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.

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