Blogging Hiatus

I'll be taking a blogging break for a week or two as I try to get my courses set up for online delivery. When I get back, I'll start by catching up with any decisions that I've missed.

Hearsay Evidence Not Enough to Ground Stay Pending Appeal

Western Oilfield Equipment Rentals Ltd v M-I LLC 2020 FCA 3 Nadon JA refusing to stay 2019 FC 1606 O'Reilly J
            2,664,173 / Shaker and Degasser Combination

In this decision, Nadon JA refused Western Oilfield’s motion for a stay pending appeal of 2019 FC 1606, in which O’Reilly J found that Western infringed the 173 patent and had consequently granted an injunction, as well as awarding damages and costs against Western in the vicinity of $5 million [2]. Western moved for a stay on the basis that its assets, covered by security interests, are insufficient to cover the monetary award and that unless a stay is granted, its creditors will enforce their security interests and it will become insolvent [4].

While being put out of business is normally considered a type of irreparable harm sufficient to establish the second branch of the RJR-MacDonald test, [1994] 1 SCR 311 at 341, Nadon JA emphasized that any such harm must be established on the evidence [11-12]. In this case, the main evidence was provided by Western’s controller [13]. She testified that Western did not itself have adequate funds to satisfy the award [16], but the crucial issue was the position of its financiers. She gave evidence that should Western inform its bank of the decision against the it, the likelihood is that the bank will execute its security interests over Western’s assets [17]. She also gave evidence that Western’s venture capital backers would cease funding Western if Western were prevented from earning revenue as a result of the injunction [21].

The difficulty is that all this evidence as to what Western’s financiers would do, was hearsay [22]. Nadon JA held that Western should have produced “an affidavit from their bank outlining its position following the rendering of the judgment and its position in the event that a stay was not granted” [18] and a similar statement from the managing director of the venture capital companies as to “the impact of the Decision on their funding decisions and whether or not a stay of the Decision would lead to a different position on their part” [19]. This information was crucial to his determination regarding irreparable harm [19], and in its absence he was not satisfied that the irreparable harm branch of the RJR-MacDonald test was satisfied [24].

It seems that as of the time of the hearing, Western had not yet informed its bank of the trial decision, apparently out of a concern that had the bank been informed of the Decision, it might, irrespective of the possibility of obtaining a stay, have called in Western’s advance and exercised its security interests [17]. If that concern is well-founded, then this decision puts Western between a rock and a hard place.

Correcting Inventorship Post-Grant

Inguran LLC dba STgenetics v. Canada (Commissioner of Patents) 2020 FC 338 Brown J

2,518,882 / 2,752,218 / 2,752,244 / 2,752,247

This decision concerned an uncontested application to remove six named inventors from several granted patents. Brown J followed Qualcomm 2016 FC 499 (here) in holding that an affidavit from remaining inventors to the effect that they are the sole inventors is not required, so long it is adequately established on the other evidence that the named inventors to be removed are not in fact inventors. The case also illustrates that the power of the FC to correct inventorship is post-grant pursuant to s 52 is broader than the power of the Commissioner to correct inventorship pre-grant pursuant to s 31.

In this case, the original application had twelve named inventors. After a unity of invention objection by CIPO, the application was divided into divisional applications relating separately to electro-mechanical subject-matter and biological subject-matter. All twelve inventors were left on the divisionals, even though the named inventors sought to be removed in this application had not contributed to electro-mechanical subject-matter claimed in the patents at issue. This application sought to remove those non-inventors.

Before a patent is granted, inventors can be removed by the Commissioner pursuant to s 31(3) and added by the Commissioner pursuant to s 31(4). The Commissioner does not have the authority to add or remove inventors after grant: Micromass 2006 FC 117. (The Commissioner can correct some essentially clerical errors under the Patent Rules, including a spelling error in the name of an inventor pursuant to Rule 109 (this was previously authorized by s 8, now repealed).)

Post-grant, grant, inventors may be added or removed on application to the FC pursuant to s 52, which gives the Court broad authority to “order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged.” A number of decisions by the FC have invoked the test under s 31 in a decision pursuant to s 52, notwithstanding that on its face s 31 applies only to the Commissioner in respect of applications (see here). Presumably this is because s 31 provides more specific guidance regarding changes in inventorship specifically.

There is a bit of a concern regarding this practice, as s 31 is more restrictive than the broad powers granted to the Court by s 52. In particular, s 31(3) regarding removal of non-inventors (ie named inventors who in fact did not contribute to the development of the claimed inventions), specifies that the application may be carried on by the remaining inventors “on satisfying the Commissioner by affidavit” that they are the true inventors. S 31(4), regarding addition, provides that inventors may be added on satisfying the Commissioner that (i) they should be so joined, and (ii) that the omission of the further applicant or applicants had been by inadvertence or mistake and (iii) was not for the purpose of delay. The question is whether these—in particular (ii) and (iii) are all required under s 52 as well.

Brown J agreed with the submission that in an application under s 52 the Court “may apply” the tests set out for the Commissioner of Patents in subsections 31(3) and 31(4) [35], citing various cases. I’d quibble a bit on this point, at least to the extent that “apply” suggests that the test under s 31 is also the strict test under s 52. Section 31 was certainly considered in the cases cited by Brown J, but I’m not sure it was actually adopted as the test under s 52, rather than as identifying relevant considerations. While the application to correct inventorship under s 52 will certainly be granted when the test under s 31 is satisfied, the question is whether it is necessary to satisfy the test under s 31 to correct inventorship under s 52. Brown J’s decision suggests that the answer is no.

First, Brown J noted at [37] that in Imperial Oil 2015 FC 1218 Leblanc J set out two criteria for the removal of named inventors set out by subsection 31(3):

[15] Subsection 31(3) of the Act sets out two criteria for the removal of named inventors:

i. does it appear that one or more of the named inventors have no part in the invention?; and

ii. has an affidavit been provided to satisfy the Court that the remaining inventors are the sole inventors?

However, in this case, two of the six remaining true inventors could not be located [29] and so they did not provide affidavits. There was plentiful evidence from the other named inventors, including both the true inventors and the non-inventors, that the non-inventors were indeed not inventors, and Brown J followed Qualcomm 2016 FC 499 (here) in holding this was a housekeeping requirement that is “not relevant when an issued patent is being considered by the Court under section 52 of the Act” (Qualcomm [10], quoted at [39]).

Thus, whether or not affidavits from all remaining applicants are required under s 31(3), there is no such requirement under s 52. This indicates that the test under s 52 is not the same as the test under s 31(3).

This makes sense functionally. It may be much more difficult to find the remaining inventors post-grant, as is illustrated on the facts of this case. Further, while it may make sense for the Commissioner to want to be satisfied that the remaining applicants are in fact the inventors before the patent is granted to them, it is not clear why the FC would need to be satisfied that the remaining inventors are in fact inventors, given that the Commissioner was already satisfied of this fact on granting the patent. Surely, post-grant, that can be presumed. The real question post-grant is simply whether the inventors sought to be removed were not in fact inventors, and it would seem that affidavits from those non-inventors to that effect would normally be sufficient evidence. I suppose the point will really be tested if one named inventor is to be removed, on the basis of satisfactory evidence that the named inventor not in fact an inventor, in circumstances in which none of the remaining named inventors can be located. It seems to me that it would be clearly appropriate for the FC to order the non-inventor to be removed in such circumstances.

Patentee That Did Not Sue in the Real World Cannot Say it Would Have Done So in the “But For” World

Pfizer Canada ULC v Pharmascience Inc 2020 FCA 55 Laskin JA: Dawson, Stratas JJA aff’g 2019 FC 1271 O’Reilly J
            2,255,652 / pregabalin / LYRICA

The first half of this decision straightforwardly affirms O’Reilly J on an essentially factual point. The second half has some comments on legal points that I find quite puzzling, though I expect this is simply because the specific arguments the FCA was responding to were not fully set out in this brief decision.

The decision arises out of Pharmascience’s action for damages under s 8 of the NOC Regulations, brought after Pfizer lost in NOC proceedings aimed at keeping Pharmascience out of the pregabalin market. Such damages are assessed using the established “but for” test for causation, under which Pharmascience’s actual sales are compared with the sales it would hypothetically have made had it not been kept off the market during the statutory stay period triggered by NOC proceedings. Pfizer responded by arguing that Pharmascience was disentitled to damages “because the hypothetical sales of PMS-pregabalin would have infringed Pfizer’s patent” [FC 2]. However, Pfizer had never actually sued Pharmascience after Pharmascience launched, and the evidence was that it would not have done so even if Pharmascience had obtained its NOC at the outset of the statutory stay period [FC 3], [3]. Invoking the principle that “the but-for world should reflect, to the extent possible, what happened in the real world,” O’Reilly J held that Pfizer’s defence was not viable [FC 5, 23]. In my view, as discussed here, O’Reilly J’s holding was correct for the reasons he gave. The FCA has now affirmed, “substantially for the reasons given by the Federal Court” [6]. This much is straightforward.

Enforceability of a No-Challenge Clause

Loops v Maxill Inc 2020 ONSC 971 (CanLII)
            2,577,109 / Toothbrush

This motion refusing to grant a partial anti-suit injunction, which would have prevented the alleged infringer from challenging the validity of a US patent in a US court, raises a question regarding the enforceability of a “no-challenge” clause in a settlement agreement. I don’t believe the point has been previously litigated in Canada, though it has been raised in a number of cases in the US. It also illustrates that if a no-challenge clause is to exclude challenges by the party to settlement agreement, it is best to say so explicitly.

Loops and Maxill are in the toothbrush business [9]. Loops sued Maxill in Canada for infringement of Loops’ 109 patent. In 2014 the parties settled [14]. The Agreement contianed a “no-challenge” clause stating that Maxill “would not directly or indirectly assist any person attacking the validity of either [the Canadian 109 patent or the corresponding US Patent 8,448,285] [15]. Maxill then created another toothbrush to try to design around the 109 patent [19]. Loops sued Maxill in Canada over the new toothbrush, this time for breach of the Agreement [20]. Loops also sued Maxill in the US, alleging the same new toothbrush infringed the US 285 patent. Maxill defended on the basis that the new toothbrush did not infringe the 285 patent — but it also attacked the validity of the 285 patent by way of counter-claim [22]. The US actions were consolidated in Washington [23].

Loops brought this motion for an interlocutory injunction barring Maxill from challenging the validity of the US 285 patent, on the basis that this is a breach of the Agreement [1]. Templeton J assessed the motion on the basis that Loops had to show a strong prima facie case on the merits in order to obtain its injunction [6], [32]. He held that Loops had failed to meet this requirement, for two reasons.

Foreign Location of Firm a Factor in C-CEO Designation

Depura Partners LLC v Desjardins General Insurance Inc 2020 FC 261 LeBlanc J
             2,777,931 / System for monitoring vehicle and operator behavior

This decision granted a contested motion to designate certain documents describing technical details of the defendant’s allegedly infringing technology as “Confidential Information – Counsel’s Eyes Only” [C-CEO]. The decision applies established law, but one interesting point is raised on the facts regarding the relevance of foreign residence of firm principals to the C-CEO designation.

The plaintiff is a foreign based firm, and none of the five principals reside in Canada [28]. In granting the C-CEO designation, LeBlanc J rejected the contention that the implied undertaking rule would provide adequate protection, in part because “should I refuse to validate the C-CEO designation of one or any of these documents, the Court would have no meaningful way to control the use, or sanction the misuse, by any of the five individuals that make up the Plaintiff, of the information contained in said documents as these individuals all reside outside Canada and are, individually, not subject to the Court’s jurisdiction” [30]. This consideration was clearly not determinative, as LeBlanc J had held that there was sufficient basis to grant the designation even absent these additional considerations, but it does indicate that the fact that the firm or its principals reside outside of Canada is a factor to be considered in granting a C-CEO designation.

LeBlanc J went on to say “Moreover, any prejudice suffered by the Defendants resulting from a misuse of the information by the Plaintiff could hardly be compensated by any remedy granted by the Court in sanctioning a violation of the implied undertaking rule” [30]. It’s not entirely clear to me whether LeBlanc J meant that the inadequacy of the remedy stemmed from the fact that the principles of the firm reside outside of Canada, or whether this was an entirely separate consideration, to the effect that a breach of the order would constitute a form of irreparable harm.

Protective Orders Clarified

Canadian National Railway Company v. BNSF Railway Company 2020 FCA 45
Boivin JA: Gleason, Rivoalen JJA rev’g 2019 FC 281 Locke J

As discussed here, the law relating to protective orders has recently been in ferment. Traditionally, the court would grant protective orders essentially routinely, particularly on consent or when unopposed, but a series of decisions developed a more restrictive approach, and a split developed in the jurisprudence. In a short decision that will be required reading for all litigators, the FCA has now provided a definitive resolution, largely returning the law to the status quo ex ante, though with considerable clarification of the law. In brief, the FCA held that: the AB Hassle test applies to protective orders and the Sierra Club test applies to confidentiality orders; the two are distinct and the former is much less stringent; and there is no reason why protective orders should not be granted more or less routinely.

There are two key questions. First, what is the test for granting a protective order? A protective order governs the way parties designate and treat confidential information that they exchange between themselves in the pre-trial phase of the action, while a confidentiality order governs the filing of confidential documents and information on the court record. As noted by the FCA at [20], the test applicable to confidentiality orders is set out in Sierra Club 2002 SCC 41 at [53]. This is a relatively stringent test, which requires consideration of the open court principle, weighed together with the commercial interests of the parties in maintaining confidentiality of sensitive material. Protective orders were traditionally granted on the basis of the test set out in AB Hassle (1998) 83 CPR (3d) 428 (FCTD) aff’d [2000] 3 FC 360 (CA) [14]. This test is less stringent than the Sierra Club test, as it focuses on the confidential nature of the information at issue, without consideration of the open court principles.

Confusion had arisen because the Sierra Club decision referred to the AB Hassle decision in a way that was somewhat unclear, and some of the recent FC caselaw had held that the Sierra Club test applies to both types of orders, or that Sierra Club had modified the AB Hassle test. The FCA affirmed that the AB Hassle test and the Sierra Club test are indeed distinct. The former is applicable to protective orders [14] and the latter to confidentiality orders [19]. Sierra Club solely concerned confidentiality orders, and it did not in any way alter the AB Hassle test for protective orders [23].

The confusion arose because the first prong of the Sierra Club test refers to considerations of confidentiality, which are at the core of the AB Hassle test. The FCA explained that the SCC’s reference to AB Hassle was solely in the context of the first branch of the Sierra Club test:

[23] [Sierra Club] does not in any way extend the AB Hassle test, applicable to protective orders, to include a consideration of necessity, alternative measures, or the scope of the order to ensure that it is not overly broad. It follows that the necessity element of the Sierra Club test cannot be said to apply in the context of protective orders, notwithstanding the reference to the AB Hassle test. . . .

The reason for this is straightforward: the open court principle is not implicated by protective orders:

[25] [T]here is no justification for applying the same onerous Sierra Club test that is applied to confidentiality orders to protective orders. Confidentiality orders are squarely meant to circumvent the open court principle, while protective orders are instead used in instances where the open court principle is not engaged.

It was therefore an error of law in this case for the motions judge to conflate the AB Hassle test for protective orders with the more onerous Sierra Club test for a confidentiality order [26].

The second and distinct issue is whether protective orders should be granted more or less routinely, as was the traditional practice, or more sparingly, as some recent cases had held. The FCA clearly signaled that the traditional practice is appropriate (my formatting):

[31] Although the Federal Court is in no way obliged to grant a protective order, I am of the view that there has been no significant and compelling changes to the law that justify the refusal to grant a protective order on consent (or not) if

(i) the AB Hassle test is met and

(ii) the protective order submitted to the Federal Court is in accordance with the protective order template jointly developed over the years between the Intellectual Property Bar and the Federal Court.

[32] Protective orders undoubtedly remain pertinent and useful for intellectual property litigants and there is no justification, legal or otherwise, for stifling this long-standing practice.

The more restrictive approach was driven by concerns about wasted court resources in reviewing protective orders. The FCA remarked that to facilitate the Court’s review the parties should [31] (my formatting):

• provide sufficient evidence in support of their motion for a protective order.

• identify[] the portions of their draft protective order that have been added to the template or removed from it.

The Court also addressed hybrid orders, which contain provisions that govern both confidential information exchanged between parties during the discovery process and confidential information filed with the Court [8]:

[30] The test for granting a hybrid order, in the form I endorse below, remains the same as the test for granting a protective order. As noted, hybrid orders also address materials that might be filed with the Court with a confidential designation. As such, a party who wishes to have the Court treat documents subject to the hybrid order as confidential must bring a motion pursuant to Rule 151 of the Federal Courts Rules forthwith after filing the documents. It is at this juncture, when the Court is being asked to seal documents, that the Sierra Club test set out at paragraph 20, above, is engaged. The motion for a confidentiality order should not automatically be left for the trial judge to determine, but should be filed at the first opportunity.

Knowledge of Infringement Not Required for Inducement

Hospira Healthcare Corporation v Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

My last post on Hospira v Kennedy Trust deals with the knowledge requirement for inducing infringement. The third branch of the Weatherford test for inducing infringement requires that “the influence must knowingly be exercised by the inducer, that is, the inducer knows that this influence will result in the completion of the act of infringement”: 2011 FCA 228 [162]. Locke JA clarified that “the knowledge at issue in the third prong of the test is knowledge that the influence is being exercised, rather than knowledge that the resulting activity will be an infringement.” [45] He noted that some decisions had indicated that knowledge of the patent itself was required, but these suggestions had not been accompanied by a sustained analysis. The most in depth treatment of the point was by Gauthier J (as she then was) in Bauer v Easton 2010 FC 361 [193]-[203], in which, as Locke JA explained, Gauthier J “observed that knowledge that a particular activity is an infringement is not an element of direct infringement and, since inducing infringement is not a tort distinct from direct infringement, it should not be an element of inducing infringement either” [45]. Locke JA agreed [45]. I take it that he intended agreement with her analysis generally, and not just this particular principle. So, there is no requirement of an “intent to infringe” on the part of the indirect party, nor is knowledge of the patent itself required [Bauer 200]. All that is required is knowledge that the actions of the indirect party would induce another to do something that in fact constitutes infringement [Bauer 200]. The third branch would not be satisfied where, for example, a suggestion by the indirect party had been misunderstood, and the misunderstanding had resulted in infringement [Bauer 201]. This is not a very surprising development, but it is nonetheless helpful to have this point affirmed by the FCA. It can now be considered well settled.

Anticipation by Suggestion

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

Locke JA, for the Court of Appeal, held that Phelan J had erred in his novelty analysis [71], and remanded the issue to him for reconsideration [75]. The issue is very interesting and raises a fundamental question regarding the nature of novelty: is an invention anticipated if the prior art suggests that the invention be made, but it has not actually been made as of the claim date?

Kennedy Trust’s 630 patent relates to the treatment of rheumatoid arthritis [RA]. RA is an autoimmune disorder that leads to painful and sometimes debilitating inflammation of the joints. The use of methotrexate [MTX] was well known in the prior art as a treatment for RA, but many patients with RA do not respond completely to treatment with MTX alone and there was therefore a pressing need for an improved treatment. Cytokines are proteins that serve as chemical messengers in the body, and researchers had discovered a number of pro-inflammatory cytokines in tissue samples from rheumatoid joints. It was hypothesized that RA might be treated by blocking the action of the relevant cytokines, thereby suppressing the inflammatory response. The inventors of the 630 patent discovered that TNF-α was a key cytokine that “sat at the apex of an inflammatory cascade.” Centocor (a predecessor to Janssen) had developed infliximab, an anti-TNF-α monoclonal antibody. The inventors of the 630 patent collaborated with Centocor to explore the use of infliximab as a treament for RA. While patients initially responded, the duration of the effect was limited and the patients all relapsed. The inventors then decided to try infliximab in combination with MTX. Trials established that the combination of MTX and infliximab has enhanced efficacy over either drug alone as well as a sustained duration of effect [7]-[8], [FC 9-15].

The successful trials led to the 630 patent. Claim 1 is to the adjunctive use of an anti-TNF-α antibody and MTX for the treatment of rheumatoid arthritis in patients who do not respond fully to MTX alone [FC Appendix B]. Claim 3 of the patent is to the adjunctive use of infliximab in particular, in combination with MTX for the same purpose [FC Appendix B].

Hospira argued that the 630 patent was anticipated by a number of prior art documents and Phelan J had rejected all these attacks [FC 196]. Only two prior art documents were at issue on appeal. One was the “1994 Kennedy Report,” which stated as follows [68]:

The aim is to further investigate the tolerability and efficacy of repeated use of [infliximab] in a randomised, blinded fashion, both in comparison with standard therapy [MTX] and in combination with this drug. It is expected that the results will be available by autumn 1995 and should provide an indication of the likely utility of [infliximab] as a long-term disease suppressing agent in clinical practice.

At the claim date, as the clinical trial was not complete and there were no results [FC 169]. In effect, the 1994 Kennedy Report identified the essential elements of the Claim 3 and says “We are trying this.”

The second item of prior art was Higgins, which “discloses the possibility of combining an anti-TNF-α antibody with MTX” [69]. In effect, Higgins disclosed the essential elements of Claim 1 and suggested “Someone should try this.” The Kennedy Report and Higgins were slightly different, but neither Phelan J nor Locke JA suggested that anything turned on the fact that the trial referred to in the Kennedy Report was actually in progress, and that it was being undertaken by the authors of the report, rather than being a suggestion to others, as in Higgins.

So, the question boils down to this: is an invention anticipated by a prior art document saying “Someone should try X,” where X is the invention?

Obvious to Try Does Not Require That it Is Obvious That What Is Being Tested Will Work

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

There is some confusion in the obvious-to-try test as discussed in Sanofi 2008 SCC 61. At one point the SCC stated that

[65] I am of the opinion that the “obvious to try” test will work only where it is very plain or, to use the words of Jacob L.J., more or less self-evident that what is being tested ought to work.

This lends itself to the view that it must be self-evident, prior to any experimentation, that the claimed invention will solve the problem at hand. But there is a second understanding of the obvious-to-try test that emerges from the very next paragraph, where the SCC went on to say (my emphasis):

[66] For a finding that an invention was “obvious to try”, there must be evidence to convince a judge on a balance of probabilities that it was more or less self-evident to try to obtain the invention. Mere possibility that something might turn up is not enough.

This implies that it must be more or less self-evident to try, not more or less self-evident that what is being tried will work.

In my view, the latter interpretation is preferable. As the SCC noted at [68], the obvious to try test is appropriate “[i]n areas of endeavour where advances are often won by experimentation.” In such fields, a test requiring that it is very plain, prior to any experimentation, that the invention would work, would mean almost nothing would be obvious. On the second interpretation of Sanofi, if something is obvious to try, and when tried, it works without difficulty, there is no inventive ingenuity involved in arriving at the invention, even though the result could not have been predicted in advance. So, if a routine salt screen discloses that the maleate salt of a new pharmaceutical has good manufacturability, that might not support a patent to the maleate, even though it could not have been predicted in advance that the maleate would be better than any other pharmaceutically acceptable salt.

As I have discussed in previous posts (here and generally here), the Federal Court has quite consistently applied the second approach to the obvious-to-try test, under which an invention might be considered obvious even though a successful outcome could not have been predicted in advance.

In this case, Phelan J appeared at some points to apply the first approach, saying that “Although the POSITA may have had “good reason” to pursue the combination of anti-TNF-α and MTX, it was not self-evident that this combination would work to solve the problem identified in the prior art” [226] (and see similarly 228].) The FCA disapproved of this statement, with Locke JA saying at [94]:

[T]his factor is not determinative. The other factors also required consideration. In my view, the Judge’s analysis of the second factor (concerning the extent, nature and amount of effort required to achieve the invention) was inadequate.

This means that the mere fact that a successful outcome could not have been predicted in advance does not mean that the invention is not obvious under the obvious-to-try test. This is a welcome affirmation from the FCA that the second approach to the obvious-to-try test that I have outlined above is indeed preferable.

However, the FCA went on to say (my emphasis) that:

[95] The determinative test on this issue is whether it was more or less self-evident to try to obtain the invention, including co-administration of an anti-TNF-α antibody and MTX to treat RA in MTX IRs.

This implies that if an invention was obvious to try, it will necessarily be obvious under the obvious to try test. The statement that this is the "definitive test" is difficult to reconcile with the SCC’s statement in Sanofi at [64] that ”the ‘obvious to try’ test must be approached cautiously. It is only one factor to assist in the obviousness inquiry.” Similarly, the SCC remarked that "obvious to try” is “not a mandatory test,” but rather “one factor of a number that should be considered, having regard to the context and the nature of the invention” [62]. So, I would suggest that if a particular avenue is obvious to try, and it eventually succeeds, but only after prolonged and difficult experimentation, it may well be inventive even though it was obvious to try. [Update: On re-reading, I think that Locke JA meant only that this was the determinative test on the facts of this case, not that it is the determinative test generally.] 

On the facts, I would note that while at places Phelan J did indicate that the invention was not obvious to try simply because it was not self-evident that it would succeed, other statements can be taken to imply it was not obvious even to try (see esp [223]).

Both Phelan J [24] and Locke JA [15] remarked on the vast array of issues raised by Hospira, to the extent that Locke JA stated that “it will not be practical to address each one specifically” [15]. I can only suppose that as a consequence, the submissions weren’t as fully prepared as they would have been if the arguments had been more carefully focused, and I can’t help but feel that this is reflected in the reasons.

The State of the Art Includes All Prior Art

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

The third step of the Windsurfing/ Pozzoli approach to obviousness, as approved by the Supreme Court in Sanofi 2008 SCC 61 [67], requires the court to “[i]dentify what, if any, differences exist between the matter cited as forming part of the ‘state of the art’ and the inventive concept of the claim or the claim as construed.” But what is the “state of the art”? The FCA in this case has clarified a point which has been obscure since codification of the non-obviousness requirement a quarter of a century ago.

The requirement that a patentable invention must involve an inventive step first emerged in the English case law in the late nineteenth century. Originally conceived of as an aspect of novelty, it soon because recognized as a distinct requirement, often referred to as requiring proper “subject-matter.” The current requirement that the invention be non-obvious to a person of ordinary skill in the art originated as a test for inventiveness on the particular facts of the case, propounded by Sir Sanford Cripps as counsel in Sharp & Dohme v Boots Pure Drug Co (1928), 45 RPC 153 (CA) at 162-63 and adopted by Lord Hanworth MR at 173. So conceived, the obviousness inquiry was taken to be an essentially factual inquiry as to whether the invention would have been obvious to a person skilled in the relevant art. From this it follows directly that the state of the art does not comprise the entire body of publicly available information, but is restricted to that information which would actually be available to the skilled person. So, in General Tire [1972] RPC 457, 497-98, the English Court of Appeal considered the state of the art to include only that material that would be available to a skilled person after a reasonably diligent search.

This was well settled law prior to codification. A question then arose on codification because s 28.3 of the Act provides that obviousness is to be assessed in light of information disclosed “in such a manner that the information became available to the public in Canada or elsewhere.” On its face this states that the entire body of public information constitutes the state of the art. The operative wording is exactly the same as that in the novelty provision (though the novelty provision, in a separate paragraph, also includes prior patent applications, including unpublished applications, in order to implement the first-to-file priority regime). Thus, on the face of the Act, the state of the art for purposes of obviousness corresponds exactly to the prior art that is relevant to anticipation, excluding prior unpublished patent applications.

The issue arose in this case because Phelan J had excluded two items of prior art from consideration at step 3 of the Windsurfing / Pozzoli test on the basis that they would not have been located in a reasonably diligent search [FC 214]. The FCA held that Phelan J had erred on this point.

Locke JA reviewed the Canadian case law, and noted that while a number of cases, including some affirmed by the FCA, had indeed excluded some elements of prior art, that point had never been specifically affirmed or even commented on by the FCA, and the point therefore could not be considered to be settled. My sense is that notwithstanding the text of the act, the Canadian courts have generally operated under the assumption that the codification was not intended to substantively change the law, and it is because of that underlying assumption that courts had not previously been pressed for a decision. Locke JA also noted that some decisions, including Ciba v SNF 2017 FCA 225 (see here) had suggested that the state of the art was broader in scope. However, none of these cases had definitively resolved the issue.

Locke JA also noted at [85] that “commentaries by authors well-known in the field of patent law have expressed doubt as to whether it is appropriate to limit the scope of relevant prior art to the results of a diligent search since the wording of section 28.3 of the Patent Act is not so limited.” I must say that I am disappointed that my own short article on this topic, “What is the State of the Art for the Purpose of an Obviousness Attack?” (2012) 27 CIPR Review 385-94, was not cited. In that article I pointed out that exactly that question was before the House of Lords in Technograph [1972] RPC 346 and English Court of Appeal in General Tire and Windsurfing [1985] RPC 59 in interpreting the parallel English legislation, which raised the same issue. Lord Reid and Lord Diplock took opposing views in Technograph, and the Court of Appeal in General Tire preferred Lord Reid’s view, but sided with Lord Diplock in Windsurfing. The point was expressly obiter in all these cases, and the point was never definitively resolved in English law prior to the adoption of the EPC with the Patents Act, 1977. The division of opinion in these decisions illustrates that the text itself is not determinative and it is unfortunate that the FCA did not devote more time to discussing these cases, which presumably were not cited to it. (While I did not come to a firm conclusion in my article, I had argued that the context of the enactment, in particular the history of the relevant English decisions on which Canadian law was based, suggested that the codification was not intended to alter the state of the art, but was only intended to establish the relevant dates for assessing obviousness, in particular to implement the grace period.)

Locke JA then addressed the substantive issue. I’ll set out the sentences of the key paragraph one at a time:

[86] In light of section 28.3 of the Patent Act and the applicable jurisprudence and commentaries, I conclude that it is an error to exclude from consideration prior art that was available to the public at the relevant date simply because it would not have been located in a reasonably diligent search.

This is clear: all prior art must be consided under step 3 of the obviousness analysis.

[86] The likelihood that a prior art reference would not have been located by a PSA may be relevant to consideration of step 4 of the obviousness analysis (whether differences between the state of the art and the inventive concept constitute steps which would have been obvious to the PSA) in that the uninventive PSA might not have thought to combine that prior art reference with other prior art to make the claimed invention.

This indicates that there can be no mosaicing of prior art that is not available in a reasonably diligent search. Thus, obviousness can be assessed over the common general knowledge alone, or over one item of broader prior art plus cgk, but not over two items of broader public art plus cgk. I believe that this is essentially the UK position.

Locke JA concluded with a policy point:

[86] However, excluding prior art simply because it is difficult to find is problematic because it would result in the possibility of a valid patent on an invention that had, but for some non-inventive tweak, already been disclosed to the public. In my view, that is not what Canada’s patent regime is intended to permit.

With respect, I do not find this persuasive. It is well-established that the mere fact that an item of prior art is “available to the public” does not mean that it is ever likely to be of any actual benefit to the public. “It is settled law that there is no need to prove that anybody actually saw the disclosure provided the relevant disclosure was in public. Thus an anticipating description in a book will invalidate a patent if the book is on a shelf of a library open to the public, whether or not anybody read the book and whether or not it was situated in a dark and dusty corner of the library.” Lux Traffic Controls [1993] RPC 107 at 133, quoted with approval in Baker Petrolite 2002 FCA 158 [42.6] (emphasis in Baker Petrolite). If there is prior art that would have made the invention obvious to a skilled person, but that would not be located in a reasonably diligent search, then it would only be located as part of an extended or arduous search. An invention may be found to be non-obvious because it would require experimentation that is “not routine, but rather was prolonged and arduous” Sanofi [89]. If that is true for experimentation, it is not clear why it should not be true for searching prior art. The traditional view is that the obviousness inquiry asks whether a person skilled in the relevant art would arrive directly at the invention when presented with the relevant problem. If the answer is no, I don’t see why it should matter whether that is the answer because discovering the invention would require prolonged and ardous technical experiments, or a prolonged and arduous prior art search plus routine experimentation.

On a related point, as noted above, the traditional inquiry was essentially factual, albeit focused on an objective skilled person, rather than any particular individual. The “state of the art” as being what would be discovered in a reasonably diligent search reflects what a skilled person would actually do when addressing the problem. If the state of the art includes all prior art, then we have moved away from this factual inquiry, into an odd hybrid, asking whether a skilled person would find the invention obvious in light of information which would not actually have been be available to them.

In any event, regardless of the policy issue, Locke JA’s conclusion is certainly supported by the text of the Act, and the point now seems to be settled.

Burden of Proving Priority

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

An apparently novel issue raised in this appeal was the burden of proving priority. The application for the 630 Patent was filed on August 1, 1997, and a priority claim was made based on a US application filed in 1996 [59]. However, s 28.4(4) provides that where there are two or more previous applications on which priority could be claimed, the earliest must be used. The 1996 US priority application itself claimed priority from another US application which was filed in 1992. Hospira argued that the priority claim to the 1996 application was therefore invalid (with the result that the claim date would be the Canadian filing date, making additional prior art relevant) [60].

Per s 28.1, priority cannot be claimed from the 1996 application unless it discloses the same subject-matter as the 630 patent; and the effect of 28.4(4) is that priority must be claimed from the 1992 application if the 1992 application discloses the same subject-matter as the 630 patent. The question for both was therefore whether they disclosed the same subject matter as the 630 patent. Neither priority application was in evidence. Thus the argument, and Locke JA’s holding, turned on the burden of proof.

Hospira argued that the patentee had the burden to establish the priority claim, and it failed to meet that burden because it did not put the 1996 application into evidence. Kennedy Trust, on the other hand, argued that the burden of proof was instead on Hospira in light of the presumption of validity per s 43(2) of the Act.

Locke JA rejected both these positions [63]. He held that that Hospira’s reliance on the 1992 priority “is remote enough from the issue of the priority claim on the 630 Patent” that Hospira had the burden to prove the contents of the 1992 priority” [64]. It seems reasonable to me that the party asserting a particular priority date should have the obligation to prove it. Given that burden, there is a separate question of how to actually prove the contents of the earlier priority application. At trial Hospira seemed to have relied on the fact that Kennedy Trust had actually pursued an appeal to the USPTO to establish that the 1996 application was entitled to claim priority to the 1992 priority, essentially on the basis that it disclosed the same subject-matter [FC 157]. Locke JA did not specifically discuss why this was not sufficient to carry the burden (and it's not clear that issue was even raised on appeal). Given that the 1996 application was not in evidence, evidence that the 1992 priority disclosed the same subject matter as the 1996 application may not be sufficient proof that either disclosed the same subject matter as the 630 patent.

Turning to Kennedy Trust’s argument, Locke JA held that the presumption of validity does not extend to the priority claim because the claim date only affects the prior art, and does not go directly to validity [63]. That seems right to me on the text of s 43(2). But if the presumption of validity does not apply and the 1996 application itself was not introduced into evidence, what is the basis for holding that the 1996 priority claim was valid? Locke JA held that “With no dispute that the 1996 priority supports the subject matter of the claims in issue” and in the absence of evidence of the contents of the 1992 priority, he saw no error in recognizing the 1996 claim date [65]. I must say that this looks to me like the application of some kind of presumption of validity, given that there was no evidence at all about the contents of the 1996 application. (Hospira’s position at trial was that both the 1992 and the 1996 disclosed the same subject matter, but that doesn’t necessarily imply that either discloses the same subject matter as the 630 patent.) Would the result have been different if Hospira had asserted, without any evidence, that the 1996 application did not disclose the same subject matter as the 630 patent? Would that have been enough of a dispute to require the patentee to introduce the 1996 application? If not, it would seem that some kind of presumption is at work. But, as noted, Locke JA expressly held that the presumption of validity does not extent to a priority claim.

In any event, in either case it does seem that the best way of establishing the content of the priority application is directly, by introducing it into evidence.

A Party Acting Entirely Outside of Canada Cannot Be Liable under the Saccharin Doctrine

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

This post covers two issues related to the Saccharin doctrine: a party who conducts activities entirely outside of Canada cannot be liable under the Saccharin doctrine; and the Saccharin doctrine applies to Swiss-type claims.

As discussed here, Phelan J at first instance held that Hospira’s infliximab product INFLECTRA, infringed several valid claims of the 630 patent. One of the defendants was Celltrion, a South Korean group that makes biopharmaceutical products [FC 18]. Celltrion supplied the infringing INFLECTRA to Hospira, which imported it and distributed it in Canada [FC 17]. Several of the claims at issue were Swiss-type claims (ie claims “to the use of composition X for the preparation of a medicament to be used for Y” [16]), and at trial Hospira had argued that “as the Swiss-type claims refer to the manufacture of a medicament and Inflectra is not made in Canada and is not sold to Hospira in Canada, the Swiss-type claims are not infringed” [FC 294]. Phelan J rejected this argument on the basis of the Saccharin doctrine, holding that “Hospira cannot escape liability for infringement merely by housing its production overseas” [319]-[322].

The FCA held that Phelan J had erred in including Celltrion among the companies found to have infringed [37], because “the Judge made no finding that Celltrion conducted any activities in Canada” [33]. As Locke JA noted, the Saccharin doctrine holds that the imported product of a patented process is itself infringing, even though the process is used abroad and the product itself is not patented [34]. But he also pointed out that the Saccharin doctrine does not do away with the territorial limits on patent infringement; a party whose activities are entirely outside of Canada cannot infringe a Canadian patent: [36]. A party who is liable under the Saccharin doctrine may not have carried out directly infringing activities in Canada, but it will have carried out activities in Canada which profited from the invention (namely importation and sale of the product of the patented process). As Locke JA noted, this point was well-recognized in the English case law following the Saccharin decision itself, and had also previously been recognized by Gauthier J in Cefaclor 2009 FC 991 at [283-84]. It is helpful to now have the point affirmed by the FCA.

[*See Update below] The puzzle for me on this point is that, so far as I can see, Phelan J never actually held that Celltrion infringed. Hospira’s argument, noted above, appears to be a general argument that the claims themselves were not infringed by any party, specifically including Hospira because they were to the use in manufacture, and manufacturing had been done outside of Canada. Phelan J rejected this argument on the basis of the Saccharin doctrine, holding that “Hospira cannot escape liability for infringement merely by housing its production overseas.” [FC 319]-[322]. This holding is expressly directed at Hospira, not Celltrion, and it was not disputed that Hospira acted within Canada by importing and distributing INFLECTRA [FC 17]. This holding therefore seems to be to be a correct application of the Saccharin doctrine, which helpfully clarifies that Swiss-type claims are subject to the Saccharin doctrine. Hospira’s liability for infringement on this basis does not appear to have been appealed.

While the FCA decision implies that Phelan J also held that Celltrion infringed, I couldn’t find any such holding in Phelan J’s reasons. Phelan J distinguished between Hospira [3] and Celltrion [17], rather than referring to them collectively as Hospira. As just noted, his holding regarding the Saccharine doctrine was directed at Hospira, as was his overall conclusion on infringement: “For all these Reasons, Kennedy’s claim against Hospira for infringement will be granted” [336]. With that said, I didn’t re-read every word of Phelan J’s decision, and perhaps I missed something, or perhaps there was such a holding in the formal judgment.

*Update: I've now seen a copy of Phelan J's Judgment, and he did find that Celltrion infringed, even though, as the FCA noted, there was no basis for that finding in his reasons. This entirely explains FCA decision on this point, as there was nothing in Phelan J's reasons to support a finding of infringement by Celltrion.

Patentability of Methods of Medical Treatment “Deserves Deep Analysis”

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

Kennedy Trust’s 630 patent covers the adjunctive use of methotrexate [MTX] and infliximab for the treatment of rheumatoid arthritis [RA] in patients who do not respond fully to MTX alone. As discussed here, Phelan J at first instance held that Hospira’s infliximab product INFLECTRA, infringed several valid claims of the 630 patent. This appeal, reversing Phelan J on several points, raises a number of interesting (and mostly unrelated) issues, which I'll cover in a series of posts, starting, in this post, with the FCA's desire to reform the law related to patentability of methods of medical treatment.

As I argued in this blog post, the law related to patentability of methods of medical treatment is incoherent. In Cobalt v Bayer 2015 FCA 116 [101], the FCA agreed that the current law on the issue “calls for full consideration by this Court or the Supreme Court in a case where the issue is squarely raised on the facts.” However, the issue was moot in Cobalt because the patent was not infringed [100], and the FCA devoted only a single paragraph to the issue.

In this case, Hospira again raised arguments related to patentability of methods of medical treatment. Locke JA devoted several paragraphs to reviewing the state of the law. He summarized the Federal Court jurisprudence as holding that a claim to “a substance intended for the treatment of a medical condition, can be good subject matter for a patent claim, but not if the claim encompasses the skill of a medical professional such as a dosage range rather than a fixed dosage” [51]. He remarked that “it is not clear to me that the decisions of the Supreme Court of Canada that form the basis of the principle that methods of medical treatment are not patentable justify a distinction between a fixed dosage (or interval of administration) and a range of dosages (or intervals)” [52]. He then cited Cobalt (and also my blog post, I am pleased to say) and stated that “I agree that this issue deserves deep analysis” [53]. He concluded by saying that “[u]nfortunately, this does not appear to be the case for such an analysis,” because the claims at issue are of a type that are clearly patentable even in the current state of the law.

I read this as a clear signal that the FCA is willing, and even eager, to undertake a review of the law on this issue itself, rather than leaving the matter to the SCC. Locke JA considered it “unfortunate” that the case did not lend itself to treating the issue in depth, and he clearly stated that he does not consider the current law to be determined by the SCC jurisprudence, so leaving leeway for the FCA. Even the fact that Locke JA devoted almost four pages to the issue indicates the FCA wants to deal with the issue. Hospira raised so many issues on appeal that “it will not be practical to address each one specifically,” so Locke JA generally did not address those that were without merit [15]. He did, nonetheless, choose to address methods of medical treatment at some length, even though it was ultimately without merit. The panel in this case was differently constituted from that in Cobalt (Pelletier, Stratas and Webb JJA), so we now have six judges on two different panels indicating a willingness to review the law related to the patentability of methods of medical treatment.

Lump Sum Costs Awarded

Packers Plus Energy Services Inc v Essential Energy Services Ltd 2020 FC 68 O’Reilly J

2,412,072

In this costs decisions following from Packers Plus 2017 FC 1111 aff’d 2019 FCA 96, holding Packers’s 072 patent to be invalid and not infringed, O’Reilly J awarded the prevailing defendants lump sum costs of 40% of their taxable costs, plus disbursements (with some minor adjustments). O’Reilly J’s reasons for awarding a lump sum rather than following the Tariff were brief: “I also do not agree with Packers that costs should be assessed according to the Tariff. A lump sum is more appropriate given the complex nature of this case.” This seems to reflect a general sense that the Tariff scale is outdated and no longer adequate. A collective costs award calculated under the Tariff, even at the upper end of Column IV, would have resulted in an amount of about $375,000, when actual costs were apparently closer to $10,000,000.*

Another point is that there were multiple defendants, and Packers argued that there should only be one set of costs as the defendants’ interests were aligned and they could all have been represented by the same counsel. O’Reilly J rejected this submission, noting that

It was Packers’ choice to pursue each of the defendants separately. It could have limited its costs exposure by proceeding only against the first defendant, Essential Energy Services Ltd, and pursuing the other defendants later if successful. Its approach complicated the proceedings and increased the costs incurred.

He also noted that the defendants, as competitors, were entitled to be represented separately, and that “defendants’ counsel made considerable efforts to divide their labours and reduce duplication throughout the trial.” Accordingly he held the defendants were entitled to individual costs.

*The amount of the defendants’ actual fees is not stated in the decision, but Packers proposed an alternative lump sum amount of $1,003,000 and O’Reilly J remarked that this approach “would effect an arbitrary discount of the defendants’ fees and yield a reimbursement of only 10% of the defendants’ taxable costs.”

Determining the Rate of Return for Compound Interest Damages

Eli Lilly and Co v Apotex Inc 2019 FC 1463 Zinn J [Cefaclor Interest] remitted from 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA [Cefaclor Damages] aff’g 2014 FC 1254 Zinn J [Cefaclor Damages FC]

1,133,007 – 1,146,536 – 1,133,468 – 1,150,725 [the Lilly Patents]

1,095,026 – 1,132,547 – 1,136,132 – 1,144,924 [the Shionogi Patents]

Cefaclor Interest is devoted to assessing the proper rate of return for compound interest damages. While the determination was ultimately a matter of fact, it raises issues that will arise in any similar determination. I also suggest that an overarching lesson from the decision is that whatever particular approach is used, the determination of the rate of return as a matter of fact is likely to be a burdensome undertaking. As a matter of policy is might be desirable to amend the relevant statutory provisions to permit a successful party to claim compound interest at a modest rate as a matter of law, without the need for a fact intensive inquiry as to what exactly it would have done with the money.

As discussed here and here, the common law traditionally prohibited recovery of interest on a damages award. While that prohibition was reversed by statutory provisions permitting the award of pre-judgment interest, those statutes generally did not allow for compound interest. In Bank of America 2002 SCC 43 the SCC recognized that simple interest is not fully compensatory, and consequently, the SCC held that even if compound interest was not available under the relevant statute, it was available under the common law of contract as compensation, so long as it was claimed as such and proven.

In Cefaclor Damages FC, the damages portion of a bifurcated trial, Zinn J had awarded lost profits of just over $31m (the Lost Profits), with compound interest on the Lost Profits as damages: [4]. On appeal, In Cefaclor Damages the FCA confirmed that compound interest is indeed available in the patent context when interest is claimed as a head of damages: see here. However, Zinn J had held that the loss could be presumed, and the FCA reversed on this point alone, saying “a loss of interest must be proved in the same way as any other form of loss or damage” [158]. The FCA therefore remitted the matter to Zinn J for reconsideration of this point alone [164].

When compound interest is claimed as damages, the loss is the value of the lost opportunity to use the funds that the plaintiff would otherwise have had — in this case, the Lost Profits. The question in Cefaclor Interest therefore, was whether Lilly had proven a lost opportunity to use the Lost Profits, and how prove the applicable rate of interest: [18].

Claims Upheld on the Presumption of Validity

Georgetown Rail Equipment Co v Tetra Tech EBA Inc 2020 FC 64 Fothergill J on remand from 2019 FCA 203 DawsonJA: Pelletier, Webb JJA rev’g 2018 FC 70 Fothergill J
             2,572,082 / 2,766,249

This case is the exception that proves the rule that the presumption of validity rarely plays a significant role in validity determinations.

At trial in Georgetown Rail v Tetra Tech Fothergill J held that Georgetown’s 082 and 249 patents were valid and infringed by Tetra Tech (see here). The FCA reversed, on the basis that Fothergill J had “erred in law by failing to consider and analyze how the skilled worker would have applied the common general knowledge to the prior art” [FCA 13] (and see here). The FCA consequently held the 082 patent and several asserted claims of the 249 patent to be invalid for obviousness [FCA 134]. The issue of validity of the remaining claims of the 249 patent was remitted to Fothergill J.

On remand, Fothergill J found the two broadest claims (Claim 1 and 12), to be invalid for obviousness, but there was insufficient relevant evidence to allow him to conclude that the other remanded claims were obvious [11], [51]. This is apparently because the obviousness of these claims was not a major issue at trial, and “neither Tetra nor Georgetown devoted much time or effort at trial” to elucidating the inventive concept of those claims [47]. “Applying the presumption of validity and the burden of proof,” Fothergill J therefore held that Tetra had not established that the remanded claims were invalid [57].

A granted patent is presumed to be valid, but the presumption is very weak, and is therefore rarely determinative. The presumption of validity was determinative in this case only because of the unusual circumstances surrounding the issue of obviousness for these particular claims.

Does a Direct Infringer Have a Cause of Action Against its Inducer?

McCain Foods Limited v JR Simplot Company 2019 FC 1635 McVeigh J

2,412,841 / Process for Treating Vegetables and Fruit Before Cooking

This appeal of Aylen J’s decision granting Simplot leave to file a third party claim and file related amendments to its statement of defence raises a couple of novel legal issues. One of the amendments to the statement of defence seems to be premised on a novel extension of the law of implied licence: see the discussion below under Amendments: Licence (2). And McVeigh J also held that it is arguable that in an inducement scenario, the direct infringer has a cause of action against the indirect infringer that induced it to infringe. This implies that in an inducement scenario, the direct infringer can effectively force the patentee into an action against the indirect infringer: see the discussion below under Third Party Claim: Induced infringement. However, McVeigh J upheld Aylen J’s decision on these points on the deferential basis that there was no palpable and overriding error, so this decision does not establish any point of law. If this litigation proceeds to trial, these will be issues to watch.

Overbreadth Sole Basis for Holding Claims Invalid

Seedlings Life Science Ventures, LLC v Pfizer Canada ULC 2020 FC 1 Grammond J
             2,486,935 / Auto-Injection of Medication

In Seedlings Grammond J held four claims of the 935 patent to be invalid on the sole ground of overbreadth. In my draft paper on Overbreadth in Canadian Patent Law, I argued that overbreadth is almost always redundant, in the sense that the same facts and analysis that support overbreadth also support a finding of invalidity on some other ground as well. Overbreadth has been applied as a truly independent ground of invalidity in just four cases. The first was Amfac (1986), 12 CPR (3d) 193 (FCA), in which the FCA upheld a decision striking down the key claim in the patent on the sole basis of overbreadth. The doctrine then lay unused for over thirty years, until last year, when it was invoked in two FC decisions, Servier v Apotex 2019 FC 616 (here) and Aux Sable 2019 FC 581 (here). In those decisions, while overbreadth was applied as an independent doctrine, it was not the sole basis for striking down the claims at issue. Seedlings is the third recent case to apply overbreadth as an independent doctrine, and in this case four claims were held invalid solely on that basis.

The SCC decision in BVD [1937] SCR 221 provides a good example of the typical use of overbreadth. The patent at issue disclosed a method of making semi-permeable fabrics using thermoplastic fibres woven into a yarn with cotton fibres, then fusing the fibres with heat and pressure. The use of thermoplastic in the form of a yarn was “the very essence of the invention” (228, 230). The claims, however, specified a fabric which “contains” a thermoplastic with no mention that it was in the form of yarns. The Court therefore held that the prior art Dreyfus patent, which disclosed a similar process using thermoplastics in the form of sheets rather than yarn, “constitutes a complete anticipation of the claims of the respondent,” unless those claims could be limited to a thermoplastic yarn (232-33). The Court held that the claims could not be so limited, and consequently, “[t]he claims in fact go far beyond the invention. Upon that ground the patent is invalid” (237). Thus the claims were overbroad because they had omitted an essential element, namely that the thermoplastic should be woven into the yarn. As the SCC explained, the situation was much the same as that in Erickson’s Patent:

In Erickson’s Patent case [(1923) 40 RPC 477 (CA)], it was held that the patentee had failed so to limit his first claim as to confine it to that which was the novelty (if any) of the invention, and that accordingly the claim was so wide as to render the patent invalid.

It is because the claim lacked novelty that, “accordingly,” it was too wide.

Can an Entity That Does Not Practise the Invention Be Entitled to an Accounting?

Seedlings Life Science Ventures, LLC v Pfizer Canada ULC 2020 FC 1 Grammond J
             2,486,935 / Auto-Injection of Medication

The facts in Seedlings are summarized here along with a discussion of claim construction. Novelty and utility are discussed in Tuesday’s post. Despite his holding that the asserted claims were either invalid or not infringed, Grammond J went on to consider remedies, which had been fully argued. Yesterday’s post discusses a timing issue in the context of the reasonable royalty determination. Today’s post considers Grammond J’s suggestion that a patentee that does not itself practice the invention cannot be entitled to an accounting of profits.

Grammond J held that he would not have allowed Seedlings to elect an accounting of profits, largely because Seedlings only intended to licence its product, and would not have competed directly in the market, and so could not have suffered damages by way of lost sales. Grammod J stated:

[252] The fact that the patentee does not practice the invention may also be taken into account in deciding whether to award an accounting of profits. In other words, where the patentee does not itself manufacture, distribute or sell the invention, it cannot be entitled to the profits made by the infringer with respect to those activities. [citations omitted]

The first sentence is well-established by the authorities cited by Grammond J, in particular Unilever v Proctor & Gamble (1993), 47 CPR (3d) 479 (FCTD), where the Muldoon J refused to allow an accounting, stating at 570-71:

The two factors which mainly predicate the Court's discretion in this regard are the plaintiff's brandishing their patent as a bargaining tool with P & G, and their never having made or practised their patent's invention in Canada.

The second sentence, which appears to say that the fact that the patentee does not practice the invention is not only a factor to be taken into account, but gives rise to a strict rule that the patentee “cannot be entitled” to an accounting, goes beyond what is established by any of the case law which he cited. So, Frac Shack 2017 FC 104 [283] and Human Care Canada 2018 FC 1302 [437], simply state that whether the patentee practiced the invention is one factor of several that can be considered. A strict rule of that nature is also difficult to reconcile with the well-established principle that an accounting, being equitable in nature, is discretionary. Grammond J recognized that an accounting is discretionary [251], and his remark at [252] should perhaps be interpreted as saying only that considerable weight will be given to this factor. Indeed, Grammond J went on to consider other factors, in particular that an accounting would have resulted in an award that would be “up to twenty times” greater than the reasonable royalty that would be assessed in damages [253], and that there was no evidence of wilful infringement [255].

It strikes me that a strict rule that a patentee that does not itself manufacture, distribute or sell the invention, cannot be entitled to an accounting, goes too far. Such an entity cannot of course get damages in the form of lost sales, so it’s remedy would be confined to a reasonable royalty, or potentially punitive damages. The difficulty with awarding only on a reasonable royalty is that it may not provide an adequate deterrent against infringement, as explained by Zinn J in Monsanto v Rivett 2009 FC 317:

[23] At the level of principle, there is no deterrent from infringing the patent if what the infringer is required to hand over is the sum he would otherwise have paid to Monsanto to buy the seed and the licence. In fact, this would almost be counter to the purpose of deterrence. It is much like saying, as the plaintiffs put it in their oral submission, “Catch me if you can”. If caught, the defendant would be required to pay the sum he would have paid to use the patent in any event. When not caught, he is left with a windfall.

In response to the deterrent argument, Grammond J pointed out that the court can award punitive damages for willful infringement [258]. The difficulty is that punitive damages are arguably an excessive deterrent, if routinely awarded, because the amount payable exceeds the benefit to the infringer from the use of the invention. Punitive damages make the infringer worse off than if it has never used the invention at all, and therefore have a chilling effect on legitimate forms of wilful infringement, such as when a party knows of the patent but believes it is probably invalid: see here. An accounting strikes a better balance, because the infringer is made worse off than if it had licenced, but not worse off than if it had never used the invention: see Rivett [22].

More broadly, a rule that a non-practising entity cannot be entitled to an accounting seems intuitively reasonable if the patentee is a patent assertion entity. But at the other end of the spectrum, consider a scenario in which a startup company with design expertise developed important new technology, and sought to licence it to a larger entity for commercialization. If the larger entity believed the patent to be valid and nonetheless copied the technology and began selling it, I don’t see why the patentee should be denied an accounting. In such a case the patentee might be entitled to punitive damages, as Grammond J pointed out, but I see no reason why it should be confined to punitive damages. Consider a similar scenario, except that the larger entity in believed, reasonably and in good faith, that the patent was invalid, but validity was ultimately upheld in close fought litigation. Why should the court have to choose between a reasonable royalty and punitive damages, rather than the middle ground of an accounting? The jurisprudence on the circumstances in which an accounting should be granted is still developing, but in my view, on the current state of the law and our understanding of the effects of the remedy, a discretionary multi-factorial approach, such as that set out by Phelan J in Varco 2013 FC 750 (see here), remain preferable to any strict rule.