Tuesday, June 16, 2015

Canada / UK Contrast in the Test for Inducement Liability

Bayer Inc v Pharmaceutical Partners of Canada Inc / moxifloxacin (NOC) 2015 FC 388 Lafrenière J
            2,378,424 / moxifloxacin / AVELOX

Warner-Lambert Company, LLC v Actavis Group Ptc & Ors [2015] EWCA Civ 556 (28 May 2015)) rev’g [2015] EWHC 249 (Pat) (indirect infringement)
            EP 0 934 061 / pregabalin / LYRICA

Liability for inducing infringement raises the question of how the patentee’s rights should be protected when the defendant sells a product which is capable of non-infringing uses, but is likely to be put to an infringing use. This question often arises in the context of second medical use patents. The ‘424 patent at issue in Bayer v PPC / moxifloxacin is a formulation patent and PPC’s product can be used post-sale to make the formulation, so this case raises essentially the same question as second medical use patents. Lafrenière J struck the portions of Bayer’s application for an order of prohibition alleging that PPC would induce infringement of the ‘424 patent on the basis that Bayer had no reasonable chance of establishing inducement by PPC. The recent decision of the EWCA in Warner-Lambert v Actavis provides a helpful European perspective on the issue, albeit in the context of Swiss form claims. (An excellent summary is provided by the IPKat.) The comments in this post are tentative, as this issue deserves an article rather than a blog post.

The law of inducement seeks to encourage cost-effective enforcement of its rights by the patentee, while at the same time ensuring that the public is not impeded in engaging in non-infringing activity. The “cost-effective” part of the rationale is central. Inducement is not necessary to allow the patentee to enforce its patent rights, as inducement (normally*) requires an act of direct infringement and the patentee could in principle enforce its rights by proceeding against the direct infringer. But that is not always practical. It is often more efficient to pursue a single intermediary which in some way facilitates infringing activity, as Napster illustrates in the copyright context. But once we move away from direct infringement, we must be careful not to impede the defendant who facilitates non-infringing activity as well.

From this it follows that in order to establish inducement, it is not enough that infringement is the inevitable result of the defendant’s activity because the infringing uses, though inevitable, may be a small proportion of the overall sales. It is inevitable that some people will drive drunk, but we do not for that reason enjoin the sale of cars by auto dealers. So, the Canadian three prong test for inducement of infringement set out in Corlac v Weatherford 2011 FCA 228 [162] is as follows:

First, the act of infringement must have been completed by the direct infringer. Second, the completion of the acts of infringement must be influenced by the acts of the alleged inducer to the point that, without the influence, direct infringement would not take place. Third, the influence must knowingly be exercised by the inducer, that is, the inducer knows that this influence will result in the completion of the act of infringement.

The inducement element – that the direct infringement was influenced by the inducer – and the knowledge element – that the inducer knows of the resulting infringing act – go beyond simple inevitability of infringement. The second branch in particular requires the defendant to actively encourage the infringement in some way: MacLennan v Produits Gilbert Inc 2008 FCA 35 [40]; 2009 FC 1102 [370]; Pharmascience 2006 FC 861 [31].

But UK law is less stringent. If I understand correctly, inducement liability can be established on the basis of inevitability of direct infringement combined with knowledge that infringement will ensure. In Grimme [2010] EWCA Civ 1110 the EWCA held that “it is enough if the supplier knows (or it is obvious to a reasonable person in the circumstances) that some ultimate users will intend to use or adapt the ‘means’ so as to infringe,” and “[t]he knowledge and intention requirements are satisfied if, at the time of supply or offer to supply, the supplier knows, or it obvious to a reasonable person in the circumstances, that ultimate users will intend to put the invention into effect” (KCI [2010] EWCA Civ 1260 [53], summarizing Grimme). In Grimme there was advertising ([70]) that would likely have constituted the necessary encouragement in Canadian law, but it is not evident that the inducement in Canadian law would have been established on the facts of KCI. The EWCA held that “[The defendants] have infringed because it is probable that from time to time some medical personnel using the [defendant’s] system have clamped the end of the inlet tube when changing the canister [which would result in infringement]. Further, it would have been obvious to a reasonable person supplying [defendant’s] canisters that that this would be likely to occur” [55].

Roughly speaking, in UK law the second element of the Corlac test has been eliminated. (The knowledge element is similar. In Canada it is not necessary that the inducer know the ultimate act is infringing (2010 FC 361 [200]) while in the US the rule is the opposite – Global-Tech Appliances, inc. v. SEB S.A. (USSC, 2011). The UK rule on this point is the essentially same as the Canadian approach.) The difficulty with the UK approach is that inducement may be established even if the infringing use is a very small part of the inducer’s sales, thus posing a real risk of interfering with non-infringing uses. It may be inevitable that 1% of sales would be used for infringing uses, but it is dubious policy to deprive the public of the benefit of lower prices in the 99% of remaining cases. In Warner-Lambert this issue was avoided to some extent because the case turned primarily on the intent requirement for direct infringement of Swiss form claims. In the context of direct infringement the EWCA insisted on an intent requirement precisely because of this problem: “To construe the claim as covering the manufacture of a drug merely because it was suitable for pain treatment would be to give it a scope which was far broader than the patentee’s contribution to the art” [113]. Thus the EWCA has introduced an inducement element which is similar to the second branch of the Corlac test, but in the curiously narrow context of direct infringement of Swiss form claims. This is hardly a general solution to the problem, particularly as Swiss form claims are no longer allowed by the EPO.

The other response to this problem by the EWCA was remedial:

[131] [Counsel for Actavis] points out that, even if an injunction is not granted, the manufacturer may have to pay damages based on the patentee's profit margin, which, if on a sufficient scale, would potentially make his sales of the non-patented indication uneconomic. This is a justifiable concern, but it is not a basis for adopting the narrow claim construction for which he contends. The scope of the claim cannot realistically depend on a national rule about damages, so that it would mean something different in a territory where only royalty damages were available.
[133] Applying the law as I believe it to be, it is plain that Warner-Lambert have an arguable case of infringement. On the assumption that infringement is shown at trial, it does not follow that unqualified relief will follow as of right. Those are issues for the trial or any enquiry which follows.

This suggests that an injunction might be denied and the patentee awarded damages. This is not entirely satisfactory because of the wedge between the patentee’s profits and the generic’s profits. As counsel for Actavis pointed out, granting the patentee lost profit damages may make the generic sales for non-infringing uses unprofitable, even if the infringing uses are a relatively small proportion of overall sales. But by the same token, if the patentee is granted only a reasonable royalty on the infringing sales, or even an accounting of the generic’s profits, it will be under-compensated. This may be the best solution to a difficult problem when infringing uses are a small proportion of overall sales, but the difficulties with the remedial approach increase as the proportion of infringing sales increases.

The inducement element of the Canadian approach is a partial response to this problem. If it were the case that no direct infringement would occur without inducement by the defendant, the problem would be solved: the defendant is enjoined from encouraging infringement, consequently no direct infringement occurs, and the patentee’s rights are protected while the public is not denied lower prices for the non-infringing uses. The difficulty with this approach is that substantial direct infringement may occur without any encouragement at all by the patentee. This is particularly true in respect of pharmaceuticals because of the encouragement for generic prescribing by regulatory authorities. The same problem arises in the UK, as the EWCA acknowledged in Warner-Lambert:

[132] Another hard case is that in which a defendant has taken all the steps open to him to avoid his medicine being prescribed for the new use, yet those steps are, due to the structure of the marketplace, insufficient to stop it happening. Actavis’ test would provide a defence in those circumstances, because the defendant could credibly say that he did not target those sales which he was striving manfully to prevent. The hard case arises because of the peculiarities of the UK’s market place for drugs. Normally a vendor of a product can control by contract the uses to which his product is put and require any intermediary to include similar terms.

While Floyd LJ acknowledged this “hard case,” he continued to say “I do not think we should allow the regulatory environment to dictate the scope of the claim in this way.” He didn’t elaborate on this comment, and I must say that I don’t see any particular reason why the law should ignore the realities of the marketplace, including the regulatory environment. Having said that, even if we do take such matters into account, the problem doesn’t get any easier.

One straightforward response to the regulatory problem is to involve the regulators. In Warner-Lambert:

[42] It was common ground before the judge that the best solution to the problem of how to prevent Lecaent [the defendant’s product] being dispensed for pain [the patented use] was to try to ensure that, when doctors prescribe pregabalin for pain, they always do so only by reference to the brand name Lyrica [the patentee’s product]. If this were to happen, only Lyrica could and would be dispensed for pain. The pharmacist would not need to try and find out what the prescription was for. The judge considered that, as had been submitted to him, the best way to attempt to ensure that this was achieved was by guidance given by NHS England. Counsel for the Secretary of State for Health had emphasised to the judge that NHS England was an autonomous body. The Secretary of State did not consider that a failure by NHS England to issue guidance with regard to the relevance of the patent to the prescribing of pregabalin would constitute a failure by NHS England of sufficient significance to allow him to intervene. He noted, however, that NHS England might consider it appropriate to issue such guidance. If NHS England were to do so, the Department would not consider that inappropriate.

There are evidently substantial policy concerns (though not necessarily insurmountable ones), with involving health regulators so intimately in patent enforcement. The patentee nonetheless sought such an order, and intriguingly, the Department of Health did not object:

[43] In the light of that response, and the further letter from the NHS England indicating that guidance would be unlikely to be issued before trial, Warner-Lambert applied to the judge for an order that NHS England should issue such guidance. Neither Actavis, nor any of the interested parties (which included other generic manufacturers interested in pregabalin and the Department of Health) opposed the making of that order. Having satisfied himself that he had jurisdiction to make the order, the judge duly made it on 26 February 2015 for reasons given in his judgment of 2 March 2015, ([2015] EWHC 485 (Pat), “the fourth judgment”). The NHS guidance was promptly issued after the making of the order.

Warner-Lambert was required to give an undertaking in damages in favour of NHS England and the Department of Health, and also in favour of the generics.

While this may be the best way of balancing the interests at stake, it’s not clear to me how this approach could be implemented in the Canadian context of NOC proceedings. In the UK, these issues are being raised in the context of interlocutory injunction applications, so that a full range of discretionary remedies are potentially available. In an NOC proceeding, the question is whether the Minister should be prohibited from issuing an NOC, and it's not clear to me that the NOC procedure could be used to seek the kind of relief granted in Warner-Lambert. And of course, interlocutory injunctions are essentially impossible to get in Canada in infringement actions.

Another approach, which is not necessarily inconsistent with the foregoing, is to try to strike the right balance directly by considering what proportion of the sales are likely to be infringing. I get a sense from some of the cases that the requisite influence by the defendant will more easily be found when all or almost all of the defendant’s products are used for infringing purposes. So, in Abbott v Novopharm, 2006 FC 1411 the dominant use for the defendant’s product would be infringing [41], and in MacLennan the sole use would be infringing. And the dictum in MacLennan [40] notwithstanding, Windsurfing v Bic Sports (1984) 8 CPR(3d) 241, 266 (FCA), a case in which the only use was infringing, comes very close to saying that inducement is established if the defendant “knew and intended” that the ultimate purchaser would directly infringe. With that said, in Abbott v Novopharm the defendant did prominently list two indications which would almost certainly lead to infringement on its product monograph [41], and in MacLennan the inducer provided part numbers used by the patentee to indicate its replacement parts, and in Windsurfing the kit sold by the inducer contained instructions which, if followed, would result in inducement. So none of these cases went so far as to impose inducement liability without any inducing acts at all.

This brings us, at last, to the case at hand, in which Lafrenière J granted a motion to strike Bayer’s application for a order of prohibition on the basis that it has no possibility of success [3]. The 424 patent claims an aqueous formulation of moxifloxacin and from 0.4% to 0.9% (w/v) of sodium chloride [7]. PPC compared PPC-Moxifloxacin with AVELOX® IV, Bayer’s version of moxifloxacin hydrochloride intravenous solution for injection [5]. Counsel for Bayer agreed that the evidence of induced infringement by PPC “boils down to” a paragraph from its expert’s affidavit to the effect that based on the PPC Product Monograph,

the PPC Product can be prescribed, used and administered in the same way as AVELOX® I.V. It is therefore my opinion that, as instructed by the PPC Product Monographs, physicians would prescribe and use the PPC Product in the same was as AVELOX® I.V., including co-administering the PPC Product with a normal saline solution in circumstances where the treating physician determines it to be advisable [13].

That is only to say that infringement is inevitable. Lafrenière J was following established Canadian law in holding that this enough cannot make out inducement [24], though as UK law illustrates, even this point is not unassailable as a matter of policy.

To my mind, the more difficult question even under current Canadian law turns on the following statement in the PM:

Moxifloxacin injection is compatible with the following intravenous solutions at ratios from 1:10 to 10:1:

•→0.9% Sodium Chloride Injection, USP
•→IM Sodium Chloride Injection
•→5% Dextrose Injection, USP
•→Sterile Water for Injection, USP
•→10% Dextrose for Injection, USP
•→Lactated Ringer’s for Injection

As I understand the facts, the first use would be infringing, though the following five would not. That the first use would be infringing makes it difficult to reconcile Lafrenière J’s holding with Abbott v Novopharm, 2006 FC 1411, which turned entirely on patented indications on the label and PM, along with evidence of likely infringement. The cases might be distinguished on the facts, given that the infringing uses in Abbott v Novopharm were the dominant uses for the product, and it is not apparent whether that is true of the infringing use in this case. But if that is the basis for the distinction, then it would not be appropriate to strike the application.

*I say “normally” because even the requirement of direct infringement is more problematic than it might seem. As discussed here, there may be circumstances in which inducing infringement does not require an act of direct infringement, at least in UK law. In Europe, this may be the case for Swiss form claims in particular. This is essentially because the intent of Swiss forms claims is to shield physicians, who would otherwise be direct infringers, from liability.

UPDATE: IPKat Darren Smyth has reminded me that the UK Act actually has two statutory tests for contributory infringement in s 60: a less stringent general test in s 60(2) that requires no element of inducement, and a more stringent test in s 60(3) which requires inducement where the thing sold by the contributory infringer is a "staple commercial product". My comments on the UK test in the above post really apply only to the more general test. I'm not inclined to think that the bifurcated UK approach is a good solution to the problem of contributory infringement. While it is reasonable to suppose that in the case of a staple the infringing uses will normally only be a small proportion of the sales, adding the inducement element only for staple items is under-inclusive; if the infringing uses are a small proportion of sales, but the item is not a “staple” then all the problems discussed above will apply. Moreover, that inducement is statutorily required only for staples confirms that there is not any inducement requirement for other goods. And even for staple items, the same difficulties arise as in respect of the Canadian act. The distinction between staple commercial products and other products also adds a layer of difficulty in determining what is meant by a “staple.” (See Nestec SA & Ors v Dualit Ltd & Ors [2013] EWHC 923 (Pat) [177]-[182]). On the whole, I doubt whether the UK statutory definition of contributory infringement is the best solution to the problem, or an improvement over existing Canadian law

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