Tuesday, June 27, 2017

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

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

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

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

Monday, June 12, 2017

Punitive Damages and Infringer’s Belief that Patent is Invalid

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Friday, June 2, 2017

Venlafaxine Section 8 Decision Reaffirmed on Remand

Teva Canada Ltd v Pfizer Canada Inc 2017 FC 526 Zinn J on remand from 2016 FCA 161 (here, here) var’g 2014 FC 248 (here) and subsequent reasons re pre-judgment interest 2014 FC 634 (here)
            1,248,540 / 2,199,778 / venlafaxine / EFFEXOR XR / NOC s 8 / Venlafaxine s8 FCA

In this s 8 action, Zinn J at trial awarded Teva $105 million in s 8 damages and pre-judgment interest: 2014 FC 248, discussed here (and see FCA [2] specifying the quantum.) On appeal, the FCA held that some key findings by Zinn J were based on inadmissible hearsay evidence: see here. The FCA consequently set aside the decision and remitted it to the FC for redetermination. In this decision on remand, Zinn J has reaffirmed his original decision. Because the remand was for evidentiary reasons, Zinn J’s redetermination turned on the facts and the evidence.

There are two evidentiary points of interest. First, on remand, Wyeth (now Pfizer), argued that much other evidence in the record was also hearsay and inadmissible, and should therefore be excluded, even though no such objection had been made at first instance [32]. After a review of the authorities, Zinn J rejected this argument, and held that he would not entertain any new objection to admissibility [41]. This holding was supported by the observation that, had Wyeth objected at trial, Ratiopharm (now Teva) would have had an opportunity to address the deficiency with other evidence, which was no longer possible on remand [37]. As I am not an expert on evidence law, so I won’t go into this issue in detail, except to say that Zinn J’s holding appears on its face to be logical and supported by the authorities he relied on.

A second point of some general interest is that Zinn J held that when it comes to establishing the capacity of a generic to satisfy the market:

[76] [I]f a section 8 plaintiff can point to a supply agreement with a third party that provides for the supply of the pharmaceutical at issue in the amounts required to fill the generic market in the but-for world then, in the absence of any contrary evidence, it must be found that the plaintiff has proven its loss on the balance of probabilities.

His finding on this issue did not, however, turn on this point alone, as he also found that there were a variety of reasons to conclude that the particular supplier in question in this case would have been able to perform the contract.

Wednesday, May 24, 2017

Dead Application is Dead

University of Alberta v. Canada (Attorney General) 2017 FC 402 Russell J
            Application 2,804,560

S 37 of the Patent Rules provides that a patent application “must contain. . . a declaration that the applicant is the legal representative of the inventor,” if the applicant is not the inventor. The ‘560 application, filed in Feb 2013 by an agent on behalf of TEC Edmonton, had no such declaration. Two weeks after the 560 Application was filed, CIPO issued a requisition to TEC’s agent requiring compliance with s 37 within 12 months [3]. TEC’s agent did not respond. A year later, CIPO issued a Notice of Abandonment, which stated that the application could be reinstated within a further 12 months pursuant to s 73(3) [4]. TEC’s agent did not respond. Two months later, TEC Edmonton assigned its right in the 560 application to the University of Alberta. A new agent was appointed. The new agent did not respond to the original requisition or to the Notice of Abandonment. (You can see where this is going.) In Feb 2015, two years after the requisition was issued, the 560 application was marked as dead, meaning that the time for reinstatement had passed. A year after that, in Feb 2016, the University of Alberta filed a petition for a correction of the patent records to show the ‘560 Application was in good standing [8]. CIPO replied that the 560 application was beyond the period of reinstatement.

On this application for judicial review, the University of Alberta in effect sought to have the 560 application reinstated. Russell J refused. To get around the clear legislative scheme the University advanced “esoteric” arguments [58], [80], more or less to the effect that there was no obligation to respond to the requisition because there was really nothing wrong with the application in the first place. The statutory interpretation argument, which I won’t go into in detail, turned on a distinction between substantive and formal compliance with the requirements of the Act. Russell J pointed out that, whatever the merits of such a distinction in theory, it had no basis in the Act [86]. He also noted that the notion that there was nothing substantively wrong with the application in the first place was a purely after-the-fact rationale, which wasn’t really the reason TEC’s agent had not responded [61], [80]. More importantly, even if the applicant had been of the view that the requisition was improper, the proper recourse would have been an application for judicial review of the decision to send the requisition, in a timely manner [54]. Allowing this collateral attack on that original decision would circumvent those procedures and limitations. Moreover, there was no unfairness in this result in principle, as the statutory scheme provided ample opportunity for the applicants to correct the record by simply replying to the requisition, or rectifying within the generous legislative time-limits [89]. Nor was there any unfairness on the facts, as the record was clear that the requisition was sent and noted on the prosecution register and there was no evidence it was not received or understood by the then patent applicants and/or their then agents [54].

Monday, May 8, 2017


I'll be on vacation for a couple of weeks. I'll resume blogging sometime in the week of May 22nd.

Friday, May 5, 2017

Can Fact Witnesses Provide Evidence on the “But For” World?

Eli Lilly Canada Inc v Teva Canada Ltd 2017 FC 88 O’Reilly J
            2,041,113 / olanzapine / ZYPREXA

In this s 8 NOC case, Teva is seeking damages from Lilly as compensation for having been prevented from coming to market with a generic version of olanzapine.* O’Reilly J’s decision did not arrive at a final quantum, but simply made the factual findings necessary for those calculations [6]. Most of the issues—when would Teva’s product have been listed, what would its market share have been, how much trade-spend—turned on the particular facts. The issue of most interest and general importance was an evidentiary question as to the admissibility of opinion evidence proffered by a fact witness. O’Reilly J also clarified a point regarding pipefill.

Opinion evidence proffered by fact witness
In order to assess damages, it is necessary to determine what would have happened in the “but for” world. That is necessarily a hypothetical matter. Teva wanted its fact witness to testify as to what they would have done or what would have happened in the but-for world [14], for example whether Teva would have launched with material produced by Process 1 or Process 2 [15]. The idea was evidently that the Teva executives who were actually responsible for making those types of decisions, and who would have made the decision in question had the statutory stay not been triggered, were best placed to address that aspect of what would have happened in the but for world. Lilly objected on the basis that the opinions of fact witnesses are not admissible, and O’Reilly J agreed [13].

O’Reilly J did not cite any authority for this proposition. While I’m not an expert on evidence law, I’m not sure that there is a rule prohibiting fact witnesses from giving opinion evidence. The issue is discussed at length in Graat v. The Queen, [1982] 2 SCR 819, in which Dickson J, for the Court, concluded (836):

Except for the sake of convenience there is little, if any, virtue, in any distinction resting on the tenuous, and frequently false, antithesis between fact and opinion. The line between “fact” and “opinion” is not clear.

He then says that the question at issue should be resolved on the basis of general principles:

Admissibility is determined, first, by asking whether the evidence sought to be admitted is relevant. This is a matter of applying logic and experience to the circumstances of the particular case. The question which must then be asked is whether, though probative, the evidence must be excluded by a clear ground of policy or of law.

Ultimately, the SCC held that the witnesses in question “had an opportunity for personal observation. They were in a position to give the Court real help” (836). Consequently the evidence was admissible. Without more details than are evident from the decision, I don't know how those principles would have applied to the evidence in question in this case, but it seems to me at least arguable that it would have been admitted.

O’Reilly J noted that there was a way around the problem:

[13] During the trial, I suggested to counsel that the best way to provide the relevant evidence to the Court would be to explore with fact witnesses what they did in the real world. The witnesses could then be asked whether they knew of any reason why they would have acted differently in the but-for world. This would confine fact witnesses to their own knowledge and experience, as opposed to asking them, in an open-ended fashion, what they would have done or what they thought would have happened in the but-for world.

While this would be a getting a way around the putative rule against allowing fact witnesses to give opinion evidence, the point of Graat, as I read it, is that these kind of indirect methods are not necessary.

The specific issue in Graat, and many of the cases discussed therein, was whether lay witnesses, such as police officers, could testify as to whether the accused’s ability to drive was impaired by alcohol. As many of the decisions emphasized, this is a situation where an ordinary person who has actually observed the accused has sufficient experience to form a helpful opinion. In a passage adopted by Dickson J at 839, Lord MacDermott in Sherrard v Jacob [1965] NILR 151, 162, stated:

The driving of motor vehicles is now so much a matter of everyday experience for ordinary people that I find it difficult to see how inferential or opinion evidence as to being (a) under the influence of drink and (b) thereby unfit to drive a car can be placed in different categories for the purpose of determining admissibility. The one as much as the other seems to be within the capacity of the non-expert to form a reasonable conclusion

While drunken driving might seem far removed from pharmaceutical production processes, there parallel seems to me to be close nonetheless. Whether a pharmaceutical company might have used one process or another is not a matter of everyday experience for ordinary people, but, as I understand the facts, it was a matter of everyday experience for the particular fact witnesses in this case. The point from Graat is that whether or not he had been qualified as an expert, the witnesses in question had sufficient relevant knowledge and experience to provide helpful evidence on the issue at hand.

A broad reading of Graat is that opinion evidence is admissible if it would be helpful and there is no clear ground of policy or of law for excluding it (835-36). A narrower reading is that fact witnesses may give opinion evidence when that is a method of making a compendious statement of facts (840). Even on the narrow reading, it seems to me that there is a good argument that the evidence at issue in this case would be admissible (again with the caveat that it is not possible to take a firm view with the limited details in the opinion). In some decisions reviewed by Dickson J, the court had taken a position very similar to that implicit in O’Reilly J’s suggestion, to the effect that the fact witness could state all the factual circumstances which would lead her to form the opinion that the accused was intoxicated, but the witness could not state the opinion itself (828). This position was clearly rejected by the SCC in Graat. As I understand, the point of allowing the opinion evidence is largely that such stratagems are unnecessary.

I don’t want to say that the evidence at issue in this case should have been admitted, as the nature of the evidence was described only in general terms. And, again, I am not an expect in evidence law, so there may well be a rule or development that I have missed. But, at least on the authority of Graat, it seems to me that there is no strict rule prohibiting fact witnesses from giving opinion evidence.

Teva claimed that its losses should include an amount for pipefill— “that is, the quantity of sales Teva would have made to distributors in the but-for world, an amount that would not be captured by retail sales figures” [90]. The idea is that the manufacturer ships its product from the factory, it sits a while with the wholesaler until ordered by the retailer, and sits a while with the pharmacy before being dispensed to an individual [93]. Teva wanted its lost profits to include losses on product that had left the factory, but had not yet been dispensed. O’Reilly J held that Teva was not entitled to lost profits on pipefill [103]. The basic rule for s 8 damages is that “but for” causation, in a world in which the patentee had not applied for an order of prohibition, except that losses made after the compensable period are not compensable, even if they were caused by the statutory stay: 2009 FCA 187, [92]-[102]; 2011 FCA 149. This is a statutory exception to the general principle that losses caused by the wrong are recoverable. O’Reilly J observed that pipefill product is actually sold, but it is sold outside of the compensable period [92]. Consequently, it is not a recoverable loss. This holding is significant because there are several other cases, reviewed in detail by O’Reilly J [96]-[101], which arguably did allow pipefill. He held that these cases were not determinative. In some the holding was ambiguous, and “In none of them was the issue seriously contested or a quantum specifically calculated” [101]. To the extent they differed, he therefore declined to follow them [103]. Given that O’Reilly J gave full consideration to the point, his holding is likely to be influential.

*The procedural history is long. Hughes J ruled against Lilly in 2007 FC 596, the NOC proceeding that ultimately gave rise to this s 8 action [4]. After Novopharm (now Teva) launched, O’Reilly J held the patent invalid Olanzapine (No 1) 2009 FC 1018 which was reversed and remanded by 2010 FCA 197. On remand, in was Olanzapine (No 2) 2011 FC 1288, O’Reilly J again concluded the patent was invalid and this was affirmed 2012 FCA 232 [2] (blogged here).

Wednesday, May 3, 2017

Should 36(1)(4)(b) of the Federal Courts Act be Repealed?

Dow Chemical Co v NOVA Chemicals Corp 2017 FC 350 Fothergill J
            2,160,705 / film-grade polymers / ELITE, SURPASS

In the liability phase of this action, Dow Chemical Co v NOVA Chemicals Corp 2014 FC 844 aff’d 2016 FCA 216, O'Keefe J held Dow’s 705 patent related to advanced film-grade “mLLDPE” polymers, to be valid and infringed by Nova, and he also held that Dow was entitled to damages under s 55(2) of the Patent Act for pre-grant ‘infringement’, and that Dow was entitled to elect between damages and an accounting for post-grant infringement. Dow subsequently elected an accounting [107]. Fothergill J’s decision in the remedies phase addresses various issues to allow the parties’ accountants to calculate the actual sums owed by Nova to Dow [6]. (For more background see last Wednesday’s post.) The question of pre-judgment interest arose both in the context of interest on the award of a reasonable compensation under 55(2), and also in terms of interest on the accounting. There are two basic questions as to interest: what is the rate, and should it be compounded?

In respect of the interest on reasonable compensation under s 55(2), [101]-[105], the only issue was the rate, as O’Keefe J had held that interest should not be compounded [101]. The Federal Courts traditionally tended to award interest at the annual average Bank of Canada bank rate, which may in practice be undercompensatory. The Federal Courts Act, s 36(3) does, however, give the court discretion to award a different rate. There seems to have been a trend over the last few years for parties to ask for a different rate (see here for an overview), and the question then arises as to what rate is appropriate. In this case, Dow asked for, and Fothergill J awarded, pre-judgment interest at a rate equal to Dow’s annual cost of borrowing [102]. This basis was largely undisputed [104]. A similar rate was also used in, for example, Cefaclor Damages 2014 FC 1254 (discussed here). This suggests that there is a trend towards using the plaintiff’s annual cost of borrowing as the appropriate pre-judgment interest rate. While I hesitate to express a firm view, interest assessed on this basis strikes me as sound, as it best reflects the actual loss to Dow. With that said, considerations of administrative efficiency might support a different rate, particularly when the quantum at stake is relatively modest. Roy Epstein, Prejudgment Interest Rates in Patent Cases: Don't Compound an Error, 24(2) IPL Newsletter (2006), has an interesting discussion suggesting that data on average actual short-term market interest rates paid on commercial and industrial loans might be a less expensive way at arriving at a reasonably reliable assessment of the plaintiff’s loss. (Hat tip to Professor Tom Cotter for bringing this article to my attention.)

Turning to the issue of interest on the award of Nova’s profits, O’Keefe J had left the question entirely open, in terms of rate and compounding [166]. Nova argued for prime rate + 1%, not compounded [167], while Dow argued that the applicable rate should be Nova’s weighted annual cost of borrowing, compounded [168].

Fothergill J held that the appropriate rate was Nova’s weighted average annual cost of borrowing [168], [173]. This is consistent with his holding in the context of reasonable compensation.

He also held that interest should be compounded [173], relying, inter alia on Reading & Bates Construction [1995] 1 FC 483, 486, stating “ the awarding of compound pre-judgment interest as deemed earnings on the profits is the rule,” and Beloit Canada [1995] FCJ No 733, 61 CPR(3d) 271 (FCA) reemphasizing the same point [171]. The rationale is compelling: as a result of the infringement, the infringer had use of money that it would not otherwise have had, and in light of “the modern reality that interest paid or earned on deposits or loans is compound interest,” the need to “achieve equity in the accounting of profits“ requires that interest be compounded, or the infringer to profit from its wrong: (Reading & Bates, ibid).

Given that compound interest is established as the norm in an accounting, it is curious that compound interest has only recently begun to be awarded in the context of damages. The rationale is equally compelling; the patentee was deprived of money it would otherwise have had, and in reality that money would have earned compound interest. The obstacle has been s 36(1)(4)(b) of the Federal Courts Act, which on its face prohibits compound interest. Bank of America Canada v Mutual Trust Co, 2002 SCC 43 generally, and Eli Lilly / Cefaclor Damages, 2014 FC 1254 in the context of damages, have gotten around this by awarding compound interest as being compensation, rather than interest on interest as such: see here. For reasons that are not clear to me, s 36(1)(4)(b) and its predecessors were not seen as posing the same problem in the context of an accounting. The provision prohibits “interest. . . on interest” accruing under 36(2), which refers to “an order for the payment of money,” and so on its face would also apply to an accounting.

In any event, notwithstanding s 36(1)(4)(b), compound interest is now available on both an award of damages and an accounting of profits, and this is sound in principle. It would appear best to repeal this provision entirely, at least so far as patent law is concerned.

Monday, May 1, 2017

Fixed Costs and the Differential Profits Approach

Dow Chemical Co v NOVA Chemicals Corp 2017 FC 350 Fothergill J
            2,160,705 / film-grade polymers / ELITE, SURPASS

In the liability phase of this action, Dow Chemical Co v NOVA Chemicals Corp 2014 FC 844 aff’d 2016 FCA 216, O'Keefe J held Dow’s 705 patent, related to advanced film-grade “mLLDPE” polymers, to be valid and infringed by Nova: for more background see last Wednesday’s post. Fothergill J’s decision in the remedies phase addresses various issues to allow the parties’ accountants to calculate the actual sums owed by Nova to Dow [6]. Dow elected an accounting [107], and one of the issues requiring clarification was deduction of fixed costs [141]-[165].

The infringer’s profits are its revenues less its costs. The direct costs of producing the infringing goods are clearly deductible, but fixed costs such as rent and general overhead present a difficult problem. The argument against deduction is that the fixed costs would have been incurred in any event; the argument in favour is that a business is not profitable if it doesn’t cover its fixed costs. While this case raised the problem in the context of an accounting of the infringer’s profits, the problem is the same when assessing lost profit damages.

I’ll begin with an important issue of terminology. As noted by Fothergill J [143], the differential profit approach is the preferred approach, but it was not used in this case because:

[146] In this reference, Nova concedes that there were no “direct non-infringing alternatives” available for the purpose of applying the “differential profits” approach.

I would quibble with this statement, at least to emphasize the importance of the word “direct.” It’s not quite right to say that the differential profit approach can’t be applied when there are no non-infringing alternatives. In the differential profit approach, “[a] comparison is to be made between the defendant’s profit attributable to the invention and his profit had he used the best non-infringing option” (Schmeiser, 2004 SCC 34, [102]). Alternatively, the differential profit approach says that the infringer’s profits are the difference between its actual profits and the profits it would have made in “a hypothetical world where the defendant’s impugned conduct did not take place” 2016 FCA 161 [47]. These are equivalent formulations, which means that in a broad sense, the “non-infringing alternative” is whatever the infringer would have done had it not infringed. In this case, on the facts, Nova would have made lower grade products, such as “pail and crate” grade plastics [158]. In the broad sense, that is the NIA. But when Nova conceded that there were no “direct” non-infringing alternatives, what it was saying is that there were no alternative products that it could have made that would have taken any share of the market from the patented product: the pail and crate grade plastics do not compete with mLLDPE. That is a narrower use of the term “non-infringing alternative.”

The term “non-infringing alternative” tends to be used in the narrower sense, as it was used in this case. That is understandable, because when the infringer’s alternative would take market share from the patented product, that raises a host of issues, such as the size of the NIA’s market share, that do not arise otherwise. However, we shouldn’t lose sight of the fact that there is only one basic question: what is the difference between the infringer’s actual profits (or patentee’s profits, when damages are assessed) and the profits it would have made had it not infringed.

Now, turning to the issue at hand, in US law of damages fixed costs are generally excluded when determining profits: Paper Converting Mach Co 745 F.2d 11, 22 (Fed Cir 1984). The English and Australian courts, on the other hand, will allow deduction of some part of the overhead if it can be shown on the facts that, but for the infringement, the infringer would have used its capacity to manufacture non-infringing product. The leading case is Dart Industries Inc v Decor Corporation Pty Ltd [1993] HCA 54, in which the High Court stated the following:

[14] In calculating an account of profits, the defendant may not deduct the opportunity cost, that is, the profit forgone on the alternative products.

The opportunity cost is the profit that the defendant would have made if it had made a non-infringing alternative, so this is, strictly, a rejection of the differential profit approach. The High Court continued:

[14] But there would be real inequity if a defendant were denied a deduction for the opportunity cost as well as being denied a deduction for the cost of the overheads which sustained the capacity that would have been utilized by an alternative product and that was in fact utilized by the infringing product.

[15] Where the defendant has forgone the opportunity to manufacture and sell alternative products it will ordinarily be appropriate to attribute to the infringing product a proportion of those general overheads which would have sustained the opportunity. On the other hand, if no opportunity was forgone, and the overheads involved were costs which would have been incurred in any event, then it would not be appropriate to attribute the overheads to the infringing product.

If, on the facts, the infringer would have simply cut back production, and let the plant sit idle, then there is no deduction; but if it can be proven that there were indeed other opportunities that were forgone in order to make the infringing product, then the fixed costs may be deducted accordingly, though there is no deduction for the foregone profits. In effect, fixed costs are used as a partial proxy for true opportunity costs, except that the opportunity is limited to cost recovery, and excludes profit that would have been made in the “but for” world: see Duff & Phelps Group, Siebrasse & Stack, “Monetary Relief – Quantum,” in Dimock, IP Disputes 19-103-04.

Even though the Dart Industries approach is, strictly, a departure from the differential profit approach, it may nonetheless be justified on the basis of administrability. That was basically the view of McHugh J, concurring in Dart. But I wonder if there are circumstances in which a full absorption cost approach, which would deduct a portion of fixed costs even if there were no other opportunity, might make sense? All costs are variable in the long run, and suppose the infringement took place over a long period in a purpose built plant that was not suitable for any other product. (Perhaps the infringer had independently created the invention.) We might say that but for the infringement, the infringer would have let the plant sit idle, in which case the costs of the plant would not be deducted; but we might also say that but for the infringement, the infringer would not have built the plant at all, in which case a full absorption approach might be consistent with the differential profit approach. In any event, the Dart Industries approach is clearly preferable to the US approach, as opportunity costs are real costs, which should not be ignored.

In summary, the current Canadian approach, following Dart Industries, seems basically sound, though there is an argument for the pure opportunity costs approach; but the problem is inherently difficult, and different results might be warranted, particularly on unusual facts. For a discussion of the different approaches, see generally Cotter, Comparative Patent Remedies, 206-07.

Idiosyncratic costs [134]-[140]
On a different issue, Nova produced ethylene, the basic feedstock for the production of the patented plastic, at its own facility, at a significantly lower cost than the market price [137]. The question was whether the cost to be deducted should be the market price, or Nova’s actual costs [134]. Fothergill J held that Nova’s actual costs should be used, on the principle that “one must take the infringer as one finds them” [138].

Thursday, April 27, 2017

Springboard Profits Awarded in an Accounting

Dow Chemical Co v NOVA Chemicals Corp 2017 FC 350 Fothergill J
            2,160,705 / film-grade polymers / ELITE, SURPASS

In the liability phase of this action, Dow Chemical Co v NOVA Chemicals Corp 2014 FC 844 aff’d 2016 FCA 216, O'Keefe J held Dow’s 705 patent related to film-grade polymers to be valid and infringed by Nova: for more background see Wednesday’s post. Fothergill J’s decision in the remedies phase addresses various issues to allow the parties’ accountants to calculate the actual sums owed by Nova to Dow [6]. Dow elected an accounting [107], and one of the issues requiring clarification was whether Nova had to account for so-called “springboard profits” [112]-[130].

When a patent expires some time is normally required before a competitor can enter the market with a product that would have infringed. Infringement allows a competitor a head start in gaining market share; a competitor who infringed prior to the expiry will have a larger market share on expiry than one who started competing only the day the patent expired. The patentee’s lost sales during this post-expiry ramp-up period are known as springboard damages, and similarly, the infringer’s excess profits during the same period are springboard profits. In this case, Fothergill J awarded Nova’s springboard profits as part of the accounting [130], for what appears to be the first time in Canadian patent law [115]. While the award is novel in that narrow sense, it is by no means groundbreaking, as the possibility has previously been recognized both in Canadian law [113], and in other jurisdictions [114]. More importantly, an award of springboard profits is firmly based on “but for” causation. As Forthergill J held:

[124] An accounting of profits is to be assessed in relation to a “but-for”world in which the defendant has not infringed the plaintiff’ patent. The assumption is that at the time of the patent’ expiry, the defendant had not yet produced the infringing product. I agree with Justice Barnes [in AstraZeneca 2015 FC 671, [7]], that springboard damages are nothing more than a type of loss to be proven with evidence, and I see no reason why this principle should operate differently to a plaintiff’s gains in the context of an accounting of profits.

Wednesday, April 26, 2017

Can Lost Profits Be Claimed as Reasonable Compensation under 55(2)?

 Dow Chemical Co v NOVA Chemicals Corp 2017 FC 350 Fothergill J
            2,160,705 / film-grade polymers / ELITE, SURPASS

In the liability phase of this action, Dow Chemical Co v NOVA Chemicals Corp 2014 FC 844 aff’d 2016 FCA 216, O'Keefe J held Dow’s 705 patent related to film-grade polymers to be valid and infringed by Nova’s SURPASS product: see discussion of the FC decision here and the FCA decision here. He also held that Dow was entitled to damages under s 55(2) of the Patent Act for pre-grant ‘infringement’, and that Dow was entitled to elect between damages and an accounting for post-grant infringement. Dow subsequently elected an accounting [107]. Fothergill J’s decision in the remedies reference provides helpful clarification on a number of issues. This post discusses reasonable compensation under s 55(2) of the Act.

Dow’s ‘705 patent relates to film-grade polymers, used to make products such as plastic bags, and in particular metallocene linear low-density polyethylene [mLLDPE], which includes both ELITE, manufactured by Dow, and SURPASS, manufactured by Nova. Both these products have superior strength and processing characteristics as compared with conventional linear low-density polyethylene products, and they occupy a distinct market segment from conventional film-grade polymers [15], [92].

Reasonable Compensation
Subsection s 55(2) of the Act provides that “A person is liable to pay reasonable compensation to a patentee . . . for any damage sustained by the patentee,” for ‘infringing’ acts committed between the time of publication and the time of grant [63]. The parties agreed that the proper measure of damages under s 55(2) is a ‘reasonable royalty’ to be determined using a hypothetical negotiation between Dow and Nova for a licence authorizing Nova’s use of the patented technology [64], [65]. To determine the reasonable royalty, the parties used essentially the same framework as was used in Airbus v Bell Helicopter 2017 FC 170 (discussed here), in which the boundaries of the hypothetical negotiation are the patentee’s “minimum willingness to accept” [MWTA or MWA] and the infringer’s “maximum willingness to pay” [MWTP or MWP]. The difference between the two is the “gains to trade,” which are divided between the parties [67].

This approach runs into a problem when the patentee’s MWA is higher than the infringer’s MWP – that is, when there is no price that the infringer would be willing to pay that the patentee would be willing to accept. This is not uncommon, given that it often happens that a reasonable royalty is assessed in favour of a patentee who, in reality, was using the patent to enforce market exclusivity for its own product. The minimum the patentee would accept is its own profit margin on all its lost sales, and it is rare that the infringer’s profit margin will be higher than that the patentee’s margin. This means that in reality, the patentee would not have been willing to licence on any terms the infringer would have been willing to accept. That is what happened in this case. The experts agreed that Dow’s MWA would be the lost profit on sales that would be diverted from Dow to Nova due to the infringing competition [68]. Fothergill J concluded on the facts that Nova’s MWP would be lower than Dow’ MWA. 

So, what to do? Forthergill J held, with the agreement of the experts, that the way to solve this problem is that the reasonable royalty is the patentee’s MWA, i.e., the higher figure:

[87] If Nova’ MWTP is lower than Dow’ MWTA of 8.8%, then there is no bargaining range between the parties. As Dr. Heeb stated, “[s]ince a bargain is compulsory in this hypothetical negotiation, the reasonable royalty rate is simply Dow’ MW[T]A”. Dr. Leonard did not dispute this approach. There is therefore no need to consider the division of gains to trade.

Dow’s MWA was equal to its profit margin on its ELITE product, that competed with the infringing SURPASS [80], [81] (albeit with a “diversion ratio” discount that I will ignore for the present purposes), so in effect Dow was awarded its lost profits on the sales that were diverted to Nova by Nova's use of the patented technology during the laid-open period.

In the context of reasonable royalty damages generally, I think that using the patentee's MWA is the wrong solution to this problem in the hypothetical negotiation framework. The reason, in a nutshell, is that we should never end up in this situation in the first place: if the patentee’s MWA is higher than the infringer’s MWP, this could only be because the patentee’s best option would have been to sell the product itself, in which case it should be seeking lost profits. Very often in this kind of case the patentee does indeed seek lost profit damages, or an accounting of the infringer’s profits, and this problem does not arise. Nor does the problem arises when the infringer was selling to a market that would not have been tapped by the patentee, and so there are no lost profits to prove. That is the classic reasonable royalty scenario, where there are gains from trade and the MWA / MWP approach works well.

But sometimes the patentee is unable or unwilling to prove damages in the form of lost profits in litigation, and so ends up claiming a reasonable royalty, even though in the real world the patentee would have refused a licence, and made its own profits. In that case, allowing the patentee to insist on an MWA that is equal to its own profit margin would allow it to smuggle lost profits damages into a reasonable royalty assessment. Having failed to prove lost profits directly, the patentee shouldn’t be able to get them indirectly, disguised as a reasonable royalty. The problem in such a case is not with the hypothetical negotiation construct, but rather with the assessment of the MWA on the facts. If the patentee did not claim, or failed to prove lost profits, then it should not be able to assert that its MWA would have been defined by those same lost profits: see here for more.

With that said, in this case, I think the approach adopted by the parties, and by Fothergill J is right. This is not a case in which the patentee failed to claim or prove lost profits. By statute, the patentee was confined to “reasonable compensation,” and the real question is what is meant by “compensation.” Does it include lost profits? On its face, the answer is yes. It is very well-settled that the purpose of patent damages, including lost profit damages, is to compensate the patentee. Compensation is achieved by putting the patentee back in the position it would have been in but for the wrongful act: see e.g. Lovastatin Damages 2015 FCA 171 [41]-[43], [49]-[50]. Section 55(2) also requires “compensation” of the patentee. Prima facie, the term “compensation” in a remedial provision of the Act should mean the same thing that it means in remedies law generally. From that it follows directly that when the patentee has lost profits as a result of the wrongful act, it should be entitled to recover those lost profits in compensation. On this view, the only substantive difference between 55(1) and 55(2) is that, in the former, the wrongful act is infringement of a granted patent, and in the latter, the wrongful act is any act that would have constituted an infringement of the patent, during the laid open period.

The only obstacle to this analysis, which was no doubt the reason that the parties agreed that reasonable compensation should be assessed as a reasonable royalty, and not lost profits, is Snider J’s decision in Jay-Lor 2007 FC 358, in which the patentee also claimed reasonable compensation under s 55(2). The patentee specifically argued that that reasonable compensation should take the form of damages on lost sales, i.e. lost profits [121]. Snider J rejected this:

[122] In my view, such an award is not warranted. In addition to relying on the comments of Justice Gibson in Baker Petrolite, I base this view on my reading of the relevant statutory provisions. For the period after the grant of the patent, s. 55(1) of the Patent Act provides that “a person who infringes a patent is liable . . . for all damage sustained by the patentee”. In contrast, s. 55(2) provides that a person is liable to pay “reasonable compensation . . . for all damage sustained by the patentee” during the laid open period. In s. 55(2), Parliament could have provided for the same assessment of damages as in s. 55(1). It did not do so. Accordingly, to give effect to the different words in the two provisions, I believe that the better view is that “reasonable compensation” during Period 1 must be something other than damages as contemplated by s. 55(1). It may be that there are other means to provide reasonable compensation beyond a royalty. However, in the case before me, no alternatives were presented. Thus, in this case, I intend to equate “reasonable compensation” to a “reasonable royalty”.

With respect, Snider J’s holding on this point is, in my view, wrong. Compare the provisions:

55(1) A person who infringes a patent is liable to the patentee and to all persons claiming under the patentee for all damage sustained by the patentee or by any such person, after the grant of the patent, by reason of the infringement.

55(2) A person is liable to pay reasonable compensation to a patentee and to all persons claiming under the patentee for any damage sustained by the patentee or by any of those persons by reason of any act on the part of that person, [during the laid open period].

The most basic problem with Snider J’s interpretation is that a patentee who has in fact suffered damages in the form of lost profits during the laid open period, and who claims under a provision, s 55(2), that explicitly entitles them to “compensation. . . for any damage,” will nonetheless not be entitled to compensation for its lost profits. This flies in the face of the plain words of the Act. Moreover, Snider J’s view is premised on the need to give effect to the different wording in the two provisions. This implies that if 55(2) had said “A person is liable to a patentee ...” omitting the words "reasonable compensation" then it would include lost profits, because then the provisions would be exactly parallel. So, not only is a patentee denied compensation under a provision that explicitly entitles it to compensation; it is disentitled to compensation because the provision explicitly entitles it to compensation. This strikes me as doubly absurd.

Further, if Snider J is right as a matter of statutory interpretation, the Fothergill J’s holding in this case must also be wrong as a matter of law, because the effect of his decision is to allow a patentee to recover its lost profits during the laid open period. If Snider J’s interpretation of the Act is right, than this would countenance an end-run around a statutorily imposed substantive limitation on recovery under 55(2).

In my view, Forthergill J was right, and that necessarily implies that Snider J’s interpretation of 55(2) was wrong. Ideally, the courts would recognize explicitly that “reasonable compensation” under 55(2) can include lost profits when appropriate on the facts.

But the more important point is that Forthergill J’s holding that when there is no bargaining range between the parties, the reasonable royalty rate is the patentee’s MWA, but it should not be uncritically extended to the context of reasonable royalties. It is acceptable, though not ideal, as a way of avoiding Snider J’s interpretation of 55(2),so long as it is confined to that context. Otherwise, we may have a situation of cascading errors, where a problem in the interpretation of one relatively narrow provisions, gets magnified into a much bigger problem.

Wednesday, April 19, 2017

Important Course Correction on Inventive Concept

Bristol-Myers Squibb Canada Co v Teva Canada Ltd 2017 FCA 76 Pelletier JA: Near, Rennie JJA aff’g 2016 FC 580 Mactavish J
            2,317,736 /atazanavir / REYATAZ / NOC

The FCA’s Atazanavir decision is a welcome course correction dealing with the role of the inventive concept in the obviousness analysis. Since Sanofi / Plavix 2008 SCC 61, [67], endorsed the four-step Windsurfing/ Pozzoli framework, identifying the “inventive concept” in the second step has become an increasingly lengthy and contested aspect of an obviousness attack. The FCA’s Atazanavir decision has now pressed the reset button on this approach, emphasizing that Sanofi did not effect any radical change in the law on this point. This important – and short – decision is essential reading on the issue of obviousness.

Thursday, April 13, 2017

Late Request to Amend Priority Date

Bayer Cropscience LP v. Canada (Attorney General) 2017 FC 178 O'Reilly J

In this case O'Reilly J affirmed the Commissioner’s decision to refuse Bayer’s request to amend the priority date, on the basis that the request was outside the sixteen month window for such a request under Rule 88(1)(b). This case turned on a straightforward reading of the Rules in the context of unusual facts.

Bayer filed a US patent application on 3 April 2012. The USPTO refused to assign a filing date for on the basis that Bayer had failed to file accompanying drawings. Bayer filed the drawings on 19 April 2012, and the USPTO assigned that as the filing date. The following year, on 15 March 2013, Bayer filed a PCT application claiming priority from the US application. Bayer asked for a filing date of 3 April 2012, but WIPO pointed out that the US application had a filing date of 19 April. Therefore Bayer requested, and was given, a filing date of 19 April 2012. Two years later (April 2015), on Bayer’s request, the USPTO conceded that the drawings were not required after all, and it amended the filing date for the US application to 3 April 2012. However, the USPTO, which acted as the international receiving office for the PCT application, refused to amend the PCT filing date. On 7 August 2015, the PCT application entered the national phase in Canada as Canadian Patent Application No 2,907,271. Bayer requested that the ‘271 application be given a filing date of 3 April 2012 on the basis that it was claiming priority from the ‘691 US application, which had an amended filing date of 3 April 2012 [4].

The problem was that under Rule 88(1)(b), a request for priority must be made with sixteen months of the filing from which priority is claimed [15]. Bayer had made a request within that period, namely on 15 March 2013, but there was no basis for it at that time, as the US application was still dated 19 April 2012 [14]. The US application had been amended by the time of Bayer’s August 2015 request to CIPO, but that second request was well out of time [15].

Bayer also argued that the priority date should be amended pursuant to the Commissioner’s duty to ensure the Register is correct. O’Reilly J dismissed this argument, noting that the failure to request an amendment in a timely manner does not create an inaccuracy in the Register [16]. That conclusion must be right, or the time limits would be nugatory.

Wednesday, April 12, 2017

Section 8 Damages Law is Mature

Teva Canada Limited v Pfizer Canada Inc 2017 FC 332 Phelan J
            pregabalin / LYRICA / NOC s 8

It seems that the law related to s 8 damages is now mature. Phelan J’s decision in Pregabalin s 8 runs to 78 pages, without raising any new points of law. This had to happen eventually, as s 8 damages are based on the same basic principle of ‘but for’ causation that is applicable to monetary remedies generally, in which the actual world is compared with a “but for” world (“BFW” to adopt Phelan J’s abbreviation). There were a number of legal issues peculiar to the s 8, because the statutory provisions limit ‘but for’ causation in some ways (in particular with respect to the compensable period), and raise some unique puzzles (ie should it be assumed that the NOC Regulations would not exist at all in the ‘but for’ world), but those issues have largely been hammered out, most importantly in the Apotex s 8 Damages FCA 2014 FCA 68 aff’d 2015 SCC 20 (blogged here, here, and here) aff’d 2015 SCC 20, and the companion case Teva s 8 Damages FCA 2014 FCA 67. No doubt narrow legal issues raised by unusual fact patterns will continue to arise, as in any area of law, but the main issues are settled.

Following Apotex s 8 Damages FC 8) 2012 FC 553 [11], Phelan J noted that there are five steps in assessing s 8 damages [8]

• determine the duration of the period of liability [the Liability Period];
• determine the overall size of the Pregabalin market during the Liability Period;
• determine the portion of the Pregabalin market that would have been held by Teva and any other generic manufacturers during the Liability Period – the generic market;
• determine the portion of the generic market that would have been held by Teva – its lost volumes; and
• quantify the damages that would have been suffered by Teva in respect of its lost volumes (net lost profits).

I won’t go through the details of each determination, which all turned on their facts. I do have just a couple of general observations.

First, Phelan J stated that [13], [14]:

The real world plays a significant role in the construction of the BFW [‘but for’ world]. The BFW is to mirror, as much as possible, the real world experiences and circumstances – to use history as the basis for assessing the assumptions advanced in the BFW scenarios.

So for example, Ratiopharm (now Teva) had failed to follow up promptly on the patent hold letter in the real world, and that failure to act expeditiously in the real world undermined Teva’s argument that it would have acted expeditiously to obtain an NOC in the ‘but for’ world [147]. With that said, Phelan J did not hesitate to find that the BFW would have differed from the real world when the facts so established. For example, Pfizer argued that it in the BFW it would have entered with its own generic, GenMed, as it did on genericization of the market in the real world [220], but the evidence established that GenMed was not a part of Pfizer’s “toolbox” in 2010 [223].

There is also one factual issue that has more general ramifications for s 8 actions. The more generics that would have entered the market in the ‘but for’ world, the lower Teva’s market share and therefore the lower Pfizer’s s 8 liability. This meant that Pfizer wanted to prove that other generics would have entered. This meant that Pfizer had to elicit evidence that would ultimately be helpful to Pfizer from generic drug company executives. That is easier said than done. Phelan J noted that [95, [96]:

Pfizer called six generic drug companies who competed with Teva in the Pregabalin market. All appeared under subpoena and only one agreed to meet with counsel beforehand. Some of the evidence was confidential because of the competitive circumstances. The Court recognizes the difficulty faced by counsel trying, in direct examination, to elicit positive evidence from competitors, even where such examination is skillfully and artfully done as in this case.”

The evidence given was ultimately unhelpful in establishing potential generic entry [98]. Despite the rivalry between innovators and generics, there is no suggestion that the witnesses were trying to undermine Pfizer’s case; rather, “[f]or most it was an exercise too remote from what they did in real life – too theoretical for their comfort” [97]. This illustrates a difficulty than any patentee will face in making its case in s 8 proceedings. With that said, I can’t be too sympathetic to Pfizer’s dilemma; the argument is that but for the statutory stay, the patentee would have lost market share to some generic, just not to the particular generic that had filed the NOA and triggered the NOC proceedings. But the other generics that would have entered in the BFW would not be able to claim damages because they had not actually filed an NOA in the real world. So in arguing that other generics would have entered, the patentee is trying to avoid being held liable for loss it actually caused, albeit not to the particular party in s 8 action. Put another way, the legal rule that entry by other generics must be considered is in itself favourable to the patentee, so patentees can’t complain too much about difficulties of proof they might face in establishing the point on the facts.

Tuesday, April 11, 2017

Another Piece of the Double Patenting Puzzle

Bristol-Myers Squibb Canada v Apotex Inc 2017 FC 296 Manson J
            2,366,932 / 2,519,898 / dasatinib / SPRYCEL / NOC

Patent law has a reputation of being an arcane and technical area of law. To me, it doesn’t generally seem that much worse than, say, corporate law, or even administrative law (where as soon as everyone figures out what the law is, the SCC changes it). But double patenting definitely lives up to the billing of being both arcane and technical. Manson J’s Dasatinib decision is significant in holding that the appropriate date for assessing obviousness-type double-patenting is the claim date of the second patent, in a case in which it actually mattered on the facts. However, the holding was not strictly necessary to the result, as the claims in question were invalid under a standard obviousness analysis, and Manson J’s reasons for selecting that date were brief. On the whole, the question of whether the claim date of the first or second patent is appropriate, remains open.

Obviousness-type double patenting is a judicially created doctrine which prevents an inventor from obtaining a second patent for an invention which is an obvious variant of an invention disclosed in its own prior unpublished prior application, even though that prior application is not part of the state of the art defined in s 28.3. The problem arises when the first patent is published after the claim date of the second patent (because otherwise it will typically be prior art in any event). The problem has normally been framed as involving a choice between three possible dates (from earliest to latest) (see Mylan FCA 2016 FCA 119, [45]):

(1) the claim date of the first patent (First Claim date);
(2) the claim date of the second patent (Second Claim date);
(3) the publication date of the second patent (Second Publication date):

The question is important only when the state of the art has changed in the interim. Keep in mind that when we are considering the correct date for assessing double patenting, it must already have been established that the double patenting doctrine applies, and so it is established that the first patent is considered to be part of the state of the art against the second, regardless of what date is used.

Recently, the law has been developed primarily in the context of NOC litigation dealing with two patents related to tadalafil, the earlier 377 patent, and the later 784 patent. In Mylan FC 2015 FC 17, discussed here, de Montigny J held that the appropriate date was (1), the First Claim date. Then, in Apotex Tadalafil FC, dealing with the same two patents, Gleason J expressed a preference for (2), the Second Claim date, but on the facts it was not necessary for her to decide between the First and Second claim dates: see here. The next decision, chronologically, was Mylan FCA, the appeal from Mylan FC. As discussed here, the Rennie JA, speaking for the FCA, definitively ruled out (3), the Second Publication date, but held that it was an open question as to whether the First or Second Claim date was correct. This effectively over-ruled de Montigny J’s holding that (1), the First Claim date, was appropriate, though he was affirmed in the result, because on the facts the result was the same whether the First or Second Claim date was used. Then, in Apotex Tadalafil FCA, Apotex argued that Whirlpool 2000 SCC 67 had held that (3), Second Publication date, was correct. The FCA rejected that argument and encouraged some out-of-the-box thinking: see here. Thus, coming in to this case, we have a clear holding from the FCA eliminating (3), the Second Publication date, but otherwise an entirely open question as between (1) and (2), the First or Second Claim date.

In this case, Manson J held that (2), the Second Claim date, is the correct date. This mattered on the facts, because Manson J held the claim at issue to be obvious as a consequence, but if the First Claim date, was used, the claim at issue would not have been obvious [207]. With that said, he had already held that claim to be obvious on a traditional obviousness analysis [202].

I must say that I find Manson J’s reasoning on this issue more difficult to follow that the rest of his decision. He said that in Apotex Tadalafil FCA the FCA had

declined to affirm Justice Rennie’s exclusion of the Second Publication date (Apotex Tadalafil FCA at para 41). Therefore, the law as it currently exists on the appropriate date for the obviousness-type double patenting analysis is inconclusive. [212]

I find this passage confusing. It might be read as suggesting that Apotex Tadalafil FCA had doubted Rennie JA’s holding and re-opened the Second Publication date as a possibility, but I can’t read the decision that way. Apotex’s argument in Apotex Tadalafil FCA was Mylan FCA was wrongly decided because it was inconsistent with Whirlpool. This FCA rejected the inconsistency argument, and that is why Pelletier JA said “there is no reason for us to depart from Mylan FCA” [41]; he was not suggesting that Mylan FCA was doubtful authority and might be reconsidered.

Manson J then went on to say that he found the policy arguments made by Apotex for using Second Publication date to be persuasive in principle [209], [213]. However, those arguments were only briefly described, as being to the effect that the evil of double patenting “is to force the public to endure a prolonged monopoly on an invention,” and the publication date of the second patent “is the first date at which the patentee can enforce the second patent and the public is threatened by the risk of liability for infringement” [209]. I must say that I don’t see the force in this at all. An inventor is entitled to an invention which is not obvious as of the claim date, so the monopoly is “prolonged” only if the patent was obvious as of the claim date. Many valid patents are granted for inventions which would be obvious as of their publication date. And while the point about enforcement and liability is more or less true (though strictly, the patentee can’t enforce the patent until it is granted), I don’t really see the relevance. Manson J made the point only briefly, and no doubt it was clearer from the submissions.

No doubt Manson J’s discussion of the policy arguments was so cursory because he then went on to say, albeit in a roundabout way, that he was in any event bound by Mylan FCA to reject the Second Publication date [213]. Then, quoting a passage from Apotex Tadalafil FC [132] in which Gleason J said that “a sound argument” could be made for using (2), the Second Claim date, Manson J held that the Second Claim date, or more specifically, the Second Priority date, was indeed the correct date [216]. As discussed here, while Gleason J made a number of good points in her careful analysis, she did not definitively come down in favour of the Second Claim date. (I note that Manson J referred to the “Second Priority date,” while I have been referring to the “Second Claim date.” As discussed here, I think it is implicit in the decisions that it is reallythe choice between the earlier or later claim date that is at issue, even though in most of the cases this has been the priority date.)

In summary, Manson J’s Dasatinib decision is significant in holding that the appropriate date for assessing obviousness-type double-patenting is the Second Claim date, in a case in which it actually mattered on the facts. However, the holding was not strictly necessary to the result, as the claims in question were invalid under a standard obviousness analysis. Moreover, Manson J’s decision was thinly reasoned on this point. Given that Gleason J in Apotex Tadalafil FC did not feel bound to follow the much more thoroughly reasoned decision of de Montigny J in Mylan FC, I would say that it remains an open question as to whether the First or Second Claim date is appropriate.