Monday, January 31, 2011

Standing and Damages

Merck & Co Inc. v. Apotex Inc. / lovastatin 2010 FC 1265, Snider J

When is a patent owner no longer a “patentee” for the purpose of standing to sue for infringement under s 55? In Merck & Co Inc. v. Apotex Inc. / lovastatin, the patent owner, Merck & Co (Merck) granted a non-exclusive licence to Merck Frosst Canada Inc. (Merck Frosst), and subsequently granted to Merck and Company Inc. (MACI), a “permanent and exclusive royalty-free license,” saving the rights that had already been granted to Merck Frosst. The plaintiffs are Merck and Merck Frosst, but not MACI. Apotex challenged Merck’s standing on the basis that Merck had assigned all its interest to MACI.

Snider J held in Merck’s favour. She held at [48] that the test is whether there is “clear and persuasive evidence that [the patent owner] intended to convey all of its rights in [the patent] to [the licensee] retaining nothing to itself.” This question is answered primarily by construction of the licence agreement as a matter of contract law [47], with secondary reference to the reference to the course of conduct of the parties to the agreement [55]. The fact that Merck remained the named patentee shown as owner on the register was relevant (though not determinative), as was the simple fact that Merck was pursuing the litigation in its own name [55].

While Merck won on this point, I suspect this point will return to haunt it in the damages portion of this bifurcated proceeding. Snider J held at [624] that the plaintiffs are not entitled to an accounting of profits, and so can claim only claim damages. Merck can’t get damages in the form of lost profits since it wasn’t in the market, and I don’t see how it can get a reasonable royalty, as it didn’t have the right to grant licences. Presumably, the damage in the form of lost profits, or lost royalty revenues, was suffered by MACI, not Merck. Merck doesn't even get a cut of that because the licence to MACI was royalty free. This isn’t a technical point. MACI as an exclusive licensee has an independent right to bring an action, as established in Domco Industries Ltd., v. Armstrong Cork Canada Ltd., [1982] 1 SCR 907, 66 CPR (2d) 46.  Merck cannot be permitted to recover damages suffered by MACI, or Apotex would face double liability.

While Merck was denied an accounting in this case, it is interesting to consider the standing problem if an accounting had been granted. It would be wrong to require Apotex to account for its entire profit to two different parties, but it is not obvious on what principle the profits would be apportioned between a patentee and licensee, particularly when the party who has suffered the greatest harm is not a party to the proceeding.

Friday, January 28, 2011

Fossilized Footprints of Section 39

Merck & Co Inc. v. Apotex Inc. / lovastatin 2010 FC 1265, Snider J

The invention at issue in the lovastatin decision related to a process for making lovastatin with the micro-organism A. terreus, and the patent (1,161,380), had both process and a product-by-process claims. A traditional fermented rice, Red Yeast Rice, was said by Apotex (and Wikipedia!) to contain lovastatin produced by a mold of the genus Monascus. The process claims are clearly unaffected, but Apotex argued that the product-by-process claims were therefore invalid as being anticipated by Red Yeast Rice. The obvious rebuttal to this that the product-by-process claims only encompass the product when made by the particular process, in this case by A. terreus; but as Apotex pointing out, Hoffmann-LaRoche Ltd. v. Canada (Commissioner of Patents), [1955] S.C.R. 414, 23 C.P.R. 1 clearly established that a product-by-process claim is to be treated as a product claim, in the sense that it will be anticipated if the product is known, even though made by different process. Snider J accepted this point as being established by the authorities, but with great reluctance, saying she had “considerable difficulty in understanding how the conclusion in Hoffmann-LaRoche 1955 can fit with the protection offered by the Patent Act,” and calling the result “illogical” [578] and even unprincipled [579].

In the end, Snider J held that the claims were valid as she was not satisfied that lovastatin was actually present in the Red Yeast Rice prior to the priority date [598], or, if it was, that it was adequately disclosed [608]. This raises some interesting questions as to the precise requirements for enabling disclosure.

However, I have a simpler question. What does it matter whether the process-by-product claims are valid? As Dr. Fox explained in his annotation to the Exchequer Court decision in Hoffmann-LaRoche, product-by-process claims, in principle at least, offer no advantage to the patentee as compared with simple process claims, because under the Saccharin doctrine, importation, use and sale in Canada of a product manufactured abroad using the patented process, is itself an infringement of the process patent (for recent affirmation see Eli Lilly Canada Inc. v. Apotex Inc. / cefaclor 2010 FCA 240 [17]-[20]). The evident difference between a product-by-process claim, and a process claim together with the Saccharin doctrine, relates to the burden of proof. Under the old s 39(1) the patentee was restricted to product-by-process claims in respect of the substances intended for food or medicine, but at the same time it was presumed by s 39(2) that any product of the specified composition was presumed to by produced by that process. While the SCC decision in Hoffmann-LaRoche is brief and somewhat cryptic, it appears to me, particularly from the decision of Rand J, that this presumption is what drove the result. It is a fair presumption if there is only a single method known for producing what is a novel compound, but if the compound is not new, it would be wrong to allow a patentee to take advantage of it when in fact the product might very well have been made by some other process. In that case, the patentee should be left to the protection of the Saccharin doctrine, where it would carry the burden of proof.  If that is the real issue, then it was rendered largely moot in the lovastatin case, as Snider J interpreted s 39(2) as imposing only a very weak evidentiary burden which had been met by Apotex. And of course it is entirely moot under the current Act, with that entire section having been repealed.

So, it seems to me that the rule from Hoffmann-LaRoche, that a product-by-process claim amounts to a product claim for purposes of anticipation, is really just a vestige of the old s 39. With the repeal of s 39(2) that rule is no longer necessary; but on the other hand, with the repeal of s 39(1), product-by-process claims are themselves no longer necessary.

Thursday, January 27, 2011

What is "success" in NOC proceedings, for purposes of section 8?

Apotex Inc. v. Merck Frosst Canada Ltd. / lovastatin (NOC) 2010 FC 1264, Snider J

The leading case on compensation under section 8 is Apotex v Syntex / naproxen (NOC) 2010 FCA 155 affm’g 2009 FC 494, in which a prohibition order had been granted, but subsequently set aside after the patent was held to be invalid in separate proceedings. Apotex was denied compensation under section 8. The Court of Appeal held that “Apotex can not ‘reach back and apply the finding of invalidity in the action so as to argue that the ‘671 patent had "expired" within the meaning of section 8' of the 1993 version of the Regulations.” While this was expressly decided on the 1993 Regulations, the broad point seems to be that NOC proceedings and infringement proceedings are separate. Entitlement to section 8 compensation does not depend on the outcome of an infringement action.

If the trigger under section 8 must be success under the NOC proceedings, what counts as “success”? In Apotex Inc. v. Merck Frosst Canada Ltd. / lovastatin (NOC) 2010 FC 1264 the stay expired without the application for the order of prohibition ever having been heard on the merits. Apotex claimed for section 8 compensation, arguing that Merck had not been successful in the NOC proceedings. Merck, on the other hand, argued that it wasn’t unsuccessful, either.

Snider J held that under the 1993 Regulations the question is not whether the innovator succeeds in getting a prohibition order; it is expiry of the relevant patent, for example by a finding that the allegation of invalidity was justified. As the patent had not expired, Apotex could not claim damages.

This specific holding is of limited interest under the 1998 Regulations as it clearly turns on the specific wording and interpretation of the 1993 version. But the facts raise an interesting question. In her decision in the infringement proceedings, released concurrently, Snider J held that the patent was valid and infringed. What if Apotex had won on section 8? If Syntex says you can’t reach back, presumably this applies both ways, so that Merck would have been liable to compensate Apotex under section 8 despite prevailing in the infringement proceeding. Would Merck then be able to recover that section 8 payment as damages in the infringement action? If not, Apotex would retain a sizeable payment for being kept out of a market that it would not have been entitled to enter. It seems inevitable that this problem will arise at some point, as it stems from the basic point made in Syntex that the NOC proceedings, unlike an interlocutory injunction, are separate from the infringement action.

Wednesday, January 26, 2011

When is an application for an order of prohibition “pending”?

Apotex Inc. v. Merck Frosst Canada Ltd. / lovastatin (NOC) 2010 FC 1264, Snider J

Section 8 of the PM(NOC), provides for compensation to a generic who has been denied entry as a result of a statutory stay. It was notoriously obscure as enacted in 1993, and  was amended and clarified in 1998. Because the change was substantial, it has been a matter of some contention as to which version applies (though it is not entirely clear which version is favourable to which party). The transitional provision says that the 1998 version applies to an application that is “pending” when the 1998 Regulations came into force (March 11, 1998). The leading case is Syntex / naproxen (NOC) 2010 FCA 155 affm’g 2009 FC 494, in which a prohibition order had been granted, but subsequently set aside after the patent was held to be invalid in separate proceedings. The Court of Appeal held that the application was not pending, so the 1993 provisions applied.

Merck Frosst / lovastatin (NOC) 2010 FC 1264 required Snider J to interpret and apply Syntex. Proceedings on the application for prohibition had been delayed, and ultimately, after various motions seeking extensions, Rothstein J (FCTD), denied Merck’s application for an extension of the statutory stay, and held that he was without jurisdiction to issue the prohibition order after the expiry of the stay. Consequently, the NOC had issued in 1997, almost a year before the crucial transition date. Finally, in 1999, the FCA dismissed Merck’s appeal from Rothstein J’s decision on the grounds of mootness. (The application was never heard on the merits.)

Snider J held that the application was not pending on the transitional date. Relying on Syntex she held at [20] that “an application judge’s decision in a prohibition application is “final”; subsequent appeals or motions do not alter the finality of that decision.” However, in Syntex the FCA said “a final order had been pronounced in the prohibition proceeding. . . .That decision was affirmed on appeal.” Thus Syntex was not entirely clear as to whether the fact that the order had been appealed was relevant. While Snider J’s decision is consistent with Syntex, strictly Snider J was facing a new issue.

Snider J’s interpretation of “pending” is very reasonable in its own right. However, there is some difficulty in reconciling it with O’Reilly J’s decision in Merck / norfloxacin (NOC) 2010 FC 287. In that case, on the crucial date the parties were awaiting judgment of the Supreme Court of Canada which overturned the prohibition order in question ([1998] 2 SCR 193). O’Reilly J held that the matter was pending, notwithstanding that a final order had been pronounced in the prohibition proceeding, and affirmed by the Court of Appeal. Snider J distinguished Merck / norfloxacin (NOC) at [23] on the basis that “[t]he determination of Justice Rothstein in Merck FCTD 1997, above, as affirmed by the Court of Appeal in Merck FCA 1999, above, leaves me with no doubt that Merck’s application could not proceed any further once the statutory stay had expired,” particularly in light of Rothstein J’s holding that the court had no jurisdiction.

This distinction undermines Snider J’s clear holding that subsequent appeals or motions do not alter the finality of the application judge’s decision. It implies that whether a matter is pending depends on whether the appeal is likely to succeed, or perhaps the basis on which it succeeds. It is one thing to say in hindsight that a matter was unlikely to succeed, but it is a difficult test to apply before the appeal decision has been rendered. Even in the lovastatin case, how would we know whether Rothstein J was right that there was no jurisdiction until the matter had been heard by the FCA (which decided on the basis of mootness, not jurisdiction)?

My own view is that Snider J’s first point, that subsequent appeals or motions do not alter the finality of that decision, is the best approach. It is consistent with the most straightforward reading of Syntex and it is the only approach which allows for a clear determination of whether a matter is “pending” before all possible avenues of appeal or review have been exhausted. The distinction drawn by Snider J between her decision and that of O’Reilly J clouds her otherwise clear holding.

Of course, the ultimate question is not which Regulations apply, but whether the generic is entitled to damages. Because the 1993 version is so obscure, it is unclear as to whether there is any substantive difference between the two versions. In Syntex / naproxen (NOC) 2009 FC 494 Hughes J held that damages were not available under the 1993 version [76], but he indicated that damages would have been available under the 1998 version [49]; however, the Court of Appeal at [19] expressly reserved judgment on the question of the result under the 1998 regularions, and some comments of principle at [36] suggest that had it addressed the point, it might have come to the contrary conclusion. In Merck / norfloxacin (NOC) O’Reilly J indicated at [14], albeit in obiter, that the result would have been the same under the 1993 version as the effect of the 1998 amendments was simply to clarify the original intent of the Regulations. O’Reilly J’s logic is attractive, and such a holding would have the practical advantage of rendering moot the debate as to which version applies.

Saturday, January 1, 2011

My Articles

Here is a list of some of my articles on patent / IP topics. I'd like to highlight the oldest article on the list, “A Property Rights Theory of the Limits of Copyright,” which I think is one of my best; it provides a theory of the idea / expression dichotomy in copyright law, as well as a theory of the relationship between patent and copyright. In some cases I have provided a link to the SSRN version of the article, which is usually a final revised version as submitted for publication, subject only to copy editing. Here is my SSRN page.

—, Form and Function in the Law of Utility: A Reply to Gold & Shortt, Canadian Intellectual Property Review (forthcoming) SSRN
— & Duggan, Protection of Creators’ Rights in Insolvency, (2014) 26(3) Intellectual Property Journal 271-87 SSRN
Duggan & —, Disclaimer, Affirmation and Assignment of Intellectual Property Licences, Journal of the Insolvency Institute of Canada (forthcoming, 2014) SSRN
Duggan & —, The Protection of Intellectual Property Licences in Insolvency: Lessons from the Nortel Case, [2014] Annual Review of Insolvency Law 2014 (forthcoming) SSRN
—, The Duty to Disclose "The Invention": The Wrong Tool for the Job, (2013) 25 Intellectual Property Journal 269-301 SSRN
—, Patent Trolls and Business Method Patents, (2013) 54 Canadian Business Law Journal 38-67
—, The False Doctrine of False Promise, (2013) 29(1) Canadian Intellectual Property Review 3-56 SSRN
—, Patent Trolls and Business Method Patents, (2013) 54 Canadian Business Law Journal 38-67
—, Evidentiary Problems of Multidisciplinarity in the Litigation of Business Method Patents, in Evidentiary Problems in Intellectual Property for the 21st Century: Multidisciplinary Perspectives on Intellectual Property Law (Irwin Law, Toronto, forthcoming)
—, “Secondary” Evidence of Obviousness is Not Secondary, (2012) 28 Canadian Intellectual Property Review 279-87 SSRN
—, Must the Factual Basis for Sound Prediction Be Disclosed in the Patent?, (2012) 28 Canadian Intellectual Property Review 39-80 SSRN
—, 2011 in Review: Patent Law, (2012) 24 Intellectual Property Journal 119 - 32
—, What is the State of the Art for the Purpose of an Obviousness Attack?, (2012) 27 Canadian Intellectual Property Review 385-94
—, HGS v Lilly: How Soon Is Too Soon to Patent? (2011) 24 Intellectual Property Journal 41-52
—, The Rule Against Abstract Claims: A Critical Perspective on US Jurisprudence, (2011) 27 Canadian Intellectual Property Review 3 - 30 SSRN
—, The Rule Against Abstract Claims: History and Principles, (2011) 26 Canadian Intellectual Property Review 205 - 229 SSRN
—, The Structure of the Law of Patentable Subject Matter, (2011) 23 Intellectual Property Journal 169 - 204 SSRN
—, The Essential Elements Doctrine in Patent Infringement: Free World and Whirlpool in Light of Kirin-Amgen, (2011) 22 Intellectual Property Journal 223 - 250 SSRN
— & Duff & Phelps Canada Limited Financial Litigation Support Group, Accounting of Profits in Intellectual Property Cases in Canada (monograph; updated version of 2008 article of the same name)
— & Duff & Phelps Canada Limited Financial Litigation Support Group, Damages Calculations in Intellectual Property Cases in Canada (monograph; updated version of 2008 article of the same name)
—, Intellectual Property Protection for Higher Life Forms: Current Law and Policy Issues, (2010) 10 Integrated Assessment Journal 23 - 39
—, Interlocutory Injunctions and Irreparable Harm in the Federal Courts, (2010) 88 Canadian Bar Review 517 - 543
—, Alexander J. Stack, A. Scott Davidson, William C. Dovey, Andrew C. Harington and Stephen R. Cole, Damages Calculations in Intellectual Property Cases in Canada, 24 Canadian Intellectual Property Review 153 - 188 (2008)
—, Alexander J. Stack, A. Scott Davidson, William C. Dovey, Andrew C. Harington and Stephen R. Cole, Accounting of Profits in Intellectual Property Cases in Canada, 24 Canadian Intellectual Property Review 83-136 (2008)
Craik, N, K Culver, and —, Genetically Modified Crops and Nuisance: Exploring the Role of Precaution in Private Law, 27(3) Bulletin of Science, Technology & Society 202-214 (June 2007)
— and K Culver, The Experimental Use Defence to Patent Infringement: A Comparative Assessment 56 University of Toronto Law Journal 333-369 (2006)
—, Patent Use, Intent and Remedy in Light of Monsanto v Schmeiser 22(1) Canadian Intellectual Property Review 453-494 (2005)
—, Comment on Monsanto Canada Inc v Schmeiser, 83(3) Canadian Bar Review 967-992 (2005)
—, The Innocent Bystander Problem in the Patenting of Higher Life Forms, 49(2) McGill Law Journal 349 - 392 (2004)
—, A Remedial Benefit-Based Approach to the Innocent User Problem in the Patenting of Higher Life Forms, 20(1) Canadian Intellectual Property Review 79-134 (2004)
—, Comparative Advertising, Dilution, and Section 22 of the Trade-marks Act, 18(1) Canadian Intellectual Property Review 277-335 (2001)
—, A Property Rights Theory of the Limits of Copyright, 51(1) University of Toronto Law Journal 1-61 (2001) SSRN