Skinny Label and Swiss Claims

Janssen Inc v Apotex Inc 2022 FC 996 (reasons) 2022 FC 995 (judgment) Pallotta J

            2,659,770 / macitentan / OPSUMIT / NOC

There are three known biological pathways affecting pulmonary blood pressure, namely the prostacyclin, nitric oxide, and endothelin pathways. PDE5 inhibitors, such as tadalafil, work through the nitric oxide pathway. Macitentan is an endothelin receptor antagonist (ERA), which, as the name suggests, works through the endothelin pathway. The 770 patent relates to the use of combination therapy consisting of macitentan and a PDE5 inhibitor (PDE5-I) to treat diseases involving vasoconstriction, particularly pulmonary arterial hypertension (PAH). Most PAH patients are treated with combination therapy, but a non-trivial number of patients — around 20% — are treated with macitentan monotherapy [162]. Janssen markets OPSUMIT, a 10 mg tablet, for use alone or in combination therapy. Apotex sought to market a 10mg tablet of macitentan, which is not itself patented, and in this NOC action, Pallotta J held that Apotex’s macitentan product would infringe Janssen’s 770 patent. Validity was not at issue [9]. The 770 patent was also at issue in Janssen v Sandoz 2022 FC 715, in which infringement was conceded and validity was at issue: see here.

This is in many ways a typical ‘skinny label’ case, in which a generic seeks to sell a drug that is itself unpatented, but which may be used in a manner that is patented, eg as part of a patented combination, or for a patented indication. The generic in such cases is not normally a direct infringer, so infringement by inducement must be established under the three-part Corlac test, 2011 FCA 228 [162]. This typically reduces to the question of whether the generic’s product monograph (PM) will induce infringement by prescribing physicians, who will read the monograph and thereby be induced to prescribe the generic product for use in an infringing manner. A central question is therefore whether the generic’s skinny label has been sufficiently scrubbed clean of any reference to the infringing use. This inquiry turns on the details of the PM. Sometimes the generic wins, sometimes it loses—as in this case. The generic will also sometimes argue that even if its PM does instruct an infringing use, that doesn’t constitute infringement because the prescribers don’t pay any attention to the generic PM in any event. Whether prescribers heed the generic PM is a fact-specific inquiry, but so far as I know, no generic has ever prevailed on this argument. (Please leave a comment with a case cite if I am wrong about that.) Apotex made that argument in this case, and, unsurprisingly, lost. The result was that Apotex was enjoined from marketing Apo-macitentan until after the expiry of the 77o patent. While the case was typical in broad outlines, there are a few issues of interest in this decision, particularly on the construction of Swiss-type claims.

Three types of claims were at issue in this case [86]:

Product for use

Claims 1–5 eg “A product containing [macitentan] . . . in combination with [a PDE5-I] . . . for therapeutic use. . . in the treatment of [PAH].”

Use for treatment — sometimes referred to as German-style claims

Claims 21–31 eg “A use of [macitentan] in combination with [a PDE5-I] for treating [PAH].”

Use in manufacture of a medicament for — commonly called Swiss-form claims

Claims 10–20 eg “A use of [macitentan] in combination with [a PDE5-I] . . . for the manufacture of a medicament intended to treat [PAH].

A variety of claim types are employed because many jurisdictions have some kind of prohibition on patenting of methods of medical treatment, and consequently a variety of claim forms are used in claiming the use of a compound to treat a disease. A fourth type of claim that is often used in the US is straightforward: “A method of treating disease Y, comprising administering compound X.” This type of claim is not allowed in Canada as it is considered to fall afoul of the prohibition on patenting methods of medical treatment.

A preliminary issue was as to the construction of “combination,” which Pallotta J construed as including any scenario in which macitentan and the PDE5-I work in concert to treat the disease in question. In particular, it does not matter whether the macitentan and PDE5-I are combined in the same dosage form [120]; and it includes a scenario in which the patient is started on macitentan monotherapy and then moved to a combination therapy of macitentan and PDE5-I [116].

The most interesting claim construction issue concerned the interpretation of the Swiss-type claims. Swiss claims were originally developed to avoid the European prohibition on patenting of methods of medical treatment. Since a Swiss claim is, on its face, a claim to the product, not its use, and the physician who prescribes a drug does not manufacture it, physicians are excluded from the scope of infringement. However, in Hoffmann-La Roche v Sandoz 2021 FC 384, [95]–[109], Manson J held that the Swiss claims should be construed as use claims on the basis of a purposive interpretation; in effect, the idea is that what was really discovered was a new use, not a new method of manufacture, and the claim should be construed in light of what was actually discovered [97]. The result was that the generic, Sandoz, could not be liable as a direct infringer. As discussed here, this is a bit of a strange result, because it means that prescribers are direct infringers and the manufacturer is not, even though the original purpose of Swiss claims was to ensure that the manufacturer a direct infringer and the prescriber is not an infringer at all.

In this case, Apotex, relying on Hoffmann-La Roche, argued that the Swiss claims should be construed as use claims, so that Apotex could only be liable, if at all, on the basis of inducement. Pallotta J did not accept this argument. While a purposive construction may consider the nature of the inventive concept, “a purposive construction focuses on the language of the claims,” and “[t]he words chosen by the patentee necessarily play a key role” [128]. The importance of the text is consistent with the general law of statutory interpretation: Canada Trustco 2005 SCC 54 [10]; Canada v Utah 2020 FCA 224 [9]; Biolyse v Bristol-Myers Squibb 2003 FCA 180 [13]. It is also well-established as a principle of claim construction: Free World 2000 SCC 66 [39]–[40]; ABB Technology 2015 FCA 181 [42]–[43] (cited by Pallotta J at [128]. The words of the Swiss claims clearly claim the use “for manufacture of a medicament” [128].

While I’ve waffled a bit on this (see my comments on Warner-Lambert) I think Pallotta J is right on this. The key doctrinal point is that the words play a “dominant role” in the interpretive process, as the SCC put it in Canada Trustco. This is important in the context of statutory interpretation because the legislature must be able to rely on the courts to carry out the legislature’s intent, and the words, when clear, are the best reflection of that intent. The parallel point in the context of claim construction is that the patentee should be able to decide what it wants to claim—taking the risk that the claim may be invalid—and again, the words it uses are the best guide to that intent. If there is some public policy reason that Swiss form claims should not be permitted at all, then this should be implemented through a substantive legal rule, which can then be debated and subject to appeal.

Even though Pallotta J came to a different conclusion than Manson J, she did not have to expressly disagree with his analysis, as Manson J held that the meaning was context specific [103] and his holding of law was only that Swiss claims do not “automatically benefit[] from a literal construction” [102]. I must say I am not very enthused about that approach. Patent agents take great pains with the words used in a claim. While some terms used will be specific to the invention, and so may require considerable context, there are some terms, such as “comprising,” which are effectively terms of art with a specific meaning, and which should accordingly be given a consistent meaning. To my mind, Swiss claims are sufficiently common and established as a claim form, that they should be given a standard construction, so that patent agents will be able to predict the consequences of using Swiss claims.

Even though Palotta J construed the Swiss claims as product claims, she nonetheless held that neither the Swiss claims, nor the product-for-use claims, were directly infringed by Apotex. She noted that Apotex only intended to sell macitentan itself, not a product that contains macitentan in combination with a PDE5-I. Consequently, she held that Apotex did not infringe the product-for-use claims, which claim ‘A product containing [macitentan] in combination with [PDE5-I]’ because the product sold by Apotex would not contain the drugs in combination [144]. This reasoning seems right to me. She held that the Swiss claims were not infringed for the same reason [144]. This also seems right, given the structure of the Swiss claims at issue: “A use of [macitentan] in combination with [a PDE5-I] . . . for the manufacture of a medicament intended to treat [PAH].” This indicates that macitentan and the PDE5-I are used in combination for manufacture of the medicament.

As an aside, it occurs to me that a more difficult question would arise if the Swiss claims were of the form “A use of [macitentan] for the manufacture of a medicament intended to treat [PAH] in combination with [a PDE5-I].” In that claim, the question is whether the macitentan is intended for combination use, which, given Pallotta J’s holding that “in combination” encompasses any scenario in which the drugs work in concert, would include administration of separate pills in combination therapy. In that hypothetical, the question would be whether the generic product was intended for use in combination therapy. As discussed here, in Warner-Lambert v Generics (UK) [2018] UKSC 56 the UKSC split three ways in trying to decide what “for” means, with two variations on an objective intent test, plus a subjective intent test, not to mention the modified objective foreseeability test endorsed by the EWCA. Using the hypothetical claim, the generic might be a direct infringer on either the objective or subjective intent approach, depending on whether, on the facts, it subjectively or objectively intended macitentan to be administered in combination with a PDE5-I. I would stress that I am not endorsing either of these approaches, but simply pointing out that a more difficult issue would have arisen had the Swiss claims been framed differently.

With construction settled, Apotex argued that its PM did not instruct the use of macitentan in combination therapy. Pallotta J rejected this argument on the facts. It’s a bit hard to follow because of redactions, which, though brief, obscure the precise nature of the references. If I understand correctly, the main trial which established the safety and efficacy of macitentan as a monotherapy – “SERAPHIN” — also established its efficacy as a combination therapy [153]. The Apotex PM contained clinical trial data from SERAPHIN [192], [193], and SERAPHIN was so well known [187] that the references to it in the Apotex PM would be enough to alert physicians to the fact that macitentan is effective in combination therapy, and so would induce infringement [192], [199]. This is even though the APO-MACITENTAN PM “removed all mentions to the use of macitentan as a combination therapy that are present in the OPSUMIT PM, and only mentions SERAPHIN results that reported macitentan was useful as a monotherapy” [164]. It is true that the courts have been stringent about ensuring that the generic PM is scrubbed clean of references to the infringing use, but this seems pretty harsh on Apotex, given that it had to include the clinical trial data to establish efficacy as a monotherapy. I must say that I suspect that one factor in Pallotta J’s analysis is the fact that combination therapy is the primary use for macitentan, with only 10–30% of patients getting monotherapy [162]. If the opposite were true, so that eg only 10% of the use was in the patented combination, then I wonder if it would have gone the other way. Of course, in that scenario, it is perhaps unlikely that the main clinical trial data would be for the combination therapy.

Apotex also argued that even if the PM did instruct infringing combination therapy, this did not matter because prescribers don’t pay attention to the PM anyway: “In the field of PAH, the physicians know SERAPHIN very well and it does not matter what is contained in APO-MACITENTAN PM” [166]. This argument failed on the facts [197], as it always does. (If anyone knows a case where this argument has succeeded, please let me know in the comments.) The argument makes sense in theory, given the requirement that the influence be the “but for” cause of direct infringement, but if successful, it would mean that generic would in theory be able to sell a drug with the infringing use plastered all over the PM, on the basis that the PM is irrelevant anyway. I suspect that a desire to avoid this strongly counter-intuitive result might help explain why the courts invariably come to the conclusion that at least some prescribers are influenced by the PM. (Of course, it’s also possible that it’s simply true that at least some prescribers are influenced by the PM.)

Finally, Pallotta J emphasized that in light of this influence, Apotex would induce infringement “even if a physician applies their own skill and judgment to the decision to prescribe combination therapy” [156]: see similarly [181]. Pallotta J remarked that “[i]f it were otherwise, inducing infringement could never be found in the context of pharmaceutical patents” [156]. In any event, I don’t really see any difficulty with this position. As Pallotta J also noted, “a ‘but for’ test does not mean that Apotex’s activities must be the sole cause of the infringement” [156]. A physician who learns from the PM that macitentan is useful in combination therapy to treat PAH must still use their skill and judgment to determine that their patient is suffering from PAH. Conversely, a physician who has determined that their patient is suffering from PAH will not prescribe macitentan combination therapy unless they have learned somewhere that it is effective in treating PAH; and if they learn that from the PM, the information in the PM is the ‘but for’ cause of the infringement, even if it is not the sole cause of the infringement.

Divided Infringement and Problems of Multiple Parties

Rovi Guides, Inc v Videotron Ltd 2022 FC 981 Brown J

            2967187 / 2635571 / 2775674 / 2553922

Rovi Guides, Inc v BCE Inc 2022 FC 979 Brown J

2753243 / 2631957 / 2952467 / 2691719

These companion decisions raise the difficult issue of divided infringement, which arises when a patented invention is jointly put into effect by two different entities, so it is difficult to identify a single infringer. The problem is particularly important in method claims, including personalized medicine and internet-related inventions, where one party practises some element of the method and a different party practises the remaining elements. An example is the invention at issue in the leading US decision, Akamai v Limelight 797 F3d 1020 (Fed Cir 2015) (en banc)*. Akamai involved a method claim relating to methods for delivering content over the internet. The defendant, Limelight, operated a content delivery network. Limelight carried out several steps of the claimed method, but Limelight’s customers, not Limelight itself, performed the remaining steps of the claimed method, namely ‘tagging’ and ‘serving’ (1024). Between them, Limelight and its customers put the claimed invention into practice, but neither individually practised all the steps. The question was whether Limelight is liable for infringement.

These companion decisions appear to raise similar issues. The patented inventions relate to “interactive television program guides” [IPG]—the familiar interactive menus used to select current and upcoming programs. The nature of the technology is not discussed in detail, since the motion to strike turned on the law, but it is clear enough that it raised problems of infringement involving multiple parties. Brown J, affirming the decision of Aalto CMJ, refused to strike allegations of infringement by common design and infringement by attribution, This does not, of course, mean that these are necessarily good causes of action, but the decision does confirm that the law of infringement involving multiple parties requires further development. Because the facts of this case are not clear, for the purposes of the following discussion I’ll treat Akamai as a paradigmatic example. The reasons are somewhat better developed in the Videotron decision and in this post paragraph numbers will refer to that decision.

In the simplest type of infringement, a single natural person practices all elements of the invention. But practising the invention may, and commonly does, involve multiple parties. This does not necessarily raise doctrinal difficulties. For example, if the alleged infringer subcontracts with another party to make a part for a patented invention, and then takes delivery of the part and incorporates it into the completed invention, the alleged infringer will be directly liable by virtue of having itself made the invention, without any need to attribute the acts of the subcontractor to the primary party. But other contexts involving multiple parties may raise more difficult problems; for example, where one party encourages another to infringe (inducement), or in the context of method or process patents, where one party performs some of the steps of the claimed method or process and another performs the remaining steps (divided infringement).

These scenarios create a tension between two principles. On the purposive definition of infringement, the patent is infringed when the patentee is deprived of the benefit of the invention: Monsanto v Schmeiser 2004 SCC 34 [44]. If the invention is in fact put into effect by someone else, the patentee is deprived of that benefit whether it was put into effect by one person or two people acting together. On the other hand, patent infringement is a strict liability tort—a party will be liable if it performs the acts constituting infringement, whether or not it intended to infringe. Since the patent is a public document, a potential infringer can in principle determine whether it is infringing by comparing its acts to the claimed invention to determine if it is practising the invention. We shouldn’t exaggerate the efficacy of a freedom to operate search; even in simple cases of direct infringement by a single party, the practical difficulty of identifying relevant patents can create uncertainty. But the problem is evidently substantially worse if a party can be made liable even though it is not putting all the elements of the invention into effect. Consequently, the main objection to imposing liability for divided infringement is that making a party liable for performing only one element of an invention introduces uncertainty and a consequent chilling effect: see Limelight v Akamai 572 US 915 (2014) 922; Akamai v Limelight 786 F.3d 899 (Fed Cir 2015) 905. Dealing with the chilling effect is a key issue in infringement involving multiple parties. I’ll suggest that a common thread in the doctrines that extend liability beyond the case in which a single entity which itself directly practices the invention is that the defendant who is made liable for infringement has the same opportunity for knowledge, or at least control, as a natural party who practices all elements of the invention itself.

Inducement

In broad terms, there are three approaches to the problem of multiple parties.

In indirect infringement, the question is as to the liability of a party, A, who in some manner facilitates infringement by a direct infringer, B, typically by supply of a product which is itself non-infringing, but which is used for an infringing purpose by the direct infringer. In the paradigmatic case, there is a single direct infringer which practices all elements of the invention. Inducement is a well-established form of indirect infringement in Canadian law. (It was pleaded in this case, but was not subject of the motion to strike: [6]–[7].) It is well established that the indirect party must know that its influence would result in the acts constituting infringement, thus addressing the chilling effect problem; for example, a party who supplies a commercial staple will not be held liable even if the purchaser used it for an infringing purpose, since there are many non-infringing uses for a staple product and the vendor would not normally be aware of what the purchaser will do with the product.

Another form of indirect infringement (albeit not formally recognized in Canadian law) is contributory infringement, in which liability is imposed for supply of a product especially adapted to infringe. Because the product only has one use, the vendor must be taken to know what it will be used for, and consequently is in as good a position as the direct infringer to verify whether the use is indeed infringing.

Attribution

Second, some doctrines attribute the acts of one party, B, to another party, A, so that A may be held to have directly infringed even though neither A nor B carried out all the elements of the invention. This type of infringement was pleaded in this case, specifically “direct infringement as a result of attribution of [third party] actions” [6]. Aalto CMJ remarked that the concept of attribution is novel in patent law [62], [65], but he and Brown J accepted that the principle is well-accepted in tort law [62], [68] and given that patent infringement is generally considered to be a form of tort, it would be an “incremental development in the law” to import the concept into patent law [66]. Consequently, Brown J, affirming Aalto CMJ, allowed it to proceed, while expressly noting that he was not saying that it was a good cause of action, but only that it should be allowed to proceed [68].

The main authority relied on by Brown J and Aalto CMJ was the 2015 decision of the en banc US Fed Cir decision in Akamai v Limelight 797 F3d 1020 (Fed Cir 2015) (en banc); as noted above, the defendant, Limelight, performed some steps of the claimed method and its customers performed the remaining steps, namely ‘tagging’ and ‘serving’ (1024). The Fed Cir had previously recognized that infringement involving multiple parties could be attributed to one of the parties, so as to constitute direct infringement, solely in three circumstances: principal-agent relationships, contractual arrangements, and joint enterprises (1023). In Akamai the Fed Cir held that this was unduly restrictive. On the facts, Limelight required its customers to perform the tagging and serving steps, both by contract and technically (1024–25). Consequently, there was substantial evidence that Limelight “directed or controlled its customers’ performance of each remaining method step” (1025). The Fed Cir held that this allowed the customers’ acts to be attributed to Limelight so as to make Limelight a direct infringer.

So far as I can tell, there isn’t a unified doctrine of attribution as such in US law; rather, the Fed Cir used the term as a label for a variety of circumstances where the acts of one legal entity are imputed to another. The court also noted that the categories are not closed: “[i]n the future, other factual scenarios may arise which warrant attributing others’ performance of method steps to a single actor” (1023).

To my mind, the facts in Akamai illustrate why it was sound to allow the plea of attribution to proceed. It is clear on the facts in Akamai that the problem that the defendant might not know that it was infringing does not arise. Limelight specifically instructed all the steps of the claimed method, even though it did not carry them out itself. The knowledge requirement of the well-established inducement test would clearly be satisfied. The encouragement and instructions would also satisfy the second step of the inducement test. Thus the chilling effect problem is avoided: a party who encourages another to carry out certain known acts is in as good a position as the other to determine whether those acts constitute infringement. The only reason this might not constitute inducement relates to the first step, the requirement of direct infringement. In Limelight v Akamai 572 US 915 (2014) the US Supreme Court held that there could be no inducement unless a single party was directly liable for the entire act of direct infringement. Whether this is true in Canadian law is a separate question, which I’ll turn to next; for now it suffices to say that if a trip to the US Supreme Court was warranted on this issue in the US, a trip to trial is warranted in Canada.

Apart from relying on Akamai, Brown J stated that the concept of attribution is well-accepted in tort law. I must admit that I’m not familiar with it in that context, at least not by that name, and no cases were cited. Perhaps he had in mind tort doctrines of vicarious liability, under which an employer is liable for tort of an employee carried out in the course of their duties. Infringement is generally treated as a species of tort, and when a corporation practices the invention, all of the various elements of the invention are, in the simplest case, physically put into effect by a single employee of the corporation acting within the scope of their duties. In that case, the employee, a separate legal entity, is a direct infringer, but the infringement of the employee is attributed to the corporation by the doctrine of vicarious liability, with the result that the employer is liable as a direct infringer, not for inducement. (There is a separate question as to whether the employee is liable personally: see Mentmore (1978) 89 DLR(3d) 195 (FCA); Liability of Corporate Officers in Intellectual Property Law, (2020), 63 CBLJ 159.) This is routine, but it nonetheless illustrates the point that the direct infringement of one party may be attributed to another, so as to make the other a direct infringer. In these circumstances it is evidently not unreasonable to task the employer with knowledge of the acts carried out by the employee at the employer’s instructions or at least on its behalf.

But there is a puzzle even in this seemingly straightforward example. Suppose that the patent claims a method. In the case where a single employee carries out all the steps of method and so is a direct infringer, it is clear that vicarious liability allows the wrong of the employee to be attributed to the employer. But what if the same invention is put into effect by two different employees, one of whom carries out some of the steps, and another who carries out the remaining steps, so that neither of the employees is a direct infringer. It would seem absurd to say that the employer is not liable simply because it directed two employees to carry out the method instead of one. But neither employee commits a wrong which can be attributed to the employer; the employer will only be liable if we attribute the acts of the employees to the employer.

Does the doctrine of vicarious liability attribute the wrongs of the employee to the employer, or their acts? It appears that it is the former in US law: so, in Akamai v Limelight 786 F3d 899 (Fed Cir 2015) 909 the Court stated that “Under the principles of vicarious liability, direct infringement does not occur unless all steps of a method claim are performed by or attributable to a single entity.” Similarly, in the en banc Akamai decision, the Fed Cir stated that to determine attribution, they would consider “general principles of vicarious liability” (1022), not vicarious liability as such, explaining in a footnote that “previous cases' use of the term ‘vicarious liability’ is a misnomer. . . . In the context of joint patent infringement, an alleged infringer is not liable for a third party's commission of infringement—rather, an alleged infringer is responsible for method steps performed by a third party. Accordingly, we recognize that vicarious liability is not a perfect analog” (1022 fn2). For that reason, the Court held that the acts of the customers should be attributed to Limelight, not on the basis of vicarious liability as such, but rather in light of a “direction or control” standard derived from the “general principles” of vicarious liability (1022).

To my surprise, I have not been able to find a ready answer to this question in Anglo-Canadian law. The standard way of describing it is to say that the law of vicarious liability holds the employer liable for the “misconduct” of the employee (see eg Sagaz 2001 SCC 59 ¶ 2; London Drugs [1992] 3 SCR 299, 334; Bazley v Curry [1999] 2 SCR 534 ¶ 19), which implies that the employee’s conduct is itself wrongful. But we shouldn’t place too much weight on an isolated phrase. Read holistically, the cases on vicarious liability generally refer to acts and wrongs more or less interchangeably, as does Glanville Williams, Joint Torts and Contributory Negligence (London: Stevens & Sons, 1951). Presumably this is because in the great majority of cases it is a single employee who acts wrongfully, so that it makes no difference whether the acts or the wrongs are attributed to the employer. There is some parallel with cases of concurrent liability, as when two rioters combine to overturn a car which neither could have overturned if acting alone; but in that case, each commits an independent tort of trespass to chattels.

I have no doubt that if a method claim were put into effect by two employees of the same employer, both acting in the course of their duties, the courts would attribute their acts to the employer. Vicarious liability has its basis in “a combination of policy considerations” (Bazley v Curry [1999] 2 SCR 534 ¶ 26) and whether one or two employees put the invention into effect clearly doesn’t matter from a policy perspective; the employer has the same control and knowledge whether the acts which jointly constitute the wrong are performed by one employee or two. This doctrinal difficulty illustrates that divided infringement of method claims really does raise some unique issues; even in a simple case of divided infringement by two employees of the same employer, some extension, or at least clarification, of standard vicarious liability law is required. Then the question is where to draw the line. What if the alleged infringer carries out some steps of the method and contracts with a third party to carry out the rest? What if it induces its customers to carry out the rest? In any of those cases the alleged infringer would have the same ability to determine whether its acts infringe as would a single direct infringer. Thus, it seems clear that the cause of action should be allowed to proceed to develop a fuller factual matrix in which to determine whether there is a principled line to be drawn.

I’ll end this section by noting that the general concept of attribution is not entirely novel in Canadian patent law. In Bauer v Easton 2010 FC 361 the action was based on inducement, which Gauthier J held to have been established. But she suggested in obiter at ¶ 190 that the defendant’s involvement in making the infringing product was so substantial as to amount to direct infringement, even though it had not itself carried into effect every element of the invention.

Common Design

The second cause of action at issue was infringement by common design, which Aalto CMJ defined as follows [8]:

Infringement by common design arises where one party is found to be a joint tortfeasor when another party commits the tort in furtherance of a common plan. An essential element of the common design is that the parties must agree on a common action and the act of infringement must be in furtherance of that agreement. There must be a common design to do the act that is alleged to infringe.

Aalto CMJ noted that the UK Supreme Court had accepted the concept of infringement by common design in Sea Shepherd [2015] UKSC 10. While Sea Shepherd was not a patent case, the UKSC at [23], [37] endorsed the summary by Mustill LJ in the patent case of Unilever v Gillette [1989] 106 RPC 583 (CA) 608.

Aalto CMJ noted that the FC has considered common design for patent infringement in Packers Plus 2017 FC 1111 [48], noting there was no Canadian authority but adverting to Sea Shepherd before dismissing the argument on the facts; and in Genentech v Celltrion 2019 FC 293 permitting a pleading of “acting in concert,” which was considered equivalent to infringement by common design. Given the authority of the UKSC and the ambiguous state of the law in Canada, it was relatively straightforward for both Aalto CMJ and Brown J to conclude that the pleading of infringement by common design should be allowed to stand and indeed Videotron accepted that it was a viable cause of action on appropriate facts.

Videotron’s main argument was that the doctrine required identification of a “primary tortfeasor” [51]. Brown J did not lay out Videotron’s argument in much detail, but if I understand correctly, Videotron was arguing that the doctrine requires a primary tortfeasor that would itself be liable, in the same manner that inducement requires a direct infringer [51]. Brown J rejected this saying that the term “primary tortfeasor” is used merely “to identify the party to the common design that joins the defendant in the tort (but is not named as a defendant)” [52]. I’m not sure Brown J is right about this—though I’m not sure he’s wrong either. In the cases reviewed by Mustill LJ in Unilever v Gillette, it appears to me that there was always a single direct tortfeasor and the question was whether another could be joined or otherwise also held liable for the same tort. In Unilever v Gillette itself the question was whether the parent of a domestic defendant could be joined, and it is clear that the domestic defendant was an infringer on the facts as pleaded. In Sea Shepherd, it is clear that the primary defendant was itself a tortfeasor, and the question was whether its parent company could be made liable. Brown J also referred to ICBC v Stanley Cup Rioters 2016 BCSC 1108 and Montréal (Ville) v Lonardi 2018 SCC 29. He noted that neither decision required a “primary tortfeasor” who performed all acts necessary to damage any vehicle; that is true, but neither did they say the opposite. In both the question was whether individual rioters should be held liable for all the damage done by riots, and in both the answer was no.

This is not to say that I agree with Videotron’s argument. So far as I can tell, at least from the cases I looked at, the question never directly arose. The cases concerned scenarios in which there was in fact a single direct tortfeasor and the question was whether a second party should also be made liable. The references to a ‘primary tortfeasor’ may have indicated a direct infringer, but only for convenience on the facts. I certainly don’t see any case holding that there must be a single direct tortfeasor. Certain statements by Lord Neuberger in Sea Shepherd at [55], [60] might be seen as suggesting a requirement that there be a single direct tortfeasor, but I think this is merely a reflection of the facts of the cases he is summarizing, and not a considered holding on the issue.

With all that said, as a matter of principle, there is no evident reason why infringement by common design should require a single direct infringer. If two parties agree with each other that one should carry out two elements of the patented method and the other should carry out the remaining elements in coordination, with the intended and actual result that the invention is practiced, both parties are in as good a position to know that the invention would be practised as a single party which put all the elements into effect itself.

As with vicarious liability, the tort cases on infringement by common design are not entirely helpful on the unusual problem raised by divided infringement of method claims, which seem to have no exact parallel in tort law. This is all the more reason to allow these causes of action to stand. I might add that while infringement by common design is clearly established in English law, it does not seem to be very well elaborated; in Sea Shepherd the action was dismissed on the facts with only a brief summary of principles at [21]. While Aalto CMJ’s definition strikes me as a very good summary, I’m not sure it is right, at this point, to treat it as definitive.

Overlap

In my view, Aalto CMJ and Brown J were unquestionably right in allowing these causes of action to proceed. It is sometimes desirable to deal with a novel question of law on a motion to strike, as in Atlantic Lottery 2020 SCC 19, this is more appropriate when the cause of action itself is well defined. The law on divided infringement is still developing in both the US and the UK, in respect of both apportionment, as was expressly recognized in Akamai, and, in my view, in respect of infringement by common design in the UK. (And see Medgraph v Medtronic (Fed Cir 2016) discussed here, clarifying the Akamai standard.) This means that the matter should be allowed to proceed in order to develop a fuller factual background to provide context.

By the same token, we should not accept these causes of actions exactly as they are established in the US and UK, with the only question being whether to adopt them in Canada. Unlike Canada, the US has codified infringement provisions in 35 USC §271, with separate provisions for direct infringement (§271(1)), inducement (§271(b)) and contributory infringement (§271(c)). The distinction between direct infringement and inducement was central in the Akamai litigation.* In Canada infringement is defined as interference with the exclusive rights conferred on the patentee: Monsanto v Schmeiser 2004 SCC 34 [34]. While we distinguish doctrinally between direct infringement and inducement, these are not distinct torts: McCain Foods 2021 FCA 4 [62]. Therefore, as an early leading case put it, the question is whether the defendant’s act might “with propriety” be termed an infringement: Copeland-Chatterson (1906) 10 Ex CR 224, 247. For that reason alone, the distinctions drawn in US law should be treated with caution.

Moreover, it is not entirely clear whether these causes of action are distinct. It might seem reasonable to distinguish them as follows: in attribution, A is not necessarily a direct infringer, and the question is whether the acts of A should be attributed to D so as to make D a direct infringer; in infringement by common design, neither A nor D is a direct infringer, and the question is whether they might both be considered infringers by virtue of their joint acts; in inducement (or indirect infringement more broadly, ie including contributory infringement), A is a direct infringer (who may be such by virtue of attribution), and the question is whether D should also be considered an infringer by virtue of the aid provided to A.

However, this schema is difficult to reconcile with the cases. The three traditional forms of attribution recognized in the Akamai litigation were principal-agent relationships, contractual arrangements, and joint enterprises (1023). The last of these bears a striking similarity to infringement by common design. At the least, common design and attribution overlap in some cases: if A and D work closely together, it may be difficult to distinguish a case where A’s acts should be attributed to D, and a case where A and D should be considered to work together. Common design and inducement may also overlap, as was pointed out in Unilever v Gillette, 608, where Mustill LJ remarked that there may be doubt “as regards the relationship between indirect infringements by procuring and by participation in a common design. There may still be a question whether these are distinct ways of infringing, or different aspects of a single way. I prefer the former view, although of course a procurement may lead to a common design, and hence qualify under both” (608). Bauer v Easton illustrates the potential overlap between inducement, which was established, and direct infringement, arguably by attribution, which Gauthier J indicated she would have accepted.

It is of course possible that these three doctrines (assuming they were accepted in Canadian law), are in fact distinct and simply happen to overlap on some sets of facts. But the extent of the overlap, and the fact that the Canadian Patent Act does not have an infringement provision as such, suggests that it might be desirable to develop an overarching approach to infringement, perhaps focusing on knowledge and control or influence. This is not to say that the courts should develop and apply an overarching definition in this particular case; a more incremental approach is probably preferable. But we should at least be open to the possibility that a unified test will develop; again, this is a reason to be cautious in drawing a sharp distinction between attribution and infringement, as was done in Akamai.

Other cases

I’ve already noted that Bauer may also be relevant to this debate, and I’ll finish this post by pointing out a couple of other cases that are potentially relevant. In Valmet v Beloit (1988) 20 CPR(3d) 1 (FCA), one question was whether Valmet, the parent of VDI, breached an injunction “because it must, by reason of the circumstances, answer for the acts of V.D.I. (which clearly would have breached the injunction had they been accomplished by Valmet)” (12) and see similarly (16). This sounds like a form of attribution argument, though not under that name. The FCA considered inducement had not been established, and continued by saying “there is, in my view, only one other possible situation in which Valmet would have had to answer for V.D.I.'s conduct, namely, the situation where Valmet's control of V.D.I. would have been so complete that V.D.I. would, in fact, have been only a puppet in Valmet's hands” (16), which was not made out on the facts. This seems like a very stringent test for attribution—perhaps more stringent than the “direction or control” test from Akamai. But on the facts, the real complaint was that the parent had not acted to prevent infringement by the subsidiary, and the FCA held that “[t]he mere fact that Valmet did possess the power to influence the decisions of that board did not render Valmet liable for those decisions if, in effect, it did not influence them” (16), which is entirely consistent with the Akamai approach, and with a less stringent test for attribution generally. It is similarly consistent with Bauer on the facts.

The case of Incandescent Gas Light Co Ltd v New Incandescent Mantle (1898) 15 RPC 81 (QB) (cited in Copeland-Chatterson (1906) 10 Ex CR 224, 243–44) is perhaps an early example of infringement by common design, though not under that name. The invention related to mantles for incandescent gas lighting. The defendant sold fittings for incandescent gas lighting from the ground floor of a building, with another company selling infringing mantles from the first floor. There was a speaking tube between the two and customers knew that fittings were to be supplied on the ground floor and mantles on the second floor. The defendant was held liable for infringement. Another arguable example is American Arch Co v Canuck Supply Co [1924] 3 DLR 567 (QSC) in which the patent at issue was for a locomotive fire-box, consisting of a particular arrangement of fire bricks and other components (570, 573). The court, finding the defendants jointly and severally liable, stated that “[t]he defendants acting in concert, one as a manufacturer and the other as sale agent, have adopted, to the smallest detail, the method employed by the plaintiff in installing its fire arch; . . . in short, they have jointly put in practice the invention covered by the patent in suit, in the only manner in which it could be put in practice and. as such, are infringers.” This could be understood as a case of contributory infringement, except that it is generally thought not to be a good cause of action in Canadian law; an alternative would be to consider this a case of infringement by common design.

*The Akamai litigation has a convoluted history. In Akamai v Limelight 629 F3d 1311 (Fed Cir 2010) a panel of the Fed Cir held that Limelight was not liable for direct infringement under 35 USC §271(a) because Limelight did not perform all of the steps of the asserted method claims and the actions of its customers could not be attributed to Limelight. In a rehearing en banc, the Fed Cir found it unnecessary to address direct infringement, as it held that Limelight was liable for inducement under 35 USC §271(b), even if no one would be liable as a direct infringer—that is, there can be direct infringement for the purposes of inducement without there being a direct infringer: Akamai v Limelight 692 F3d 1301 (Fed Cir 2012) (en banc). That decision was appealed to the US Supreme Court, which reversed and remanded, holding that for there to be direct infringement, all of the steps of a method claim must be attributable to one person: Limelight v Akamai 572 US 915 (2014) 922. At the same time, the Supreme Court noted that the question of direct infringement was not at issue on the appeal. On remand, a panel of the Fed Cir held that there was no direct infringement because the acts of Limelight’s customers could not be attributed to Limelight: Akamai v Limelight 786 F3d 899 (Fed Cir 2015). Finally, in a rehearing en banc, the Fed Cir held that the acts of Limelight’s customers could be attributed to Limelight, so Limelight was directly liable: Akamai v Limelight 692 F3d 1301 (2012) (en banc).

Burden on the Merits in Summary Trial

Mud Engineering Inc v Secure Energy (Drilling Services) Inc 2022 FC 943 St-Louis J

            2,635,300 / 2,725,190 / Drilling fluid

The most significant aspect of this decision, dismissing Mud Engineering’s action on a summary trial, is the discussion of the the burden of proof in a summary trial. The result on the facts turned on lack of evidence, with the strange result that the action was dismissed because the listed inventor was not proven to be the inventor, but at the same time no one else was held to be the inventor, and there was no order to vary the record, so the result is that the 300 patent is an invention without an inventor.

Mud Engineering is the listed owner of both disputed patents and Mr Wu, the founder of Mud, is the sole listed inventor on the 300 patent and the co-inventor on the 190 patent [57]. Before founding Mud, Wu had worked for Secure’s predecessor and had invented or co-invented some related technology that is the subject of its own patents or applications owned by Secure (see eg 2,451,585). When Mud brought this infringement action against Secure, Secure argued that Secure, not Mud, is the rightful owner of the patents, [9] on the basis that Mr Wu had actually invented or co-invented the inventions when he worked at Secure’s predecessor. There was very little evidence on either side as to how the disputed patents had been developed, so the burden of proof was a major issue.

Everyone agreed [18], and it is now established, that the party seeking summary trial bears the burden of demonstrating that summary trial is appropriate: see also ViiV FC 2020 FC 486 [19]. The main question in this case was as to the burden on the merits of a summary trial issue, once it has been determined that summary trial is appropriate.

The question of burden of proof in a summary trial was addressed, albeit briefly, by Manson J in ViiV FC 2020 FC 486, where he said:

[20] On the merits of the summary trial issue, the usual burden in a civil trial applies, that is, the “party making an assertion must prove it by relevant evidence and the application of appropriate law” (Teva Canada [2011 FC 1169] at para 36). In this case, [the defendant] asserts that [its product] does not fall within the scope of claims 1, 11, and 16 of the 282 Patent, and thus bears the burden of proving non-infringement.

Consequently, while the usual burden lies on the patentee to prove infringement, that burden was reversed in ViiV because of the way the issue had been raised in a summary trial.

Subsequently, in Janssen v Pharmascience 2022 FC 62, after much fuller consideration of the issue and the relevant caselaw, Manson J held expressly that his holding on this point in ViiV was wrong ([55]), and the burden in a summary trial is the same as in underlying action:

[57] [W]hile on a motion for summary trial, the burden is on the moving party to demonstrate that a summary trial is appropriate, once the onus of the merits of the matter, in terms of either infringement or validity, are before the Court for determination, the burden and onus of proof of the underlying action applies.

Nonetheless, in this decision, St-Louis J held that she should follow Manson J’s decision in ViiV, not Janssen, on the basis that Manson J’s holding on the issue had been affirmed by the FCA in ViiV FCA 2021 FCA 122 [44], and she was bound by the FCA decision: [26], [28].

This would all make sense if ViiV FCA was released after Janssen. But ViiV FCA was released seven months before Manson J decided Janssen. So why didn’t Manson J also follow his own prior decision in ViiV, on the basis that he was bound by the FCA decision? One possibility, that is implicit in St-Louis J’s decision, is that this specific point simply wasn’t argued in Janssen. It is a bit odd that neither counsel nor Manson J himself recognized that the point had been decided, especially ViiV FCA was considered on the summary judgment standard generally, with Manson J even quoting a nearby passage from ViiV FCA: see Janssen [33], quoting ViiV FCA [42].

The other possibility is that Manson J and the parties in Janssen did not conisder ViiV FCA to have settled the point. The passage that St-Louis J considered to have affirmed Manson J’s ViiV decision is this:

[44] ViiV contends that the Federal Court ignored the issue of onus of proof. I disagree: see 2020 FC 486 at paras. 19-22.

The cited paragraphs included ViiV FC [20], where Manson J articulated the burden that he subsequently repudiated in Janssen. However, it also includes ViiV FC [19], where Manson J held that the party seeking summary trial bears the burden of demonstrating that summary trial is appropriate. In ViiV FCA at [43], the FCA outlined ViiV’s argument that Manson J had erred in finding that a summary trial was appropriate. Arguably “the issue of the onus of proof” adverted to in the next paragraph is the issue of the onus of establishing that a summary trial is appropriate, not the separate issue of who bears the onus on the merits in a summary trial. That would explain why neither Manson J nor counsel in Janssen considered ViiV FCA to have settled the latter point.

With that said, the FCA in ViiV did refer to the entire passage, which includes the crucial [20]. On the other hand, the FCA did not specifically approve everything in that passage as being correct in law, but rather referred to it to say that Manson J had not ignored the onus of proof.

I’ll also point out that the issue of onus often doesn’t matter; in fact, it ultimately did not matter in either ViiV, or in Janssen, or, as I understand it, in this case. In ViiV, while Manson J did hold that the burden lay on the defendant to prove non-infringement, reversing the usual burden, infringement turned entirely on claim construction [21], which is a question of law for the court. Manson J decided that without any presumption except that the plaintiff / patentee bears the burden of proving non-essentiality of any element [22] — which is the same presumption as in the underlying action: Free World 2000 SCC 66 [57]. In Janssen the onus didn’t make any difference on the facts [62].

Further, the burden will not matter in a case in which there is an applicable presumption. The ViiV position is that the “party making an assertion must prove it by relevant evidence and the application of appropriate law”; the Janssen position is that “the burden and onus of proof of the underlying action applies.” The “appropriate law” under the ViiV position includes any presumption, such as the presumption of validity in s 43(2).

There is a parallel with the burden issue under the old NOC regs, where the point was well developed. The patentee responding to an NOA was the applicant, and as such bore the burden of establishing that none of the allegations, including any allegation of invalidity, are justified: Pfizer v Apotex 2007 FCA 209 [107]; in effect, the applicant must prove validity. The applicant / patentee could rely on the statutory presumption of validity to meet this burden: Pfizer v Apotex 2007 FCA 209 [109]. The burden would then shift to the generic to adduce evidence of invalidity, or validity would be established on the basis of the presumption alone. To discharge its burden, the generic must adduce sufficient evidence “on a balance of probabilities” and once it has done so, the first person must disprove the allegation, also on the balance of probabilities: Pfizer v Apotex 2007 FCA 209 [110]. That is, once the second person has adduced evidence sufficient to displace the presumption, the presumption “is no longer relevant” and the matter is decided in light of the evidence adduced by the parties: Pfizer v Apotex 2007 FCA 209 [110]; see also Pfizer Canada Inc v Novopharm Ltd 2008 FC 11 [32] “If both parties lead evidence, the Court will weigh all the evidence and determine the matter on the usual civil balance.” In this sense the presumption of validity is weak; it suffices to establish validity only in the absence of relevant evidence adduced by the generic.

Similarly, under the ViiV approach to a summary trial, if the moving party is a patentee making an assertion of validity, the patentee must prove it, but can take advantage of the presumption of validity. This is no different than under the Janssen approach, since a patentee in an action can of course also rely on the presumption of validity. This means that a party attacking the validity of a patent bears the burden of proving invalidity under either ViiV or Janssen.

It seems to me that for the same reason, the burden didn’t matter in this case either. The question was ownership. Pursuant to the ViiV rule, applied by St-Louis J, the burden lay with the party making an allegation to prove it on the balance of probabilities. Since Mud alleged ownership, it bore the burden of proving ownership [90]. But the parties agreed, and St-Louis J held, that there is a weak presumption pursuant to s 43(2) that the registered owner is the owner [64], [81], [89]. Mud was able to rely on this presumption, though St-Louis J held on the facts that it had been rebutted [89]. With the presumption rebutted, it seems to me that we would be in the same situation as in an NOC case where the generic has adduced sufficient evidence to rebut the presumption of validity, which is to say that the matter is to be decided on the balance of probabilities in light of the evidence adduced by both parties.

St-Louis J nonetheless indicated that the burden did matter, and indeed that it was “dispositive” [35]. After having held that Secure had presented “some evidence” which was sufficient to displace the presumption that the named inventor is the true inventor [89], she continued:

[90] Since the presumption is rebutted, the party making an allegation holds the burden to prove it on balance of probabilities. As Mud made an allegation of ownership of the Disputed Patents on this Motion for summary trial, seeking a declaration from the Court in that regard, they must prove their allegations. The parties agreed that, to establish that Mud is the proper owner of the Disputed Patents, they had to establish that Mr. Wu, name as the inventor, invented what he claims.

St-Louis J then reviewed the evidence adduced by Mud, and decided it was not sufficient to establish that Wu had invented the patented technology, and hence Mud had not carried its burden [93].

St-Louis J seems to have treated the evidence adduced by Secure as going only to rebutting the presumption of ownership, and not to the merits of whether Wu was the inventor. That is why, in her view, the burden mattered.

But the view that the evidence adduced to rebut the presumption does not go to the merits is contrary to  the approach taken in the NOC cases, in which it is very clear that the evidence that displaces the burden is also considered in the subsequent analysis on the merits.

Further, an important point is that, as I understand it, evidence sufficient to displace the presumption of validity is also sufficient to establish invalidity on the balance of probabilities, in the absence of any evidence adduced by the applicant. As the FCA explained in Pfizer v Apotex 2007 FCA 209 [105] quoting Bayer Inc.v Apotex Inc (2000) 6 CPR(4th) 285 (FCA) [9]:

[9] The operation of the statutory presumption in the face of evidence of invalidity depends upon the strength of the evidence. If the evidence proves on a balance of probabilities that the patent is invalid, the presumption is rebutted and is no longer relevant: Diversified Products Corp. v. Tye-Sil Corp. (1991), 35 C.P.R. (3d) 350 (F.C.A.) at 359. (Bayer at paras. 6, 9)

The FCA in Pfizer v Apotex repeated this passage for emphasis at [110]. It made the same point at [107] quoting Aventis Pharma v Apotex 2006 FCA 64 [78]–[79]:

[78] Relying upon the presumption of validity, [the patentee] can thus meet its initial burden merely by proving the existence of the patent.

[79] Once this is done, the burden shifts to [the generic] to establish that the patent is invalid. The standard of proof that [the generic] is required to satisfy is that of a balance of probabilities [citing Bayer [9]]

In this case, evidence was adduced by Secure and accepted by St-Louis J, to the effect that “Mr. Wu did not invent the broad scope of subject matter claimed in the Disputed Patents” [83]. Under the approach taken in the NOC cases, this evidence, being sufficient to rebut the presumption, would also be sufficient to establish that Wu was not the inventor on the balance of probabilities, in the absence of evidence to the contrary. It is clear that St-Louis J considered the evidence of inventorship adduced by Mud to be weak. Under the NOC approach, the presumption, having been rebutted, was no longer relevant, and the evidence adduced by Secure, and not countered by Mud, was sufficient to establish that Wu was not the owner on the balance of probabilities. Thus, it seems to me that the question of the burden of proof in a summary trial ultimately did not matter, assuming that the approach to burden shifting in the NOC proceedings also applies in a summary trial.

The point of all this is that the question of burden did not matter in ViiV, in Janssen, or in this case. (This is not to suggest it never matters; for example, it would matter in a case in which infringement turned on the facts, rather than on claim construction.)

In the end, this is a tricky question of binding precedent. I can understand why St-Louis J felt she was bound by ViiV FCA on this point, but I don’t think that this passing and somewhat ambiguous reference, that was clearly not fully considered at either level in ViiV, can be considered to have settled a point of principle, particularly as the point was not determinative. As I see it, this point remains open.

To return briefly to the facts, the invention was drilling fluid. There was very little evidence of Wu’s involvement in the development of the technology [98]. The evidence of Secure’s expert that led St-Louis J to conclude that Wu had not invented the claimed subject-matter was that the claimed drilling fluid, was strikingly similar to the drilling fluid subject matter of the 585 patent (not in dispute), developed by Wu and a co-inventor while he was at Secure’s predecessor [100]. St-Louis J held that in order to establish that Wu was the inventor, Mud would have to establish that the drilling fluids of the disputed patents were “completely different” from those Wu worked on while at Secure’s predcessor [101], and Mud had failed to carry that burden [105]. (I must say that I am inclined to agree with Mud [133] that this is a validity argument in the guise of an ownership argument.) At the same time, Secure failed to establish that its employees, other than Wu, were the true inventors of the disputed patents [138]–[139]. The result of St-Louis J’s decision is that the 300 patent is an invention without an inventor, at least for the purposes of this proceeding. At the same time, there does not appear to have been any order to vary the records under s 52, so presumably Wu will remain as the listed inventor. There are going to be some interesting estoppel / abuse of process arguments if Mud ever tries to assert these patents against another party.

Sporadic Blogging

 Between some nice summer weather (at last) and family visiting, I'll be blogging sporadically for a couple of weeks.

Accounting Denied

Rovi Guides Inc v Videotron Ltd 2022 FC 874 Lafrenière J

2,337,061 / 2,339,629 / 2,730,344 / 2,336,870

In this decision Lafrenière J held all the asserted claims of Rovi’s patents to be invalid as being anticipated and/or obvious [7] for reasons that turned entirely on the facts. Some of the claims would have been infringed had they been valid. The most interesting aspects of the decision related to remedies, and in particular the question of whether Rovi was entitled to an accounting and his assessment of a reasonable royalty. Lafrenière J’s analysis of these issues strikes me as being entirely sound and a very helpful development of the law.

The patented inventions relate generally to “interactive television program guides” [IPG]—the familiar interactive menus used to select current and upcoming programs. Television listings were originally provided in paper, then in a non-interactive linear scrolling on screen guide [9]–[16]. Interactive guides, as the name suggests, allow the user to scroll through the menu in the way that is familiar to all of us today. Rovi’s patents, which date from the late 1990s, were directed to high-level concepts. For example the 061 claims “focus on a user using a device located outside the home, such as a laptop or smartphone, with a limited IPG to schedule a recording on a device inside the user’s home” [303]. “According to Rovi, there is no pay-TV provider ‘anywhere in the world’ with an IPG who does not need a license from Rovi to operate” [552].

The defendant Videotron is a cable TV service provided operating primarily in Quebec [25]. Videotron initially took a licence from Rovi, effective April 2010 [564], primarily to avoid litigation risk [369], but declined to renew the licence, which expired in 2016, considering that there was little value in the increasingly obsolete portfolio [577], [579].

Most of this long decision is devoted to the details of the prior art and the asserted technology, but in broad terms, it was perfectly clear to everyone in the field that interactive program guides were the future, and development was limited primarily by limitations on bandwidth and hardware [154]. The 1990s were “a period of great innovation in the field of interactive digital audio-visual applications and services” [316] and the kind of conceptual innovations reflected in Rovi’s patents were natural developments as the field responded to consumer demand and improvements in bandwidth and other hardware; consequently, the claimed invention had already been proposed by others, or were obvious extensions of existing technologies. That’s all I’ll say about anticipation and obviousness, which were the main substantive issues.

Overbreadth

Before turning to remedies, I’ll note that Videotron tried yet another variant of the overbreadth argument which was really an (unsuccessful) added matter argument. Videotron produced the file history of the 870 patent which showed that hundreds of claims had been added. Videotron argued that “the inventors were not consulted about the amendments and that the 870C Claims are not described in the disclosure,” and “[a]ccording to Videotron, this raises an issue whether the claims are broader than the invention made or disclosed” [364]. Lafrenière J held that even if the inventors had nothing to do with the application after it was filed “a claim is not invalid simply because it was added without the involvement of the inventor after a patent application is filed” [369]. Even though s 38.2 was not mentioned in the decision, this was really an added matter argument, and Lafrenière J’s conclusion is consistent with O'Reilly J’s holding in Western Oilfield 2019 FC 1606 [236] that “the factual circumstances surrounding the amendments were not relevant to this issue. It is a matter of logic, not fact, whether the amendments are reasonably inferable.” Perhaps Videotron characterized the issue as being one of overbreadth rather than added matter in an attempt to avoid this rule. In any event, this represents another failed attempt at giving independent effect to overbreadth as a ground of invalidity.

Remedies

The most interesting part of the case is Lafrenière J’s discussion of remedies; while the issue was moot, given his holding on the merits, he discussed it for the sake of completeness [544]. The first issue was whether Rovi should be permitted to elect an accounting, or should rather be restricted to damages, in this case a reasonable royalty. While it is very well established that an accounting is a discretionary remedy, there isn’t a lot of jurisprudence on when an accounting should be granted in the patent context that goes beyond the accepted general rules of equity, such as laches or bad faith. It is usually desirable that the law develop incrementally, and it is convenient that Lafrenière J’s holding on the merits allowed him to discuss the issue in some detail, in obiter, in the context of a tricky case.

By way of background, the product at issue is a ‘complex product’ in the sense that the patented technology contributes only a relatively small part of the value of the product embodying the technology. This is opposed to a product, like pharmaceuticals, which are not simple in a technical sense, but rather in the sense that the patented technology accounts for a large part of the value of the product in which it is embodied. Complex products raise some special challenges in terms of remedies, as discussed in Biddle et al (eds), Patent Remedies and Complex Products: Towards a Global Consensus (Cambridge University Press, 2019) (open access).

Rovi provides products, such as the supply of IPG software and program data [549], and Rovi and its predecessors made very significant investments and contribution to the relevant technology over the years [21], [23]. Rovi also provides licensing services, “allowing customers to license patents that they own” [549]. This evidently includes licensing by customers, such as Videotron, who do not use Rovi’s products. Rovi significantly grew its patent licensing business from 2003 to 2013 [549]. Rovi’s business model is to licence its entire portfolio at a rate that does not vary based on the number of patents that Rovi has or the licensee practices. [550]

Rovi and Videotron initially entered into a 5 year licence agreement in 2010 [564]. Videotron’s primary motivation for entering into this agreement was reduction of litigation risk—“Videotron did not want patent issues, including the threat of an injunction, to distract the company from completing its important project” [567]. Videotron did not consider the market value of different features covered by the patents in the Rovi portfolio: “freedom from suit was the primary motivating factor that led Videotron to accept to pay the royalty rates that were ultimately negotiated, and not the value of any particular patents in Rovi’s portfolio” [568].

When Rovi and Videotron entered into renewal negotiations prior to the expiry of the licence agreement, Rovi wanted to nearly double the royalty rate [572]. Videotron asked for a one-year extension to allow it to assess the value of the licensed technology [572]. Videotron repeatedly asked Rovi “to identify those patents Rovi considered to have particular value to Videotron and that were specific to its platform,” but never received a satisfactory answer [575]. Videotron therefore “declined to enter into another long-term licence for what appeared to be aging patents taken from an increasingly obsolete IPG patent portfolio” [576]. In the end, Videotron was licensed through 2016.

It was against this background that Lafrenière J addressed the question of whether Rovi should be allowed to elect an accounting. There’s a bit of schizophrenia in the law relating to the patentee’s election of an accounting. It is perfectly clear that a patentee does not have a right to an accounting for profits [580] and it is true that in principle “the patentee bears the burden of proving their entitlement to an accounting of profits” [581]. But on the other hand, as Lafrenière J noted, “the Court should not decline to exercise its discretion to award an accounting of profits to a party in the absence of any compelling reasons of doing so” [580]. For this point Lafrenière J cited Philip Morris 2016 FCA 55 ¶ 8, a trademark case, which in turn cited Apotex v Bristol-Myers Squibb 2003 FCA 263, a patent case, which noted that although equitable remedies, such as an accounting, cannot be elected as of right “a discretionary remedy is not an arbitrary remedy. In the absence of proof of a bar to equitable relief, a claimant can expect to be granted the remedy it seeks in accordance with the principles governing its availability.” In practice, in a standard patent case, such as an innovator pharmaceutical company bringing an action against a generic, the successful patentee will normally be allowed to elect an accounting, subject to any traditional equitable bar (though even then there are a few cases idiosyncratically denying an accounting). In non-standard cases, the equitable analysis comes more to the fore. There is no doubt the traditional equitable considerations of laches or bad faith are applicable, but these have traditionally had a fairly high bar. But equity does allow for flexibility both in the application of traditional criteria and in developing new criteria.

In this case, Lafrenière J applied a four-factor analysis, drawn from Apotex v Bristol-Myers Squibb 2003 FCA 263 [15] (reformatted for clarity):

[581] These factors include:

(i) whether there has been undue delay in commencing or prosecuting the litigation;

(ii) the patentee’s conduct;

(iii) the infringer’s conduct;

(iv) whether the patentee practiced the invention of the patent in Canada; and

(v) complexity of calculating an accounting of profits.

The first three factors are related to the traditional grounds of laches or bad faith, though perhaps more broadly interpreted, while the last two are more specific to patents and the remedy of an accounting. I should note that neither the FCA in Apotex v Bristol-Myers Squibb nor Lafrenière J in this case suggested that these considerations are exhaustive.

(a) undue delay

There was no suggestion of undue delay by Rovi in commencing litigation [583]–[584], though there was delay by Rovi in prosecuting its patents, which Lafrenière J discussed under the next heading.

(b) Rovi’s conduct

Rovi’s conduct was an important factor in Lafrenière J’s decision to refuse to allow an election of an accounting:

[587] the evidence before me establishes that Rovi has a reputation of using hard-ball legal tactics to pressure third parties to license its patent portfolio. Rovi was known for its business model of aggregating patent portfolios, seeking licences, and relying on its prior licences and aggressive use of litigation to drive risk-avoiding businesses into deals that are consistent with its schedule of royalty fees. It would spend in the tens of millions of dollars annually on patent litigation.

Playing “hard-ball” is not close to the kind of bad faith conduct by the plaintiff that is more traditionally invoked in equity; this is perhaps an illustration of interpreting a traditional equitable ground broadly in the context of an election of an accounting.

This is not a criticism. The broader point here is that if the parties negotiating this kind of licence know that a court would grant an accounting rather than a reasonable royalty, this gives additional leverage to the patentee in the negotiations. This makes it more likely that the royalty will reflect the value of avoiding litigation, rather than the value of the technology itself. This is undesirable. The point of patents is to provide an incentive to create valuable new inventions for the benefit of society, by providing a reward commensurate with the value of that technology. This gives the inventor high-powered incentives to develop technology that consumers actually want—the better the invention, the greater the reward. Giving the patentee a reward that reflects the value of avoided litigation costs, rather than the value of the underlying technology, is therefore contrary to the purpose of patent law. So, as Professor Taylor put it, “reasonable royalties should reflect the value of patented technology rather than patent rights” (49 Ga Law Rev 79, 89, original emphasis); see also Ch 4 of Complex Products. The principle applies whether the reward is reflected in a legal remedy, such as a reasonable royalty, or is reflected in a royalty, which, after all, is negotiated ‘in the shadow of the law.’

A second factor relied on by Lafrenière J “is Rovi’s apparently deliberate strategy of delaying the prosecution of its patents,” which were issued 13–17 years after filing. This kind of submarine patenting is problematic because it means that potential licensees may be locked in to the technology when negotiations start, with the result that the patentee can leverage the threat of an injunction to extract sunk costs, a problem known as “holdup”. In this case, “Rovi’s own expert witness confirmed that patent holdup was a problem because once a potential infringer has launched a product it reduces flexibility and an opportunistic patent holder can then try to extract a larger, unreasonable licencing fee” [591]. Holdup is certainly a problem when it occurs, and the real debate is as to whether holdup is a pervasive problem, or rare and idiosyncratic. Given the evidence before him, it was certainly appropriate for Lafrenière J to take this into account.

Lafrenière J noted “When it came time to negotiate terms of renewal of the licence, Videotron repeatedly sought specific information about the value of the Rovi patents. Its attempts to substantiate and validate the terms for which Rovi wanted a multi-year contract . . . were rebuffed. It is quite apparent to me that the reason why Rovi declined to reveal to Videotron a complete list of specific patent claims it considered infringed was to prevent Videotron from designing around them. Rovi took the position that even after all four patents in suit expire, Videotron would not be free to continue carrying on its current activities as there were always other patents that Rovi would be able to assert against Videotron” [592]–[593]. This illustrates both the holdup problem and that Rovi wanted to avoid negotiating over the value of the technology itself.

In the end, Lafrenière J held that “Rovi’s questionable business practices cannot help but serve to colour my view of the value of the features that it claims in the Patents. This factor weighs heavily against Rovi.” This conclusion strikes me as entirely sound.

(c) Videotron’s conduct

Rovi argued that Videotron was a willful infringer, and this should weigh in favour of an accounting [596], relying Monsanto v Rivett 2009 FC 317 where Zinn J gave the following reasons for granting an accounting:

[23] 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. The accounting remedy would lack any deterrent effect if defendants could use patented technology and retain the profits from such use subject only to paying a license fee as compensation if and when they are caught.

This is an important point, but it is not complete. First, there are other disincentives to infringement, even if the potential licensee knows it would be practising the invention. An infringer will be liable for their own direct costs of litigation and some part of the patentee’s costs, as well as the indirect costs of management distraction and business uncertainty. In this case, for example, Videotron initially licenced simply to avoid the business risk from litigation. Second, a reasonable royalty is intended in principle to reflect the amount the infringer would have paid as a licensee, but, because of information problems, the reasonable royalty is unlikely to exactly reflect the royalty that would actually have been awarded, try as the court might. This means that the ‘catch-me-if-you-can’ strategy entails considerable risk. Further, if an injunction is a prospect in a sunk costs scenario, the infringer may have to settle for an amount considerably more than it would have paid for a licence. Consequently, it is not clear that an award greater than a reasonable royalty is necessary to avoid the ‘catch-me-if-you-can’ problem: see generally Ch 3 of Complex Products.

Further, the ‘catch-me-if-you-can’ problem is not really at issue if the putative licensee did not know of the patent, or believed in good faith that the patent was invalid or that it did not infringe; note that in Rivett [8] it seems clear that the defendant was an intentional infringer. An award greater than a reasonable royalty therefore risks an unnecessary chilling effect on a party who believes in good faith that they are not infringing.

Accordingly, in this case Lafrenière J considered that Videotron’s conduct did not weigh in favour an accouting:

[599] I disagree that Videotron’s conduct was inappropriate, let alone that it wilfully infringed Rovi’s patents. The evidence suggests that Videotron’s motives to refuse to renew the licence agreement with Rovi were well-founded. Its decision was based on a reasonable assessment of the necessity of the patents.

This strikes me as entirely sound.

(d) Whether Rovi practiced the invention of the patents in Canada

Videotron argued that “where the patentee does not practice their patents and only licenses them, it is ‘almost a rule of law’ to assess damages in terms of a reasonable royalty [602]. Lafrenière J considered this to be a neutral factor, as the evidence was mixed as to the extent that Rovi actually practised the invention in Canada [603], [604]. Since this issue is tricky and it turned on the facts in this case, I won’t comment further.

(e) Complexity of Calculating an Accounting of Profits

Lafrenière J noted that there is caselaw holding that the complexity of calculating an accounting may be a factor, because “the inventor is only entitled to that portion of the infringers’ profit which is causally attributable to the invention, i.e. ‘perfect compensation’” [605]. I take this to mean that complexity means uncertainty, and uncertainty means that the patentee may be over or under-compensated. However, “the calculation of damages can be just as complex as the accounting of profits” [605] This suggests it is not complexity, but relative complexity, that is important. As de Montigny J said in Philip Morris v Marlboro [2015] FCJ No 1564, cited by Lafrenière J, “the Court is essentially concerned with the proportionality of the accounting remedy in view of the length or extent of the infringing activity and the likely benefit of the accounting exercise.”

I’ll note that lost profit damages and an accounting are very similar in structure – it is the differential profit that is to be calculated, and the only difference is whether it is the patentee’s or infringer’s differential profits. The difficulty of assessing causation, and assessment of revenue and apportionment of costs, are likely to be equally difficult to calculate. Reasonable royalty damages, however, are assessed instead on the basis of a hypothetical negotiation, and so might be more or less complex that lost profit damages or an accounting, depending on the facts.

In this case, Lafrenière J held on the facts that “While the complexity of the evidence could be overcome, I am not satisfied that using any methods proposed by Rovi’s expert to calculate profits, which would be fraught with insufficient, speculative, and contradicted evidence would allow me to arrive to reliable and appropriate amount reflecting Videotron’s profits” [607], and accordingly he held this weighed against awarding an accounting. In other words, a patentee who wishes to elect an accounting should propose a sound methodology. This point strikes me as compelling.

I note that in general a reasonable royalty might also be very difficult to calculate in this type of case, where the patentee is claiming a reasonable royalty for the use of one relatively minor feature that is part of a complex product, depending eg on whether good comparables are available—though on the facts in this case Lafrenière J was able to arrive at a reasonable royalty relatively easily, as discussed below. So while I agree with Lafrenière J’s analysis in this case, in general the relevance of the complexity of calculation is a point that needs more development.

C. Reasonable Royalty

After deciding that Rovi was not entitled to an accounting, Lafrenière J went on to assess a reasonable royalty.

Videotron argued that should a particular Videotron system feature be found to infringe a valid claim, the appropriate remedy “is a one-time reasonable royalty, capped at no more than Videotron’s cost to remove or design-around the subject-matter of the relevant asserted patent claim” [612]. Lafrenière J accepted this submission. The evidence was that “the absence of such features would not impact the subscriber base for Videotron” [614] and “subscribers do not make choices around staying or leaving based on the kind of functionality at issue in this case” [615]. It is implicit that the only impact of the patented features on Videotron’s revenue is through the subscriber base and not on the rates that it would charge.

With one caveat, this approach is consistent with the standard hypothetical negotiation framework for assessing a reasonable royalty. The potential licensee’s maximum willingness to pay for a feature is the difference between the value of the product with the feature as compared with the best non-infringing alternative (NIA). In this case the NIA is not to include the feature at all. It is significant in this case that the NIA is not another unpatented technology which replicates the functionality of the patented invention; it is simply to remove the feature entirely. This illustrates that the “non-infringing alternative” is simply a way of framing the question of “what would the licensee have done if it had not infringed”? On the facts in this case, it would have removed the patented feature entirely.

There is a small caveat. Though it is not entirely clear from the brief discussion, it seems that the figure of $150,000 represents the ex post design-around cost. That is, are we assuming that the patented feature was already incorporated in the Videotron system, and $150,000 is the cost to remove it. If so, the $150,000 actually represents the holdup cost, rather than the value of the feature, and so is too high; arguably the true value was zero. With that said, Videotron’s submission, which was accepted by Lafrenière J, is not that the design-around cost reflected the value of the patented technology, but rather that the design-around cost “capped” the reasonable royalty. This is strictly correct. On the facts, a reasonable royalty reflecting the value of the invention is necessarily less than the ex post design-around cost, because the best non-infringing alternative is to remove the feature entirely. No doubt establishing the design-around cost was the simplest way for Videotron to establish a quantum, and safer than arguing that the correct royalty was zero.

The uncontroverted evidence was that the approximate cost for such a design change would have been $150,000 per feature [612], and accordingly that is the royalty that Lafrenière J would have awarded [624].