Wednesday, August 27, 2014

Construction of the Inventive Concept is Determinative of Obviousness

Alcon Canada Inc v Apotex Inc 2014 FC 699 Kane J
            2,129,287 / travoprost / TRAVATAN Z / NOC

Patent law is a technical area of law, and no doubt always will be, but at times it seems that the conceptual apparatus we deploy make the field even more complex than necessary. In this case, the concepts of selection patents and the inventive concept have generated some problematic analysis.

Travoprost is the isopropyl ester of (+)-fluprostenol [8]. It is a synthetic analogue of PGF, which is a naturally occurring prostaglandin. The claims of the ‘287 Patent at issue (12, 27, 35 and 46) relate to the use of a therapeutically effective amount of travoprost for the treatment of glaucoma and ocular hypertension [123]. (The claims are all to a relatively small class of compounds encompassing travoprost – none relates solely to travoprost – but nothing turns on this.) The claims were held invalid as being anticipated and obvious, but an attack based on lack of utility failed.

There was considerable dispute as to whether the ‘287 patent was a selection patent over European Patent application EP 0 364 417. Kane J held that it was not a selection patent [152], but that even if it was the result would have been the same for all three grounds of attack [153]. I have suggested previously that the concept of selection patents generates more heat than light, and should probably be abandoned. Kane J’s Travoprost decision seems to me to reinforce this view, but given that the selection patent issue did not make any difference, I will refrain from further comment on this aspect of the decision. It is in any event clear that the ‘417 application, which discloses the use of a large class of prostaglandin derivatives, encompassing travoprost, for the treatment of glaucoma and ocular hypertension, was highly relevant prior art.

Kane J held the ‘287 patent to be anticipated in light of the ‘417 application, despite the fact that the travoprost was nowhere specifically disclosed in the ‘417 patent, on the basis that the compounds disclosed by the ‘417 patent encompassed travoprost [371].  In my view, Kane J’s holding with respect to anticipation is clearly wrong. It is the same error as was evident in her Valganciclovir decision, 2013 FC 718, as discussed here. I expect that in due course Kane J will be corrected by the FCA on this point, though not soon, as both Valganciclovir and Travoprost are NOC applications so cannot be appealed by the patentee. Kane J did state that “[a] person carrying out the prior disclosure in the ‘417 would, on a balance of probabilities, infringe the claims at issue of the ‘287" [371]. However, I can see no support in her reasons for this proposition. The ‘417 patent encompassed billions of compounds [269], and, as just noted, travoprost was not specifically described or made. Nothing in Kane J's decision explains why a person carrying out the disclosure of the ‘417 patent would make travoprost rather than one of the other billions of compounds encompassed by the disclosure.

With respect to utility, Apotex argued that the patent promised both greater inter-ocular pressure reduction and reduced side effects as compared with the compounds of the ‘417 application [202], [205]. Alcon argued that the patent promised only that travoprost would be useful or therapeutically effective for the treatment in humans, without any promise that it would be better than the compounds of the ‘417 patent [188]. Kane J held in Alcon’s favour [241]. She emphasized in particular Zinn J’s statement in Fournier / fenofibrate (NOC) 2012 FC 741 [126] that a utility not expressed in the claim portion of the specification “should be presumed to be a mere statement of advantage unless the inventor clearly and unequivocally states that it is part of the promised utility" [181-82], [244]. The claims in question were to the use of travoprost in the treatment of glaucoma and ocular hypertension, without any mention of reduced side effects [185], and this was construed as the promise. Given this modest promise, utility was held to be soundly predicted.

Perhaps the most interesting part of the decision relates to obviousness. The ‘287 patent asserted [70] that

It has now been unexpectedly found that [the claimed compounds] show significantly greater IOP reduction than the compounds of [the ‘417 application] while having a similar or lower side effect profile.

Kane J held that the patent was obvious whether or not it was in fact true that the properties of the claimed compounds were unexpected. This is because she found that the inventive concept was simply that travoprost will be therapeutically effective in the treatment of glaucoma and ocular hypertension [461, 167], and it is the inventive concept, and not the disclosed properties of the invention, which are the focus of the obviousness analysis [463]. (See similarly [468-69].) Because the ‘417 application disclosed that all the disclosed compounds were effective in the treatment of glaucoma and ocular hypertension, and the compounds of the ‘287 patent were encompassed by the ‘417 application, it follows straightforwardly that it was obvious that the compounds of the ‘287 patent would be effective in the treatment of glaucoma and ocular hypertension.

This conclusion is striking. On Kane J’s holding, even if the claimed compounds were in fact substantially more effective than the prior art, and had fewer side effects, and no skilled person could have predicted this, the claims would still be obvious. In my view, this conclusion is wrong because Kane J’s identification of the inventive concept is wrong. In assessing the inventive concept Kane J focused on the fact that the claims did not refer to the purported advantages such as increased efficacy and fewer side effects [167], but, as the SCC has pointed out “The inventive concept of the claims is not readily discernable from the claims themselves. A bare chemical formula in a patent claim may not be sufficient to determine its inventiveness” Sanofi 2008 SCC 61 [77]. As the Court’s example indicates, it is the properties of a new chemical compound that will determine whether it is obvious, but these properties will not be set out in the claims, because if the compound is new, the patentee is entitled to claim the compound itself. For that reason it is necessary to look to the disclosure to identify the inventive concept. (See also COMBIGAN 2012 FCA 308 , blogged here.) It is true that in this case, the claims are to the use of travoprost, not to the compound itself, but the principle is the same: "[p]atents are essentially about information as to what to make or do" Aerotel [2006] EWCA Civ 1371, Jacob LJ [32]), and as Lord Hoffmann said in Biogen [1996] UKHL 18, [14], "[w]henever anything inventive is done for the first time it is the result of the addition of a new idea to the existing stock of knowledge." The quid pro quo for a patent is not the thing claimed, but the information disclosed in the specification: Consolboard [1981] 1 SCR 504, 517. Consequently, it is the information in the patent that makes the invention obvious or not, and information is found in the disclosure. The claims merely define the scope of the patent exclusivity.

I cannot criticize Kane J too much for this, as the concept of the “inventive concept” has been cloudy from the outset: the SCC in Sanofi could not even decide whether it is necessary to identify the inventive concept in order to assess obviousness. As I have suggested before, I am increasingly inclined to think that the European problem-solution approach would provide a more structured way of identifying the inventive concept for the purposes of the obviousness analysis. The problem in this case was clearly to find a prostaglandin analogue with improved properties, and the question should be whether travoprost solved that problem, ie whether it in fact had improved properties.

With that said, Kane J’s decision suggests that travoprost might well have been held to be obvious even if the inventive concept had included its properties. In particular, the ‘417 application disclosed utility for treating glaucoma, the “Woodward” prior art suggested improved properties [418], [435], [472], and the combination might have made the improved properties of the ‘287 patent obvious. That is of course just speculation without an express finding to that effect; I only want to be clear that I am not saying that the ‘287 patent was necessarily non-obvious, but only that the analysis was not properly focused.

Friday, August 15, 2014

Reasonable Royalty in CSIRO v Cisco

Today I have a guest post on Professor Tom Cotter's Comparative Patent Remedies blog, dealing with the reasonable royalty calculation for a standard essential patent in CSIRO v. Cisco, Case No. 6:11-cv-00343-LED  (E.D. Tex. 2014).

I will be taking an end of summer vacation until August 27th, and I won't be blogging during that period. I will start back with posts on any decisions I missed, including the recently released Travoprost decision 2014 FC 699, at the end of that week.

Thursday, August 7, 2014

A Principled Approach to Prejudgment Interest

Teva Canada Limited v Pfizer Canada Inc 2014 FC 634 Zinn J [Venlafaxine Quantum]
            1,248,5402,199,778 – venlafaxine – EFFEXOR XR

Pre-judgment interest can be a substantial part of a damages award when many years pass between a cause of action arising and the final judgment: in this case, $32m on top of $92m in damages. Yet pre-judgment interest has tended to be assessed on a fairly mechanical basis of the bank rate + 1%, not compounded (see here). This approach certainly has the advantage of simplicity, and when the quantum of interest is low it may be the most efficient approach. With recent awards in the region of $100m, interest becomes more important, and we may expect to see more attention paid to the details of interest calculations. This is evident in Zinn J’s Venlafaxine Quantum decision.

In his reasons for judgment in the NOC s 8 damages action in Teva v Pfizer / venlafaxine 2014 FC 248 [262] Zinn J was unable to finalize the quantum of damages, and directed the parties to attempt to do so in light of his reasons. The parties agreed on the quantum of principal, but were unable to agreed on the calculation of pre- or post-judgment interest, which were addressed in Venlafaxine Quantum (along with costs).

Section 8 damages compensate a generic which has been successful in an NOC proceeding for having been wrongly kept out of the market by the statutory stay triggered under s 7(1)(e) by the patentee’s application for an order of prohibition. The generic’s loss stems from its failure to make sales which it would otherwise have made during the relevant period, which, in this case was from January 2006 to August 2007 [11]. The lost sales were assessed on a monthly basis [1]. The plaintiff (generic) sought prejudgment interest on the full amount of the damages, running from January 2006 [12]. The patentee responded that the generic would not have been able to earn interest on profits it had not made, so interest should be awarded on profits as they would have arisen, over the entire 19 month period [11].

In holding for the patentee on this point, Zinn J, citing Bank of America Canada v Mutual Trust Co, [2002] 2 SCR 601 (often referred to as Clarica Trust), emphasized the compensatory nature of prejudgment interest [9-10]. Zinn J particularly relied on the OCA decision in Celanese Canada v CNR [2005] OJ No 1122, 2005 CanLII 8663 (OCA) which held that prejudgment interest should not result in a windfall to the plaintiff [10], [15]. He therefore held:

[16] In my view, where the damages claimed are for pecuniary loss that accrues over a period of time, it is appropriate when calculating prejudgment interest to do so in a manner that prevents overcompensating the plaintiff and that recognizes that the loss occurred over time.

Consequently, prejudgment interest was to be calculated on the monthly profit only as it arose [20].

While this is entirely correct as a matter of principle, the point that prejudgment interest is compensatory cuts both ways. While the plaintiff should not get a windfall, it should be fully compensated. In this case, Zinn J awarded only simple interest. Presumably this is all that was asked for, as Zinn J did not address the question of compound interest directly. (The award of simple interest is not explicit, but is evident from the calculations.) In Clarica Trust, the SCC noted that simple interest is not fully compensatory:

[24] Simple interest makes an artificial distinction between money owed as principal and money owed as interest. Compound interest treats a dollar as a dollar and is therefore a more precise measure of the value of possessing money for a period of time. Compound interest is the norm in the banking and financial systems in Canada and the western world and is the standard practice of both the appellant and respondent.

[38] Although not historically available, compound interest is well suited to compensate a plaintiff for the interval between when damages initially arise and when they are finally paid.

The Court therefore held that compound interest is therefore available at common law [44]. (And see discussion here).

The Court did go on to hold that "[a]n award of compound pre- and post-judgment interest will generally be limited to breach of contract cases where there is evidence that the parties agreed, knew, or should have known, that the money which is the subject of the dispute would bear compound interest as damages" [55]. This is curious, because there is nothing in the Court’s prior logic which leads to this conclusion, the point of which was that the successful plaintiff is entitled to be fully compensated, and simple interest does not achieve this goal. I don’t see why a victim of a wrong should be entitled to full compensation only if the wrong-doer had actually contract to that effect. In any event, the Court did go on to say that “It may be awarded as consequential damages in other cases but there would be the usual requirement of proving that damage component” [55].

In summary, the SCC decision in Clarica Trust apparently implies that compound interest may be awarded in patent cases, at least so long as it is properly pleaded and proven as a loss. While the result in Venlafaxine Quantum was a lower award of interest than the successful plaintiff had asked for, Zinn J’s emphasis on the compensatory nature of prejudgment interest opens the door to compound interest in the appropriate case.