Wednesday, March 2, 2011

Federal Court Overrules Supreme Court on Presumption of Validity

Eli Lilly Co. v. Apotex Inc. / cefaclor, 2009 FC 991, 80 C.P.R. (4th) 1, Gauthier J. aff’d 2010 FCA 240

Valence Technology, Inc. v. Phostech Lithium Inc. 2011 FC 174, Gauthier J

In Wellcome / AZT 2002 SCC 77 [44], the Supreme Court held that the appropriate “standard of review” of a granted patent on a question of mixed fact and law, such as validity challenge based on utility, is “reasonableness simpliciter.” This was a importation of administrative law principles into what had previously been dealt with in terms of the statutory presumption of validity set out in ss 43(2). The novelty of the Court’s approach is reflected even in the heading to its discussion, “The Standard of Review,” in contrast to the traditional “presumption of validity.”

In Eli Lilly / cefaclor 2009 FC 991 Gauthier J refused to follow this holding. Gauthier J’s discussion on this point is one of my favourite passages of judicial reasoning from the past year, for two reasons. First, her analysis is crushing, in terms of law and policy. In my view it is quite clear that Gauthier J is right and the Supreme Court is wrong. I have nothing to add to her thorough reasons, which I have reproduced below. Of course, neither strong reasoning in the Federal Court, nor weak reasoning in the Supreme Court, are novel in themselves. What makes Gauthier J’s analysis stand out is her willingness to face the issue directly. The more usual course when a lower court is faced with unpalatable authority is to interpret that authority narrowly, or make factual findings that avoid its application, until the inconvenient doctrine fades away from lack of use. This strategy has the advantage of formally respecting binding authority, but the corresponding disadvantage that the problematic doctrine distorts the law as the courts frame their reasons so as to avoid the doctrine, rather than to illuminate the issues. (As another example, see here.) Of course, Gauthier J’s decision not to follow the Supreme Court’s decision can be criticized as going beyond the role of a trial judge. But, as she pointed out, she did have very recent Supreme Court authority on her side, which the Supreme Court in Wellcome / AZT had not taken into account, and, moreover, the point had not been argued by the parties in Wellcome / AZT. It seems quite likely that the SCC did not realize it was making new law.

Gauthier J’s position reflects the general trend at the Federal Court. In Valence Technology Gauthier J at [179] reaffirmed the analysis she had set out in Eli Lilly / cefaclor. In Novopharm Ltd. v. Eli Lilly & Co. / tomoxetine 2010 FC 915 [29-30], Barnes J expressly followed Gauthier J in declining to follow Wellcome / AZT. While his reasons were less elaborate, they were equally pointed: “It is not entirely clear to me what was meant by Justice Ian Binnie in the discussion in AZT, above, about the administrative standard of review,” and “any deference is owed to the Commissioner in cases like this one, it is completely subsumed by the presumption of validity created by ss. 43(2) of the Patent Act, and is essentially extinguished where any evidence to the contrary is placed before the Court.” As Gauthier J pointed out in Eli Lilly / cefaclor, Snider J had also declined to apply a more deferential standard in 2007 FC 358 and 2009 FC 676, albeit without expressly disagreeing with the Supreme Court. In Eli Lilly Canada Inc. v. Novopharm Ltd. / olanzapine, 2009 FC 1018, 78 C.P.R. (4th) 1 O'Reilly J stated a deferential standard [12], citing Wellcome / AZT, but then apparently applied a balance of probabilities standard [13]. On the other hand, in Blair v Canada (Attorney General), 2010 FC 227, 81 CPR(4th) 403, Mactavish J applied a reasonableness standard, but that was a review of the Commissioner’s decision to refuse a patent, and not a validity challenge to a granted patent. There is a stronger argument for deference in such a case, as the same record is before Court as was before the Commissioner. (However, the point must be considered open, as Mactavish J ultimately held the decision to be unreasonable, so the standard of review did not affect the outcome.)

The important lesson from this decision, I suggest, is one for the Supreme Court. It should stop deciding points of law that are not argued by the parties. This is a simple step that would save the Court, and the law, from this kind of error.

I note that the presumption of validity will be addressed by the US Supreme Court in i4i Ltd. v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010), cert. granted, 131 S.Ct. 647 (Nov. 29, 2010) (No. 10-290). US law has traditionally has a relatively high presumption of validity which requires a showing of invalidity on the basis of “clear and convincing evidence.” That standard is the point on which cert was granted. The current US standard is high relative to the traditional Canadian rule, expressed by Gauthier J, and closer to the standard expressed by the SCC in Wellcome / AZT. My own view is that the current Canadian law, as expressed by Gauthier J, is sound in policy. It will be interesting to see whether the USSC agrees.

The relevant excerpts from cefaclor are after the break.

Eli Lilly Co. v. Apotex Inc. / cefaclor, 2009 FC 991, 80 C.P.R. (4th) 1, Gauthier J.

350 While agreeing on the onus and the standard of proof with respect to invalidity, Lilly and Apotex disagree on what a party asserting invalidity must prove. Lilly argues that Apotex must prove that the decision of the Commissioner of Patents to approve the patents at issue was unreasonable. In support of this proposition, Lilly relies on the following passage from Apotex Inc. v. Wellcome Foundation Ltd., 2002 SCC 77, [2002] 4 S.C.R. 153 (Wellcome (2002)):

Unlike the Harvard Mouse case (Harvard College v. Canada (Commissioner of Patents), [2002] 4 S.C.R. 45, 2002 SCC 76), released concurrently, these appeals are not limited to a question of law (i.e., the statutory limits of patentable subject matter). On that issue, the standard is correctness. The issue here is one of mixed fact and law, namely, was the Commissioner properly satisfied the claimed invention met the statutory test of utility? Fact finding generally commands deference, but here Parliament has provided an unfettered right of appeal to the Federal Court (Patent Act, s. 42).


In the circumstances, I think the appropriate standard of review of these issues, which largely raise mixed questions of law and fact, is reasonableness simpliciter, i.e., that the Commissioner's decision must withstand a somewhat probing examination (Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748, at para. 56).

[Emphasis added. Paras. 42 and 44. [Fn125]]

351 In effect, relying on Wellcome (2002), Lilly argues that s. 59 of the Patent Act requires a party asserting invalidity to engage in a form of judicial review of the Commissioner's "decision" to grant an impugned patent. Furthermore, Lilly argues that deference is owed, and that the standard of reasonableness should apply.

352 In Whirlpool [2000 SCC 67], the Supreme Court of Canada put plainly the task faced by a party asserting invalidity: "The burden was on the appellants to prove on a balance of probabilities, that the patent was invalid" (para. 92). In so doing, the party attacking validity must establish that the patent, or claims within a patent, do not meet the requirements for patentability under the Patent Act (i.e. obviousness, utility, etc.). This requires one to examine the claims of a patent, properly constructed, against the requirements of the Patent Act (see Free World Trust at paras. 24-27).

353 This is perfectly in line with the wording in s. 59 of the Patent Act which speaks of "any fact or default which by this Act or by law renders the patent void" and directs the Court to "take cognizance of that pleading and of the facts and decide accordingly."

354 The approach to validity, assessing claims against the requirements of the Patent Act, without reference to principles of administrative law, has been the standard judicial practice for more than a hundred years.

355 It cannot be presumed that just two years after Free World Trust and Whirlpool, the Supreme Court of Canada sought to drastically modify the law with respect to invalidity in an implicit fashion with its decision in Wellcome (2002). One would expect such a shift to be done clearly and in express terms. The fact that the bulk of the jurisprudence since Wellcome (2002) has considered invalidity without resort to administrative law principles buttresses this conclusion. (See Laboratoires Servier, para. 225; M.K. Plastics Corp. v. Plasticair Inc., 2007 FC 574, 61 C.P.R. (4th) 1, para. 105.)

356 Although it is clear that in Wellcome (2002), the Court was dealing with an action of infringement and a defence of invalidity in its administrative law analysis, the Supreme Court references s. 42 [Fn126] (now s. 41) of the Patent Act, which deals with the right to appeal from a decision of the Commissioner to refuse the grant of a patent to the Federal Court. The defence of invalidity and appeal from a refusal by the Commissioner to grant a patent implicates different actors (putative patentee v. alleged infringer) raising similar issues but in very different contexts.

357 Furthermore, despite having imported administrative law principles into the invalidity analysis, neither Wellcome (2002) and Monsanto Canada Inc. actually applies concepts such as the degree of deference owed to the decision of the Commissioner to grant the patents at issue. In fact, notwithstanding the above referenced paragraphs of these decisions, the term "reasonableness" is not even used in assessing invalidity.

358 A telling example of the unease created by those decisions can be found in Jay-Lor International Inc. v. Penta Farm Systems Ltd., 2007 FC 358, 59 C.P.R. (4th) 228, where Justice Snider was confronted with a patent infringement claim and defence of invalidity. In discussing the issue of validity, Justice Snider stated:

Once a patent is issued, there is a presumption that, in the absence of evidence to the contrary, the patent is valid (Patent Act, s. 43(2)). The onus is thus on the Defendants to show that the Commissioner of Patents erred in allowing the patent (Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34 at para. 24, [2004] 1 S.C.R. 902; Apotex Inc. v. Wellcome Foundation Ltd., 2002 SCC 77, [2002] 4 S.C.R. 153 at paras. 43-44, 21 C.P.R. (4th) 499). In this case, the Defendants argue that the patent is invalid because it was both obvious and anticipated. I will consider each of these arguments.

[para. 72]

Having made this observation, however, nowhere in her reasons does Justice Snider engage in anything resembling a reasonableness review akin to that which was set out in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 (Dunsmuir). In fact, the words "deference" and "reasonableness" (in an administrative law sense) appear nowhere in the decision, nor is there any reference (beyond the above quote) to the decision of the Commissioner to grant the patent at issue. [Fn127]

359 Such an attitude is understandable for there are a number of reasons why an administrative law approach to invalidity is almost impossible to apply without further guidance from Canada's highest Court.

360 In effect, it is unclear what would be the subject of this judicial review. A decision by the Commissioner to grant a patent comes with no reasons, no explanation, and no context. Indeed, a patent's prosecution history cannot be reviewed in construing the claims of a patent (Merck & Co. (FCA), para. 53).

361 A reasonableness review involves determining whether a decision falls within a range of possible acceptable outcomes on the basis of the evidence before the original decision maker (Dunsmuir, para. 47). If, as Wellcome (2002) suggests, the Commissioner's decision to grant a patent is owed some matter of deference, how would a reviewing court assess reasonableness without access to the material considered by the decision-maker? Although the Supreme Court of Canada left the door open in Free World Trust (para. 67) as to whether prosecution history can be relevant for a purpose other than defining the scope of the grant of the monopoly, it has never been used for the purpose of deciphering the Commissioner's reasons for granting a patent.

362 A court engaged in judicial review, regardless of the standard applied, is usually limited to only considering the evidence that was before the decision-maker (Gosselin v. Canada (Attorney General), 2006 FC 3, 289 F.T.R. 7, paras. 12-13). This has not been the case when courts are engaged in examining allegations of invalidity, with respect to a patent.

363 There is no statutory requirement that the evidence before the Commissioner of Patents be provided to the Federal Court in the context of an infringement action. Furthermore, nothing in s. 59 of the Patent Act limits a party challenging the validity of a patent to the evidence that was put before the Commissioner of Patents.

364 Parties challenging validity have always been free, subject to the applicable rules of evidence, to put forth any evidence that may serve to undermine the validity of a patent's claims. Standards of review are neither useful nor designed to address situations where the evidentiary record before the Court is different than the one before another decision-maker.

365 In the Harvard College (2000) decision, Chief Justice Isaac referred by analogy to appeals from decisions of the Registrar of Trade-Marks under s. 56 of the Trade-Marks Act, R.S.C. 1985, c. T-13. In such cases, standards of review only apply where there is no new evidence that could have affected the decision of the Registrar. If the Court concludes that there is such evidence, then the Court must exercise its discretion de novo. It should be noted that the Registrar of Trade-Marks must give reasons for his or her decision, which can then be the subject of an assessment by the Court.

366 To be certain, administrative law principles have been applied to certain decisions of the Commissioner of Patents (See e.g. Genencor International, Inc. v. Canada (Commissioner of Patents), 2008 FC 608, [2009] 1 F.C.R. 361 (reviewing a decision of the Commissioner on a re-examination under ss. 48.1 - 48.5 of the Patent Act); Pason Systems Corp. v. Canada (Commissioner of Patents), 2006 FC 753, [2007] 2 F.C.R. 269 (reviewing a decision of the Commissioner in respect of alleged clerical corrections under s. 8 of the Patent Act); and, Dow Chemical Co. v. Canada (Attorney General), 2007 FC 1236, 63 C.P.R. (4th) 89).

367 With respect of some of the decisions of the Commissioner, a statutory right of appeal to the Federal Court is provided (see s. 19.2, subs. 20(15) and s. 41 of the Patent Act). However, where administrative law principles have been applied to decisions of the Commissioner of Patents, it has been in the context where these are amenable to judicial review and not pursuant to s. 59 and subs. 60(1) of the Patent Act.

368 It may very well be that the material effect or consequence of a finding of invalidity is that the Commissioner "erred" in granting a patent. But, in the context of an action for infringement where a defence of invalidity is raised, that is not the essential point of departure: the claims stand alone to determine if the monopoly granted meets the test set out in the Act, for example in respect of utility, novelty and inventiveness.

369 In sum, the importation of administrative law principles into the assessment of invalidity has not been thoroughly canvassed by appellate authorities and would constitute a significant departure from the Supreme Court of Canada's well-established jurisprudence concerning pleas of invalidity. Absent further clarification on how the concept of deference is to be integrated into the established invalidity analysis, the Court is reluctant to employ administrative law principles in its analytic framework in this regard.

370 Thus, in these proceedings, the merits of Apotex's defence will be assessed on the basis that the defendant must establish on a balance of probabilities any fact which by virtue of the Patent Act or by law renders invalid the patents at issue, keeping in mind the applicable presumption as to their validity.

Fn125 See also Monsanto Canada Inc., where the Supreme Court of Canada held: "Monsanto's patent has already been issued, and the onus is thus on Schmeiser to show that the Commissioner erred in allowing the patent: Apotex Inc. v. Wellcome Foundation Ltd., [2002] 4 S.C.R. 153, 2002 SCC 77, at paras. 42-44. He has failed to discharge that onus. We therefore conclude that the patent is valid." (para. 24)

Fn126 It is worth mentioning that none of the parties in Wellcome (2002) presented any arguments on this issue. On the other hand, the standard of review applicable to an appeal under s. 42 was the subject of debate in Harvard College (2002). It was an issue on which the majority of the Federal Court of Appeal and the dissenting Chief Justice Julius Isaac disagreed. (Harvard College v. Canada (Commissioner of Patents) [2000] 4 F.C. 528, 223 F.T.R. 320, (Harvard College (2000)) see paras. 43-63; paras. 179-186). The decision of the Supreme Court of Canada in that case was issued on the same day as its decision in Wellcome (2002). This could explain the Court's comments in the latter case.

Fn127 More recently, in Sanofi-Aventis Canada Inc. v. Apotex Inc., 2009 FC 676, at paras. 75-76, Justice Snider noted that the burden on defendants such as Apotex in infringement cases "is not one that can easily be defined by judicial review standards" and that "[f]or the most part, the decision of the Commissioner is simply not relevant to the determination before [her]."

Note that Gauthier J’s holding on this point was not addressed on appeal to the FCA.

1 comment:

  1. This decision as a whole would appear to be advancing the law and I agree with the commentary.

    I noticed at para 360 quoted above: "A decision by the Commissioner to grant a patent comes with no reasons, no explanation, and no context. Indeed, a patent's prosecution history cannot be reviewed in construing the claims of a patent (Merck & Co. (FCA), para. 53)."

    This quote seems to have little bearing on the issue at hand.

    Reasons are required to allow a party to know the basis for a decision to decide whether to appeal such a decision. Since the application for a patent is an ex parte proceeding, when the party making the application receives the grant requested, there are no reasons owed for the decision. Any time the application is rejected then reasons are owed under the duty of procedural fairness.

    In addition, the prohibition on considering prosecution history during claims construction seems to have little bearing on the issues raised. Claims construction is just a specialized area of statutory interpretation. Once the scope of the claims have been properly construed in light of the specification, then prosecution history is quite relevant in determining if the examiner has made any error in granting the patent, perhaps by applying an incorrect test or by mischaracterizing prior art.

    Taking this quote out of context seems to suggest that the prosecution history is immune from review.