a party to commence a second proceeding in a provincial superior court in such circumstances [52]; the Court does not seem to be resisting jurisdiction out of concern that it would create some practical problem, which might not be apparent to an academic such as myself. It is of course true that inconvenience in itself is not a basis to assert jurisdiction where it does not exist [52], but conversely, creating inconvenience is not a basis to refuse jurisdiction where it does exist.

More broadly, a court faced with the question of who is the present owner of the patent must address who was the inventor, in order to determine who had the right to make a valid assignment in the first place, and that is surely a matter of patent law; as well as the question of how is the first owner, which is usually said to be a matter of patent law (see Comstock 38 CPR(3e) 29, 51-54; s 49); as well as the matter of priorities under s 51. Ultimately the remedy is amendment of the Register, which is established pursuant to s 12, and which the Federal Court, but not the provincial superior courts, has the authority to order amended, pursuant to s 52. Thus, patent law and the Patent Act is implicated at every stage of an patent ownership dispute. Consequently, while contacts of assignment are also implicated, the matter of ownership of a patent seems to me to be essentially a matter of patent law, and that is what Kellogg says on its face.

Friday, January 11, 2019

Legal Fees Not a Deductible Expense in an Accounting

Human Care Canada Inc v Evolution Technologies Inc 2018 FC 1302 supplementary reasons 2018 FC 1304 Elliott J
            2,492,392

In Human Care v Evolution Tech, Human Care brought an action against Evolution for infringement of its 392 patent related to “rollators” – a “walker” with wheels, primarily used to assist the elderly with mobility issues. Evolution counterclaimed that the 392 patent was invalid. The case turned on the facts. One legal point of passing interest, the deductibility of legal costs as an expense in an accounting of profits, was raised.

Infringement, as usual, turned on claim construction, and Elliott J generally preferred the evidence of Human Care’s expert. For example, Elliott J agreed with counsel for Human Care that the key expert for Evolution “has looked at the claims, picked at random words, define[d] them outside of the claims, and then reinserted them into the claims” [189]. Validity attacks based on anticipation [382], obviousness [405], [410], and overbreadth [420], likewise failed on the facts.

Turning to damages, the parties agreed that the quantum for reasonable compensation for ‘infringement’ after publication but prior to grant, should be based on royalties actually charged by Human Care during that period, and the number of units was also agreed [41], so there was “nothing to discuss” on this issue [432].

Elliott J held Human Care was entitled to elect an accounting rather than damages, essentially on the basis that there was no reason, such as undue delay, for denying the election [436]. This is consistent with the general practice of presumptively allowing the patentee to elect an accounting unless there is some equitable reason to refuse it. (There are one or two cases where the Court has held that the burden was on the successful patentee to establish an entitlement to an infringement, but these are the exception.)

It appears that Human Care’s rollator design swept the market, so that there was no non-infringing alternative; if Evolution had not sold infringing rollators, it would have had to leave the market, and might well have gone out of business [455]. Elliott J noted that “Where there is no non-infringing alternative, the infringer must turn over all profits made from the infringing act, less legitimate expenses incurred” [462].

One unusual point is that Evolution sought a deduction for legal fees as a business expense. Elliott J noted that:

[477] This Court has been generally hesitant to accept deductions for legal fees. For instance, in Teledyne [(1982), 68 CPR(2d) 204), Mr. Justice Addy at [pages] 214-216 did not allow the defendant to deduct legal expenses because it was concluded that such an approach would allow the infringing party to retain part of its unjust enrichment.

The point was apparently a novel one in Teledyne, as the only cases cited related to deductibility for income tax purposes of legal expenses incurred for the purpose of doing business, and as such, “are not remotely applicable” (215). To say Addy J was "hesitant" to accept such a deduction, is an understatement. He said (my emphasis):

That question must be answered most emphatically in the negative, regardless of the fact that the expenditure might well be considered from a general accounting standpoint as being a variable expense incurred in the course of selling the infringing product. Allowing this deduction would amount to the Court rewarding the wrongdoer and contravening its own finding. Such a decision would, in my mind, be likely to bring the administration of justice into disrepute and, in addition, contribute to the unjust enrichment of the wrongdoer. It is impossible for me to conceive how a court of equity would even seriously consider these expenses as a legitimate deduction and indeed the Defendant was unable to point to any case where the question was even raised.

I admit the concept does seem outrageous, but outrage is always an uncertain basis for a legal holding, and to my mind Addy J’s next point was more persuasive:

Furthermore, the Court in this action awarded-costs to the Plaintiff on a party-and-party basis. A deduction of the Defendant's costs on a solicitor-and-silent basis would in effect constitute a direct contradiction of its previous order. Costs in an action have always been considered separately from the ether claims of the parties to that action, as the considerations governing allowance or disallowance of costs, the amounts granted and the scales on which they are to be calculated are quite different from those which govern the Court's findings on substantive issues. It is for this same reason that a successful plaintiff, who elects to as for an assessment of damages, is not entitled to add his legal expenses in prosecuting the action as part of the damages incurred.

That strikes me as entirely persuasive. Costs awards are dealt with separately, with distinct considerations, related to eg the incentive to litigate, and the need to sanction the conduct of the case, and so on. To allow deduction of the legal fees as an expense on the accounting would undermine the rationale for the costs award.

(Note that Addy J remarked that “[a] similar claim was also disallowed in the Dubiner v. Cheerio Toys case [[1966] Ex.C.R. 801, 837-38]” but I note that in Dubiner the legal costs were disallowed primarily “on the simple ground that the defendant failed to prove these accounts,” and it is therefore not strong authority for refusing the deduction as a matter of principle.)

In the case at hand, Elliott J, after citing Teledyne, nonetheless allowed a deduction for legal costs to a certain extent, as being the amount the defendant “spent prior to the litigation in this and a parallel dispute” [478]. This seems to suggest that the principle enunciated by Addy J is applicable only in respect of litigation expenses incurred after the statement of claim is actually filed. I’m not sure that is a principled distinction, but the issue discussed so briefly that I won't explore it further..

Overall, a number of the expense deductions were disallowed in whole or in part for lack of adequate proof. The result was a “rough justice” award of just over $12 million.

Elliott J also granted a permanent injunction on established view that ““[t]he Court should refuse to grant a permanent injunction where there is a finding of infringement, only in very rare circumstances” [485], quoting Valence v Phostech 2011 FC 174 [240]. Compound interest (“profits-on-profits”) was refused on the basis that Human Care “did not provide thorough submissions on why profits-on-profits is merited in this case” [487]. The supplementary reasons clarified the terms of the injunction and order for delivery up, as well as the details of the damages and interest assessment.

Friday, December 21, 2018

Reasonable Lump Sum Costs

Teva Canada Ltd v Janssen Inc 2018 FC 1175 Locke J
            2,203,936 / 2,435,146 / 2,738,706 / bortezomib / VELCADE

This is the costs decision from 2018 FC 754, in which Locke J granted Teva’s claim for compensation under s 8 of the NOC Regulations, dismissed the counterclaim for infringement, and awarded costs to Teva. The parties disputed whether costs should be awarded as a lump sum, or after an assessment [7]-[8].

Locke J’s general comments on lump sum costs are of interest (original emphasis):

[4] Though I am not convinced that there is support for Teva’s statement that lump sum awards are becoming the norm, I do accept that they have found increasing favour with courts because they save time and further the objective of securing “the just, most expeditious and least expensive determination” of proceedings (per Rule 3): Nova Chemicals Corporation v Dow Chemical Company, 2017 FCA 25 at para 11 [Dow].

[5] A lump sum award of costs is particularly appropriate in complex litigation between sophisticated litigants and in the context of commercial litigation: SNF Inc v Ciba Specialty Chemicals Water Treatments Limited, 2018 FC 245 at para 3 [SNF].* In dealing with lump sum, the efficiency of a set amount requires the Court to use a bit of a “broad sword” approach: SNF at para 9.

[6] Lump sum awards tend to range between 25% and 50% of actual fees, though there may be cases where a higher or lower percentage is warranted: Dow at para 17.

Within that range, he suggested that the higher end “seems to be appropriate mainly for situations in which the Court wishes to express its displeasure with the conduct of the losing party” [35]. With that said:

[38] I disagree with the assertion of the plaintiffs by counterclaim that elevated costs are reserved for exceptional cases where there is reprehensible, scandalous or outrageous conduct. Based on the authorities cited by the plaintiffs by counterclaim, this limitation applies only to awards of solicitor-and-client costs.

On the facts, Locke J held that a lump sum was appropriate in light of the complexity of the litigation [32], and an amount of 25% was appropriate [36]. However, he was concerned that he had no basis for assessing the reasonableness of Teva’s legal fees of $4.8 million, which appeared high even for a case of this complexity [32], [34]. He accordingly based the lump sum, not on the actual fees, but what he considered to be reasonable fees, In the absence of more detail, he accepted no more than $3.4 million as reasonable, and awarded $850,000 (inclusive of tax), that is, 25% of $3.4 million [36] (plus reasonable disbursements). This query as to the reasonableness of the fees was not related to the conduct of the litigation itself, which Locke J noted was efficient, and indeed “praiseworthy” [25].

Because of the uncertainty regarding the details of Teva’s fees, he compared this amount with the amount that might have resulted from a determination under the Tariff [33], and in particular the top of Column V, in light of the unusual complexity of the case [37]. The top end of Column V, based on Teva’s submissions, would have resulted in an award of about $990,000 (plus tax) [40], while the top of Column IV would result in about $780,000 (plus tax) [49]. This confirmed the reasonableness of the lump sum award of$850,000 (inclusive of tax) for fees, which was the amount actually awarded.

It’s interesting that in the end, Teva was awarded about 18% of its actual fees as the prevailing party in complex, well-run litigation — $850,000 (including tax) on actual fees of $4,778,473 (it’s not clear to me whether that includes tax).

There is also an interesting point on legal v technical complexity (original underlining, my italics):

[13] The plaintiffs by counterclaim also assert that it is the complexity of legal issues, not technical issues, which should be considered in determining costs. In support of this position, they cite MK Plastics Corporation v Plasticair Inc, 2007 FC 1029 at para 24, which cites TRW Inc v Walbar of Canada Inc (1992), 43 CPR (3d) 449, [1992] FCJ No. 606 (QL) at pp 456-7 (FCA). These precedents do not explain why the issues to be considered under this heading do not include technical issues, but I accept the effect of this jurisprudence. In any case, the technical complexity of the case is reflected in other factors such as the amount of work and the reasonableness of expert witness expenses.

Locke J's apparent concern regarding the validity of this distinction made no difference on the facts, as he found the legal issues in this case to be particularly complex [14], even for pharmaceutical litigation involving obviousness.

*Unfortunately, the costs decision in SNF v Ciba which was cited by Locke J, does not appear to have been posted on the FC website.

Thursday, December 6, 2018

Miscellaneous Issues in Cefaclor Damages

Apotex Inc v Eli Lilly and Co 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA aff’g 2014 FC 1254 Zinn J
            1,133,0071,146,5361,133,4681,150,725 [Lilly Patents]
            1,095,0261,132,5471,136,1321,144,924 [Shionogi Patents]

There are a couple of miscellaneous points arising out of Cefaclor Damages FCA that I’d like to address.

Grain Processing
In her remarks on general principles, Gauthier JA noted that

[48] [I]t is important to understand that our Court did not simply import an American law concept in a wholesale fashion. The Court in Lovastatin may indeed have referred to American authorities in order to better ground the concept. But one must be careful not to construe references to American jurisprudence lending support for the NIA defence as a blind incorporation of, or strict adherence to, the reasoning adopted by American courts.

This is all fair enough in the abstract, but a bit obscure; the FCA seems to be implying that there is some particular aspect of American law which is not good law in Canada, but without specifying exactly what.

I wonder if the remark might have been aimed at Grain Processing 85 F3d 1341 (Fed Cir 1999), in which the Fed Cir allowed the infringer to rely on an NIA which was not in existence at the relevant time. Grain Processing was relied on by Apotex both in Lovastatin FCA and in this case. Gauthier JA pointed out that Grain Processing, can be distinguished on the facts, because in that case the NIA was a process that increased the cost by only 2.3%, while in this case the increased costs were raised by at least 40%. I agree; and there is another related distinction. In Grain Processing, the only reason the infringer did not develop the infringing process earlier was that it did not know it was infringing. The infringer knew of the patent, and was trying to design around it, and thought it had succeeded, but there was a technical dispute over exactly how the “dextrose equivalent value” specified by the claim was to be measured (using the “Schoorl test” or the “Lane-Eynon test”). The infringer guessed wrong. But the point remains that once the true construction of the claim had been determined, the infringer had no difficulty designing around the claim and developing a substantially equivalent non-infringing process. That is why the Fed Cir in Grain Processing ultimately held that the infringer would have used the non-infringing process from the outset; it was very clear on the facts that it could have developed the NIA much earlier and would have done so had it known that the process it was using was infringing. This is very far from facts in this case, in which it was difficult to design around the patent and the resulting process was not economically competitive [44e, n]. Again, I’m not sure that Gauthier JA’s general remark was actually aimed at Grain Processing, and I do agree with Gauthier JA that we cannot assume that US law on this issue is correct in every respect. But Grain Processing itself is entirely sound, given its unusual facts, and because of those unusual facts it provides a particularly striking example of the NIA defence; but it is only equally unusual facts that will generate the same kind of result.

Convoyed Sales and Remoteness
On a different issue, Apotex also argued that it is an error of law “to award damages for sales displaced by non-infringing products because such sales are beyond the scope of the Patent Act [and] are too remote” [112]. Gauthier JA re-affirmed that the well-established law that damages for lost sales of so-called convoyed goods are indeed recoverable [114], [122], and on the facts the sales at issue were not too remote [127]. But Gauthier JA did appear to acknowledge that in some circumstances convoyed sales might be too remote for damages to be recoverable, even though the lost sales were caused by infringement [123]-24]. That is, causation is not necessarily the only limitation on recovery in patent damages. Gauthier JA did warn that remoteness is not usually an issue, and it should be raised as soon as possible or it may be considered to have been waived [123].

Wednesday, December 5, 2018

Compound Interest May Be Awarded as Damages, but Must Be Proven, Not Presumed

Apotex Inc v Eli Lilly and Co 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA aff’g 2014 FC 1254 Zinn J
            1,133,0071,146,5361,133,4681,150,725 [Lilly Patents]
            1,095,0261,132,5471,136,1321,144,924 [Shionogi Patents]

As previous posts this week have discussed, the FCA’s reasoning differed somewhat from that of Zinn J, but in the end it varied his decision only in respect of the award of compound interest, which it returned to him for redetermination. The FCA confirmed that compound interest is available when interest is claimed as a head of damages; but the loss cannot be presumed, and must be proven [156], [158].

Gauthier JA’s discussion started with a brief and helpful discussion of the law relating to compound interest, confirming that while compound prejudgment interest is not available when interest is claimed under s 36 of the FC Act (per 36(4)(b)), it may be awarded when interest is claimed as a head of damages [145]-[152]. (Gauthier JA largely summarized the principles she had stated in Cefaclor Liability FC 2009 FC 991 [665]-[675], but it is helpful to have these principles restated by the FCA itself.)

Gauthier JA also stated that “The Liability Decision was not reversed on appeal and is final. In light of this, in my view, it was not open to Apotex to argue that subsection 55(1) of the Patent Act does not allow for the granting of compound interest” [151]. This seems to be saying that it is not open to Apotex to make that argument because that issue was res judicata in this dispute. However, given Gauthier JA’s preceding discussion of the law, it would now seem to be clearly established more generally that 55(1) does allow compound interest to be awarded.

Procedurally, subsection 36(5) confers discretion on the FC to allow interest, and in a bifurcated proceeding such as this one, that discretion must be exercised at the liability stage (unless the parties agree otherwise) [149]. However, at the liability stage, the court cannot know whether an entitlement to interest will be established as a head of damages at the reference stage, so the award of simple interest under s 36 at the liability stage was in this case (and, presumably, normally should be) expressly conditional on interest not being awarded as damages at the reference phase [150].

The problem with Zinn J’s decision is not that he awarded compound interest, but rather that he awarded it on the basis of a presumption: “in today’s world there is a presumption that a plaintiff would have generated compound interest” [FC 118], [155] (FCA emphasis), and he awarded compound interest apparently on this basis. Gauthier JA held that there is no such presumption [156] (with the possible exception of some cases in equity [157]), and “a loss of interest must be proved in the same way as any other form of loss or damage” [158]. As to what kind of evidence could be used to establish compound interest as a loss, and the appropriate rate, Gauthier JA noted that various evidence was tendered on the issue, and had the Federal Court granted compound interest as damages on the basis of that evidence, rather than on the basis of a presumption, the FCA would not have intervened unless it was persuaded that the assessment was tainted by a palpable and overriding error [153].

Tuesday, December 4, 2018

Legitimate NIA Must Not Infringe Any Patent

Apotex Inc v Eli Lilly and Co 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA aff’g 2014 FC 1254 Zinn J [Cefaclor Damages]
            1,133,0071,146,5361,133,4681,150,725 [Lilly Patents]
            1,095,0261,132,5471,136,1321,144,924 [Shionogi Patents]

As discussed in yesterday’s post, the key issue in Cefaclor Damages was the extent to which Apotex could rely on the Lupin 2 process for making cefaclor as a non-infringing alternative (NIA) in assessing damages. A legitimate NIA must of course be non-infringing in the sense of not infringing the patents at issue; but in this case the FCA held that neither can it infringe other patents. This appears to be a novel legal point [55], which arose from the unusual facts of the case.

Apotex imported and sold cefaclor produced by by South Korean drug maker Kyong Bo and Indian company Lupin. Lilly alleged that all of it infringed the patents at issue. The Lupin product was imported in a few different batches, and Gauthier J ultimately held that the Lupin product was produced by (essentially) two different processes, Lupin 1 and Lupin 2 [FC 15]. At the liability phase, Lilly did not prove that Lupin 2 infringed; indeed, Lilly never even argued that Lupin 2 infringed, because Lilly’s position was that the Lupin 2 process was so inefficient that it could not have been used [56]. No doubt that was a reasonable position at the liability phase, but having lost on that point, in the reference phase Lilly had to accept that the last shipments of Lupin cefaclor were produced using the Lupin 2 process. At the reference phase, Lilly argued, for the first time, that the Lupin 2 process infringed an entirely separate Lilly patent, the 646 patent. Understandably, the 646 patent patent was not in issue at all in liability phase [60], given that Lilly didn’t believe the process it covered was being used [56].

Lilly raised the 646 patent, not to establish that the Lupin 2 process infringed the 646 patent, so as to give rise to damages for sale of the Lupin 2 cefaclor, but rather to preclude Apotex from raising the Lupin 2 process as an NIA in the assessment of damages for the Kyong Bo and Lupin 1 cefaclor. This argument was not addressed by Zinn J, apparently because of his view that the NIA defence was not available as a matter of law [59].

Thus the point was addressed for the first time by the FCA. The FCA held that [55, my emphasis]:

It goes without saying that to be a real alternative, an NIA must be lawful, that is to say, non-infringing. This applies to more than just the patent(s) in suit in the proceedings

The matter must of course be put in play by the patentee—it is not for the infringer to establish that there is no patent in the world that it might have infringed [57], [61], [65]. Once the issue is in play, it is for the infringer “to explain or produce evidence explaining why, despite the reference to this unexpired patent, the NIA on which it sought to rely on was in fact lawful” [65]. It would seem that not very much is required to put the issue in play, though that may be due to the unusual facts [62].

This basic holding strikes me as sound in principle, though different facts might raise questions. In this case, Lilly owned the 646 patent, so it goes without saying that it would not have licensed the technology to Apotex. But what if the 646 patent had been owned by a third party, which was routinely willing to licence it to all comers at a set royalty? What if the 646 patent had been owned by a third party, which did not routinely licence it, but might have been willing to do so? I won’t explore those questions here, except to say that I do not think they are settled by this decision, which, as Gauthier JA noted, turned on its unusual facts [4].

There is also a separate point respecting the burden of proof, which relates to the patents that were in issue. As noted, at the liability phase, Lilly had never argued that the Lupin 2 process infringed the patents that were in issue (because its position that the Lupin 2 process was not actually being used), nor did Gauthier J make such a finding. Instead, she held only that Lilly had not established that it infringed [56]. At the reference phase, Lilly wanted to re-open this issue. If I understand correctly, the basis for the argument is that the burden is different: while it was for Lilly to prove infringement at the liability stage, at the reference stage, Apotex had the burden of proving that it had an NIA available, including that the NIA was non-infringing. Zinn J rejected this, on the basis that the matter had been decided in the liability phase [61], and the FCA has affirmed that the issue cannot be re-opened [58].

In the result, Gauthier JA concluded that the Lupin 2 process prima facie infringed the 646 patent [64], and Apotex had not countered the prima facie case, and in consequence, the Lupin 2 process could not be a legitimate NIA [69].

Monday, December 3, 2018

A Non-Infringing Alternative Must Be Objectively Economically Viable

Apotex Inc v Eli Lilly and Co 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA aff’g 2014 FC 1254 Zinn J [Cefaclor Damages]
            1,133,0071,146,5361,133,4681,150,725 [Lilly Patents]
            1,095,0261,132,5471,136,1321,144,924 [Shionogi Patents]

In the liability phase of this bifurcated action, Cefaclor Liability 2009 FC 991 aff’d 2010 FCA 240, Gauthier J held that at least one valid claim of each of the eight patents at issue was infringed by Apotex. In the damages phase, Zinn J awarded Lilly damages in the form of lost profits and a reasonable royalty, plus compound interest as a head of damages. Gauthier JA, writing for the FCA, has now affirmed Zinn J’s award, except in respect of the assessment of interest. The main issue was the role of the non-infringing alternative (NIA), in assessing damages. Gauthier JA stated that no new questions of law were raised, and she warned that “The facts of this case are so unusual that it would be unwise to use them as a backdrop for stating general principles of law” [4]. However, basic principles are sometimes brought into clearest focus by unusual facts, and this decision clarified several points of general interest relating to the so-called NIA defence. (I don’t like the term NIA “defence,” but it now seems to be established, so I will give up and start using it.) This post provides an overview of the facts, and addresses the holding that the NIA must be objectively economically viable.

There were three processes used to make the cefaclor imported and sold by Aptoex: Kyong Bo, Lupin 1 and Lupin 2. The first two processes were infringing, but the Lupin 2 process was not. (More precisely, Lilly did not prove that Lupin 2 infringed [56].) The reference was therefore to establish damages for infringement in respect of the Kyong Bo and Lupin 1 cefaclor. The last infringing product was imported in June of 1998; after that, Apotex imported Lupin 2 cefaclor.

The key question on appeal was the extent to which Apotex could rely on Lupin 2 cefaclor as an NIA. At first instance, Apotex had argued that an NIA defence was available, and that damages should be assessed on the basis it would have entered the market with Lupin 2 product even before June, 1998, when it actually began selling Lupin 2 cefaclor. (Specifically, on appeal Apotex argued that it would have legal cefaclor available as early as October 1997 [38], which is when Apotex concluded internally that its Lupin 1 and Kyong Bo cefaclor were infringing: [44i].)) Zinn J rejected this on the basis that the NIA defence was not available as a matter of law [FC 57]. In the alternative, Apotex argued that damages should be assessed on the basis that in the “but for” world, it would have entered the market with Lupin 2 product in June of 1998, as it did in the real world. Lilly, on the other hand, argued that Apotex would not have come to market with legal cefaclor prior to the expiry of the infringed patents in July of 2000 [FC 59-60]. Zinn J found in favour of Lilly on this point as well [70]. While FCA decisions subsequent to Zinn J’s decision on the reference have established that Zinn J erred in rejecting the NIA defence as a matter of law [42], [46], the FCA nonetheless upheld Zinn J’s award on that basis that the NIA defence was not available on the facts, and moreover that Zinn J had not erred in finding that in the “but for” world, Apotex would not have entered until the market until the expiry of the last patent at issue.

Economic Viability of the NIA
A key issue related to the economic viability of the Lupin 2 process. The Lupin 2 process was substantially more expensive than the infringing Kyong Bo or Lupin 1 processes, and on the evidence, it would not have been commercially viable to enter the market with Lupin 2 cefaclor [78]. This was relevant because Apotex had tendered evidence that its business decisions were not motivated by profitability, but rather by a desire to have a broad portfolio of products [FC 68], [102]. Thus, Apotex wanted to argue that it would have entered the market with the Lupin 2 process, even though it would have lost money doing so. That would of course reduce the damages, because Lilly’s profits would be much greater in a world in which it had market exclusivity than one in which it faced strong competition from Apotex, even if Apotex would have been losing money.

Gauthier JA provided a summary of general principles regarding the NIA defence at [47]-[53]. While the entire discussion is helpful, I would highlight one passage that is important both as a general principle, and in respect of this particular issue (my emphasis):

[49] With this in mind, I underscore that the objective of the NIA “defence” is to help ascertain the real value of inventions for which a patentee such as Lilly was granted a monopoly. Inasmuch as overcompensation is inappropriate in our law, so is undercompensation. Thus, the goal is not to enable an infringer to breach the bargain made on behalf of the Canadian public when a patent is issued. Nor is the defence a means by which one can infringe at the lowest possible cost.

This is a crucial point, which, in my view, is entirely sound. There are really two points here. First, the objective of the NIA defence is to ascertain the real value of the invention. The patent system is intended to provide an incentive to develop inventions for the benefit of the public, by providing a reward which is commensurate to the value of the invention. A process may be patentable as being new and inventive, and yet provide no economic advantage over existing processes. Such a process is not as socially valuable as one which dramatically reduces the cost of product. A process which does provide a dramatic cost saving will provide a greater reward in the marketplace; the NIA defence is a legal tool for ensuring that it provides a greater reward in terms of damages as well. The second point is that the objective of the NIA defence is to “help” ascertain the value of the invention. It is only a tool — a means to an end. The NIA defence needs to be developed in a manner which is consistent with that ultimate goal; if there is a conflict, it is the larger goal of ascertaining the real value of the invention which must prevail.

In addressing Apotex’s argument that it would have entered the market even with an unprofitable product, Gauthier JA emphasized this point (original emphasis):

[73] [T]he court’s goal is to assess the real value of the patented invention(s). Such value cannot be assessed on a purely subjective basis. Evidently, the court must be satisfied that the NIA invoked was objectively an economically viable substitute at the relevant time. To say otherwise would mean that the value of a patent could be artificially reduced by an infringer who behaves in an unorthodox manner, or whose adoption of a substitute is motivated by reasons other than economic ones.

I read this as saying that economic viability of the NIA is a prerequisite to invoking the NIA defence as a matter of law, even if on the facts the infringer would have acted in an economically irrational manner had it not infringed. In my view, this is entirely sound. As noted above, and as emphasized by Gauthier JA, the NIA defence is a tool for assessing the real value of the invention. The real social value of the invention is an objective fact, which does not depend on the idiosyncracies of the particular infringer.

Gauthier JA also noted that:

[72] In my view, economic viability is not something that is assessed solely from the subjective perspective of an infringer such as Apotex. But obviously, the subjective perspective of the infringer may be relevant to the question of whether the infringer “would” have used the NIA.

As I read it, this says that the NIA must be objectively economically viable as a threshold matter; but it may be that even an objectively economically viable alternative would not be used as an NIA, if, on the facts, it would not have been used by the infringer for subjective reasons. I’m not sure I agree with that position, as it seems to me to be at odds with the view that damages should relate to the true value of the invention, not to idiosyncracies of the infringer. This question arose in ADIR v Apotex 2018 FC 346, in which Gagné J held that Apotex could not argue that it would have manufactured abroad for sale in the UK and Australia, even though doing so was technically possible and economically viable. Gauthier JA’s remarks in [72] appear to be indirectly approving of that  holding. Nonetheless, I have significant reservations, as discussed here. With that said, this is an issue which is better explored when it arises on the facts.

Friday, November 23, 2018

UKSC decision in Warner-Lambert v Actavis – Infringement of Second Medical Use Claims

Warner-Lambert Company LLC v Generics (UK) Ltd (t/a Mylan) & Anor [2018] UKSC 56 (UKSC) Lords Mance, Sumption, Reed, Hodge, Briggs var’g [2016] EWCA Civ 1006 Floyd LJ: Patten, Kitchin LLJ var’g [2015] EWHC 2548 (Pat) Arnold J
            EP(UK) 0934061 / pregabalin / LYRICA

The decision of the UKSC in Warner-Lambert v Actavis is important in UK law both for its discussion of the concept of “plausibility” and in respect of infringement in the context of a second medical use patent. This post provides an overview and discusses the issue of infringement, which raises a truly difficult problem, of how to balance the need for an incentive to develop new indications of a known drug, against the need to allow unfettered availability of the same drug for prior indication. I will argue that Warner-Lambert v Actavis does not provide a solution; and it is unlikely to have much impact in Canadian law, except, perhaps, as a cautionary tale about how the well-intentioned restriction on patentability of methods of medical treatment has gone badly awry.

Overview
Pregabalin is indicated and marketed by Warner-Lambert for the treatment of epilepsy, general anxiety disorder ("GAD") and neuropathic pain [Pat 2]. Warner-Lambert’s patent EP0641330 claimed pregabalin as such and for use in treating epilepsy and GAD. That patent expired in 2013. The key claims of Warner-Lambert’s 061 patent were Swiss-form claims to pregabalin for the treatment of pain, inflammatory pain and neuropathic pain (Claims 1-3) [5]. Claim 3 was the most important, as neuropathic pain is the most common type of pain for which pregabalin is indicated [7], [13]. Mylan and Actavis, seeking to launch a generic pregabalin product, brought separate actions for revocation of the 061 patent, which were consolidated [Pat 3]. After both revocation actions had been started, Actavis decided to launch with a skinny label; that is, with marketing authorization and corresponding product information targeting only the non-patented uses. Warner-Lambert brought an action against Actavis in respect of that skinny label launch [4]. The market at the time was something like 1/3 for unpatented uses, and 2/3 for patented uses [Pat 399-407,425-42]. (The exact numbers are not important, except to establish that both patented and unpatented uses were significant.) Note that Warner-Lambert is a company in the Pfizer group [4], and Warner-Lambert markets pregabalin, under the brand name Lyrica, but Pfizer holds the marketing authorization [Pat 2]. Nothing turns on this, but many of the facts refer to steps taken by Pfizer rather than Warner-Lambert.

Thursday, November 22, 2018

Bill C-86 and Prior User Rights

As I work my way through the patent provisions of Bill C-89, I’ll be writing some posts with my initial impressions. This post looks at the prior user rights provisions set out in ss 188, 194 of the Bill. (My last post looked at the amendments in respect of the use of prosecution history in claim construction.)

S 194 proposes a complete overhaul of prior user rights under s 56, with the existing section to be replaced entirely. The proposed amendment clarifies prior user rights in several respects, extends the right in some ways and limits it in other ways. It appears that the proposed s 56 was modeled on the UK Patents Act 1977 s 64, though with notable differences. The corresponding provision in US law is 35 USC § 273. A thorough review of Canadian law up to 2001 is provided by Gregor Binkley, Prior User Rights and the Canadian Patent Act, (2001) 18 CIPR 207, and James G Fogo, “The Imperfect Monopoly—The Application and Effect of Section 58 of the Patent Act” (1962), 38 CPR 147 provides an earlier review which is also very helpful, particularly in respect of the history of the provisions.

The current s 56 provides that a prior user has the right to use “the specific article, machine, manufacture or composition of matter” that was made or acquired prior to the claim date. The proposed new section 56(1) provides that if a person “committed an act that would otherwise constitute an infringement of the patent,” it is not an infringement of the patent (or CSP) if the person commits “the same act” after the claim date. The right also arises if the prior user made “serious and effective preparations to commit such an act.”

This reference to “an act” has two effects. First, it evidently also encompasses carrying out a process, a point which was not clear under prior law: Binkley 214-15, 220-224. More generally, there is no restriction on the kind of invention which the “act” might infringe, so it is apparently intended that prior user rights may arise in respect of any kind of invention. Second, it transforms the right from a right to use the specific article, to a right to continue to carry out the infringing act. For example, suppose the patented product is a new kind of toy. Under the current Act, if the prior user had made some infringing toys prior to the claim date, it would be entitled to subsequently sell those specific toys, but not toys manufactured after the claim date. Under the proposed provision, it would be entitled to continue to make new toys.