Non-Infringing Baseline as an Alternative to “But For” Causation

Nova Chemicals Corporation v Dow Chemicals Company 2020 FCA 141 Stratas JA: Near JA / Woods JJA dissenting, aff’g 2017 FC 350, 2017 FC 637 Fothergill J

            2,160,705 / film-grade polymers / ELITE SURPASS

In an accounting of profits the infringer is required to disgorge its profits caused by the infringement. In the standard approach causation is determined using the “but for” test, in which the amount the infringer actually earned by using the infringing technology is compared with what the infringer would have earned in the hypothetical “but for” world in which it used the best non-infringing option: Schmeiser 2004 SCC 34 [102]. As explained in last week’s post, Stratas JA’s decision for the majority in Nova v Dow rejected “but for” causation in the context of an accounting of profits. He proposed instead to assess the profit to be disgorged by comparing the infringer’s actual profit against a non-infringing “baseline,” which, in his view, better reveals the value added by the invention itself [62], which is to say the value associated with the “inventive quality” of the patented technology [78]:

[73] Non-infringing alternatives are used not to determine what the infringer could have done instead of infringing (i.e., “but for” reasoning), but instead to establish a non-infringing baseline to isolate the value of the patent.

Stratas JA did not provide an explicit definition of the non-infringing baseline, but rather illustrated its nature with one or two examples. While I appreciate the intuition underlying Stratas JA’s examples, the rule under established law is that the infringer must disgorge the profits caused by the infringement, not the profits associated with the inventive quality of the patented technology. The established “but for” test isolates the profits caused by the infringement and in my view this is sound as a matter of policy.

Stratas JA emphasized the need for a causal nexus throughout his decision, but he made the point in a couple of subtly different ways. In many places he emphasized the need for “a causal connection between the profits to be disgorged and the patent infringement” [46]; and see similarly [27], [32]. In other places he stated that the disgorgement of profit “must focus on the value added by the invention itself” [62]; and see similarly [61] (“causally attributable to the value of the patent”), [78] (quoted below). I’ll argue that there is a difference between these two ways of framing the causation requirement, and that the first is correct while the second is not.

First we need to understand what Statas JA meant by the “value added by the invention itself.” He gave a couple of examples to illustrate what he meant:

[64] What is the value of a patented pain reliever that provides eight hours and one minute of pain relief when there is a non-infringing alternative that provides eight hours of relief? The patentee did not invent pain relievers; the patentee only invented a drug that added an extra minute of relief.

In this example, the pain reliever that provides eight hours of relief is the “baseline” against which the value of the patented pain reliever is to be assessed. To the extent that the eight hour pain reliever is readily available on the market, “but for” causation and the non-infringing baseline give the same result. But for the infringement, the infringer would have used the eight hour pain reliever, and the benefit from the patent is the extra one minute of pain relief, which is also identified by Stratas JA as the value of the patent. Stratas JA’s suggestion at [73] that non-infringing alternatives have really been used to establish a non-infringing baseline seems to be saying that in many cases, such as the pain-reliever example, “but for” reasoning does end up with the correct “baseline” comparator.

Constructing the “But For” World Is Not a Purely Subjective Inquiry

Nova Chemicals Corporation v Dow Chemicals Company 2020 FCA 141 Stratas JA: Near JA / Woods JJA dissenting, aff’g 2017 FC 350, 2017 FC 637 Fothergill J

            2,160,705 / film-grade polymers / ELITE SURPASS

In an accounting of profits the infringer is required to disgorge its profits caused by the infringement. In the standard approach causation is determined using the “but for” test, in which the amount the infringer actually earned by using the infringing technology is compared with what the infringer would have earned in the hypothetical world in which it used the best non-infringing option: Schmeiser 2004 SCC 34 [102]. As explained in last week’s post, Stratas JA’s decision for the majority in Nova v Dow rejected “but for” causation in the context of an accounting of profits. In so doing, he gave two thought-provoking examples which raise foundational questions regarding the nature of the “but for” world. In this post and the next, I will argue that it is not necessary to reject “but for” causation in order to address the issues raised by Stratas JA’s examples.

The first example, which is the subject of this post, raises the issue of whether the law takes a subjective or objective approach to the infringer’s behaviour in the “but for” world. As I understand Stratas JA’s analysis, he is of the view that the “but for” test for causation requires a purely subjective inquiry into what the particular infringer would have done but for the infringement. I will argue that on the contrary, “but for” causation often incorporates an objective element, both in the law generally and in the patent context. I will suggest that the prior caselaw is consistent with an approach in which the “but for” world is constructed by asking what an informed and prudent party in the position of the infringer would have done but for the infringement. Such an approach would address the concerns raised by Stratas JA’s first example.

To turn to the details, Stratas JA provides two examples to illustrate the proposition that “[t]he use of hypotheticals and the ‘but for’ test . . . has no place in an accounting of profits” [67]. In the first, the infringer, but for the infringement, would have invested in speculative stocks:

[69] For example, if an infringer could prove in evidence that, but for the infringement, it would have used its capital to invest in, say, Apple or Amazon before their market ascendance then the infringer could retain the vast majority, if not all, of its profits. But for the infringement, the infringer would have earned much more investing in Apple or Amazon than selling the infringing goods. By Professor Siebrasse’s “but for” logic, the infringer would not have to disgorge anything because using the infringing product was actually detrimental to the infringer’s overall profitability.

[70] The reality is that infringers may not always pursue the next best non-infringing alternative. It may be the case that without access to the patented product, the infringer might have pursued an entirely different course, for example, speculative investments in emerging tech companies, and would have lost everything.

I’ll call this the Apple / Amazon example. The reference is to my 2004 article, “A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms” (2004), 20 CIPR 79, that was cited with approval in Schmeiser [102].

Stratas JA emphasized throughout his decision that an accounting requires disgorgement of all profits caused by the invention, and only profits caused by the invention: [27], [32], [39], [46], [61], [ 62]. I agree. Stratas JA is evidently of the view that the value of the patented seed does not depend on whether, but for the infringement, the infringer would in fact have invested in Apple at its nadir or Yahoo at its peak. Again I agree. More broadly, I take his point to be that the value of the invention should not necessarily be assessed on solely the basis of a strictly factual inquiry as to what the particular defendant would have done but for the infringement. Here again, I agree.

However, Stratas JA offered this example to show that “[t]he use of hypotheticals and the ‘but for’ test . . . has no place in an accounting of profits” [67]. That is, Stratas JA is evidently of the view that the “but for” test for causation does not get us to the right result in the Apple / Amazon example: “By Professor Siebrasse’s ‘but for’ logic, the infringer would not have to disgorge anything because using the infringing product was actually detrimental to the infringer’s overall profitability” [691]. From this I infer that Stratas JA is of the view that the use of a hypothetical “but for” test for causation necessarily entails a subjective approach, requiring an inquiry as to what the particular infringer would have done had it not infringed; therefore, in his view, if the inquiry is not subjective, it is necessary to reject the “but for” test for causation. This is where I disagree. The law of causation permits the use of an objective approach, or at least an objective element, in assessing the defendant’s behaviour in the “but for” world, and the concern raised by the Apple / Amazon example can be addressed within the standard framework by using an approach that asks how a reasonable infringer in the position of the defendant would behave.

Now, a purely subjective approach is not as unreasonable as it might appear at first impression, notwithstanding the intuitive appeal of the Apple / Amazon example. If a purely subjective approach were used then in some cases, as Stratas JA pointed out, the profits to be disgorged would be much less than the true value of the invention; an inventor who, but for the infringement, would have gambled and won, would be better off than one who had invested prudently [69]. On the other hand, as Stratas JA also pointed out, in some cases the award would be higher than the true value of the invention, in cases in which the infringer would have gambled and lost [70]. In theory, this should all come out in the wash. Sometimes the infringer would win, sometimes it would lose, but these random deviations from the true value of the invention would all average out. Since the patent incentive is prospective, the expected return to invention would stay the same and incentive function of the patent system would not be impaired.

However, there are two second order problems with a purely subjective approach. First, on the facts of any given case, the award might fail to reflect the value of the invention if the infringer would have behaved idiosyncratically. If a patentee received half the value of their invention, it would be cold comfort to tell them that some other patentee in some other trial would get twice what they deserved. Similarly, an infringer hit with an award much greater than the value of the invention to them would not appreciate being told, “Don’t worry, some other infringer will get off scot free.” Second, there is a selection bias problem. Patentees who anticipated that the accounting award would be unduly low as a result of idiosyncratic behaviour by the infringer would elect damages instead. This means that it would not all come out in the wash: the accounting cases would disproportionately reflect cases in which the infringer would be required to disgorge more than the value of the invention.

Thus, I agree that the Apple / Amazon example raises a real problem. But the solution is not to abandon “but for” causation. Rather, it is to use an objective approach to the infringer’s behaviour in the “but for” world.

So, in Mustapha 2008 SCC 27, the defendant owed a duty to the plaintiff and breached its duty by supplying bottled water with a dead fly in it. This in fact caused significant mental harm to the plaintiff. While the trial judge awarded damages, the SCC reversed, holding that the damages suffered were too remote to be viewed as legally caused by the defendant’s negligence, unless it could be shown that “a person of ordinary fortitude” would suffer serious injury in the same circumstances: [18]. Thus, the trial judge erred by applying a subjective standard—looking solely to the effect on the particular plaintiff—when an objective standard—looking to a person of ordinary fortitude—should have been used. Now, Mustapha was a negligence case, and foreseeability considerations are not relevant in intentional torts, and have not generally been raised in patent infringement. But the broader point is simply that “but for” causation does not inherently require a subjective inquiry into the effect of the wrong on the particular defendant.

Nor is the “but for” inquiry purely subjective in patent law generally. For example, if a patentee cannot prove damages in the form of lost profits, it is entitled to damages in the form of a reasonable royalty. The reasonable royalty is determined on the basis of a hypothetical negotiation between the infringer and the patentee at the time of the infringement. This hypothetical negotiation is not simply a reconstruction of what would have in fact happened but for the infringement; on the contrary, it is commonly applied when it is clear on the facts that the patentee would have refused to licence to the infringer on any terms. As the en banc Federal Circuit remarked in the leading case of Rite-Hite v Kelly 56 F3d 1538, 1554 n13 (Fed Cir 1995), the “willing licensor/willing licensee” characterization is “inaccurate, and even absurd, when, as here, the patentee does not wish to grant a license.” Moreover, it is well established, at least in US law, that the parties to the hypothetical negotiation are taken to bargain on the basis that the patent was valid and infringed, even though parties to an actual negotiation would not have known that the patent was valid and infringed, and so would normally be expected to allow a discount to allow for the possibility of invalidity. As another example, it would seem that a patented alternative will not be considered a legitimate alternative, even if the infringer would in fact have used it: see Cefaclor 2018 FCA 217 [55] and here.

The problem of idiosyncratic defendant behaviour specifically has also been raised in the patent infringement context. In Cefaclor 2018 FCA 217 the question was whether the putative NIA would have been economically viable. Gauthier JA for the FCA held that while the subjective perspective of the infringer may be relevant [72], it is not determinative (original emphasis):

[72] In my view, economic viability is not something that is assessed solely from the subjective perspective of an infringer such as Apotex. . . .

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

This seems to me to be a direct answer to the Apple / Amazon example. Gauthier JA identified exactly the same problem raised by Stratas JA, and addressed it by holding that a purely subjective approach to the “but for” world should not be used.

With that said, I do not want to endorse a strictly objective approach to the defendant’s behaviour in the “but for” world. The main difficulty with an objective test is determining what is in fact objectively reasonable. As Gauthier JA pointed out in Cefaclor, what the particular infringer would have done helps inform what a reasonable party in the same position would have done [72]. If the actual infringer is in fact reasonable, then the two inquiries will give the same result. In the business context, at least, it is probably sound to presume that the particular infringer was reasonable: see here. That means that even if we adopt an approach to infringer behaviour in the “but for” world that is objective in principle, a subjective inquiry will almost always be necessary and will often be determinative. In most cases it will difficult to disentangle whether the inquiry is subjective or objective, and unnecessary to do so.

So, my point here is not to argue for a specific objective test. Rather, my argument is simply that it is not necessary to entirely reject “but for” causation to deal with the issue of idiosyncratic infringer behaviour. The “could have and would have” test for assessing whether a putative non-infringing alternative may be considered was originally set out in Lovastatin 2015 FCA 171. While that test continues to develop through the case law, it provides a good framework for balancing subjective and objective considerations in constructing the “but for” world. Consequently, in my view the existing legal framework of “but for” causation is entirely capable of addressing the problem raised by the Apple / Amazon example.

I’ll end with a couple of tangential notes. First, the issue of a subjective or objective approach to the “but for” world was not decided in Schmeiser. The question in Schmeiser was the whether the entire actual profits were to be disgorged or only the differential profits. It did not purport to settle all the details of the way in which the differential profit approach should be applied, in the same way that the SCC’s endorsement of “but for” causation in Athey [1996] 3 SCR 458 did not settle the precise nature of the test in the context of psychological injury that was addressed in Mustapha. Second, it is not clear to me why Stratas JA was of the view that the logic in my 2004 article would imply a subjective approach [69], given that the description I gave in the passage quoted by Stratas JA at [68], suggested that the touchstone would be an objective one, of a defendant acting in “a prudent and informed manner” while trying to maximize its profit without infringing. With that said, I have to admit that my suggestion of an objective test in my 2004 article was largely fortuitous, as the focus of my argument was that the differential profits should be disgorged, and not the entire actual profits. In any event, the issue needs to be addressed in light of the case law as it has developed since Schmeiser, in cases in which these problems arise on the facts.

 

Nova v Dow: A Radical Departure from Established Law

Nova Chemicals Corporation v Dow Chemicals Company 2020 FCA 141 Stratas JA: Near JA / Woods JJA dissenting, aff’g 2017 FC 350, 2017 FC 637 Fothergill J

            2,160,705 / film-grade polymers / ELITE, SURPASS

The decision of Stratas JA for the majority in Nova v Dow raises a panoply of important conceptual and practical issues related to an accounting of profits, and non-punitive monetary remedies more broadly: whether the test for causation is the same in an accounting and damages; whether an accounting should provide a disincentive to infringe; the nature of the non-infringing alternative in the “but for” world; whether the hypothetical world should be constructed on subjective or objective terms; the role of opportunity costs; and the deductibility of fixed costs. And this is not to mention other less foundational but nonetheless significant issues of disgorgement of springboard profits and the date for currency conversion. Unfortunately, this decision is not likely to settle any these issues; on the contrary, it is likely to increase uncertainty in this entire area of law.

In a series of decisions, following from the seminal decision of the SCC in Schmeiser, 2004 SCC 34, the FCA has built up what I consider to be a sound and principled approach to non-punitive remedies: see Lovastatin Damages 2015 FCA 171; Venlafaxine s8 2016 FCA 161; Perindopril Accounting #1 2017 FCA 23; Cefaclor Damages 2018 FCA 217; Perindopril Accounting #2 2020 FCA 60. While some important loose ends remain outstanding, the foundations were solid. Stratas JA’s decision for the majority in Nova v Dow has thrown a grenade into that edifice and rattled it down to those foundations. The general statements of principle set out by Stratas JA constitute, in my view, a radical and unsound departure from established principles, including those set out by the SCC in Schmeiser. Some specific holdings might be seen as refinements of prior law, but even then, because of the unorthodox reasoning, it is not clear whether even these points can now be considered settled.

Overbreadth Argument Rejected as Being Akin to the Promise Doctrine

Eli Lilly Canada Inc v Apotex Inc 2020 FC 814 St-Louis J

2,492,540 / tadalafil / CIALIS ADCIRCA

In this case, Lilly asserted that the processes used by Apotex to make tadalafil infringed Lilly’s 540 process patent. In addition to non-infringement, Apotex argued that the 540 patent was invalid for anticipation, obviousness, lack of utility and overbreadth. St-Louis J held that while the 540 patent would be infringed if it were valid, it was invalid for anticipation and obviousness, though the attacks based on lack of utility and overbreadth failed [204]. So far as I can tell, the holdings of invalidity on the basis of anticipation and obviousness turned on the facts and not on any point of law, though I have to say that the facts were quite complex and it is possible that I missed an issue.

There were a few other points of interest: (1) St-Louis J rejected an overbreadth attack as being akin to the promise doctrine; (2) there was a discussion of the presumption relating to process patents; and (3) there was a discussion of obvious errors in a claim, which related to the utility argument.

Overbreadth

Apotex argued that the 540 patent was overbroad on the basis that a particular (redacted) solvent has been tested and found not to work, but the disclosure nonetheless stated that it was useful [350].

St-Louis J rejected this argument, saying:

[356] The way that Apotex articulated the allegation of overbreadth in this case appears indeed very akin to the promise doctrine, abolished in AstraZeneca SCC. What Apotex really asks the Court to do is to parse the disclosure, conclude that [redacted solvent] promises to be useful for the PSR, import [redacted solvent] into Claim 1 in the absence of any ambiguity, and strike Claim 1 as a result.

She noted that the SCC in AstraZeneca SCC warned against this, and stated that “As such, the doctrine of overbreadth should not be applied in the manner suggested by Apotex, akin to the promise doctrine” [358].

St-Louis J’s comments strike me as entirely sound (with the caveat that her description of Apotex’s argument at [350] is very brief, so that can’t assess for myself her characterization of it at [356]). I have a paper on “Overbreadth in Canadian Patent Law” forthcoming in the IPJ, in which I argue that the approach to overbreadth adopted in Amfac (1986), 12 CPR (3d) 193 (FCA) “if widely adopted, risks invalidating patents for inventions which are new, useful and non-obvious, on the basis of an arbitrary parsing of the disclosure, in a manner reminiscent of the promise doctrine.” A draft version is available on SSRN (note that this draft was updated on 10 June from the first SSRN version). In that paper, I also show that overbreadth is almost always redundant, as merely restating a statutory ground of invalidity (most commonly lack of sound prediction of utility). In this case, if I understand Apotex’s argument correctly, it would appear that the preferable statutory basis for the attack would have been s 53(1); if St-Louis J had allowed the attack to go forward on the basis of overbreadth, this would have side-stepped the statutory requirements and related case law requiring wilfulness and materiality.

Presumption regarding a process patent

The 540 patent is a process patent, and Lilly argued that the burden should be reversed, so that Apotex would have to prove non-infringement on the basis of s 55.1, which provides that when the claim is to a process for obtaining a “new product” it should be presumed that the product was produced by the patented process. Lilly wished to argue that “new” meant that the product had not been sold on the market before, while Apotex argued it mean “new” in the sense of being previously known, whether or not it had received marketing authorization: [37], [38]. The prior caselaw at the FC level is against Lilly, which therefore did not press the point, but merely sought to preserve its rights on appeal [41].

Lilly also argued that the burden should be reversed on the basis of the common law rule that is more or less to the effect that “when the subject-matter of the allegation lies particularly within the knowledge of one of the parties, that party must prove it, whether it be an affirmative or negative character” [42]. The exact nature of the common law presumption is unsettled. In Cefaclor, 2009 FC 991, [221], Gauthier J held that the presumption would have applied “given the particular circumstances of this case,” if “Lilly had taken reasonable steps to obtain this information.” St-Louis J relied on this to hold that the presumption did not apply because the evidence did not allow her to conclude “that Apotex did not diligently seek to provide the requested process documents, nor that Lilly diligently sought further information from Apotex” [45]. This is reasonable enough as an application of Gauthier J’s holding to the facts of this case, though the caveat in Cefaclor regarding “the particular circumstances of this case,” suggests that the holding might be a fairly narrow one. It will be interesting to see how this line of reasoning develops in future cases.

Obvious Error in the Claim

Claim 12 had an obvious error. It read:

12. A method of preparing [tadalafi] comprising the steps of: . . .

(b) reacting [C] with [D] to provide [E];

            (c) reacting the product of step (b) with [F] and [G] to provide [E]; . . .

The product of step (b) is E, so reacting it with F and G would clearly not provide E. In fact, step (b) would not produce E, but rather a different compound, not otherwise mentioned in the claim [197]. The claim was otherwise correct, so that carrying out step (c) on the product of step (b) would indeed produce E.

It appears Apotex acknowledged that the error was obvious [343], and St-Louis J found on the facts that indeed a skilled person “would understand Claim 12 to bear [sic] a mistake, and would make tadalafil by following the sequence of actions” [349]. Nonetheless, Lilly did not ask the court to correct the error [197], [347]; instead “they are asking the Court to simply accept the evidence of the experts providing how a skilled person would read Claim 12c. Essentially, Lilly argue that the skilled person understands the error and accordingly understands the scope of the claim, which accords with the purposive approach construction” [197]; and see [347].

There is ample authority holding that an obvious error this type will not affect the construction of the claims: see eg Procter & Gamble (1979), 42 CPR (2d) 33, 36-37 (FCA); Cefaclor 2009 FC 991, [159]; Lovastatin 2010 FC 1265, [99]. Varco 2013 FC 750; Azithromycin 2005 FC 1421, [36]. The notion that the claim is not being “corrected” but merely read as a skilled person would read it is a technical distinction which is somewhat difficult to grasp.

In Procter & Gamble at 37 the FCA simply held that “the claims should be interpreted in the only way that makes sense”; in Cefaclor at [159] Gauthier J stated that a skilled person would “understand” the claim to apply as it should have been written; in Lovastatin at [99], Snider J held that the error “would not change the meaning ascribed to the phrase by the skilled addressee”; in Azithromycin at [36] Mosely J stated that the incorrect word in the claim is a typographical error “and is of no moment.” These statements are all a bit ambiguous as to whether the error was being “corrected” or rather that the claim was being read as a skilled person would read it. Phelan J in Varco at [336], on the other hand, expressly held that the error would be corrected: “[the plaintiff’s expert] opined that a Skilled Person would see the error and make the necessary corrections; and would not be confused or misled. [The defendant’s expert] all but admitted the same. Even a judge hearing this case could see the error and make the correction” (my emphasis).

In any event, a person untrained the law would say that an obvious error in the claim will be corrected. Even for a lawyer, that’s the easiest way to remember the rule. However one phrases it, the rule is very well established, with St-Louis J’s decision adding to the already ample authority.

 

Time to Relegate IG Farbenindustrie to the Dustbin of History

 Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC 2020 FC 816 St-Louis J

            2,371,684 / tadalafil / CIALIS ADCIRCA

Yesterday’s post discussed the issues raised by the anticipation analysis of this decision. This post discusses the issues related to selection patents.

To repeat the background from yesterday’s post, Lilly markets 2.5mg, 5mg, 10mg and 20mg strengths of tadalafil for the treatment of erectile dysfunction [11]. The defendants in this action are various generics that want to sell tadalfil in those dosage forms [13] The asserted claims of the 684 patent are to dosage forms of tadalafil for treating ED, namely doses from 1 to about 20 mg, as well as specific doses within that range, including 2.5, 5, 10 and 20 mg doses: [197-213].

The question in this case was whether the 684 patent is valid over the prior art 2,226,784 application, which claims tadalafil for the treatment of ED, and discloses unit doses of tadalafil from 0.2 to 400 mg. St-Louis J held on the facts, that starting from the knowledge that doses from .02 to 400 mg were useful, it would be routine for the skilled team to carry out the trials necessary to narrow that down to the range providing the best balance between efficacy, and safety and tolerability, and they would be motivated to do so [325-28]. The claimed invention was therefore obvious to try [323, 330].

While that much was straightforward, the decision has a long discussion of whether the 684 patent is a selection patent, ultimately concluding that it is not [116–136]. Everyone, including St-Louis J and both parties, seems to have been of the view that this was central to the assessment of validity: “the determination that a patent is not a selection patent has consequences, as the purported advantages relied upon by the patentee, if not in the claims, may not be considered in the assessment of novelty and inventiveness, as examined later on” [128]; the defendants argued that “the 684 Patent is necessarily anticipated and invalid unless it is a selection patent” [226], on the basis that “a dosage range out of a broader disclosure is anticipation, unless the patent qualifies as a selection” [229]. See also [136], [235], [238], [263], [306], [310], and throughout, distinguishing cases depending on whether or not they related to a selection patent (see eg [286–88]).

In my view, this wrong. In Lilly / olanzapine 2010 FCA 197, [4], [27], [33], the FCA emphatically affirmed that the conditions for a valid selection patent set out in IG Farbenindustrie (1930), 47 RPC 289 (Ch), and approved by the SCC in Sanofi at [9]-[11], do not constitute an independent basis upon which to attack the validity of a patent. The argument in this case seems to be that these conditions can nonetheless be an independent basis upon which to uphold the validity of a patent, though not to attack it, because the putative advantages can be considered if it is a selection patent, but not otherwise. This must be wrong.

In the first place, as the FCA pointed out in Lilly / olanzapine “the Act contains no reference to invalid selection” [29]. This point cuts the other way: validity is determined on the basis of the statutory conditions, not otherwise. It doesn’t matter whether selection patents are uniquely susceptible to attack, or uniquely immune from attack, because neither option has any basis in the Act.

Further, the distinction between attacking and upholding a patent on the basis of it being a selection is not tenable. St-Louis J relied on the IG Farbenindustrie conditions as setting out the requirements that must be met before an unexpected advantage can be considered [129]. She held that because those conditions were not satisfied, the unexpected properties could not be considered [136]. So, failing to satisfy the IG Farbenindustrie conditions is not in itself a ground for invalidity, but failing to possess these qualities may result in a patent being held invalid because the unexpected properties that might be invoked to save the patent if the conditions were satisfied, cannot be considered. To my mind, this is simply a roundabout way of invalidating the patent for failure to satisfy the IG Farbenindustrie requirements. Consequently, this analysis is contrary to the FCA holding in Lilly / olanzapine 2010 FCA 197. (I expect that St-Louis J’s analysis was influenced by the decision of de Montigny J in the NOC proceedings involving the same patent, 2015 FC 125, which has some of the same problems (see eg [147–48], even though he started off by emphasizing, correctly in my view, that “the jurisprudence has established that a selection patent is like all other patents and is governed by the same legal principles” [108].)

St-Louis J’s determination on the facts of whether the 684 patent was a selection patent also demonstrates problems with the whole approach. Her discussion is quite brief. “I note first that the 684 Patent, filed in 2000, makes no mention of the 784 Application, published in 1997" [131]. The difficulty with this observation is that it is not set out in IG Farbenindustrie, or anywhere else that I know of; it is certainly not based on the Act.

Next, and “[m]ore importantly”:

[132] in regards to Lilly’s argument that the substantial advantage of the 684 Patent lies in the better than sildenafil flushing side effect at 2 to 20mg, I conclude that there is nothing in the specification, or the claims themselves, to the effect that the advantage is peculiar to this particular dosage to the exclusion of any other unit dose, nor does it assert that a larger number of unselected doses do not possess the same advantage, which is an essential characteristic of a selection patent.

This evidently addresses the third IG Farbenindustrie requirements, which is that “The selection must be in respect of a quality of a special character peculiar to the selected group. . . . if research showed that a larger number of unselected compounds possessed the same advantage, the quality of the compound claimed in the selection patent would not be of a special character.”

An initial difficulty is that St-Louis J’s statement could be construed as saying that the fact that the patent does not state that the advantage was peculiar to the particular dose is in itself fatal, whether or not the advantage is in fact peculiar to the dose. If so, it is a novel requirement.

It is more likely that St-Louis J is simply saying that that the evidence did not establish that the third condition is satisfied. This suggestion is taken up at [133]. The difficulty here is that the third condition has no clear statutory basis. The FCA in Lilly / olanzapine stated at [32] that “the notion of selection permeates the entire analysis in relation to each of the grounds of alleged invalidity”: which statutory basis for invalidity is permeated by St-Louis J’s holding in [132]? Applying the third requirement without a statutory basis is particularly problematic, given that the EWCA in Dr Reddy’s [2009] EWCA Civ 1362 [39] has rejected it as being unsound in principle.

In Sanofi at [11] the SCC remarked that “Maugham J.'s analysis [in  IG Farbenindustrie] is consistently referred to and is well accepted.” This was no longer true: just a year after Sanofi was decided, the EWCA in Dr Reddy’s rejected reliance on the IG Farbenindustrie requirements, in part because they had no statutory basis [36]-[38], and in part because of substantive criticisms [39]. Jacob LJ stated that “the best thing to do is to regard them as part of legal history, not as part of the living law” [37]. In my view, we should do the same in Canada. The SCC in Sanofi did not require the use of the IG Farbenindustrie factors, but only said “it is a useful starting point for the analysis to be conducted in this case” [11]. In practice, the IG Farbenindustrie requirements have turned out not to be helpful at all; on the contrary, they have added confusion and complexity to the law, with a concomitant likelihood of error. Moreover, while the SCC endorsed the IG Farbenindustrie requirements, it did not actually apply them in its analysis on the facts; the SCC relied on IG Farbenindustrie only for the proposition that “A system of genus and selection patents is acceptable in principle” [19]. Otherwise the SCC relied entirely on universally applicable principles of anticipation and obviousness. I suggest that the the Federal Courts should take the same approach: a system of genus and selection patents is acceptable in principle, but whether any particular patent is valid depends on the standard principles of anticipation and obviousness, and not on whether the patent at issue can be characterized as a selection patent.

Does a Range Anticipate a Point Within the Range?

 Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC 2020 FC 816 St-Louis J

            2,371,684 / tadalafil / CIALIS ADCIRCA

Lilly markets 2.5mg, 5mg, 10mg and 20mg strengths of tadalafil for the treatment of erectile dysfunction [11]. The defendants in this action are various generics that want to sell tadalfil in those dosage forms [13] The asserted claims of the 684 patent were to dosage forms of tadalafil for treating ED, namely doses from 1 to about 20 mg, as well as specific doses within that range, including 2.5, 5, 10 and 20 mg doses [197-213].

The question in this case was whether the 684 patent is valid over the prior art 2,226,784 application, which claims tadalafil for the treatment of ED, and discloses unit doses of tadalafil from 0.2 to 400 mg. St-Louis J held on the facts, that starting from the knowledge that doses from .02 to 400 mg were useful, it would be routine for the skilled team to carry out the trials necessary to narrow that down to the range providing the best balance between efficacy, and safety and tolerability, and they would be motivated to do so [325-28]. The claimed invention was therefore obvious to try [323, 330].

So far, so good, and I wish I could stop the post here. However, St-Louis J also held that the 784 application anticipated the 684 patent, which, with due respect, is clearly wrong. I’ll address that issue in this post. There is also some problematic discussion of selection patents, which I will discuss in the next post. And there are some difficulties with the discussion of the role of the inventive concept in the obviousness analysis, which I won’t address, as it did not seem to impact the obvious-to-try conclusion. St-Louis J, and the parties, appear to have been guided by the decision of de Montigny J in NOC proceedings involving the same patent, Lilly v Mylan 2015 FC 125, which has similar problems, though again the basic obvious-to-try analysis was not affected.

CIPO's Approach to Patentability of Computer-Implemented Inventions

 Choueifaty v Canada (Attorney General) 2020 FC 837 Zinn J rev’g and remanding CD 1478

            Application 2,635,393

The vexed issue of patentable subject matter has reared its head once again. Choueifaty applied for a patent for a computer-implemented method for selecting an investment portfolio with the lowest level of risk for a given return [CD 25]; in brief, a computer-implemented business method. CIPO, applying its problem-solution approach to claim construction set out in MOPOP 12.02.02e [13], determined that the “essential elements” of the invention “are directed to a scheme or rules involving mere calculations used to construct the anti-benchmark portfolio and thus not directed to patentable subject matter” [CD 52], [16]. In CIPO’s view, the computer itself was not an essential element; had it been, the claim would have been allowed [17]: PN 2013-03.

In a brief decision, Zinn J reversed on the basis that the problem-solution approach is not the correct way to determine the essential elements of the claim; rather, the approach set out by the SCC in Whirlpool 2000 SCC 67 and Free World 2000 SCC 66, must be used [40]. CIPO relied on Genencor 2008 FC 608 for the proposition that the Whirlpool test is not applicable to patent examiners [34]. In light of the subsequent FCA decision in Amazon 2011 FCA 328, [43] which expressly held that CIPO must use the Whirlpool approach, Zinn J held that Genencor “is no longer good law” [35]. Zinn J therefore remitted the application to the Commissioner for reassessment in accordance with his reasons.

In my view, Zinn J’s decision is entirely correct so far as it goes, but in this post I want to step back and take a brief look at the bigger picture.

Default Judgment Requires Evidence

 Tatuyou, LLC v H2Ocean Inc 2020 FC 865 Little J

            2,739,837

In this decision, Little J dismissed a motion for default judgment on the basis of insufficient evidence to meet the burden of proof on the balance of probabilities.

It is well established that “On a motion for default judgment in [the Federal] Court, all of the allegations in the statement of claim are to be taken as denied” [9]; Little J noted that “This standard is different from the requirements for default judgment under the rules in some provincial superior courts in Canada” [10], several of which provide that a defendant noted in default is deemed to have admitted the facts alleged in the statement of claim.

Consequently, even if the defendant has not filed a statement of defence, the plaintiff must provide evidence sufficient to establish infringement on the balance of probabilities [12]: “bald assertions” are not sufficient [14]. Little J indicated that the evidence must go to both validity and infringement [16], [17], [19], but presumably in the absence of evidence to the contrary, validity would be adequately established by the presumption of validity under s 43(2). In any event, the reference to validity was merely in passing, as the specific deficiencies noted by Little J went to infringement. In particular, there was no evidence from a skilled person on claim construction [19], but only statements by the plaintiff’s CEO that the defendant’s product is “substantially similar” to the plaintiff’s product and that it “includes all of the elements” of the asserted claims [20]. These statements amounted to little more than bald assertions, particularly given that the CEO “does not profess to be a person ordinarily skilled in the art” and there was no explanation as to how she arrived at these conclusions.

The evidence was also insufficient to establish that the defendant, an American company, had been selling the product in Canada [22]. There was an assertion to that effect, but again, no explanation of the basis for that assertion. A reference on the defendants’ .com website to “where customers in Canada can purchase [the allegedly infringing product],” unsupported by other evidence of actual sales, was not sufficient establish that anyone has actually purchased or attempted to purchase the product from the defendants’ website using a computer in Canada.

The bottom line is that because allegations in the statement of claim are taken to be denied, the mere fact that the defendant did not file a statement of defence after being served is not sufficient to obtain a default judgment in the Federal Court. Bald assertions of infringement are not sufficient to support a default judgment; at the very least, the plaintiff must provide an explanation for the basis for those assertions.

Silos or Not?

 Canada (Health) v Glaxosmithkline Biologicals SA 2020 FCA 135 Rivoalen JA

TFI Foods Ltd v Every Green International Inc 2020 FC 808 McHaffie J

In Canada (Health) v Glaxosmithkline [Shingrix] Rivoalen JA refused to grant the Minister of Health’s request for a stay of pending appeal of 2020 FC 397 (here). In TFI Foods McHaffie J granted an interlocutory injunction in a trademark case. Both, of course, use the same tri-partite test from RJR-MacDonald [1994] 1 SCR 311. I won’t go into the details of either case (for what it’s worth, I agree with both decisions).

Rather, I’ll make one observation. In TFI Foods, McHaffie J stated that “The elements of the RJR-MacDonald test are conjunctive, in that the moving parties must satisfy all three to obtain relief. However, they are not independent silos, and a stronger finding on one or more of the elements may lower the threshold for the other elements” [5]. In Shingrix, Rivoalen JA stated that “All three questions must be answered in the affirmative, and failure on any single question is fatal to the motion for the stay” [9]. Both positions have ample support in the case law. The silos approach is the normal in the Federal Courts, with the irreparable harm factor being the most prominent hard silo, which applicants often fail to escape. The “no silos” approach is dominant in most other Canadian jurisdictions: see eg Potash Corp 2011 SKCA 120 [57]-[58]; Apotex Fermentation 1994 CANLII 16694 (Man CA); Circuit World 100 OAC 221 (ON CA); Imperial Sheet Metal 2007 NBCA 51 [7].

So, silos or not?

Rule 420 Doubling Applies to Lump Sum Costs

 Bauer Hockey Ltd. v. Sport Maska Inc. (CCM Hockey) 2020 FC 862

2,214,748

In recent years we have seen costs awards turn away from the outdated and inadequate tariff, in favour of lump sum awards. This decision by Grammond J provides a nice summary of the principles that are emerging to guide the determination of quantum in awarding lump sum costs. Grammond J’s decision also clarifies the impact of an offer to settle on lump sum costs. I expect parties seeking or resisting lump sum awards will want to review this decision carefully, so I will just hit some highlights. This decision is consequent on Grammond J’s determination in 2020 FC 624 (here) that CCM had not infringed any valid claims of Bauer’s 748 patent.

● The tariff is dead

At least in complex patent cases. “Where the nature of the case is such that the parties are justified in expending a significant amount of legal fees, the tariff simply does not provide a level of indemnification sufficient to further the purposes of costs awards” [10].

● 25% of fees is the baseline

While there is “no rigid guideline. . . . In the interests of consistency and predictability, I proposed to set the starting point at 25% and to analyze whether the circumstances of a specific case warrant a higher or lower number” [14].

● Litigation conduct does not necessarily affect the percentage

This is not because litigation conduct is irrelevant to costs, but rather because a percentage costs award already captures an element of litigation conduct: “For example, if a party fails to admit facts that should have been admitted, this presumably results in an increase of the other party’s legal fees” [17].

 

● Do not reargue the merits

This further supports the view that litigation conduct does not necessarily affect the percentage of fees awarded. Parties are often tempted to argue that the other side should be penalized for having run an argument that was without merit, or for having failed to admit certain facts. However, “one should always remain conscious of the difficulties associated with judging litigation conduct. After a judgment on the merits is rendered, it is tempting to criticize steps taken by the parties in the proceedings with the benefit of hindsight. During the trial, however, parties must make decisions in a state of uncertainty” [18]. Further, trial judges “are not expected to keep a tally of penalties to be reflected in a costs award,” [20] and judging litigation conduct, in particular, pre-trial conduct, “requires information that is often unavailable to the trial judge” [20]. Moreover, “it does not assist a party to suggest that the case was close or that it did not expect to lose. Neither are costs awards a way to obtain an opinion on issues that the Court did not need to address in its judgment on the merits” [21]. See also his application of these principles to the facts [31]-[32].

 

I particularly like Grammond J’s pithy statement that a costs decision is not the occasion for an “autopsy of the trial” [20].

● Litigation conduct does not normally preclude a lump sum

“[Bauer] it asserts that CCM’s litigation conduct disentitles it from claiming a lump sum. I disagree with Bauer. Litigation conduct is taken into account when determining the percentage of recovery” [23].

● Complexity does not generally justify an increased percentage

Increased costs resulting from increased complexity will automatically be reflected in a higher costs award, even if the percentage itself is not adjusted [28].

● Percentage recovery doubled when Rule 420 applies

On this point, Grammond J clarified the law. Rule 420 provides that if a defendant makes an offer to settle that is refused, the defendant is entitled to doubled costs if the judgment is less favourable. Rule 420 was triggered in this case [40], but the case law was not clear as to how an offer to settle should be considered in the context of a lump sum costs award, and in particular whether it should be only one factor to be considered [37]. Grammond J noted that the purpose of Rule 420 is to provide an incentive to settlement, and “[t]his incentive will be ineffective if the doubling of costs is subject to unstructured discretion.” He therefore held that Rule 420 is indeed applicable in the context of lump sum costs, and “when rule 420 applies, the percentage of recovery should be doubled for the period after the refusal of an offer, save in exceptional circumstances” [38]. I am persuaded by Grammond J’s point that predictability is important to ensure that Rule 420 has the intended effect [36] [38]. It will be interesting to see whether other members of the court follow his lead on this point.

● A modest offer may nonetheless embody an element of compromise

The case law on Rule 420 requires a genuine offer that includes an element of compromise [39]. Grammond J held that the mere fact that the offer is very low does not in itself imply there is no element of compromise. (CCM’s offer in this case was $500k, against Bauer’s claim of $80m [41]; $500k is nonetheless substantially better than nothing, which is what Bauer ended up with.) “The parties’ decisions are based on their assessment of their chances of winning and the value of the claim. By nature, this assessment is probabilistic. By raising the stakes, however, rule 420 prompts the parties to be as objective as possible, although some uncertainty inevitably remains” [42].

The fact that the offer is less that the legal fees expended to the time of the offer is not relevant [40].

“[T]he doubling of costs provided by rule 420 does not depend on an after-the-fact evaluation of the reasonableness of the parties’ positions. All that matters is that the offer be genuine and contain an element of compromise. In this case, it did” [42]. On the facts, this led Grammond J to double the percentage award, from 25% to 50%, for the period after the refusal of the offer [43].

A final point of interest is that Grammond J denied Bauer’s request that the obligation to pay the cost award be spread evenly over a period of twelve months, in light of financial distress caused by the shutdown of the sports industry as a result of Covid-19 [60]. Grammond J noted that “[i]It must be assumed that the situation described by Bauer affects all players in the sporting goods industry, including CCM. One fails to see why the financial burden of the costs award should be borne, for the next year, by the party who won the case, even though it must be equally affected by the COVID-19 pandemic” [64].

Blogging Break

 I'll be taking a short break from blogging for some end of summer vacation and to get ready for classes. 

Data Protection Provisions Triggered by Indirect Comparison with Innovative Drug

Natco Pharma (Canada) Inc. v. Canada (Health) 2020 FC 788 McHaffie J

This application for judicial review addressed whether the data protection provisions of the Food and Drug Regulations are triggered when an ANDS is based on a comparison to a drug product that was in turn approved based on a comparison with an “innovative drug,” even though the direct comparator is not itself an innovative drug. McHaffie J held Health Canada’s decision refusing Natco’s ANDS to be reasonable and indeed “inevitable” [4], and he consequently dismissed Natco’s application for judicial review.

The decision is interesting for three reasons. First is the substantive holding, that the data protection provisions are triggered on the basis of “indirect” comparison, when the generic product is compared to a drug product that was in turn approved on the basis of a comparison to an innovative drug. Secondly, this decision follows close on the heels of ViiV Healthcare 2020 FC 756 (here) and Shingrix 2020 FC 397 (here), which held the Minister of Health to have adopted an unreasonable approach to statutory interpretation of the CSP Regulations. The contrast in Health Canada’s approach to these provisions is noteworthy. Finally, the decision raises a narrow point of statutory interpretation, holding that the same phrase may have a different meanings in different but broadly related regulations, in light of purposive and contextual considerations.

The key operational provisions of the data protection regulations provide for a six year “no file” period and an eight year market exclusivity period if a manufacturer seeks an NOC on the basis of a “direct or indirect comparison” between the new drug and an innovative drug: [10], C.08.004.1(3)(a),(b). Natco submitted an ANDS for a generic version of Gilead’s DESCOVY, a HIV/AIDS drug that contains a combination of tenofovir alafenamide hemifumarate (TAF) and emtricitabine. The ANDS accordingly identified DESCOVY as the Canadian reference product [26]. DESCOVY is not an “innovative drug” under the data protection regulations. However, TAF is also contained in Gilead’s GENVOYA, along with emtricitabine and two other medicinal ingredients [2], and GENVOYA is an “innovative drug” [14]. DESCOVY was approved after GENVOYA, which is why it is not an “innovative drug.” Crucially, in McHaffie J’s view, the data to support DESCOVY was based on a comparison with GENVOYA [68], [80]. Health Canada refused Nacto’s ANDS on the basis that it “makes comparisons to DESCOVY, which benefits from the data protection term for GENVOYA, an innovative drug,” and as such the ANDS cannot be accepted until the expiry of the “no file” period for GENVOYA, in November 2021 [38].

McHaffie J ultimately held that by seeking an ANDS using DESCOVY as the reference product, Natco was making an indirect comparison with GENVOYA:

 

[108] That is, the “direct or indirect comparison” to an innovative drug that forms the trigger for data protection provisions may include a manufacturer’s comparison to a drug product that in turn was compared to the innovator product for approval

The parties agreed that the standard of review under Vavilov 2019 SCC 65 was reasonableness, so question at issue was not the interpretation of the data protection provisions as such, but whether the Health Canada’s decision was reasonable [8]. Health Canada’s analysis focused primarily on the intent of the regulations and the obligations under the trade agreements [43]-[50]. These are important considerations, and Health Canada’s analysis was reasonable “as far as it went” [50], but the decision jumped directly from there to the conclusion that drugs containing the same medicinal ingredient must benefit from the same period of data protection, without full consideration of the text of the provisions itself [51], [56]. This led Health Canada to the questionable conclusion that data protection of an innovative drug “necessarily extend[s] to these additional products also containing the new chemical entity during the data protection term for the original innovative drug” [56]. That is, the main thrust of Health Canada’s decision was that the data provision provisions protect the new chemical entity itself – “The obligations to protect the new chemical entity exist for the entire duration of the data protection term” [33] – and therefore a combination drug containing a new chemical entity that was the basis for an innovative drug designation will also benefit from any term of the data protection for the innovative drug [35]. However, as McHaffie J noted, it is the data, not the new chemical entity itself that is protected: for example, the data protection regulations would not be triggered if Natco had filed an NDS based on independent clinical trials [57], or if DESCOVY had been approved based on independently filed studies rather than on the basis of a comparison with GENVOYA [59].

Consequently, if Health Canada had arrived at its conclusion solely on the basis of the fact that DESCOVY contained TAF, the decision would have been unreasonable [60]. However, as “further support,” for its conclusion, Health Canada noted that the approval of DESCOVY had relied on the data for GENVOYA [69]. This was not a secondary consideration, as suggested by Health Canada’s decision, but a crucial point: it was unchallenged that the data to support DESCOVY was based on comparative bioavailability studies for DESCOVY as compared to GENVOYA [68], [80]. Because of this, Natco’s comparison of its product with DESCOVY constituted an indirect comparison with GENVOYA [72]. And while Health Canada’s analysis was not as clear as it might have been, McHaffie J concluded that, read contextually and with due allowance for the administrative context [75], the decision is “fairly read as Health Canada making the determination that Natco’s ANDS indirectly compared its drug to GENVOYA” [73], without impermissible ex post addition of arguments on judicial review that are not contained in its decision [78]. McHaffie also pointed out that in some places Health Canada did recognize that the obligations under the treaties was to protect “undisclosed test or other data,” and so he concluded that Health Canada did not misunderstand the intent of the regulations [67], though its conclusions were poorly expressed.

The ultimate issue was the interpretation of subsection C.08.004.1(3). While Health Canada’s decision did not actually address that question directly, it did implicitly base its decision on a reasonable interpretation of the provision [108]. Indeed, not only was the interpretation reasonable, this was the type of case, adverted to in Vavilov 2019 SCC 65 [124], in which “the ‘interplay of text, context and purpose leaves room for a single reasonable interpretation’” [108]. Consequently:

 

[108] [T]he “direct or indirect comparison” to an innovative drug that forms the trigger for data protection provisions may include a manufacturer’s comparison to a drug product that in turn was compared to the innovator product for approval.

Given that it was undisputed that this was true on the facts [108], “the outcome that Natco’s ANDS could not be accepted for filing was inevitable” [108].

What, if anything, can we make of the difference between Health Canada’s approach in this case, and the unreasonable decisions in ViiV Healthcare 2020 FC 756 and Shingrix 2020 FC 397? The two unreasonable interpretations by the Minister related to the Certificate of Supplementary Protection Regulations and went against the patentee, while the decision at issue in this case related to the data protection provisions, and went in favour of the innovator. Also, in ViiV Healthcare the Minister erred in her interpretation by ignoring the trade agreement that the CSP Regulations were intended to implement (see here), while in this case, Health Canada’s interpretation put too much emphasis on the underlying trade agreements ([4], [51]), though the interpretation was ultimately reasonable nonetheless. Maybe there is no overarching lesson, other than that the Health Canada doesn’t always get its statutory interpretation right; but my sense, especially in light of ViiV Healthcare, is that, for some reason, the Minister is antipathetic to the CSP regulations in particular.

The third point of interest in this decision is that it illustrates that the same textual phrase may have a different meaning in different regulations, once purpose and context are taken into account, even when the regulations are related. At the same time that the data protection provisions were amended to introduce the requirement of a “direct or indirect” comparison, the PM(NOC) Regulations were also amended, such that the provisions are triggered under s 5(1) when the generic seeking an ANDS “directly or indirectly compares” its drug with an innovative drug. In the NOC Regs, the phrase is interpreted as meaning that the provisions are triggered only when generic compares its product to the equivalent innovative drug [97-98]; Natco’s “strongest argument” was that a similar interpretation should apply to the same phrase in the context of the data protection provisions [86]. While this is a good argument prima facie, McHaffie J noted that a “different purpose informs the interpretation of the language of the provisions in the two regulations” [93]. This is revealed through the structure of the provisions [94-95], and also in light of the trade agreements which they implement [96], as well as through the jurisprudential background [99]. The NOC Regs were amended to add the directly “or indirectly” language because of concerns that a generic seeking an NOC might compare its product to a previously approved generic drugs, rather than to the original product; that is, the word “indirectly” encompasses a comparison mediated by an intervening generic product that is also equivalent to the same innovative product [101]. The data protection provisions, on the other hand, were amended because the earlier trigger required the Minister to “examine” and “rely on data” contained in the application for the innovative drug. In fact, when a generic drug is approved based on an ANDS, Health Canada does not normally directly rely on the data originally submitted with the innovative product, but only verifies that the generic product is pharmacologically equivalent to the innovative product [99]. Thus, the comparison is “indirect” because it is mediated by the innovative drug itself; the RIAS accompanying the data protection provisions nonetheless made it clear that the intent was to protect the underlying data [99-100]. Given that statutory interpretation requires consideration not just of the text, but also context and purpose, it is not unprincipled to attribute different meaning to very similar text, but it is nonetheless unusual, particularly when the provisions are broadly related. 

Jurisdiction of the Federal Court to Interpret Contracts Relating to Patents: A Fresh Start

SALT Canada Inc v Baker 2020 FCA 127 Stratas JA: Near, Woods JJA rev’g 2016 FC 830 Boswell J

            2,222,058

In a direct and vigorous decision, Stratas JA for the FCA has held that the Federal Court always has jurisdiction to determine who has title to a patent in an application under s 52 of the Act [12], [47], [49], expressly repudiating a line of cases holding that the FC does not have jurisdiction if determination of ownership of the patent is “primarily” a matter of contractual interpretation [27]-[31]. This a very welcome development that will simplify litigation in this area. This issue has been a pet peeve of mine ever since the trial decision in SALT v Baker four years ago and I am very pleased to see the issue dealt with so clearly. There is, however, one loose end, namely the effect on Innotech (1997) 74 CPR (3d) 275 (FCA) rev’g 72 CPR(3d) 522 (FCTD), holding that the Federal Court does not have jurisdiction when a contract relating to patent ownership is used as a sword, rather than a shield. Innotech is formally distinguishable, in that it did not involve an application under s 52, but the holding is extremely difficult to reconcile with Stratas JA’s reasoning in this case. In my view, Innotech is no longer good law, but some uncertainty remains, as it is an FCA decision and was not directly addressed in SALT v Baker.

As discussed here, SALT v Baker involved conflicting assignments of rights in the ‘058 patent from the inventor, Dr Markels. The first was a complex series of assignments which ultimately led to the respondent, Baker. Baker registered his ownership with the Patent Office. Some of the assignments in this series included provisions requiring the ‘058 patent to be reassigned to Markels if certain conditions were breached. Believing that the conditions had indeed been breached, in 2015 Markels assigned title to the Applicant, SALT. Markels also prepared a reassignment from Baker to Markels, which was, however, never executed by Baker. SALT sought to have its ownership registered, but the Patent Office refused on the basis that the assignment was not executed by Baker, the registered owner [3]-[9]. SALT then brought this application for a declaration under s 52 that the register be varied to list SALT as the owner of the ‘058 patent (as well as other additional and alternative relief). A key substantive question related to the interpretation of the various agreements, and whether the conditions in the first series of assignments had been breached, such that Markels was entitled to a reassignment [24].

Boswell J at first instance, relying primarily on Lawther (1995), 60 CPR(3d) 510 (FC), held that the Federal Court “lacks jurisdiction where determination of the ownership of a patent depends upon the application and interpretation of contract law principles” [20]. The question is whether the matter at hand “relates primarily to contract or to patent law: this Court will have jurisdiction over a case that primarily concerns the latter, but not the former” [21].

The FCA has now reversed. The reasoning of Stratas JA was straightforward. The basis of the FC jurisdiction is the grant by Parliament. The text of s 52 of the Patent Act is clear [8]:

[5] Section 52 of the Patent Act provides that the “Federal Court has jurisdiction…to order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged”. The application before the Federal Court sought just that. On the plain language of . . . section 52 of the Patent Act, the Federal Court had jurisdiction over the appellant’s application.

There is no constitutional objection to the grant of jurisdiction under s 52 [49].

Is Harm to Third Parties Taken into Account at the Second or Third Step of the RJR-MacDonald Test?

Arctic Cat, Inc v Bombardier Recreational Products Inc 2020 FCA 116 Rivoalen JA

2,350,264

Yesterday’s post provided an overview of the facts in Rivoalen JA’s decision to deny Arctic Cat’s application for a stay pending appeal. This posts focuses on a purely legal issue: is harm to third parties taken into account at the second or third step of the RJR-MacDonald test for an interlocutory injunction / stay? Why does it matter?

To recap the facts, AC and BRP are competitors in the snowmobile market. BRP sued AC for infringement of various patents and finally prevailed in a decision released in June: 2020 FC 691 (here). AC then sought a stay pending an appeal, which is the subject of this decision. The stay will determine whether AC can ship infringing machines for the upcoming winter season (summer-fall 2020 is the crucial window [13]). Since the patent expires next June, AC will be able to return to this design for the following season, regardless of the outcome of any appeal, which will affect only damages. The sleds that are affected have already been manufactured and are stored in US warehouses [9]. AC submitted that it would not be be possible to redesign them for the upcoming season [9] and Rivoalen JA’s decision proceeded on that basis [34], [35].

As usual in the FC approach to the RJR-MacDonald [1994] 1 SCR 311 test, whether AC would suffer irreparable harm was a key issue. In addition to the harm that AC argued it would suffer directly, AC argued that their dealers would suffer irreparable harm, especially because many are single-line dealers who may not be able to supply a competing product because of territorial exclusivity agreements [27].

On this issue, Rivoalen JA found that irreparable harm to the dealers had not been established on the facts [31], but:

[32] More importantly, whatever harm the dealers may suffer personally cannot be relied upon by the appellants to establish irreparable harm. Only harms suffered directly by the appellants can be considered in the second branch of the RJRMacDonald test. This Court has refused attempts to rely on third-party harms, other than by charities.

As authority, Rivoalen JA cited Glooscap 2012 FCA 255 at [29-30], [33-34]; Air Passenger Rights v Canada 2020 FCA 92 at [30], and Chinese Business Chamber of Canada 2006 FCA 178 at [6-7]. These decisions (none of which concern patents), do indeed state that the interests of third parties can only be considered at the third stage of the test, the balance of convenience, relying on RJR-MacDonald [1994] 1 SCR 311 at 341, in which the Court stated that the public interest, and by implication harm to third parties, “is more appropriately dealt with in the third part of the analysis.” (Metropolitan Stores [1987] 1 SCR 110 at 128 is also relied upon, but that statement is much more ambiguous.)

On the other hand, there are cases such as Marketing International (1977) 35 CPR(2d) 226 at 231 (FCA), Procter & Gamble Co v Bristol-Meyers Canada Ltd (1978), 39 CPR(2d) 171 at 177 (FCA) and, post-RJR-MacDonald, AstraZeneca Canada 2005 FCA 208 [20], holding that it is proper to take harm to the public into account at the irreparable harm stage.