Thursday, September 11, 2014

Cause of Action for Class Action for Excessive Prices due to Invalid Patent

Low v Pfizer Canada Inc, 2014 BCSC 1469

There is an interesting policy question as to whether a patentee should be somehow held accountable for higher prices charged for a product that is protected by a patent which is ultimately held to be invalid. The basic argument in favour of such liability is that if the patentee can retain the excessive profits made between the time of grant and the time the patent is held invalid, it will have substantially benefited from patent protection without having delivered a new, useful and non-obvious invention which is the quid pro quo for patent exclusivity. Some form of liability for invalid patents will provide an incentive for the patentee to take care to ensure that any patents it does obtain and enforce really are valid. The basic counter-argument, as I see it, is that patent examination already provides substantial protection against the issuance of invalid patents, and liability on top of that protection would create uncertainty that would chill legitimate use of the patent system.

This question is raised in class action proceedings in Low v Pfizer. Pfizer’s patent for Viagra has been held to be invalid: Pfizer v Apotex 2014 FCA 13 (here). This implies that until the patent was invalidated, and Pfizer lowered its prices to match those of the generics, the price of Viagra in Canada was higher than it would have been had the patent never been granted. The plaintiff in Low v Pfizer seeks to certify a class action against Pfizer to recover the loss to the class members due to the higher price and seeking disgorgement of Pfizer’s profits under a waiver of tort theory.

The sole issue in the application was whether the plaintiff’s claim discloses a cause of action for the purposes of s. 4(1)(a) of the BC Class Proceedings Act [3]. The threshold is low [54]; the test is satisfied unless, assuming all facts pleaded to be true, it is “plain and obvious” that the plaintiff’s claim cannot succeed [20].

Three causes of action were pleaded [18]:

i. unlawful interference with economic relations;
ii. waiver of tort; and
iii. unjust enrichment.

Smith J held that the first and third points disclosed a cause of action for the purposes of certification, but that it is plain and obvious that a claim in waiver of tort could not succeed [72].

With respect to unlawful interference with economic relations, the SCC in Bram 2014 SCC 12, [86], held that the defendant’s means are unlawful if “they support a civil action for damages or compensation by the third party, or would do so except for the fact that the third party did not suffer any loss as a result of the defendant's acts” [(quoted at [41]). Smith J held that in this case this requirement was “arguably” [44] satisfied by the patentee’s potential liability to the generic under s 8 of the NOC Regulations.

Smith J pointed out that this tort has an intent element, which may be difficult to establish at trial [52]-[53]. Nor is it entirely clear that this claim will succeed as a matter of law, as there is some question as to whether the statutory cause of action will support this tort. Smith J stated that “the claim now advanced arguably falls precisely into the category of “parasitic” claims referred to in Bram” [44, my emphasis], and similarly he was “not satisfied that the requirement in Bram that there be a ‘civil action’ available to the third party necessarily excludes a purely statutory cause of action” [49, my emphasis]. I take this to mean the point is arguable as a matter of law.

One implication of this analysis is that this cause of action can only be raised against pharmaceutical patentees. An invalid granted patent in any field of technology can result in artificially high prices and exactly the same kind of harm to consumers that is alleged in Low, but because only pharmaceutical patentees are liable under s 8, other patentees do not face the statutory liability to third party that would allow this type of “parasitic” action. Whether or not recovery against patentees for losses caused by invalid patents is desirable from a policy perspective, as a matter of policy and principle, it is troubling that substantively the same complaint could be tortious or not depending on the field of technology. Also, the liability under this cause of action would be limited to period for which NOC liability arises, which is only the period starting when the generic is placed on “patent hold,” and not the entire period for which excessive prices were charged [43]. To the extent that the policy rationale for patentee liability for invalid patents is to ensure that patentees have an incentive not to abuse the patent system, this temporal limitation on recovery, which is a direct consequence of the parasitic nature of the action, is unsound.

Smith J also held that the pleadings disclosed a cause of action in unjust enrichment. This cause of action, if established, would not be confined to pharmaceutical patentees, nor would it be limited to the period during which the generic would have been subject to a statutory stay under the NOC Regulations. Again, even though Smith J held that a cause of action was disclosed for the purposes of certification, it is not clear that this cause of action will be ultimately be sustained as a matter of law. The key issue is whether there was a “juristic reason” for the patentee’s enrichment, and Smith J noted that “The fact that the defendant was operating under statutory rights or authority will usually, but not necessarily, provide a juristic reason” [80]. Whether reliance on the patent system provides an adequate juristic reason will no doubt be a central issue on the merits.

Smith J also noted that “The question of whether Pfizer’s reliance on the patent provides a juristic reason may involve a fact specific inquiry into Pfizer’s knowledge and intention” [84]. This will involve an investigation into the patentee’s good faith and intent [84]-85].

Thus, either of the certified causes of action, if sustained as a matter of law, will lead to a fact specific inquiry into the patentee’s subjective motivation and intent. From a policy perspective, this has two drawbacks. One is that the prices charged under an invalid patent are excessive regardless of the patentee’s intent, and strict liability would provide a strong incentive for patentees to take care that the patents are valid. Another problem is that the fact specific nature of the inquiry means that the litigation will be expensive and protracted. On the other hand, despite these drawbacks, an intent-based approach may be necessary to prevent a chilling effect on legitimate use of the patent system.

This litigation raises a number of very difficult legal and policy problems, from the high level question of whether such liability is sound at all, to the details of how it should be implemented if it is indeed desirable. This will be interesting and important litigation.

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