Friday, June 30, 2017

A Three-part Test for a Permanent Injunction?

Google Inc. v. Equustek Solutions Inc. 2017 SCC 34

In this case the SCC, in a 7-2 decision, affirmed an order requiring Google “to globally de-index the websites of a company which, in breach of several court orders, is using those websites to unlawfully sell the intellectual property of another company” [1]. The case is not directly patent related, so I won’t go through all of it (though I did blog here on the BCSC decision). This post will consider only a statement in the dissent of Côté and Rowe JJ that, if accurate, has implications for patent law.

The order was formally interlocutory, in that it was was effective “until the conclusion of the trial of this action” [51]. As it turned out, by the time it reached the SCC, Equustek had still not taken any action to proceed with the action, even by way of obtaining a default judgment, in the five years since the order was made [61]. The dissent was of the view that the order was, "in effect, a permanent injunction," [64], and consequently it should have been – or at least, it should now be – treated as one. (I must say that this whole line of reasoning strikes me as strange. I don't see why Fenlon J in the BCSC would have had any reason to believe that the effect of the order would be final, so she didn't make any error in treating as interlocutory. Nor did the dissent explicitly say that she had erred; the opinion avoided the question by using the passive voice. But it would seem very odd for an appellate court to reverse a decision for having applied the wrong test, if the application judge, when she made her decision, hadn't actually applied the wrong test. I would have thought that if the defendant was aggrieved by the effectively final nature of the interlocutory order, it should have applied to Fenlon J to have the order lifted.) 

 In any event, that reasoning led the dissent to the following statement:

[66] The Google Order also does not meet the test for a permanent injunction. To obtain a permanent injunction, a party is required to establish: (1) its legal rights; (2) that damages are an inadequate remedy; and (3) that there is no impediment to the court’s discretion to grant an injunction (1711811 Ontario Ltd. v. Buckley Insurance Brokers Ltd., 2014 ONCA 125, 371 D.L.R. (4th) 643, at paras. 74-80; Spry, at pp. 395 and 407-8).

This statement of law, if correct, would be potentially revolutionary. Compare the test introduced by the USSC in eBay (2006) 547 US 388, 391:

[A] plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

The key point is that under eBay there is in principle no presumptive entitlement to injunctive relief, and, under the first and second factors the plaintiff faces the hurdle of showing irreparable harm / inadequacy of damages before a permanent injunction will be granted. (The first two factors are generally seen as being indistinguishable, both conceptually and empirically: see Gergen et al, The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions, 112 Colum L Rev 203 (2012), discussing conceptual equivalence, and Seaman, Permanent Injunctions in Patent Litigation After eBay: An Empirical Study, 101 Iowa L. Rev. 1949, 1994 (2016), showing the factors are strongly correlated empirically.) The consequence of eBay in the US is that permanent injunctions are often denied to successful patentees on the basis that irreparable harm has not been established: see generally Seaman, Permanent Injunctions After eBay. The same structure as in eBay, and indeed the same language, is reflected in the second factor of the dissenters putative test in Equustek. Moreover, the test for an interlocutory injunction in Canada also has a requirement that the applicant show it would suffer irreparable harm if the application were refused ( RJR-MacDonald [1994] 1 SCR 311, 347, following American Cyanamid [1975] UKHL 1), and the Federal Court effectively invariably refuses to order an interlocutory injunction in patent cases, on the basis that this requirement has not been satisfied. Unless there is some distinction to be drawn between “damages are an inadequate remedy,” and “irreparable harm,” it seems that if the test for a permanent injunction stated by the dissent in Equustek really was the law, permanent injunctions should no longer be granted to a successful patentee in Canada.

Fortunately, the putative test stated by the dissent is not the law. First consider the cited case, 1711811 Ontario v Buckley Insurance 2014 ONCA 125 [74]-[80]. That passage addresses whether the test for a permanent injunction is different than the test for an interlocutory injunction, and concludes that they are indeed different. In this, the decision supports the dissent’s basic point. But as to the test itself, the relevant paragraph is 79, quoting Cambie Surgeries 2010 BCCA 396, [27]-[28], which notes that “irreparable harm and balance of convenience are relevant to interlocutory injunctions,” and then continues:

In order to obtain final injunctive relief, a party is required to establish its legal rights. The court must then determine whether an injunction is an appropriate remedy. Irreparable harm and balance of convenience are not, per se, relevant to the granting of a final injunction, though some of the evidence that a court would use to evaluate those issues on an interlocutory injunction application might also be considered in evaluating whether the court ought to exercise its discretion to grant final injunctive relief.

Well, that’s embarrassing. This passage stands for exactly the opposite proposition from that for which it is cited.

Consider then Spry, The Principles of Equitable Remedies (2014). The only relevant passage at 395 states that “Before the discretionary considerations according to which perpetual injunctions are granted or refused are considered, it is necessary to set out the circumstances in which the court declines to intervene because a remedy at law, such as that of damages, is considered to be adequate.” This is very far indeed from saying that adequacy damages is the second stage of a four-factor test, particularly as Spry goes on to provide 6+ pages of nuanced discussion, including the observation that “gradually there has developed a tendency not to regard damages as constituting adequate remedy for prospective injury to existing property of the plaintiff or his person,” and “it must now be accepted as settled ‘the rule that where the plaintiff has established the invasion of a common law right, and there is ground for believing that without an injunction there is likely to be a repetition of wrong, he is, in the absence of special circumstances, entitled to an injunction against such repetition.’” (397). This, he explains, is the source of what is effectively a strong presumption in favour of injunctive relief for violation of property rights in land. The same reasoning extends to property rights generally, hence the traditional position, still observed in Canada, that a permanent injunction will normally be granted to a successful patentee. Pages 406-07 are even further from stating a four-part test. Rather Spry emphasizes the need for a risk balancing exercise to assess “whether it is just, in all the circumstances, that an injunction should be granted.” And this considers only the authorities cited by the dissent itself. Much the same point is made by Sharpe JA in his authoritative treatise on Injunctions and Specific Performance, where he notes, for example, that “when the plaintiff complains of an interference with property rights, injunctive relief is strongly favoured. . . . [I]n practical terms, the conventional primacy of common law damages over equitable relief is reversed” [§4.10].

The fact is that, contrary to the statement by the dissent, there is no general test for a permanent injunction. There are general principles of equity, which have themselves evolved over time, particularly in light of the functional change wrought by the fusion of law and equity, and which have also been elaborated differently in various contexts, so that the approach to trespass is different from nuisance, is different from positive contractual covenants, is different from negative contractual covenants.

I was of half a mind not to write this post at all. The statement that concerns me was made almost in passing, in the dissent, and what was important for the dissent’s argument was not the precise test, but the fact that the approaches to interlocutory and permanent injunctions are different, which is true. But sometimes passing comments by the SCC have an outsized influence (see R v Henry 2005 SCC 76 [57], discussing when the Court’s statements are binding). My own view is that it would be a mistake for the Canadian courts to follow the eBay approach to permanent injunctions in the patent context: I much prefer the proportionality approach used by the English courts: see eg HTC v. Nokia (No. 2)[2013] EWHC 3778 (Pat). But If the Canadian courts do follow eBay, it should be as a result of a considered decision, and not on the basis of this tangential and poorly considered statement in Equustek.

Thursday, June 29, 2017

Which Goes First: Litigation, or Re-examination?

Camso Inc. v. Soucy International Inc. 2016 FC 1116 Roy J
            2,822,562 / 2,388,294 / Track Assembly for an All-Terrain Vehicle

The question in this decision was whether re-examination of Camso’s ‘562 patent pursuant to s 48.1- 48.5 of the Patent Act should be stayed pending final judgment in an infringement action involving the same patent brought by Camso against Soucy. In this case, the arguments raised in re-examination, related to novelty and obviousness, were the same as those raised by Soucy in its invalidity counterclaim in the action [20], [48]. While Brouillette + Partners, the law firm which had filed the re-examination request, was not the same as Soucy’s litigation counsel [22], [57], Soucy and Brouillette + Partners were acting in concert and their interests were the same[27], [48], to the extent that Soucy’s litigation counsel appeared on this motion on behalf of Brouillette + Partners [22]. (There was no impropriety involved [23]. It seems that Soucy simply hired different firms to handle the re-examination and the litigation.)

Thus the question was really which forum was appropriate for litigating these issues, the Federal Court, or the re-examination board established by the Commissioner of Patents. In the result, Roy J granted the stay, thus giving priority to the judicial proceeding [29], [65].

The basic argument in favour of giving priority to the re-examination procedure is one of judicial economy, as the re-examination procedure is designed to be a “relatively summary and inexpensive alternative to a full blown impeachment process by litigation”: Prenbec Equipment v Timberblade 2010 FC 23 [46]; and similarly [27], [51]. The basic argument in favour of giving priority to the court action is that it allows for more complete evidence, as the evidence in a re-examination is limited to “patents, applications for patents open to public inspection and printed publications” (s 48.1(1); [4]). In other words, the re-examination process reduces cost by sacrificing accuracy.

The superior quality of the evidence in the action is the main reason given by Roy J for staying re-examination: [48], [50], [52], [53], [58], [62]. The difficulty with the judicial economy argument is that while it would simplify the litigation if certain claims were invalidated in the administrative proceeding, that simplification would not be in the interest of justice if they claims were wrongly invalidated on the basis of inferior evidence [58].

Both the result and the reasoning are consistent with Prenbec, in which de Montigny J stayed re-examination proceedings. In Prenbec, de Montigny J noted that “the invalidity arguments made by the defendants raise an issue of credibility that cannot be assessed by the Re-examination” [37], so the problem of an erroneously invalidating the patent was acute. Indeed, de Montigny J noted that the defendant in Prenbec had initiated the re-examination precisely in order to avoid having to deal with the issue of credibility [44]. Brouillette + Partners sought to distinguish Prenbec on the basis that it was confined to issues of credibility [28]. Roy J rejected this argument, noting, correctly in my view, that the principle in Prenbec was to prefer the proceeding with the better evidence [62], and the issue of credibility was simply the specific instantiation of that principle.

Taken together, Camso and Prenbec, suggest that the FC will be strongly inclined to stay a re-examination which raises the same questions as are raised in an action. Compare this with the US situation. Re-examination corresponds approximately to ex parte review in the US, and a similar question has arisen in the US both in that context and with respect to inter partes review. In the US, I believe it is not uncommon for the courts to give priority to the re-examination proceeding. However, there is an important difference in the legal context. If I understand correctly, in the US only the PTO has the ability to stay its own proceedings and it is generally disinclined to do so. The question before the US courts is therefore whether the court should stay the infringement action pending the outcome of the PTO proceeding. In Canada, in contrast, the Federal Court has the power under s 50 of the Federal Courts Act to itself stay the re-examination proceeding: Prenbec [21]-[25]. Thus in the US the question facing the courts is whether to allow potentially duplicative proceedings to both go ahead, whereas Canadian courts, given that they also control the own procedure, implicitly face the more palatable choice of which of the two proceedings should go ahead first. Thus it is understandable that the Canadian courts would prefer a single, comprehensive procedure, while at the same time the US courts prefer the simpler re-examination to go ahead in preference to allowing duplicative proceedings.

This decision does raise a couple of questions. First, if the defendant fails in its validity attack at trial, can it try again in re-examination? The proceedings are separate, so the question is whether the outcome of the litigation gives rise to an estoppel against the same party in interest in the re-examination, once the stay is lifted. Roy J raised the issue, but did not decide because it was not discussed [57]. (Note that in the US inter partes review gives rise to an estoppel in subsequent litigation, by statute, while ex parte review does not. The question here is the converse, and since the statute is silent, the answer would turn on general principles.)

Second, assuming there is no estoppel, what happens if the patentee prevails in the infringement action, then the re-examination proceeds once the stay is lifted, and the claims that were the basis for the infringement are invalidated? The effect of re-examination is to invalidate the claims ab initio (s 48.4(3)), so the defendant might in principle be subject to damages for having infringed claims that never existed. The patentee can appeal the re-examination (s 48.5) to the Federal Court, but the FC may have to show deference on the appeal [53],so it is possible in theory that the FC could hold that the patent is valid, and subsequently affirming a decision of the re-examination board that it is not. This problem will likely remain purely theoretical, but it will be an interesting conundrum if it does arise.

Tuesday, June 27, 2017

Entitlement to Punitive Damages, Revisited, Revisited. . .Revisited

Eurocopter v. Bell Helicopter Textron Canada Limitée 2013 FCA 219 Mainville JA: Noël, Trudel JJA [FCA Liability] aff’g 2012 FC 113 Martineau J [FC Liability]

Airbus Helicopters SAS v Bell Helicopter Textron Canada Limitée 2017 FC 170 Martineau J [FC Damages]
            2,207,787 / helicopter landing gear

I have to admit, I’m not doing very well with this case. Monday’s post tried to correct a misinterpretation in my post on the 2013 FCA Liability decision affirming that Airbus / Eurocopter was entitled to punitive damages, and only a few hours after posting, I added an addendum to reflect another new interpretation. Maybe I should declare defeat and move on. But quantum of punitive damages and entitlement are intimately linked – entitlement to punitive damages turns on the court’s outrage at the infringer’s conduct, and the quantum must be proportionate to that same outrage – which is why I had to reexamine the Liability decision in order to blog on the punitive damages aspect of the Damages decision. And the issue is an important one. Punitive damages have traditionally been awarded only in exceptional circumstances in Canadian patent cases, and Bell is the case which comes closest to typical infringing behaviour. (Contrast the previous leading case, Lubrizol, in which the infringer breached an interlocutory injunction). Because punitive damages are a quasi-criminal sanction (Whiten 2002 SCC 18, [36]), parties must be able to predict, and so avoid, conduct that will attract punitive damages. So in this post, I will try, once again, to what substantive rules governing entitlement to punitive damages emerge from FCA Liability 2013 FCA 219 aff’g FC Liability 2012 FC 113. Consider this the post that I should have written on the punitive damages aspect of the 2013 FCA Liability decision.

Monday, June 12, 2017

Punitive Damages and Infringer’s Belief that Patent is Invalid

Airbus Helicopters SAS v Bell Helicopter Textron Canada Limitée 2017 FC 170 Martineau J
            2,207,787 / helicopter landing gear

This Bell Damages decision follows the decision of Martineau J in the liability phase of this bifurcated trial, Bell Liability 2012 FC 113, aff’d 2013 FCA 219, in which he had held one of the claims of the 787 patent, owned by Eurocopter (now the helicopter division of Airbus), to be valid and infringed. In the Damages decision, Martineau J awarded $500,000 in compensatory damages and $1,000,000 in punitive damages, plus pre-judgment and post-judgment interest [2], [108]. After writing two long posts on the compensatory damages award in March (see here and here), I procrastinated on writing a third post, which I knew would be just as long, on the punitive damages issue. Now that I have returned to the case, I realize that I didn’t deal properly with the FCA Liability decision on the issue of whether the infringer will avoid punitive damages if it believes that the patent is invalid. In this post, I will deal with that issue.

To recap my post on the Bell FC Liability decision, Martineau J held that Bell’s conduct was sufficiently egregious to justify awarding punitive damages to Eurocopter, in large part because Bell had intentionally copied the landing gear, when it knew or should have known that it was patented:

[433] This is a case of wilful blindness or intentional and planned misappropriation of the claimed invention. Eurocopter has proven that the infringement of the ‘787 Patent by the making and use of the Legacy gear was not innocent or accidental.

Now, we can certainly imagine a more innocent infringement. A infringer might have independently invented the invention, and practiced it in complete ignorance of the patent until approached by the patentee. Or it might have independently invented it, and then discovered the patent, and chosen to go ahead nonetheless. It might have copied the technology without realizing it was patented. But, as I argued in my posts on both the FC and FCA decisions, even copying and intentional infringement of a technology which the infringer knew to be patented, is not necessarily objectionable. I was (and remain) concerned with the chilling effect on validity challenges if that conduct alone were sufficient to justify punitive damages. Suppose a pharmaceutical patentee has tried to evergreen a valuable drug patent by product-hopping to a new version protected by a formulation patent that claims and enteric coating or extended release, and, after a detailed assessment of the patent, a generic company reasonably concludes that the patent is probably invalid for obviousness — after all, such patents are regularly, though not invariably, held to be invalid by Canadian courts. The generic then launches a competing version which it knows will infringe. Surely, this infringement, though planned and deliberate, does not constitute misconduct worthy of punitive damages, even if the generic's reasonable and good faith opinion that the patent was invalid ultimately turns out to be wrong. On the contrary, the generic is doing a public service by attacking a patent that is wrongly increasing the burden on the health care system.

The situation is arguably quite different if the defendant infringes a patent which it believes to be probably valid. That is the position taken by the FCA is the Bell FCA Liability decision. This is where I misinterpreted the FCA decision. In my post on the FCA decision, I said the main reason the FCA held punitive damages were justified was “simply the factual finding that Bell intentionally infringed.” While the FCA did refer to Martineau J’s finding of intentional infringement [186], the FCA summarized by saying (my emphasis) that

[192] Where a person infringes a patent which it knows to be valid, appropriates the invention as its own, and markets it as its own knowing this to be untrue, punitive damages may be awarded. . .

In my post I said that the FCA reasoning “does imply that punitive damages would not be available if the infringer had had a good faith belief that the patents it knew it was infringing were invalid.” Saying it was an “implication” is much too weak. The Court began its discussion by saying this (my emphasis):

[185] [Bell] submits that infringing a patent is not conduct which intrinsically merits punishment where the infringer did not know of the existence of the patent or reasonably held that the patent was invalid. I agree that it would be difficult to uphold a punitive damages award in such circumstances. However, these are not the circumstances applicable to this case.

Moreover, [192] came at the end of the FCA’s summary of the evidence in this case, so the reference to a person infringing a patent which it knows to be valid is not a general statement about possible scenarios, but rather a statement about this particular case.

Thus, contrary to the statement in my earlier post, according to the FCA, intentional infringement of the patent alone will not normally justify punitive damages; what is required is intentional infringement of a patent which the infringed believes to be valid. In this case, according to the FCA, punitive damages were justified because Bell deliberately infringed a patent which it knew to be valid, and marketed the invention as its own.

Here is my excuse for my misreading. The evidence reviewed by the FCA at [186] as supporting the award of punitive damages, establishes that Bell intentionally copied the landing gear which it knew or should have known was patented (see FC Liability [431-34]), but I do not see any finding by Martineau J that Bell believed the patent to be valid, or that it’s belief to the contrary was unreasonable, either in the cited paragraphs, or anywhere else in either the FC Liability decision or the FC Damages decision. So far as I can see, the question of whether Bell believed the patent to be invalid during the time it infringed was never addressed by Martineau J; indeed, it seems not to have been raised at all. My statement that the main reason the FCA approved the award of punitive damages was simply intentional infringement, was based on the evidence reviewed by the FCA, rather than the statements in [185] and [192].

I’m not really sure to make of this. Maybe the FCA read the cited paragraphs of the Liability decision differently from me, and sees them as finding that Bell believed the patent was valid. Maybe there is something else in the record that isn’t reflected in the FC Liability decision which establishes that Martineau J did indeed find that Bell believed the patent to be valid, though it would be surprising for a key factual issue not to be referred to. [Addendum: At [185] the FCA said that this is not a case in which it was established that the infringer reasonably believed the patent was invalid. It has just occurred to me that this is strictly true on a straightforward reading of Martineau J's Liability decision, since there was no finding one way or the other on that point. That implies that in order for the infringer to escape punitive damages, the onus is on the infringer to establish that it reasonably believed the patent was invalid (or, presumably, that it reasonably believed that its product would not infringe). On that view, the FCA decision is consistent with Martineau J’s finding. If that is the correct interpretation, it would have been helpful for the FCA to have spelled this out more explicitly.]

In any event, the point to emphasize is that, according to the FCA, an award of punitive damages will rarely be justified in a case in which the infringer reasonably believed the patent was invalid.

The argument for awarding punitive damages is stronger when the infringer believed the patent to be valid, than in my hypothetical scenario of an objectively weak patent. Whether the infringer believed the patent to be valid is a distinction with a difference. Nonetheless, I am not persuaded that intentional copying of an invention which the infringer believes to be valid, in itself justifies punitive damages. A requirement that the infringer believed the patent to be valid is relevant and important, because it mitigates the chilling effect; but the chilling effect is not eliminated. If Canadians are spending millions of dollars annually on a product protected by a patent that is 70% likely to be valid, there is a 30% chance that those millions of dollars are being wasted on a product that should be available far more cheaply. The expected benefit to Canadians if the patent is invalidated may well outweigh the burden on the patentee of having to litigate. the rule that punitive damages are awarded on a showing that the infringer intentionally infringed a patent which it believed to be valid is essentially the US rule (treble damages for willful infringement), and that rule has not been an unqualified success. It adds to complexity of patent trials, by raising the question of the infringer’s belief as to validity, which is otherwise irrelevant; it adds legal costs by increasing the need for opinion letters, whose main purpose may be to defeat a potential claim for treble damages; it increases uncertainty as to potential liability, as the quantum turns on this difficult to prove consideration. factor; and it may deter innovators from reading and learning from issued patents, as a protection against a finding of willfulness. That doesn’t mean that punitive damages are never warranted in patent cases, but in my view there should be some egregious element beyond knowing infringement, even if the patentee believes the patent to probably be valid. Lubrizol Corp. v. Imperial Oil Ltd, 58 C.P.R. (3d) 167, (FCTD) rev’d [1996] 3 FC 40, 67 CPR(3d) 1 (FCA) is an example, in which the punitive damages were assessed primarily because the infringer had acted in callous disregard of an injunction. In this case, the fact that Bell presented the invention as its own is an additional factor, though whether that factor alone would have justified punitive damages if Bell had believed the patent to be invalid, is a different question, and I'm not sure that question was answered by either the FC or the FCA.

Update: see my more recent post for a more complete discussion of this decision.

Friday, June 2, 2017

Venlafaxine Section 8 Decision Reaffirmed on Remand

Teva Canada Ltd v Pfizer Canada Inc 2017 FC 526 Zinn J on remand from 2016 FCA 161 (here, here) var’g 2014 FC 248 (here) and subsequent reasons re pre-judgment interest 2014 FC 634 (here)
            1,248,540 / 2,199,778 / venlafaxine / EFFEXOR XR / NOC s 8 / Venlafaxine s8 FCA

In this s 8 action, Zinn J at trial awarded Teva $105 million in s 8 damages and pre-judgment interest: 2014 FC 248, discussed here (and see FCA [2] specifying the quantum.) On appeal, the FCA held that some key findings by Zinn J were based on inadmissible hearsay evidence: see here. The FCA consequently set aside the decision and remitted it to the FC for redetermination. In this decision on remand, Zinn J has reaffirmed his original decision. Because the remand was for evidentiary reasons, Zinn J’s redetermination turned on the facts and the evidence.

There are two evidentiary points of interest. First, on remand, Wyeth (now Pfizer), argued that much other evidence in the record was also hearsay and inadmissible, and should therefore be excluded, even though no such objection had been made at first instance [32]. After a review of the authorities, Zinn J rejected this argument, and held that he would not entertain any new objection to admissibility [41]. This holding was supported by the observation that, had Wyeth objected at trial, Ratiopharm (now Teva) would have had an opportunity to address the deficiency with other evidence, which was no longer possible on remand [37]. As I am not an expert on evidence law, so I won’t go into this issue in detail, except to say that Zinn J’s holding appears on its face to be logical and supported by the authorities he relied on.

A second point of some general interest is that Zinn J held that when it comes to establishing the capacity of a generic to satisfy the market:

[76] [I]f a section 8 plaintiff can point to a supply agreement with a third party that provides for the supply of the pharmaceutical at issue in the amounts required to fill the generic market in the but-for world then, in the absence of any contrary evidence, it must be found that the plaintiff has proven its loss on the balance of probabilities.

His finding on this issue did not, however, turn on this point alone, as he also found that there were a variety of reasons to conclude that the particular supplier in question in this case would have been able to perform the contract.