Thursday, May 21, 2015

Disgorgement of Patentee’s Profits Fails Second Branch of Unjust Enrichment Test

Apotex Inc v Eli Lilly & Co, 2015 ONCA 305 Feldman JA: Doherty, Blair JJA aff’g 2013 ONSC 5937 Grace J: Law, Sachs JJ

When a patentee brings an application for an order of prohibition pursuant to the NOC Regulations a statutory stay is automatically triggered keeping the generic off the market for 24 months or until the application is resolved in the generic's favour. If the generic prevails, it is entitled, under s 8, to damages equal to the profits it lost from having been kept off the market by the statutory stay. Since the patentee's price is normally higher than the generic's, the profits made by the patentee from sales that would have been made by the generic but for the stay are normally greater than the generic’s damages. Apotex has now failed, once again, to obtain not just its damages, but a disgorgement of the profits made by the patentee.

In its decision on this motion to strike Apotex' claim for unjust enrichment, the ONCA has provided a helpful review of the prior attempts by Apotex, both in the Federal Courts and Ontario courts, to obtain a disgorgement [22]-[31]. Apotex was previously unsuccessful on the basis that s 8 is a complete code which contemplates damages as the sole remedy [35] (and see here, discussing the previous ONCA decision, and here discussing the leading FCA decision).

In this case Apotex argued that these precedents do not govern when the patent holder obtains and lists its patent through misrepresentation: that is, it argued that even if mere invocation of the NOC Regulations cannot trigger disgorgement, knowingly triggering the Regulations by misrepretation may trigger such a remedy. This invited a debate as to the limits of the "complete code" argument, which was the basis on which Apotex' claim was struck by the Divisional Court. But the ONCA, of its own initiative [40], took a different tack. Instead of holding that the unjust enrichment claim was barred because allowing it would be inconsistent with the statutory regime, the ONCA held that Apotex' claim could not stand purely as a matter of the law of unjust enrichment [39], [41] (my emphasis):

there is a fundamental flaw in Apotex’s claim for unjust enrichment that makes this doctrine unavailable to Apotex, irrespective of the nature of Lilly’s conduct that may be proved at a trial. The flaw is in the second requirement for a claim of unjust enrichment: a corresponding deprivation.

Put simply, Apotex was never deprived of the portion of Lilly’s revenues represented by its monopolistic profits because Apotex would never have earned those profits.

It is true that the patentee, Lilly in this case, benefitted at Apotex’ expense to some degree – the profits lost by Apotex were gained by Lilly – but Apotex is already entitled to recover that loss under s 8. In the unjust enrichment claim Apotex is seeking Lilly’s excess profits above the damages which are already payable to Apotex, and “the portion of the windfall that is not compensable under s. 8 of the PMNOC regulations, the monopolistic profit, was not in any way transferred from Apotex or lost by Apotex” [53].

This brings us to Apotex’ policy argument, which is that [16]:

In the absence of a disgorgement of [the patentee’s profits], every patentee would have an incentive to use the PMNOC Regulations in all cases to unjustly delay entry of every generic product at the expense of the Generic, in the knowledge that the revenues made by it would exceed the damages for which it will be liable for the delay caused to the Generic.

There are two answers to this. One is the “complete code” argument. The appropriate incentive is a complex matter which has been addressed by the legislature in the NOC Regulations as a whole. There are a number of difficult policy decisions related to the incentives to use the regulations. For example, in under the US Hatch-Waxman, the first generic to successfully challenge the patent gets a 180 day exclusivity over other generics as an added incentive to file applications. This incentive feature is missing from Canadian law. Whether this is right or wrong, it is a decision that has been made by the legislature, and so should be changed, if necessary, by the same body.

The other response is made by the ONCA in this case:

Effectively, Apotex is asking the court to designate it as the de facto beneficiary of the wrongfully-obtained monopolistic profits despite recognizing in its pleadings that it was the public that suffered actual deprivation as a result of the monopolistic pricing. Unlike the plaintiffs in the “profiting from wrong” cases discussed above, Apotex is not positioned as the sole party with a legitimate right to “enforce” or “deter” the underlying wrong. The pecuniary interests of consumers, and potentially other generic companies, are also implicated.

That is, even if it is desirable to require the patentee to disgorge its profits to avoid abuse of the patent-linkage system, it does not follow that the profits should be disgorged to the generic. There is a prima facie argument that the parties actually harmed by the excessive prices, namely the consumers, should be those entitled to the disgorgement.

This argument is entirely distinct from the complete code argument. As the ONCA pointed out, in Low v Pfizer Canada Inc, 2014 BCSC 1469, Smith J allowed an allegation of unjust enrichment to stand in a class action claim on behalf of consumers [33]. Smith J’s holding required a rejection of the “complete code” argument [34], but it is consistent with the ONCA’s holding in this case. Even if it sound policy to require a patentee to disgorge is profits, Low v Pfizer illustrates that it is not necessary, either in theory or in practice, to require those profits to be disgorged to the generic that triggered the s 8 challenge.

Wednesday, May 20, 2015

OMNARIS Patents Invalid for Obviousness

Takeda Canada Inc v Apotex Inc 2015 FC 570 O'Reilly J
            2,388,322 / 2,388,325 / 2,538,419 / ciclesonide / OMNARIS

Takeda had a compound patent to ciclesonide (2,050,812) which expired in 2011 [3]. The patents at issue in this case were two formulation patents and a second use patent. O’Reilly J held all three patents to be obvious. None of the other grounds were addressed [5]. O’Reilly J’s holding turned entirely on the facts. One point of interest is that he did prefer evidence that was given before the expert knew what was claimed in the patent in dispute, following Rasagiline (blogged here) and Esomeprazole 2014 FC 638 [29], [43], [60]. However, this did not appear to be a determinative reason in his overall weighing of the evidence; for example, another factor that was at least as important was the fact that Takeda’s expert did not fully canvass the prior art [34], [45].

Tuesday, May 19, 2015

Should Claim Construction be a Matter of Law?

Cobalt Pharmaceuticals Co v Bayer Inc / drospirenone (NOC) 2015 FCA 116 Stratas JA: Pelletier, Webb JJA aff’g 2013 FC 1061 Hughes J (blogged here and here)
            2,382,426 / drospirenone / YAZ

In Cobalt / Drospirenone the FCA held that “[t]he Federal Court’s construction of the patent is to be reviewed on the basis of correctness” [12]. However, Stratas and Webb JA went on to argue at some length, in obiter comments, that it would make more sense to apply a deferential standard [16]-[24]. (Pelletier JA did not join in this potion of the decision; he did not disagree with the comments, but rather expressed no opinion on the basis that it was not necessary to do so for the disposition of the appeal [105]).

Stratas JA pointed out that “a court nearly always reads a patent through goggles supplied by the experts whom the judge considers to be credible and accurate,” and “[o]ften the experts’ testimony stretches beyond opinion evidence and goes into factual matters within their knowledge that are relevant to the construction exercise” [17], [18]. As is well-recognized, if an inquiry is heavily fact dependent, this militates in favour of a deferential standard of review [18], [20].

These are compelling arguments against reviewing claims construction on a correctness standard. I also agree with Stratas JA’s observation that “doctrine of comity among judges will ensure there is sufficient consistency and certainty in the meaning of patents” [21]. But I don’t think these points, valid though they are, lead to the conclusion that a generally deferential standard of review should apply. In principle at least, the problem of claim construction is a mixed question of fact and law. Ideally, the trial judge would use the testimony of the experts to educate herself as to the meaning of all the technical terms, and then, armed with that knowledge, would construe the claim herself. The first aspect of the inquiry is factual, while the second is legal. It would follow that in principle the mixed standard – deferential review except for extricable legal questions, which are reviewed for correctness – should be applied. This is the standard which applies in obviousness and utility for example, as Stratas JA notes [48], [55]. Stratas JA appealed to Sattva Capital 2014 SCC 53, for the proposition that “even legal documents may be subject to review on a deferential standard” [24]. Indeed, Sattva Capital does illustrate that legal documents are not necessarily reviewed on a correctness standard, but to be precise, the SCC held that a mixed standard of review was applicable to the contract in question [53].

I don’t think I am disagreeing with Stratas JA in suggesting that the appropriate standard is mixed standard. While he repeatedly referred to “a deferential approach” [20] or “a deferential standard” [24], or “according deference” [22], his comments were mainly directed at showing why a pure correctness standard was problematic, and in referring to “a” deferential standard, he appears to have intended to capture any standard more deferential than correctness. This is directly implied by his reference to both Sattva Capital and the USSC decision in Teva v Sandoz as endorsing a deferential standard, as both of those cases endorse a mixed standard.

In any event, even if a mixed standard is applicable in principle, can it really be applied in practice? Stratas JA made this point by asking rhetorically, “How are appellate judges supposed to cleave off those aspects of claim construction that flow from the trial judge’s appreciation of expert evidence from the words of the claim per se?” [20]. It seems to me that the answer is yes, sometimes they can. This is illustrated by Stratas JA’s own decision in Cobalt / Drospirenone. While he argued that a deferential standard would be preferable, he recognized that review for correctness is settled law, and correctness is the standard he actually applied [25].

The claim of the ‘426 patent in question, Claim 31, was to “drospirenone particles” [27] and the question was whether this should be construed as being limited to micronized particles [28]. In making the argument that it should be so limited, Cobalt pointed to references to micronized form in several points in the specification. In rejecting Cobalt’s argument, Stratas J noted that “Patents are not to be construed in a tendentious way. Rather, we must examine the patent as a whole construing the language of the claims with due regard to the inventor’s purpose through the eyes of the skilled reader: Whirlpool, [2000 SCC 67]” [31]. This, it seems to me, is a point of law, as is indicated by the fact that Stratas JA cited the authority of Whirlpool as support. He also noted that while some of the claims did explicitly claim “micronized drospirenone particles,” others, including the claim at issue, were not so limited [37]. Had the inventors intended to limit Claim 31 to micronized particles, they would have done so explicitly, as they did in other claims. This is not a question of what “micronized” means, or anything else which is informed by technical expertise, but is rather a matter of general grammar and interpretative principles, which are more squarely within the expertise of a judge than a technical expert. Similarly, Stratas JA pointed to a passage in the specification stating that “Instead of providing the drospirenone in micronized form, it is possible to [use other techniques to promote rapid dissolution]” [35]. To explicitly give micronized form as but one alternative in the specification supports the view that not all of the claims are restricted to micronized form. One can come to this conclusion without knowing what “micronized” means. Without getting into the niceties of whether these are all strictly extricable questions of law, at least they are questions which are squarely within the expertise of a judge, rather than a technical expert.

This distinction is important because the law / fact question goes not only to the standard of appellate review, but also to the role of the trial judge in the construction of the patent. Indeed, the statement by the SCC that is cited as authority for the correctness standard – “claims construction is a matter of law for the judge” – goes to the latter point (Whirlpool [61], cited at [12]). The full passage is as follows:

The appellants object that the "vane" controversy ought to have been foreclosed by the Agreed Statement of Facts where the parties agreed that the appellants' flex vane machine infringed the '803 patent subject to the removable sleeve issue. However, claims construction is a matter of law for the judge, and he was quite entitled to adopt a construction of the claims that differed from that put forward by the parties.

In the question of whether Claim 31 was restricted to micronized particles, it would no doubt be possible for a trial judge to decide this matter purely as a question of fact by considering the evidence of expert witnesses. But this would require the expert witness to testify eg that a skilled person would in fact construe the claims by looking to the patent as a whole with due regard to the inventor’s purpose, and that a skilled person would note that some claims did use this language, and would therefore infer that the claims that were not so restricted were broader, and so on. And another expert would no doubt testify to the contrary. The trial judge would likely then decide that the evidence of the expert who advanced grammatically peculiar interpretations was to be discounted. But if the trial judge could and should discount the evidence of an expert who testifies to an ungrammatical reading for the reason that the reading is ungrammatical, it is more straightforward for the trial judge to simply say directly she can consider matters of grammatical reading herself, without evidence from technology experts. That, it seems to me, is the gist of the SCC statement in Whirlpool.

In summary, Stratas JA has given strong reasons not to review claim construction on a pure correctness standard, but there is a stronger argument for a mixed standard than for a wholly deferential standard. Stratas JA’s comments were directly primarily to the problems with the correctness standard, and I do not see his remarks as ruling out the mixed standard.

Friday, May 15, 2015

Time for En Banc Review at the FCA?

Cobalt Pharmaceuticals Co v Bayer Inc / drospirenone (NOC) 2015 FCA 116 Stratas JA: Pelletier, Webb JJA aff’g 2013 FC 1061 Hughes J (blogged here and here)
            2,179,728 / 2,382,426 / drospirenone / YAZ

No new law was applied by the FCA in Cobalt / Drospirenone and the result itself is not surprising, but the decision is nonetheless very interesting. Stratas JA explicitly called for the SCC to provide advice in two different areas, namely the standard of review for claim construction [16] and whether methods of medical treatment should be considered patentable subject matter [101]. Stratas JA also provided an in-depth discussion, albeit in obiter, of whether construction of the claims should be considered a matter of law or fact [16]-[24].

That the FCA called for SCC clarification in two contentious areas of law raises the broader question of what institutional mechanisms should be used to clarify and advance the law. I suggest it is time to seriously consider instituting an en banc mechanism similar to that which is used in both the US appellate system, including the Federal Circuit, and in the EPO with the Enlarged Board of Appeal. In this mechanism, a court which normally sits in panels, will sit with a large number of judges (though not necessarily the full court) to review its own decision in appeals raising important points of law. As the EPO explains, the Enlarged Board of Appeal “clarifies and interprets important points of law . . . and ensures uniform application of the law.” The issues raised in this case illustrate the usefulness of a mechanism for clarification and interpretation of important points of law. An en banc procedure could also usefully address apparent divergences between different panels of the FCA. En banc review would have advantages over the options which are currently institutionally available, namely legislative amendment, review by the SCC, or allowing panels to overrule prior decisions of other panels.

The problem with legislative amendment is obvious: the legislature has a lot on its plate and even very important issues of patent law may not be important enough to warrant legislative action. This is so obvious that in his call for reform Stratas JA addressed himself only to the SCC: he did not bother to say “in the interests of the sound development of the law, I would like to offer certain observations for the legislature to consider.” But much the same can be said about the SCC. The SCC has a limited caseload and it grants leave only in cases which it considers to be “of public importance” (Supreme Court Act s 40; and see here for a general discussion of the factors considered in leave decisions.) As I noted in an earlier post, “The SCC only hears about 60 cases a year, including many as of right criminal appeals, and it has an understandable focus on constitutional and criminal law cases. With what remains it has to deal with every other area of private law. The SCC simply does not have the ability to deal with every confused technical area of law, no matter how important that area might be to some parties.” It is true that the SCC is more accessible than the legislature and it is certainly more likely to act on technical matters of law such as the nature of appellate review, but the fact remains that the SCC cannot deal with every area of patent law that requires clarification or reform.

The problem of accessibility does not arise if we look to individual panels of the FCA, but individual panels simply lack the requisite institutional authority. This is quite apart from any argument that a panel should not be permitted to change or depart from settled law in order to preserve the expectations of the parties. Even if we were to say that it is permissible for an individual panel to depart from settled law, doing so would be more likely to further confuse difficult areas of law. The views of any panel, even the most recent to opine on a particular issue, carry no more weight than the panels that went before it. If one panel purported to change or clarify the law, the next panel to hear the same issue would be perfectly justified in saying that the opinion of the panel that had changed the law deserved no more weight than any of the panels that went before it, and so the supposed change was ineffective. Certainly, a well reasoned opinion of one panel may be so persuasive that subsequent panels will follow it for that reason; and more broadly, mechanisms of comity can cause the law to evolve and become clearer through the decisions of multiple panels. Such a process often does work effectively to resolve difficult new issues of law. But sometimes even new issues prove intractable; and the mechanism of incremental change through the decisions of individual panels is much less effective to address the problem which arises when law which is taken to be settled in principle proves to be problematic in practice.

So, en banc review is more accessible than the legislature or the SCC and it is more authoritative and potentially quicker than the decisions of individual panels. With that said, I can think of a couple of objections to en banc review, though none which strike me as compelling. One is that the law once settled, should not be changed. But that is not an argument against en banc review; it is an argument against changing the law through any mechanism, including SCC review and legislative change. And if the issue is one of clarification or interpretation rather than change, then by definition there are no settled expectations to be disturbed.

The other objection is that en banc review will not be useful when the problematic law is SCC precedent. While it is true that not even an en banc panel of the FCA could overrule the SCC, that only limits the scope of en banc review in some cases. So, one of the areas addressed by the FCA was methods of medical treatment. As Stratas JA noted “The current law in this Court is that methods of medical treatment are not patentable. . . . The provenance of this is Tennessee Eastman Co. et al. v. Commissioner of Patents, [1974] S.C.R. 111, 33 D.L.R. (3d) 459, a decision based on former subsection 41(1) of the Patent Act, now repealed.” As Stratas JA points out, and as the SCC has affirmed, Tennessee Eastman itself was based on s 41. As discussed here, the notion that methods of medical treatment remain unpatentable despite the repeal of s 41 stems from the interpretation of Tennessee Eastman by the FCA itself in ICI (1986) 9 CPR(3d) 289, subsequently affirmed in other FCA decisions. While the law is settled, changing it would not require the FCA to overrule the SCC, but only to overrule its own prior decisions.

The question of the correct standard of appellate review of claim construction is different, because of the authority of the SCC in Whirlpool 2000 SCC 67 [61] holding that “claims construction is a matter of law for the judge.” I will discuss this in more detail in Monday’s post. For now I will just saw that I think the law could be considerably clarified and improved in this area without overruling Whirlpool. And even if I am wrong about that, if en banc review can authoritatively tackle even half the contentious patent issues that come to the FCA, that would be very helpful.

Thursday, May 7, 2015

Valid Industrial Design May Be Functional

Zero Spill Systems (Int’l) Inc v Heide 2015 FCA 115 Stratas JA: Dawson, Near JJA var’g 2013 FC 616 Barnes J

In its Zero Spill decision the FCA has largely set aside Barnes J’s decision and remitted it for redetermination. The only legal point of interest relates to the ‘793 Industrial Design.

Wednesday, May 6, 2015

Allegation of S 53 Invalidity Allowed to Stand

NOV Downhole Eurasia Limited v TLL Oil Field Consulting 2015 FCA 106 Nadon JA: Dawson, Boivin JJA aff’g 2014 FC 889 Mosley J

In a brief decision from the bench the FCA has affirmed Mosley J’s refusal to strike a statement of defence asserting that the '065 patent was void pursuant to s 53(1) as a result of statements regarding claim scope made during prosecution. As discussed here, this case raises important issues regarding the relationship between s 53 and prosecution history estoppel, though of course these issues are not resolved by a motion to strike.