Tuesday, November 13, 2018

Bill C-86 and the Use of Prosecution History in Claim Construction

Bill C-86 has introduced several proposed amendments to the Patent Act. The most problematic, in my view, is the proposed s 53.1 (introduced by s 191 of the Bill), which makes prosecution history relevant in claim construction. More specifically, the proposed s 53.1 provides a statutory definition of communications constituting the prosecution history, and provides that such communications “may be admitted into evidence to rebut any representation made by the patentee in the action . . . as to the construction of a claim in the patent.” (Section 187 of the Bill has an apparently related amendment to s 10(1) which would make the file history available to the public when the patent is laid open; and s 197 of the Bill introduces a new s 123.1 which provides that the same principle applies in respect of a certificate of supplementary protection.)

The proposed s 53.1 raises two questions: What is the intended effect? Is the change desirable? One might have thought that whether the effect of an amendment would be clear, and the difficult question is whether it is sounds as a matter of policy. But s 53.1 is not entirely transparent, in part because “representation” is neither a term of art, nor even a commonly used term, in patent law. In Canadian law, at least at present, claim construction is an inquiry as to how a person of ordinary skill in the relevant art (the POSITA) would understand the claim, in light of the relevant context. The relevant context includes things such as the common general knowledge of a person skilled in the art, but not, under current law, the prosecution history. The relevant context is established on the basis of evidence, such as expert witnesses or textbooks. With the context established, the parties make submissions to the court (aka arguments) based on this evidence, as to how the POSITA would understand the claim. Does “any representation” in the proposed amendment refer to the evidence, or the arguments? And what would it mean to “rebut” a representation? Consider the parallel with the question of using legislative history in statutory interpretation – a patent is deemed to be a regulation by s 2(1) of the Interpretation Act, claim construction is like interpreting the statute (Whirlpool 2000 SCC 67 [49(e)]), and the prosecution history corresponds to the legislative history. Suppose that legislative history could not be used in statutory interpretation, and an amendment were made to the Interpretation Act saying that legislative history may be admitted into evidence to “rebut representations” made by a plaintiff in litigation as to the interpretation of the statute. What effect would that have?

Rather than trying to further parse the proposed s 53.1 directly, I will consider the various ways in which prosecution history is used in other legal systems which permit its use; whether s 53.1 might be understood as amending Canadian law analogously; and whether such a change would be desirable. (To emphasize the main points, I am overstating the distinction between these various approaches, which may run together at the margins.)

Monday, November 12, 2018

Lump Sum Costs and Experts Who Do Not Testify

Apotex Inc v. Shire LLC 2018 FC 1106 Fothergill J
            2,527,646 / lisdexamfetamine [LDX] / VYVANSE

This costs decision is consequent on 2018 FC 637 (see here), in which Fothergill J held Shire’s 646 patent to be valid and infringed. Forthergill J’s decision is interesting on two points: the award of lump sum costs, and recovery of fees for experts who provide litigation assistance without appearing as a witness.

Fothergill J awarded lump sum costs in favour of Shire, reinforcing the apparent trend to lump sum costs in complex patent cases.

While Shire requested 50% of actual fees plus all reasonable disbursements, Fothergill J remarked that this request “is a departure from the usual partial indemnity rate of one-third,” citing Philip Morris Products SA v Marlboro Canada Limited, 2015 FCA 9 [6]. This contrasts with the 50% awarded by Phelan J in Hospira v Kennedy Trust 2018 FC 1067 (discussed here). In Philip Morris, the FCA notes as follows (my emphasis):

[6] The appellants also argue that if a departure from Tariff B was appropriate, the lump sum awarded was excessive in view of prior jurisprudence of this Court on lump sum costs in intellectual property disputes. The cited case law does not set boundaries that limit the costs award the judge was entitled to make under the circumstances of this case. In fact, the judge's award is consistent with the percentage of actual costs requested by the appellants when they made representations in respect of the amount of costs that they should be awarded back in 2011. At that time, presumably, the appellants had examined the case law and were satisfied that they could request about one third of their actual cost. The judge was prepared to grant that percentage (paragraph 39 of the 2011 costs decision). The only reason he reduced it slightly was that appellants failed to explain why their legal fees were so much higher than their opponents'. As the saying goes: what is sauce for the goose is sauce for the gander.

I don’t read that as a statement that there is a usual partial indemnity rate of one-third. This decision of FCA was a review of the costs award of the trial judge. A trial judge has broad discretion regarding costs, as Forthergill J noted at [18], and the FCA in Philip Morris noted that “[t]he cited case law does not set boundaries that limit the costs award the judge was entitled to make.” The reference to an award of one-third was not based on the FCA’s own assessment of what the case law said, but only on an inference as to what the appellants might have concluded from the case law; it was really only meant to buttress the conclusion that the award of one-third was within the discretion of the judge.

Of course, that is not to say that Forthergill J was wrong to exercise his discretion to limit the award to one-third (in fact 29%, in the end), or even there isn’t a general practice of awarding a lump sum of one-third of actual costs, but only that Philip Morris itself is not strong authority for the view that a one-third being the usual rate for a lump sum.

Experts providing litigation assistance
Fothergill J also considered issues related to recovery of expenses for experts. In particular, Apotex relied on the decision of Hughes J in Janssen-Ortho 2006 FC 1333 [25], for the proposition that the expenses of an expert who did not appear as a witness but assisted in other capacities should be borne by the client [19]. Notwithstanding the view of Hughes J, after reviewing other relevant case-law, Fothergill J was generally not persuaded by this point [20]-[25]. Fothergill J noted that “Fees for scientific experts who assist counsel in reviewing and understanding other experts’ reports, preparing for cross-examination of opposing experts and, where applicable, assisting in preparation for discoveries, may be recoverable on an assessment of costs” [22], and his decision suggests that such expenses should normally be recoverable unless “clearly superfluous” [25].

Saturday, November 3, 2018

Indemnity Principle for Costs Approved and Applied

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2018 FC 1067 Phelan J
            2,261,630 / infliximab / INFLECTRA

This is the costs decision arising from the declaratory judgment action in 2018 FC 259, in which Phelan J held Kennedy’s 630 patent to be valid and infringed: see here and here. Dissatisfaction with the outdated scale of costs set out in the Tariff had resulted in something of a trend towards awarding costs which go above the Tariff, either in the form of enhanced costs where appropriate, or a lump sum award. This decision reinforces that trend, both in the lump sum award of 50% of fees plus actual disbursements, and in Phelan J’s general comments regarding costs in complex litigation. There are two broad take-away messages. First, awarding costs on the Tariff scale of costs would have been unfair in this case, and by extension, will likely often be unfair in the context of complex litigation. Second, disruptive and unnecessary litigation tactics will have costs consequences, even if enhanced costs are not awarded on a line-by-line basis or on the motions themselves.

Phelan J began by noting that “Rule 400(1) gives the Court full discretionary power over the amount and allocation of costs” [5], and then continued:

[7] With respect to the approach to costs in complex litigation involving sophisticated large corporations, I concur with Justice Hughes in his cost decision in Air Canada v Toronto Port Authority, 2010 FC 1335, 196 ACWS (3d) 640, to favour the indemnity (whole or partial) principle and his reasoning in paragraphs 14 and 15.

Here are Justice Hughes’ remarks:

[14] Traditionally, the Federal Court of Canada has been laggard in comparison with other Canadian superior courts, such as Ontario, in escalating an appropriate scale of costs. Many cases in the Federal Court involve persons of limited means who engage the federal government in litigation of one kind or another. The scale of costs is usually modest in such circumstances or usually non-existent in cases such as immigration. Complex commercial cases are frequently those involving intellectual property such as patent infringement actions or applications made pursuant to Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 as amended. Still costs in such matters are assessed largely with reference to the Tariff on one of the higher levels such as Column IV or V.

[15] Other jurisdictions, such as Ontario, have moved away from a tariff toward concepts of full indemnity or partial indemnity based upon the actual costs and disbursements incurred in the proceeding. The theory is that a successful party should not be penalized just because they become engaged in, or had to resort to, litigation. In so doing however, a Court has to be mindful that a party, while successful, may not have been entirely successful or, that the matter was a close call, or that it was one in which the assistance of a Court in its resolution was essential. Therefore an unsuccessful party should not be unduly punished by having to bear not only its own expenses but a large proportion of those of the other parties as well.

Phelan J continued:

[8] There is a public interest served by lump sum awards based on the indemnity principle, particularly in cases like these. Such awards show the real cost of initiating litigation – which Hospira/Celltrion did. Such awards also show the consequences of bringing multiple proceedings, failing to behave reasonably and efficiently in the conduct of the litigation – that there are real consequences to the various steps available in the litigation process.

[9] I intend to follow the indemnity principle, the issue remains as to what level of indemnity – 50% as proposed, 30% as a proposed alternative or some other percentage.

On the facts, Phelan J noted that Kennedy/Janssen had won on every major point [11], and had conducted the trial “with efficiency and effectiveness” [12]. 

Phelan J also noted that application of the Tariff, even the high end of Column V, would result in "an unfair discount" of less than 10% of reasonable fees. Consequently:

[13] While costs seldom are awarded on a full indemnity basis, it would be unsatisfactory to deprive Kennedy/Janssen’s clients of the fruits of their victory by a paltry cost award and would be a windfall of cost savings for the losing side. The disincentive to a losing party pursuing an unsustainable case would be eliminated where the cost award is so far removed from the reality of actual costs.

Regarding disbursements, Phelan J said there was nothing unreasonable or excessive about the disbursements, and he noted that “It is not for the losing party to tell the winning party how they could have succeeded by doing or spending less” [24].

In the result he granted Kennedy / Janssen’s motion for costs at 50% of fees plus actual disbursements [26]. In part this was due to the complexity of the litigation, but Hospira/Celltrion’s generally unreasonable conduct of the litigation was also a significant factor [20]-[22]. Phelan J warned that costs consequences should be taken into account “in terms of both the strategic and tactical decisions the clients and counsel must make and the potential consequences of their choices” [25].

Thursday, November 1, 2018

Did Ciba Change the Windsurfing / Pozzoli Test?

Frac Shack Inc v AFD Petroleum Ltd 2018 FC 1047 Manson J on remand from 2018 FCA 140 Gleason JA: Webb, Laskin JJA

At trial in Frac Shack v AFD 2017 FC 104 (here) Manson J held several claims of Frac Shack's 567 patent to be valid and infringed. On appeal, the FCA reversed in part, holding that Manson J made a palpable and overriding error in his definition of the POSITA [FCA 41] (see here), and conseqeuntly returned the matter for redetermination of a number of issues related to claim construction and obviousness. Mason J was evidently somewhat miffed: he reminded us all that “an Appeal Court must read all relevant portions of the Trial Court’s reasons holistically and with an open mind” [12], and he might be taken to have suggested that the FCA itself conflated the question of who the POSITA is and what that notional person would know [13]. In the end, he clarified his initial decision by making explicit what he considered had already been implicit [24]. Unsurprisingly, then, none of his conclusions changed.

Of more general interest, Manson J dismissed arguments by the defendant that the decisions in Ciba 2017 FCA 225 (see here) and AstraZeneca 2017 SCC 36 (here), had changed the Windsurfing/Pozzoli test for obviousness.

In particular, in Ciba [77], in the course of discussing the second step of the Windsurfing/Pozzoli test for obviousness which was adopted in Sanofi 2008 SCC 61, [67], the FCA said:

There may be cases in which the inventive concept can be grasped without difficulty but it appears to me that because “inventive concept” remains undefined, the search for it has brought considerable confusion into the law of obviousness. That uncertainty can be reduced by simply avoiding the inventive concept altogether and pursuing the alternate course of construing the claim.

Manson J remarked that “the FCA’s comments are recognition of the difficulties that a court may face when attempting to identify the inventive concept of a claim. They do not suggest that the proper approach is to bypass this analysis as a matter of course and proceed directly to construing the claim” [52]. I don’t disagree with this statement, and I entirely agree with how Manson J applied it in Frac Shack itself, but I might elaborate slightly. Step 2 as set out in Sanofi is as follows:

(2) Identify the inventive concept of the claim in question or if that cannot readily be done, construe it;

There is a lot of latitude as to what “readily” means. How much effort should the court and the parties devote to identifying the inventive concept before turning to claim construction? The trend in a number of FC cases prior to Ciba had gone quite far to one extreme. The debate over the inventive concept could get very involved, to the point that the outcome of the obviousness analysis would turn on a dispute as to the “correct” inventive concept; it was almost as if step (2) had said nothing but “Identify the inventive concept.” As I see it, the FCA was strongly disapproving of this trend. The question then is how far to the other way we should go. As I read it, in Ciba the FCA was indeed suggesting that the proper approach is quite far towards the other end, on the view that the notion of the “inventive concept” is so poorly defined that it may be useful only in cases in which it can be “grasped without difficulty.” So, I agree with Manson J that Ciba did not say that identification of the inventive concept should be bypassed as “a matter of course,” but on the other hand, it did warn against devoting any substantial effort to the problem. 

It is perhaps worth repeating the key passage from Pozzoli [2007] EWCA Civ 588 [19]-[20] itself:

In some cases the parties cannot agree on what the concept is. If one is not careful such a disagreement can develop into an unnecessary satellite debate. In the end what matters is/are the difference(s) between what is claimed and the prior art. It is those differences which form the "step" to be considered at stage (4). So if a disagreement about the inventive concept of a claim starts getting too involved, the sensible way to proceed is to forget it and simply to work on the features of the claim.

In other cases, however, one need not get into finer points of construction – even without them the concept is fairly apparent – in Windsurfing, for instance, it was the “free sail” concept. In yet other cases it is not even practical to try to identify a concept – a chemical class claim would often be a good example of this.

On the one hand, we may look to the inventive concept if it is “fairly apparent,” but should avoid it if the task becomes “too involved.”

Both Pozzoli and Sanofi describe step (2) in terms which leave broad latitude as to how much effort is too much when trying to identify the inventive concept. I see the FCA in Ciba indicating that the lower end of that broad range is appropriate. This is not inconsistent with anything in Pozzoli and Sanofi, but neither is it merely restating exactly same test; it is a refinement of step (2) in light of experience. That is how the common law is supposed to work. And it is also a suggestion to the SCC that step (2) of the Windsurfing / Pozzoli test may need even more fundamental revision.