Thursday, February 15, 2018

Standing of Plaintiffs Carrying on Activity Outside of Canada

Teva Canada Ltd v Janssen Inc 2018 FCA 33 Dawson JA: Webb, Gleason JJA aff’g 2016 FC 593 Hughes J and 2016 FC 727
            1,304,080 / levofloxacin / LEVAQUIN

As discussed in Tuesday’s post, the FCA dismissed Teva’s appeal on a number of factual points that do not raise issues of general importance. But Teva v Janssen is a significant decision on standing. It raised a novel question as to whether a foreign party which has a licence from the Canadian patent owner, but which does not need the licence because it does not carry out any infringing activity in Canada, has standing as a person claiming under the patentee pursuant to s 55(1). The FCA, affirming Hughes J, held that the claimant does indeed have standing in this situation:

[126] I reject Teva’s submission that Janssen US was required to demonstrate that it engaged in conduct in Canada that would otherwise amount to infringement.

[127] A party need only establish that they enjoy rights under a patent in order to be a person claiming under the patentee.

In so doing, the FCA also affirmed and distinguished Servier 2008 FC 825 (aff’d without discussion on this point, 2009 FCA 222), in which Snider J held that the foreign parties did not have standing in similar circumstances. Between the two cases, this should provide good guidance as to when a licensee which does not carry on activity in Canada does or does not have standing. However, I must say that I do not find the FCAs explanation of Servier entirely persuasive, and I am inclined to think it is better to regard Servier as having been effectively overruled.

In my post on Hughes J’s decision on standing, I’m afraid I got caught up in a theoretical point, at the expense of the cases (and indeed, the facts), so I will try to rectify that in this post. Subsection 55(1) provides that an infringer is liable to “all persons claiming under the patentee” for all damage sustained by reason of the infringement. In Armstrong Cork v. Domco [1982] 1 SCR 907 the SCC held that this includes a licensee, whether exclusive or non-exclusive, and in Signalisation de Montréal [1993] 1 FC 341 the FCA held that more broadly, “What matters is that the claimant asserts a right [that] may be traced back to the patentee.” (On the facts, the Court held that a party who had only a purchaser’s right to use the invention had standing.)

Much of the subsequent litigation on this issue has concerned how to establish the existence of a licence, particularly in the context of related companies where formal licence agreements do not always exist. The courts have consistently held that an express licence is not required. A licence may be implied from the corporate relationship between the patentee and the claimant, in combination with other factors going to show that the patentee consented to, or at least acquiesced in, the use of the patented technology by the claimant.

Snider J’s decision in Servier 2008 FC 825 is one of the only cases holding on the facts that a licence was not established. The plaintiffs were all members of the closely related Groupe Servier companies. ADIR was the patent owner and Servier Canada exploited the patent rights in Canada. The standing of these two parties was not challenged. Apotex did, however, challenge the standing of various foreign plaintiffs, other than ADIR, such as Servier Australia and Servier UK (collectively the “non-ADIR Foreign Plaintiffs”) [67]. The evidence showed that, as the company names suggest, the group was organized on a geographical basis, with each national company responsible for exploiting the invention in its home jurisdiction. Despite the close relationship between the parties, which was an important factor in other cases, Snider J held that there was no implied licence [87]. The primary basis for her holding was that “none of the non-ADIR Foreign Plaintiffs operates in Canada” [88], and (my emphasis):

[90] Further, none of these Plaintiffs has ever needed a licence in respect of the '196 Patent because none of their foreign activities relating to the manufacture, use or sale of perindopril can constitute an infringement of the '196 Patent.

[91] Quite clearly, the non-ADIR Foreign Plaintiffs do not use the '196 Patent in Canada or elsewhere. They do not need a licence from ADIR in respect of that patent. It is a stretch to say that the non-ADIR Foreign Plaintiffs are parties to an implied licence for the '196 Patent when no such licence is required.

The Servier decision was evidently the primary basis for Teva’s argument in this case that Janssen US did not have standing on the basis that the jurisprudence requires a claimant “to demonstrate that it acquired rights to engage in what would otherwise amount to infringing conduct” and Janssen US had not established that it had engaged in conduct which, but for the licence, would have infringed the Canadian patent [114a]. This was separate from the question of whether a licence to Janssen US had been established on the facts [144b].

In my view, Teva’s argument is generally consistent with both Servier and the prior cases. On its face, Servier can be read as a case in which the fact that the non-ADIR Foreign Plaintiffs did not need a licence was merely one factor going to Snider J’s conclusion that they did not have a licence. But that was expressly the primary factor which distinguished the facts from other cases involving closely related companies, and it would be consistent with the common law tradition to extend such a point from a finding of fact to a point of law. And while the prior cases do state that the test is whether the claimant’s right can be traced back to the patentee, they (almost) all concern cases in which the claimant exploited the patented technology in Canada and would have infringed but for a licence. An exception is Spun Rock Wools [1943] S.C.R. 547, aff’d on this point [1947] AC 313, where it appears that neither the claimant, not any party claiming under the patentee, exploited the patent in Canada (556). But Spun Rock Wools might be explained on the basis of the unusual circumstances, as the claimant, Fiberglas Canada, was a licensee from a company that was a foreign enemy during the war, and it is possible (though not at all clear on the facts), that this is why the claimant did not exploit the patent in Canada. Perhaps more importantly, while the claimant did not directly practice the invention in Canada, it may be that it intended to exploit the invention by sublicensing it in Canada, in which case it would have had standing under Teva's proposed test, as because without a licence is would have been infringing by authorizing use of the invention. What is clear is that Spun Rock Wool was not a case in which an upstream foreign supplier was seeking a remedy against the infringer. I do not see it as authority against Teva’s position.

To say that Teva’s argument was consistent with the prior cases does not mean that it is right, but only that it raised a novel point. To repeat, the FCA clearly rejected Teva’s position:

[126] Finally, to conclude on this point, I reject Teva’s submission that Janssen US was required to demonstrate that it engaged in conduct in Canada that would otherwise amount to infringement.

[127] As explained above, the purpose of subsection 55(1) of the Patent Act is to provide redress to those who have a right which may be traced back to a patentee and who suffer damage as a result of infringement of the patent. A party need only establish that they enjoy rights under a patent in order to be a person claiming under the patentee.

The Court’s statement regarding the purpose of 55(1) is consistent with a purposive interpretation of the Act as a whole: in order to preserve the incentive to invent, the patentee and related companies should be able to capture the full economic value of the patented invention in an infringement action. This should not be defeated by the details of the patentee’s corporate structure.

But what about Servier? In Servier Snider J found "additional support" for her conclusion that no licence existed in the fact that in an entirely separate product liability action brought against some of the Groupe Servier companies, the existence of a licensing agreement was expressly denied, and foreign Servier companies denied carrying on business in Canada [92]-[93]. Thus Servier might have been distinguished on the basis that the repudiation of the licence in the other proceedings was sufficient to establish that there was no licence on the facts. However, this was on its face a secondary basis for Snider J’s decision, and neither Hughes J nor the FCA relied on that factual distinction.

Hughes J dealt with Servier by describing it as standing for the proposition that “the claim must be one in respect of a use in Canada and not elsewhere in the corporate chain” [43]. With respect, that does not seem to be to be an accurate description of Servier’s holding, as the claim in Servier was indeed for infringement by manufacture and sale in Canada [8]. Read in isolation, Hughes J's statement might be taken as saying that the activity which generated the loss for the foreign plaintiff must have taken place in Canada. But that can't be right, because that is exactly why standing was at issue in Teva v Janssen. And in Servier we don't know where the foreign plaintiff's activity took place. How the infringement caused loss to the foreign plaintiffs is not clear, as they were held to lack standing, but precisely because the nature of the loss was not clear, it is clear that the nature of loss was not the reason Snider J held that the foreign plaintiffs lacked standing.

The FCA dealt with Servier differently, holding as follows (my emphasis):

[123] In my view, the Federal Court correctly distinguished Servier. In Servier the Federal Court found, at paragraph 81, that none of the foreign plaintiffs manufactured, offered for sale or imported any of the compounds claimed in the patent at issue into Canada. There was, therefore, no basis for finding that the foreign plaintiffs were affected by the infringement of the Canadian patent or that they suffered any loss as a result of its infringement. Instead, each affiliate promoted, marketed and registered the product in its specific jurisdiction.

The FCA then noted that in this case a loss to Janssen US caused by the infringement in Canada had been established [124].

[125] It follows from these findings that once infringing sales of Novo-levofloxacin supplanted sales of Levaquin by Janssen Canada, that Janssen US also suffered loss. None of the Servier foreign plaintiffs were similarly harmed.

Thus it seems the basis for the distinction is that the Servier claimants did not suffer loss caused by the infringement. I don’t find this persuasive. As just noted, we don’t know whether the foreign plaintiffs in Servier suffered a loss caused by the infringement, because they were held to lack standing and the question was never addressed. The FCA seems to be inferring that there was no loss from what was merely Snider J’s description of the general corporate practice. More generally, this reasoning seems to conflate standing and remedy. A party who has standing but has suffered no loss can nonetheless seek a remedy such as an injunction, or an accounting of profits. Further, it seems wrong to hold that standing turns on the existence of damages, as part of the purpose of a standing requirement is to preclude the claim entirely, thereby avoiding the need to inquire as to damages. If merely pleading damages were sufficient to establish standing, any requirement to establish damages in order to establish standing would be nugatory.

On the other stand, a straightforward implication of the statement in Teva v Janssen that “the purpose of subsection 55(1) of the Patent Act is to provide redress to those who have a right which may be traced back to a patentee and who suffer damage as a result of infringement of the patent” [125] is that Servier was wrongly decided, as standing was denied without determining whether the non-ADIR Foreign Plaintiffs had suffered a loss as a result of the infringement.

Consequently, it seems to me that that Teva v Janssen has effectively overruled Servier.

To return to the theoretical point occupied me in my post on Hughes J’s decision, it is now clear that there is no requirement to demonstrate that a claimant engaged in conduct in Canada that would otherwise amount to infringement in order to establish standing. But I’m not sure it necessarily follows that any party who establishes standing on that basis should always be able to recover all damages caused by infringement.

As noted above, a good justification for the FCA’s decision is that the patentee and persons claiming under it should be able to capture the full value of the patented invention. But conversely, a plaintiff should not be able to recover losses that did not turn on the invention. Suppose, for example, that instead of being supplied by Janssen US, Janssen Canada had been supplied by TabletCo A, a third party provider of tablets, which had no licence of any kind from the owner of the Canadian patent (because none was needed because it did not engage in any activity which would constitute infringement of the Canadian patent). Teva’s infringement would cause TabletCo A to lose profits on sales to Janssen Canada. Should TabletCo A be able to launch an independent action against Teva, claiming those lost profits? It seems clear enough that the answer is no, as TabletCo A cannot trace any interest back to the patentee. This also seems right in principle, because the profits of TabletCo A turned only on its manufacturing capacity, and not on the rights protected by the patent.

Now take the same hypothetical, but suppose that TabletCo A had obtained a licence from the Canadian patent owner. Perhaps the licence had been granted by the patent owner for the sole purpose of enabling TabletCo A to bring a claim, thereby making it riskier for Teva to launch at risk. Should TableCo A now be able to sue the Teva? If “tracing back” is the sole test, then the answer is yes. It’s not clear to me that result is sound as a matter of principle, because TabletCo A would then be allowed to recover for a loss of profits that were derived only from the manufacturing capacity, and not its reliance on the patented technology. To illustrate, suppose that Teva had also sourced its infringing product from TabletCo A, so that when TabletCo A lost sales to Janssen as a result of the infringement, it gained exactly the same sales to Teva. In that case, even if we assume TabletCo A would have standing to sue Teva, it would have suffered to loss. But if Teva sourced from TabletCo B, rather than TabletCo A, so that A’s loss was B’s gain, it seems wrong to make Teva liable to A because the profits of TabletCo A turned only on its manufacturing capacity, and not on the rights protected by the patent. This reflects a general tort law principle that some types of pure economic loss are too remote to be recoverable, even though caused by the tort: see CNR v Norsk [1992] 1 SCR 1021.

This argument is not inconsistent with the FCA’s holding in Teva v Janssen. While s 55(1) states that an infringer is liable to persons claiming under the patentee “for all damage sustained,” it is generally interpreted as a going to standing, rather than entitlement to damages as such. The limitation I have suggested might be treated as a problem of remoteness of damages, rather than as being one of standing, as in CNR v Norsk

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