Monday, June 20, 2016

Miscellaneous Issues in Levofloxacin Damages

Janssen Inc v Teva Canada Ltd / levofloxacin 2016 FC 593 Hughes J
            1,304,080 / levofloxacin / LEVAQUIN

Friday’s post discussed the standing issue in Levofloxacin Damages. This post discusses the three other contentious issues, quantum, pre-judgment interest, and mitigation [25].

Damages are assessed as the difference between the patentee’s actual position and the position it would have been in but for the infringement. The main issue respecting quantum was a purely factual one as to which “but for” scenario was most likely. Hughes J resolved this in favour of the scenario preferred by Janssen’s expert [106], with a few relatively minor modifications. While that finding was based on the evidence as a whole, it seems that Teva’s witness did not help his case by arguing that the infringement actually benefitted Janssen to the tune of $4 million [95].

Because a generic cannot normally ramp up its sales immediately on expiry of the patent, absent infringement there will be some period post-expiry during which the patentee has lingering elevated market share. Consistently with established law (see 2013 FC 751, blogged here), Hughes J allowed recovery of damages for these lost post-expiry sales, on the general principle that the patentee is entitled to recover losses caused by the infringement [109]. On the facts, the runoff period allowed by Hughes J was two months for retail sales, and one year for hospital sales [112].

Hughes J also allowed a claim for price suppression – that is, the losses due to the reduced price at which LEVAQUIN was sold in order to compete with infringing generic entry. This is nothing new [116]; the loss is caused by the infringement whether a patentee loses sales entirely, or makes the sales but at a lower price. Of more interest, Teva was eventually forced to withdraw from the marketplace as a result of the injunction granted by Hughes J at the end of the liability phase, but the evidence showed that as a practical matter, Janssen could not raise its price to hospitals after Teva withdrew; the price reduction was effectively locked in, as a matter of customer relations [117]. Hughes J allowed recovery for that continued price suppression. Given the factual finding, recovery for locked-in price suppression follows directly from the principle that the patentee is prima facie entitled to recover losses caused by the infringement. The point was raised again in the context of the argument that Janssen should have mitigated its loss by raising its prices again [144]. Hughes J dismissed this argument on the basis that the burden lies on the defendant to prove that mitigation was possible and the plaintiff failed to make reasonable efforts to do so, and Teva had not discharged its burden in this regard.

Some interesting issues were raised with respect to whether pre-judgment interest should be compounded, with Janssen US relying on Zinn J’s decision in Cefaclor Damages 2014 FC 1254 (blogged here) [134], but Hughes J held that the terms of the liability judgment 2006 FC 1234, [135], awarding pre-judgment interest, not compounded, applied to Janssen US as well as to Janssen Canada [138], so the substantive issues were not really engaged.

Friday, June 17, 2016

A Purposive Interpretation of the Standing Provision

Janssen Inc v Teva Canada Ltd / levofloxacin 2016 FC 593 Hughes J
            1,304,080 / levofloxacin / LEVAQUIN

This Levofloxacin Damages decision is the damages phase of 2006 FC 1234 aff’d 2007 FCA 217, in which Hughes J held Claim 4 of the ‘080 patent, a compound claim to levofloxacin, to be valid and infringed by the Novopharm (now Teva). The decision turned largely on the facts, with the most legally significant issue being the standing of Janssen US to claim damages.

The standing issue was important to the bottom line. Hughes J ultimately held that Janssen US did have standing and he awarded it over $13m, while Janssen Canada was awarded just under $5.5m. The standing issue arose in light of the structure of Janssen’s supply chain. Daiichi, the owner of the ‘080 patent, supplied levofloxacin API to Janssen Puerto Rico, which manufactured finished tablets and then routed them, financially, at least, through Janssen US to Janssen Canada for sale in Canada. It was these sales that were displaced by Teva’s infringing sales, and Janssen US was claiming for the lost profit it would have made on its sales to Janssen Canada [54]. (Daiichi, while a named plaintiff, had settled with Teva and did not participate in the damages proceeding [5].)

Standing is statutorily governed by s 55(1) of the Act which provides that infringer is liable in damages “to all persons claiming under the patentee” for losses sustained as a result of infringing acts. Hughes J thoroughly canvassed the case law, which generally interprets “claiming under” quite broadly, including an assignee, a licensee, including a non-exclusive licensee [43]. Moreover, the Canadian courts take a very pragmatic approach in determining whether a party is a licensee, as the licence need not be in writing and may be inferred from the facts [43].

However, in one case, Servier v Apotex 2008 FC 825, Snider J held that none of the companies in the Servier global family, except ADIR, the patentee, and Servier Canada, which exploited the patent in Canada, had standing to seek damages [Servier 67-95]. Hughes J characterized Servier as holding that an entity that did not operate “in Canada'” did not have standing [42], and that the claim must be one in respect of a use in Canada and not elsewhere in the corporate chain [43]. He also distinguished Servier on the basis that in that case, each of the foreign entities had its own geographical sphere of operation and those entities not operating in a Canadian sphere could not be considered to have standing, whereas in this case “the J&J group of companies are operating as a team whereby licensed tablets ultimately found their way to Canada” [67].

Stepping back from the cases, in defining who may claim damages s 55(1) has two effects, at least potentially. On the one hand, it gives standing to entities which might not otherwise have standing under a common law test. And on the other hand, it may operate to deny recovery to some entities. The exclusionary effect of s 55 only bites if the entity claiming standing actually suffered a loss as a result of the infringement of the Canadian patent. If we are to give a purposive interpretation to s 55(1), we must ask when it is right to hold that an entity should not recover, even though it has actually suffered loss caused by the infringement. There is a prima facie argument that such loss should always be recoverable, on the basis that a wrongdoer should be liable for all the harm it causes, or the wrong will not be sufficiently deterred and victims will not be adequately compensated.

This intuition is not always sound. Suppose that Company A, which is at arms length to both the patentee and the infringer, produces feedstock for the process used by the patentee to produce the API. The feedstock itself is not patented and so A does not need or take a licence. As a consequence of infringement, the patentee reduces production, and so A suffers lost profits on the consequently reduced sales of the feedstock. Should A be able to recover? Apart from any limits imposed by s 55(1), it might seem that A should be able to recover, on the basis that it has suffered a loss caused by the infringer. But now suppose that A also supplied the feedstock to the infringer, and when A’s sales to the patentee went down, its sales to the infringer went up by exactly the same amount. In that case A should clearly not recover because it would have suffered no loss. Now suppose that instead, the infringer bought the feedstock, not from A, but from arms length Company B, so that A’s loss was B’s gain. Should A recover? From a law and economics perspective, the answer is no. The shift in profit from A to B is a mere transfer; while A has lost, B has gained, and in the broader picture, no harm was done. To impose liability on the infringer for A’s loss would consequently cause over-deterrence. This is one of the main justifications for the general reluctance of tort law to provide recovery for pure economic loss: see CNR v Norsk [1992] 1 SCR 1021. Denying recovery to A in such a case also makes sense purely in terms of patent policy, because A is not operating under the patent, and so refusing to allow it to recover does not adversely affect the incentive to invent. In this scenario, in which A did not have a licence and so did not “claim under the patentee,” s 55(1) would operate to deny recovery to an entity that had suffered a loss as a result of the infringement, and this result would be sound as a matter of policy.

This analysis suggests that the role of standing, and s 55(1) of the Act, is to prevent recovery by an entity which has suffered a loss as a result of the infringement when that loss did not affect the incentive to invent. Put another way, by analogy with the requirement for an “antitrust injury” in US competition law, we might say that only an entity that has suffered a “patent injury” should be entitled to recover. This is broadly consistent with the “claiming under” requirement of s 55, on the reasoning that if the entity’s loss is linked to its rights under the patent, then the loss would adversely affect the incentive to invent. So, for example, the profits made by a licensee contribute to the incentive to invent via the royalty paid for that licence.

This theory supports Hughes J’s holding in this case that Janssen US has standing. I’m not sure whether it is consistent with Servier, because the nature of the loss that would have been claimed by the excluded entities in that case is not clear to me. This theory is at least consistent with Snider J’s rejection of the highly speculative scenario advanced by Servier in support of its claim at [88-89].

Thanks to Smart & Biggar for posting this decision before it was posted on the FC website.

Friday, June 10, 2016

Affidavit from Remaining Inventors Not Required When Correcting Inventorship of Granted Patent

Qualcomm Incorporated v Canada (Commissioner of Patents) 2016 FC 499 Simpson J

Qualcomm applied for an order pursuant to s 52 of the Act, to delete Mr Palanki as a co-inventor on the ‘309 patent. The application was not opposed by CIPO and Mr Palanki consented to the order sought on the basis that he was not a co-inventor. The only difficulty is that some decisions, in particular Imperial Oil 2015 FC 1218 (blogged here) and Segatoys 2013 FC 98, had suggested that in deciding whether to remove a co-inventor, the Court should follow the test set out for the Commission of Patents in s 31(3) [5], which provides that when a joint applicant for a patent is removed as not being an inventor, the prosecution may be carried on by the remaining applicants “on satisfying the Commissioner by affidavit that the remaining applicant or applicants is or are the sole inventor or inventors” [6]. In this case, even though it was uncontested that Mr Palanki was not an inventor, there was no affidavit that the remaining named inventors were the sole inventors. Simpson J held that the affidavit in question is essentially a housekeeping requirement to promote the efficient processing of pending patent applications in the Patent Office and it is not required when an issued patent is being considered by the Court under s 52 [9]-[10]. She therefore granted the application. I note that this is not inconsistent with Imperial Oil and Segatoys in the result, since in both of those cases the application was also granted: neither was a case in which an application to amend under s 52 was refused for failure to provide the affidavit in question.

Thursday, June 9, 2016

Hearsay is Inadmissible

Pfizer Canada Inc v Teva Canada Ltd 2016 FCA 161 Stratas JA: Ryer, Gleason JJA var’g 2014 FC 248 (here) and subsequent reasons re pre-judgment interest 2014 FC 634 (here) Zinn J
            1,248,540/ 2,199,778 / venlafaxine / EFFEXOR XR / NOC s 8 / Venlafaxine s8 FCA

As discussed in yesterday’s post, which dealt with the burden of proof in establishing causation, the FCA in Venlafaxine s8 held that in order to establish its compensable loss under s 8 of the PM(NOC) Regulations, Teva had to show that it “would and could” have supplied the market for venlafaxine. While Zinn J did not articulate the requirement in quite this way, he nonetheless applied the proper principles of causation in holding that Teva had established the necessary causal link [70]-[73], and in the result he awarded Teva almost $125m as compensation for having wrongly been kept off the market for venlafaxine [2]. However, the FCA held that Zinn J’s holding was vitiated by the fact that he improperly relied on hearsay evidence in coming to this conclusion [75]-[121], and the FCA therefore set aside Zinn J’s judgment and remitted the matter to him for redetermination [174]. At the same time, the FCA also affirmed Zinn J’s holdings with respect to the appropriate start date for the compensable period, on authorized generics in constructing the hypothetical world, and on the start date for assessing pre-judgment interest.

Teva’s position was that if it had received its NOC, its supplier, Alembic would have been able to supply adequate quantities of venlafaxine product at the relevant time [41]. While this was accepted by Zinn J, the only evidence on Alembic’s capacity was provided by Mr. Major, a former executive of Ratiopharm (now Teva) [36]. The difficulty is that almost all of Mr Major’s testimony was hearsay, sometimes double or even triple hearsay. Despite Pfizer’s objections, Zinn J admitted the hearsay evidence, saying the objection went to weight rather than admissibility [121]. The FCA disapproved, noting that

[83] Recently, some rules of evidence have been liberalized, allowing for more flexibility. Seduced by this trend towards flexibility, some judges in various jurisdictions have been tempted to rule all relevant evidence as admissible, subject to their later assessment of weight. But according to our Supreme Court, this is heresy. The trend towards flexibility has not undermined the need for judges to take a rigorous approach to admissibility, separating that analytical step from others, such as determining the weight to be given to evidence.

After reviewing the evidence in question, the FCA remarked that “All of the mischief associated with admitting hearsay evidence is present in this case” [119]. Because Zinn J had admitted evidence that should have been excluded, and that error might have affected the outcome of the case, the FCA set aside the Zinn J’s judgment [121]. I am not sufficiently familiar with evidentiary rulings in the Federal Courts to say whether Zinn J’s decision to admit hearsay evidence was unusual, or whether this FCA’s decision signals a course correction to the FC generally.

On the issue of the start date for the compensable period, Pfizer had argued that the appropriate date was the end of the 45 day waiting period under s 7(1)(d) during which the Minister is precluded from issuing an NOC. The waiting period starts at the time the generic serves an NOA and allows a patentee to seek a prohibition order. In effect, Pfizer argued that in the hypothetical world, it should be assumed that rather than seeking an order of prohibition, Pfizer would have done nothing at all, so that Teva’s NOC would have issued only after the expiry of the waiting period. Zinn J rejected this arugment (see here), and the FCA affirmed for substantially the same reasons, based on the plain meaning of the Regulations as well as the case law [126]-[133].

The FCA also reaffirmed its holding in Apotex Ramipril s. 8 FCA 2014 FCA 68 (see here) that entry of authorized generics should be considered as part of the hypothetical world [134]-[138]

Finally, the FCA also affirmed Zinn J’s holding that pre-judgment interest should be calculated from the date on which the cause of action arises, which is typically the start of the compensable period, and not on the date that the prohibition application is dismissed [145].

Wednesday, June 8, 2016

Burden of Proof Respecting Alternative ‘But For’ World

Pfizer Canada Inc v Teva Canada Ltd 2016 FCA 161 Stratas JA: Ryer, Gleason JJA var’g 2014 FC 248 and 2014 FC 634 Zinn J
            1,248,540 / 2,199,778 / venlafaxine / EFFEXOR XR / NOC s 8 / Venlafaxine s8 FCA

In his Venlafaxine s8 FC decision, 2014 FC 248 (blogged here), Zinn J awarded Teva almost $125m, including interest, under s 8 of the PM(NOC) Regulations, as compensation for having wrongly been kept off the market for venlafaxine [2]. The FCA has now vacated that award because it was based on inadmissible hearsay evidence, and remitted the matter to Zinn J for redetermination [159], [174]. The decision is primarily of interest for its clarification of the “could and would” requirement for establishing causation of loss, which is discussed in this post.

Section 8 provides that a generic that is kept off the market by operation of the statutory stay under the NOC Regulations is entitled to compensation for “any loss suffered” during the relevant period, if the patentee is ultimately unsuccessful in obtaining an order of prohibition. The courts have (rightly) interpreted this as providing compensation only for loss that was caused by the statutory stay that is triggered by the patentee’s application for an order of prohibition under the Regulations [45]. The loss typically takes the form of lost sales of product that the generic would have made had it not been kept off the market [45].

The losses caused by the patentee’s triggering conduct is the difference between the sales actually made by the generic (zero), and the sales that the generic would have made in the hypothetical world where the patentee’s impugned conduct did not take place [47]. Some issues, in particular the start and end dates to the compensable period, are specific to the NOC context, but the causation inquiry is the same as for patent infringement, in that “in both types of claims the court’s task is the same: to assess a hypothetical world where the defendant’s impugned conduct did not take place” [47]. Consequently, the FCA in this case looked to its prior damages decision in Lovastatin 2015 FCA 171 (blogged here and here) as setting out the relevant principles.

The key issue in this appeal was whether Teva would have been able to supply the market with venlafaxine in the hypothetical world in which it had received its NOC. In Lovastatin, the key issue was whether the generic (Apotex), would have been able to compete in the market with a non-infringing alternative in the hypothetical world in which it did not infringe. In Lovastatin the FCA held that to establish causation, the defendant generic would have to show that in the hypothetical world it “would have and could have” had access to sufficient quantities of non-infringing product [49]. By the same token, in this case Teva had to establish that it “would and could” have supplied the market with venlafaxine if the NOC had been granted [53].

The first issue dealt with by the FCA concerned the burden of proof. The FCA held that Teva, as the claimant, had the burden of proof concerning what would and could have happened had its product not been kept off the market, on the general principle that the plaintiff must prove its loss [53]-[55]. Specifically, Teva had argued that it would and could have obtained venlafaxine from its supplier, Alembic, and Teva therefore bore the burden of proof on that issue.

That much was straightforward. But the FCA also noted a caveat. “Suppose Pfizer took the position that [Teva] would not have tried to obtain venlafaxine from Alembic but instead would have given up and pursued another business objective, such as getting another generic drug to market” [65]. In that case, the burden would lie with Pfizer to prove that alternative hypothetical [63]:

a defendant that sets up a new issue bears the burden of proving it. The plaintiff, having proved its version of the hypothetical world, does not have to disprove other speculative hypotheses.

The point is important one because it introduces a significant caveat on the holding in Lovastatin, in which, in discussing the “would” branch of the causation requirement, the FCA at [94] held that even though

Apotex had capacity to make the non-infringing lovastatin and that Apotex would have made an accounting profit by producing the non-infringing tablets, Apotex has not established that it would have pursued that alternative in the "but for" world. Specifically, Apotex did not point to evidence that demonstrated the profits that it would have made through the non-infringing alternative would have been greater than value lost in any of the identified scenarios (for example, the research and development activities foregone by repurposing the Winnipeg facility). As such, notwithstanding whether it had the capacity to produce the non-infringing alternative, Apotex has not satisfied its persuasive burden to demonstrate on the facts that it would have produced the non-infringing lovastatin.

The first part of this paragraph evidently says that Apotex had established its version of the hypothetical world, namely that it would (or at least could) have supplied the market with a non-infringing alternative, while the second part of the paragraph seems to say that Apotex also bore the burden of proving that it would not have pursued a different business objective, namely exiting the lovastatin market in favour of some other opportunity (see here for a more detailed discussion). This holding in Lovastatin is very difficult to reconcile with the holding in Venlafaxine s8 FCA that “Teva would not have borne the burden of proving that it would not have pursued a different business objective” [65]. Indeed, this statement from Venlafaxine s8 is so directly on point that it almost seems to be specifically targeted at this particular holding from Lovastatin.

The point was strictly obiter, because Pfizer did not in fact make any such argument; it simply contested the very hypothetical relied on by Teva, with the result that the burden remained with Teva [66]. However, the issue was fully considered, including reliance on the SCC decision in Rainbow Caterers [1991] 3 SCR 3, and the remark regarding Pfizer’s burden to prove an alternative hypothetical was made in the context of explaining why the burden remained with Teva in the context of the arguments made in this case [58]-[66]. The point was certainly more fully reasoned than the brief and somewhat cryptic discussion of this issue in Lovastatin [93]-[95]. Moreover it was expressly stated as a general principle of law, rather than, as in Lovastatin, a finding on the facts. It would seem to follow that this statement from Venlafaxine s8 FCA now represents the law on this point. 

In my view the approach taken in Venlafaxine s8 is preferable to that taken in Lovastatin, for policy reasons discussed here, for the practical reason that it is unduly burdensome to require a plaintiff not only to prove one hypothetical world, but also to disprove all other potential hypothetical worlds, and for the legal reason that the SCC in Hamilton v Open Window Bakery Ltd 2004 SCC 9, held that it is open to the a party to adopt the hypothetical world that is “least burthensome” to it [11]. It will be interesting to see how this issue plays out in future cases.