Tuesday, December 4, 2018

Legitimate NIA Must Not Infringe Any Patent

Apotex Inc v Eli Lilly and Co 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA aff’g 2014 FC 1254 Zinn J [Cefaclor Damages]
            1,133,0071,146,5361,133,4681,150,725 [Lilly Patents]
            1,095,0261,132,5471,136,1321,144,924 [Shionogi Patents]

As discussed in yesterday’s post, the key issue in Cefaclor Damages was the extent to which Apotex could rely on the Lupin 2 process for making cefaclor as a non-infringing alternative (NIA) in assessing damages. A legitimate NIA must of course be non-infringing in the sense of not infringing the patents at issue; but in this case the FCA held that neither can it infringe other patents. This appears to be a novel legal point [55], which arose from the unusual facts of the case.

Apotex imported and sold cefaclor produced by by South Korean drug maker Kyong Bo and Indian company Lupin. Lilly alleged that all of it infringed the patents at issue. The Lupin product was imported in a few different batches, and Gauthier J ultimately held that the Lupin product was produced by (essentially) two different processes, Lupin 1 and Lupin 2 [FC 15]. At the liability phase, Lilly did not prove that Lupin 2 infringed; indeed, Lilly never even argued that Lupin 2 infringed, because Lilly’s position was that the Lupin 2 process was so inefficient that it could not have been used [56]. No doubt that was a reasonable position at the liability phase, but having lost on that point, in the reference phase Lilly had to accept that the last shipments of Lupin cefaclor were produced using the Lupin 2 process. At the reference phase, Lilly argued, for the first time, that the Lupin 2 process infringed an entirely separate Lilly patent, the 646 patent. Understandably, the 646 patent patent was not in issue at all in liability phase [60], given that Lilly didn’t believe the process it covered was being used [56].

Lilly raised the 646 patent, not to establish that the Lupin 2 process infringed the 646 patent, so as to give rise to damages for sale of the Lupin 2 cefaclor, but rather to preclude Apotex from raising the Lupin 2 process as an NIA in the assessment of damages for the Kyong Bo and Lupin 1 cefaclor. This argument was not addressed by Zinn J, apparently because of his view that the NIA defence was not available as a matter of law [59].

Thus the point was addressed for the first time by the FCA. The FCA held that [55, my emphasis]:

It goes without saying that to be a real alternative, an NIA must be lawful, that is to say, non-infringing. This applies to more than just the patent(s) in suit in the proceedings

The matter must of course be put in play by the patentee—it is not for the infringer to establish that there is no patent in the world that it might have infringed [57], [61], [65]. Once the issue is in play, it is for the infringer “to explain or produce evidence explaining why, despite the reference to this unexpired patent, the NIA on which it sought to rely on was in fact lawful” [65]. It would seem that not very much is required to put the issue in play, though that may be due to the unusual facts [62].

This basic holding strikes me as sound in principle, though different facts might raise questions. In this case, Lilly owned the 646 patent, so it goes without saying that it would not have licensed the technology to Apotex. But what if the 646 patent had been owned by a third party, which was routinely willing to licence it to all comers at a set royalty? What if the 646 patent had been owned by a third party, which did not routinely licence it, but might have been willing to do so? I won’t explore those questions here, except to say that I do not think they are settled by this decision, which, as Gauthier JA noted, turned on its unusual facts [4].

There is also a separate point respecting the burden of proof, which relates to the patents that were in issue. As noted, at the liability phase, Lilly had never argued that the Lupin 2 process infringed the patents that were in issue (because its position that the Lupin 2 process was not actually being used), nor did Gauthier J make such a finding. Instead, she held only that Lilly had not established that it infringed [56]. At the reference phase, Lilly wanted to re-open this issue. If I understand correctly, the basis for the argument is that the burden is different: while it was for Lilly to prove infringement at the liability stage, at the reference stage, Apotex had the burden of proving that it had an NIA available, including that the NIA was non-infringing. Zinn J rejected this, on the basis that the matter had been decided in the liability phase [61], and the FCA has affirmed that the issue cannot be re-opened [58].

In the result, Gauthier JA concluded that the Lupin 2 process prima facie infringed the 646 patent [64], and Apotex had not countered the prima facie case, and in consequence, the Lupin 2 process could not be a legitimate NIA [69].

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