Friday, February 28, 2020

Enforceability of a No-Challenge Clause

Loops v Maxill Inc 2020 ONSC 971 (CanLII)
            2,577,109 / Toothbrush

This motion refusing to grant a partial anti-suit injunction, which would have prevented the alleged infringer from challenging the validity of a US patent in a US court, raises a question regarding the enforceability of a “no-challenge” clause in a settlement agreement. I don’t believe the point has been previously litigated in Canada, though it has been raised in a number of cases in the US. It also illustrates that if a no-challenge clause is to exclude challenges by the party to settlement agreement, it is best to say so explicitly.

Loops and Maxill are in the toothbrush business [9]. Loops sued Maxill in Canada for infringement of Loops’ 109 patent. In 2014 the parties settled [14]. The Agreement contianed a “no-challenge” clause stating that Maxill “would not directly or indirectly assist any person attacking the validity of either [the Canadian 109 patent or the corresponding US Patent 8,448,285] [15]. Maxill then created another toothbrush to try to design around the 109 patent [19]. Loops sued Maxill in Canada over the new toothbrush, this time for breach of the Agreement [20]. Loops also sued Maxill in the US, alleging the same new toothbrush infringed the US 285 patent. Maxill defended on the basis that the new toothbrush did not infringe the 285 patent — but it also attacked the validity of the 285 patent by way of counter-claim [22]. The US actions were consolidated in Washington [23].

Loops brought this motion for an interlocutory injunction barring Maxill from challenging the validity of the US 285 patent, on the basis that this is a breach of the Agreement [1]. Templeton J assessed the motion on the basis that Loops had to show a strong prima facie case on the merits in order to obtain its injunction [6], [32]. He held that Loops had failed to meet this requirement, for two reasons.

Thursday, February 27, 2020

Foreign Location of Firm a Factor in C-CEO Designation

Depura Partners LLC v Desjardins General Insurance Inc 2020 FC 261 LeBlanc J
             2,777,931 / System for monitoring vehicle and operator behavior

This decision granted a contested motion to designate certain documents describing technical details of the defendant’s allegedly infringing technology as “Confidential Information – Counsel’s Eyes Only” [C-CEO]. The decision applies established law, but one interesting point is raised on the facts regarding the relevance of foreign residence of firm principals to the C-CEO designation.

The plaintiff is a foreign based firm, and none of the five principals reside in Canada [28]. In granting the C-CEO designation, LeBlanc J rejected the contention that the implied undertaking rule would provide adequate protection, in part because “should I refuse to validate the C-CEO designation of one or any of these documents, the Court would have no meaningful way to control the use, or sanction the misuse, by any of the five individuals that make up the Plaintiff, of the information contained in said documents as these individuals all reside outside Canada and are, individually, not subject to the Court’s jurisdiction” [30]. This consideration was clearly not determinative, as LeBlanc J had held that there was sufficient basis to grant the designation even absent these additional considerations, but it does indicate that the fact that the firm or its principals reside outside of Canada is a factor to be considered in granting a C-CEO designation.

LeBlanc J went on to say “Moreover, any prejudice suffered by the Defendants resulting from a misuse of the information by the Plaintiff could hardly be compensated by any remedy granted by the Court in sanctioning a violation of the implied undertaking rule” [30]. It’s not entirely clear to me whether LeBlanc J meant that the inadequacy of the remedy stemmed from the fact that the principles of the firm reside outside of Canada, or whether this was an entirely separate consideration, to the effect that a breach of the order would constitute a form of irreparable harm.

Wednesday, February 26, 2020

Protective Orders Clarified

Canadian National Railway Company v. BNSF Railway Company 2020 FCA 45
Boivin JA: Gleason, Rivoalen JJA rev’g 2019 FC 281 Locke J

As discussed here, the law relating to protective orders has recently been in ferment. Traditionally, the court would grant protective orders essentially routinely, particularly on consent or when unopposed, but a series of decisions developed a more restrictive approach, and a split developed in the jurisprudence. In a short decision that will be required reading for all litigators, the FCA has now provided a definitive resolution, largely returning the law to the status quo ex ante, though with considerable clarification of the law. In brief, the FCA held that: the AB Hassle test applies to protective orders and the Sierra Club test applies to confidentiality orders; the two are distinct and the former is much less stringent; and there is no reason why protective orders should not be granted more or less routinely.

There are two key questions. First, what is the test for granting a protective order? A protective order governs the way parties designate and treat confidential information that they exchange between themselves in the pre-trial phase of the action, while a confidentiality order governs the filing of confidential documents and information on the court record. As noted by the FCA at [20], the test applicable to confidentiality orders is set out in Sierra Club 2002 SCC 41 at [53]. This is a relatively stringent test, which requires consideration of the open court principle, weighed together with the commercial interests of the parties in maintaining confidentiality of sensitive material. Protective orders were traditionally granted on the basis of the test set out in AB Hassle (1998) 83 CPR (3d) 428 (FCTD) aff’d [2000] 3 FC 360 (CA) [14]. This test is less stringent than the Sierra Club test, as it focuses on the confidential nature of the information at issue, without consideration of the open court principles.

Confusion had arisen because the Sierra Club decision referred to the AB Hassle decision in a way that was somewhat unclear, and some of the recent FC caselaw had held that the Sierra Club test applies to both types of orders, or that Sierra Club had modified the AB Hassle test. The FCA affirmed that the AB Hassle test and the Sierra Club test are indeed distinct. The former is applicable to protective orders [14] and the latter to confidentiality orders [19]. Sierra Club solely concerned confidentiality orders, and it did not in any way alter the AB Hassle test for protective orders [23].

The confusion arose because the first prong of the Sierra Club test refers to considerations of confidentiality, which are at the core of the AB Hassle test. The FCA explained that the SCC’s reference to AB Hassle was solely in the context of the first branch of the Sierra Club test:

[23] [Sierra Club] does not in any way extend the AB Hassle test, applicable to protective orders, to include a consideration of necessity, alternative measures, or the scope of the order to ensure that it is not overly broad. It follows that the necessity element of the Sierra Club test cannot be said to apply in the context of protective orders, notwithstanding the reference to the AB Hassle test. . . .

The reason for this is straightforward: the open court principle is not implicated by protective orders:

[25] [T]here is no justification for applying the same onerous Sierra Club test that is applied to confidentiality orders to protective orders. Confidentiality orders are squarely meant to circumvent the open court principle, while protective orders are instead used in instances where the open court principle is not engaged.

It was therefore an error of law in this case for the motions judge to conflate the AB Hassle test for protective orders with the more onerous Sierra Club test for a confidentiality order [26].

The second and distinct issue is whether protective orders should be granted more or less routinely, as was the traditional practice, or more sparingly, as some recent cases had held. The FCA clearly signaled that the traditional practice is appropriate (my formatting):

[31] Although the Federal Court is in no way obliged to grant a protective order, I am of the view that there has been no significant and compelling changes to the law that justify the refusal to grant a protective order on consent (or not) if
(i) the AB Hassle test is met and
(ii) the protective order submitted to the Federal Court is in accordance with the protective order template jointly developed over the years between the Intellectual Property Bar and the Federal Court.

[32] Protective orders undoubtedly remain pertinent and useful for intellectual property litigants and there is no justification, legal or otherwise, for stifling this long-standing practice.

The more restrictive approach was driven by concerns about wasted court resources in reviewing protective orders. The FCA remarked that to facilitate the Court’s review the parties should [31] (my formatting):

• provide sufficient evidence in support of their motion for a protective order.
• identify[] the portions of their draft protective order that have been added to the template or removed from it.

The Court also addressed hybrid orders, which contain provisions that govern both confidential information exchanged between parties during the discovery process and confidential information filed with the Court [8]:

[30] The test for granting a hybrid order, in the form I endorse below, remains the same as the test for granting a protective order. As noted, hybrid orders also address materials that might be filed with the Court with a confidential designation. As such, a party who wishes to have the Court treat documents subject to the hybrid order as confidential must bring a motion pursuant to Rule 151 of the Federal Courts Rules forthwith after filing the documents. It is at this juncture, when the Court is being asked to seal documents, that the Sierra Club test set out at paragraph 20, above, is engaged. The motion for a confidentiality order should not automatically be left for the trial judge to determine, but should be filed at the first opportunity.

Tuesday, February 25, 2020

Knowledge of Infringement Not Required for Inducement

Hospira Healthcare Corporation v Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

My last post on Hospira v Kennedy Trust deals with the knowledge requirement for inducing infringement. The third branch of the Weatherford test for inducing infringement requires that “the influence must knowingly be exercised by the inducer, that is, the inducer knows that this influence will result in the completion of the act of infringement”: 2011 FCA 228 [162]. Locke JA clarified that “the knowledge at issue in the third prong of the test is knowledge that the influence is being exercised, rather than knowledge that the resulting activity will be an infringement.” [45] He noted that some decisions had indicated that knowledge of the patent itself was required, but these suggestions had not been accompanied by a sustained analysis. The most in depth treatment of the point was by Gauthier J (as she then was) in Bauer v Easton 2010 FC 361 [193]-[203], in which, as Locke JA explained, Gauthier J “observed that knowledge that a particular activity is an infringement is not an element of direct infringement and, since inducing infringement is not a tort distinct from direct infringement, it should not be an element of inducing infringement either” [45]. Locke JA agreed [45]. I take it that he intended agreement with her analysis generally, and not just this particular principle. So, there is no requirement of an “intent to infringe” on the part of the indirect party, nor is knowledge of the patent itself required [Bauer 200]. All that is required is knowledge that the actions of the indirect party would induce another to do something that in fact constitutes infringement [Bauer 200]. The third branch would not be satisfied where, for example, a suggestion by the indirect party had been misunderstood, and the misunderstanding had resulted in infringement [Bauer 201]. This is not a very surprising development, but it is nonetheless helpful to have this point affirmed by the FCA. It can now be considered well settled.

Friday, February 21, 2020

Anticipation by Suggestion

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

Locke JA, for the Court of Appeal, held that Phelan J had erred in his novelty analysis [71], and remanded the issue to him for reconsideration [75]. The issue is very interesting and raises a fundamental question regarding the nature of novelty: is an invention anticipated if the prior art suggests that the invention be made, but it has not actually been made as of the claim date?

Kennedy Trust’s 630 patent relates to the treatment of rheumatoid arthritis [RA]. RA is an autoimmune disorder that leads to painful and sometimes debilitating inflammation of the joints. The use of methotrexate [MTX] was well known in the prior art as a treatment for RA, but many patients with RA do not respond completely to treatment with MTX alone and there was therefore a pressing need for an improved treatment. Cytokines are proteins that serve as chemical messengers in the body, and researchers had discovered a number of pro-inflammatory cytokines in tissue samples from rheumatoid joints. It was hypothesized that RA might be treated by blocking the action of the relevant cytokines, thereby suppressing the inflammatory response. The inventors of the 630 patent discovered that TNF-α was a key cytokine that “sat at the apex of an inflammatory cascade.” Centocor (a predecessor to Janssen) had developed infliximab, an anti-TNF-α monoclonal antibody. The inventors of the 630 patent collaborated with Centocor to explore the use of infliximab as a treament for RA. While patients initially responded, the duration of the effect was limited and the patients all relapsed. The inventors then decided to try infliximab in combination with MTX. Trials established that the combination of MTX and infliximab has enhanced efficacy over either drug alone as well as a sustained duration of effect [7]-[8], [FC 9-15].

The successful trials led to the 630 patent. Claim 1 is to the adjunctive use of an anti-TNF-α antibody and MTX for the treatment of rheumatoid arthritis in patients who do not respond fully to MTX alone [FC Appendix B]. Claim 3 of the patent is to the adjunctive use of infliximab in particular, in combination with MTX for the same purpose [FC Appendix B].

Hospira argued that the 630 patent was anticipated by a number of prior art documents and Phelan J had rejected all these attacks [FC 196]. Only two prior art documents were at issue on appeal. One was the “1994 Kennedy Report,” which stated as follows [68]:

The aim is to further investigate the tolerability and efficacy of repeated use of [infliximab] in a randomised, blinded fashion, both in comparison with standard therapy [MTX] and in combination with this drug. It is expected that the results will be available by autumn 1995 and should provide an indication of the likely utility of [infliximab] as a long-term disease suppressing agent in clinical practice.

At the claim date, as the clinical trial was not complete and there were no results [FC 169]. In effect, the 1994 Kennedy Report identified the essential elements of the Claim 3 and says “We are trying this.”

The second item of prior art was Higgins, which “discloses the possibility of combining an anti-TNF-α antibody with MTX” [69]. In effect, Higgins disclosed the essential elements of Claim 1 and suggested “Someone should try this.” The Kennedy Report and Higgins were slightly different, but neither Phelan J nor Locke JA suggested that anything turned on the fact that the trial referred to in the Kennedy Report was actually in progress, and that it was being undertaken by the authors of the report, rather than being a suggestion to others, as in Higgins.

So, the question boils down to this: is an invention anticipated by a prior art document saying “Someone should try X,” where X is the invention?

Thursday, February 20, 2020

Obvious to Try Does Not Require That it Is Obvious That What Is Being Tested Will Work

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

There is some confusion in the obvious-to-try test as discussed in Sanofi 2008 SCC 61. At one point the SCC stated that

[65] I am of the opinion that the “obvious to try” test will work only where it is very plain or, to use the words of Jacob L.J., more or less self-evident that what is being tested ought to work.

This lends itself to the view that it must be self-evident, prior to any experimentation, that the claimed invention will solve the problem at hand. But there is a second understanding of the obvious-to-try test that emerges from the very next paragraph, where the SCC went on to say (my emphasis):

[66] For a finding that an invention was “obvious to try”, there must be evidence to convince a judge on a balance of probabilities that it was more or less self-evident to try to obtain the invention. Mere possibility that something might turn up is not enough.

This implies that it must be more or less self-evident to try, not more or less self-evident that what is being tried will work.

In my view, the latter interpretation is preferable. As the SCC noted at [68], the obvious to try test is appropriate “[i]n areas of endeavour where advances are often won by experimentation.” In such fields, a test requiring that it is very plain, prior to any experimentation, that the invention would work, would mean almost nothing would be obvious. On the second interpretation of Sanofi, if something is obvious to try, and when tried, it works without difficulty, there is no inventive ingenuity involved in arriving at the invention, even though the result could not have been predicted in advance. So, if a routine salt screen discloses that the maleate salt of a new pharmaceutical has good manufacturability, that might not support a patent to the maleate, even though it could not have been predicted in advance that the maleate would be better than any other pharmaceutically acceptable salt.

As I have discussed in previous posts (here and generally here), the Federal Court has quite consistently applied the second approach to the obvious-to-try test, under which an invention might be considered obvious even though a successful outcome could not have been predicted in advance.

In this case, Phelan J appeared at some points to apply the first approach, saying that “Although the POSITA may have had “good reason” to pursue the combination of anti-TNF-α and MTX, it was not self-evident that this combination would work to solve the problem identified in the prior art” [226] (and see similarly 228].) The FCA disapproved of this statement, with Locke JA saying at [94]:

[T]his factor is not determinative. The other factors also required consideration. In my view, the Judge’s analysis of the second factor (concerning the extent, nature and amount of effort required to achieve the invention) was inadequate.

This means that the mere fact that a successful outcome could not have been predicted in advance does not mean that the invention is not obvious under the obvious-to-try test. This is a welcome affirmation from the FCA that the second approach to the obvious-to-try test that I have outlined above is indeed preferable.

However, the FCA went on to say (my emphasis) that:

[95] The determinative test on this issue is whether it was more or less self-evident to try to obtain the invention, including co-administration of an anti-TNF-α antibody and MTX to treat RA in MTX IRs.

This implies that if an invention was obvious to try, it will necessarily be obvious under the obvious to try test. The statement that this is the "definitive test" is difficult to reconcile with the SCC’s statement in Sanofi at [64] that ”the ‘obvious to try’ test must be approached cautiously. It is only one factor to assist in the obviousness inquiry.” Similarly, the SCC remarked that "obvious to try” is “not a mandatory test,” but rather “one factor of a number that should be considered, having regard to the context and the nature of the invention” [62]. So, I would suggest that if a particular avenue is obvious to try, and it eventually succeeds, but only after prolonged and difficult experimentation, it may well be inventive even though it was obvious to try. [Update: On re-reading, I think that Locke JA meant only that this was the determinative test on the facts of this case, not that it is the determinative test generally.] 

On the facts, I would note that while at places Phelan J did indicate that the invention was not obvious to try simply because it was not self-evident that it would succeed, other statements can be taken to imply it was not obvious even to try (see esp [223]).

Both Phelan J [24] and Locke JA [15] remarked on the vast array of issues raised by Hospira, to the extent that Locke JA stated that “it will not be practical to address each one specifically” [15]. I can only suppose that as a consequence, the submissions weren’t as fully prepared as they would have been if the arguments had been more carefully focused, and I can’t help but feel that this is reflected in the reasons.

Tuesday, February 18, 2020

The State of the Art Includes All Prior Art

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

The third step of the Windsurfing/ Pozzoli approach to obviousness, as approved by the Supreme Court in Sanofi 2008 SCC 61 [67], requires the court to “[i]dentify what, if any, differences exist between the matter cited as forming part of the ‘state of the art’ and the inventive concept of the claim or the claim as construed.” But what is the “state of the art”? The FCA in this case has clarified a point which has been obscure since codification of the non-obviousness requirement a quarter of a century ago.

The requirement that a patentable invention must involve an inventive step first emerged in the English case law in the late nineteenth century. Originally conceived of as an aspect of novelty, it soon because recognized as a distinct requirement, often referred to as requiring proper “subject-matter.” The current requirement that the invention be non-obvious to a person of ordinary skill in the art originated as a test for inventiveness on the particular facts of the case, propounded by Sir Sanford Cripps as counsel in Sharp & Dohme v Boots Pure Drug Co (1928), 45 RPC 153 (CA) at 162-63 and adopted by Lord Hanworth MR at 173. So conceived, the obviousness inquiry was taken to be an essentially factual inquiry as to whether the invention would have been obvious to a person skilled in the relevant art. From this it follows directly that the state of the art does not comprise the entire body of publicly available information, but is restricted to that information which would actually be available to the skilled person. So, in General Tire [1972] RPC 457, 497-98, the English Court of Appeal considered the state of the art to include only that material that would be available to a skilled person after a reasonably diligent search.

This was well settled law prior to codification. A question then arose on codification because s 28.3 of the Act provides that obviousness is to be assessed in light of information disclosed “in such a manner that the information became available to the public in Canada or elsewhere.” On its face this states that the entire body of public information constitutes the state of the art. The operative wording is exactly the same as that in the novelty provision (though the novelty provision, in a separate paragraph, also includes prior patent applications, including unpublished applications, in order to implement the first-to-file priority regime). Thus, on the face of the Act, the state of the art for purposes of obviousness corresponds exactly to the prior art that is relevant to anticipation, excluding prior unpublished patent applications.

The issue arose in this case because Phelan J had excluded two items of prior art from consideration at step 3 of the Windsurfing / Pozzoli test on the basis that they would not have been located in a reasonably diligent search [FC 214]. The FCA held that Phelan J had erred on this point.

Locke JA reviewed the Canadian case law, and noted that while a number of cases, including some affirmed by the FCA, had indeed excluded some elements of prior art, that point had never been specifically affirmed or even commented on by the FCA, and the point therefore could not be considered to be settled. My sense is that notwithstanding the text of the act, the Canadian courts have generally operated under the assumption that the codification was not intended to substantively change the law, and it is because of that underlying assumption that courts had not previously been pressed for a decision. Locke JA also noted that some decisions, including Ciba v SNF 2017 FCA 225 (see here) had suggested that the state of the art was broader in scope. However, none of these cases had definitively resolved the issue.

Locke JA also noted at [85] that “commentaries by authors well-known in the field of patent law have expressed doubt as to whether it is appropriate to limit the scope of relevant prior art to the results of a diligent search since the wording of section 28.3 of the Patent Act is not so limited.” I must say that I am disappointed that my own short article on this topic, “What is the State of the Art for the Purpose of an Obviousness Attack?” (2012) 27 CIPR Review 385-94, was not cited. In that article I pointed out that exactly that question was before the House of Lords in Technograph [1972] RPC 346 and English Court of Appeal in General Tire and Windsurfing [1985] RPC 59 in interpreting the parallel English legislation, which raised the same issue. Lord Reid and Lord Diplock took opposing views in Technograph, and the Court of Appeal in General Tire preferred Lord Reid’s view, but sided with Lord Diplock in Windsurfing. The point was expressly obiter in all these cases, and the point was never definitively resolved in English law prior to the adoption of the EPC with the Patents Act, 1977. The division of opinion in these decisions illustrates that the text itself is not determinative and it is unfortunate that the FCA did not devote more time to discussing these cases, which presumably were not cited to it. (While I did not come to a firm conclusion in my article, I had argued that the context of the enactment, in particular the history of the relevant English decisions on which Canadian law was based, suggested that the codification was not intended to alter the state of the art, but was only intended to establish the relevant dates for assessing obviousness, in particular to implement the grace period.)

Locke JA then addressed the substantive issue. I’ll set out the sentences of the key paragraph one at a time:

[86] In light of section 28.3 of the Patent Act and the applicable jurisprudence and commentaries, I conclude that it is an error to exclude from consideration prior art that was available to the public at the relevant date simply because it would not have been located in a reasonably diligent search.

This is clear: all prior art must be consided under step 3 of the obviousness analysis.

[86] The likelihood that a prior art reference would not have been located by a PSA may be relevant to consideration of step 4 of the obviousness analysis (whether differences between the state of the art and the inventive concept constitute steps which would have been obvious to the PSA) in that the uninventive PSA might not have thought to combine that prior art reference with other prior art to make the claimed invention.

This indicates that there can be no mosaicing of prior art that is not available in a reasonably diligent search. Thus, obviousness can be assessed over the common general knowledge alone, or over one item of broader prior art plus cgk, but not over two items of broader public art plus cgk. I believe that this is essentially the UK position.

Locke JA concluded with a policy point:

[86] However, excluding prior art simply because it is difficult to find is problematic because it would result in the possibility of a valid patent on an invention that had, but for some non-inventive tweak, already been disclosed to the public. In my view, that is not what Canada’s patent regime is intended to permit.

With respect, I do not find this persuasive. It is well-established that the mere fact that an item of prior art is “available to the public” does not mean that it is ever likely to be of any actual benefit to the public. “It is settled law that there is no need to prove that anybody actually saw the disclosure provided the relevant disclosure was in public. Thus an anticipating description in a book will invalidate a patent if the book is on a shelf of a library open to the public, whether or not anybody read the book and whether or not it was situated in a dark and dusty corner of the library.” Lux Traffic Controls [1993] RPC 107 at 133, quoted with approval in Baker Petrolite 2002 FCA 158 [42.6] (emphasis in Baker Petrolite). If there is prior art that would have made the invention obvious to a skilled person, but that would not be located in a reasonably diligent search, then it would only be located as part of an extended or arduous search. An invention may be found to be non-obvious because it would require experimentation that is “not routine, but rather was prolonged and arduous” Sanofi [89]. If that is true for experimentation, it is not clear why it should not be true for searching prior art. The traditional view is that the obviousness inquiry asks whether a person skilled in the relevant art would arrive directly at the invention when presented with the relevant problem. If the answer is no, I don’t see why it should matter whether that is the answer because discovering the invention would require prolonged and ardous technical experiments, or a prolonged and arduous prior art search plus routine experimentation.

On a related point, as noted above, the traditional inquiry was essentially factual, albeit focused on an objective skilled person, rather than any particular individual. The “state of the art” as being what would be discovered in a reasonably diligent search reflects what a skilled person would actually do when addressing the problem. If the state of the art includes all prior art, then we have moved away from this factual inquiry, into an odd hybrid, asking whether a skilled person would find the invention obvious in light of information which would not actually have been be available to them.

In any event, regardless of the policy issue, Locke JA’s conclusion is certainly supported by the text of the Act, and the point now seems to be settled.

Friday, February 14, 2020

Burden of Proving Priority

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

An apparently novel issue raised in this appeal was the burden of proving priority. The application for the 630 Patent was filed on August 1, 1997, and a priority claim was made based on a US application filed in 1996 [59]. However, s 28.4(4) provides that where there are two or more previous applications on which priority could be claimed, the earliest must be used. The 1996 US priority application itself claimed priority from another US application which was filed in 1992. Hospira argued that the priority claim to the 1996 application was therefore invalid (with the result that the claim date would be the Canadian filing date, making additional prior art relevant) [60].

Per s 28.1, priority cannot be claimed from the 1996 application unless it discloses the same subject-matter as the 630 patent; and the effect of 28.4(4) is that priority must be claimed from the 1992 application if the 1992 application discloses the same subject-matter as the 630 patent. The question for both was therefore whether they disclosed the same subject matter as the 630 patent. Neither priority application was in evidence. Thus the argument, and Locke JA’s holding, turned on the burden of proof.

Hospira argued that the patentee had the burden to establish the priority claim, and it failed to meet that burden because it did not put the 1996 application into evidence. Kennedy Trust, on the other hand, argued that the burden of proof was instead on Hospira in light of the presumption of validity per s 43(2) of the Act.

Locke JA rejected both these positions [63]. He held that that Hospira’s reliance on the 1992 priority “is remote enough from the issue of the priority claim on the 630 Patent” that Hospira had the burden to prove the contents of the 1992 priority” [64]. It seems reasonable to me that the party asserting a particular priority date should have the obligation to prove it. Given that burden, there is a separate question of how to actually prove the contents of the earlier priority application. At trial Hospira seemed to have relied on the fact that Kennedy Trust had actually pursued an appeal to the USPTO to establish that the 1996 application was entitled to claim priority to the 1992 priority, essentially on the basis that it disclosed the same subject-matter [FC 157]. Locke JA did not specifically discuss why this was not sufficient to carry the burden (and it's not clear that issue was even raised on appeal). Given that the 1996 application was not in evidence, evidence that the 1992 priority disclosed the same subject matter as the 1996 application may not be sufficient proof that either disclosed the same subject matter as the 630 patent.

Turning to Kennedy Trust’s argument, Locke JA held that the presumption of validity does not extend to the priority claim because the claim date only affects the prior art, and does not go directly to validity [63]. That seems right to me on the text of s 43(2). But if the presumption of validity does not apply and the 1996 application itself was not introduced into evidence, what is the basis for holding that the 1996 priority claim was valid? Locke JA held that “With no dispute that the 1996 priority supports the subject matter of the claims in issue” and in the absence of evidence of the contents of the 1992 priority, he saw no error in recognizing the 1996 claim date [65]. I must say that this looks to me like the application of some kind of presumption of validity, given that there was no evidence at all about the contents of the 1996 application. (Hospira’s position at trial was that both the 1992 and the 1996 disclosed the same subject matter, but that doesn’t necessarily imply that either discloses the same subject matter as the 630 patent.) Would the result have been different if Hospira had asserted, without any evidence, that the 1996 application did not disclose the same subject matter as the 630 patent? Would that have been enough of a dispute to require the patentee to introduce the 1996 application? If not, it would seem that some kind of presumption is at work. But, as noted, Locke JA expressly held that the presumption of validity does not extent to a priority claim.

In any event, in either case it does seem that the best way of establishing the content of the priority application is directly, by introducing it into evidence.

Thursday, February 13, 2020

A Party Acting Entirely Outside of Canada Cannot Be Liable under the Saccharin Doctrine

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

This post covers two issues related to the Saccharin doctrine: a party who conducts activities entirely outside of Canada cannot be liable under the Saccharin doctrine; and the Saccharin doctrine applies to Swiss-type claims.

As discussed here, Phelan J at first instance held that Hospira’s infliximab product INFLECTRA, infringed several valid claims of the 630 patent. One of the defendants was Celltrion, a South Korean group that makes biopharmaceutical products [FC 18]. Celltrion supplied the infringing INFLECTRA to Hospira, which imported it and distributed it in Canada [FC 17]. Several of the claims at issue were Swiss-type claims (ie claims “to the use of composition X for the preparation of a medicament to be used for Y” [16]), and at trial Hospira had argued that “as the Swiss-type claims refer to the manufacture of a medicament and Inflectra is not made in Canada and is not sold to Hospira in Canada, the Swiss-type claims are not infringed” [FC 294]. Phelan J rejected this argument on the basis of the Saccharin doctrine, holding that “Hospira cannot escape liability for infringement merely by housing its production overseas” [319]-[322].

The FCA held that Phelan J had erred in including Celltrion among the companies found to have infringed [37], because “the Judge made no finding that Celltrion conducted any activities in Canada” [33]. As Locke JA noted, the Saccharin doctrine holds that the imported product of a patented process is itself infringing, even though the process is used abroad and the product itself is not patented [34]. But he also pointed out that the Saccharin doctrine does not do away with the territorial limits on patent infringement; a party whose activities are entirely outside of Canada cannot infringe a Canadian patent: [36]. A party who is liable under the Saccharin doctrine may not have carried out directly infringing activities in Canada, but it will have carried out activities in Canada which profited from the invention (namely importation and sale of the product of the patented process). As Locke JA noted, this point was well-recognized in the English case law following the Saccharin decision itself, and had also previously been recognized by Gauthier J in Cefaclor 2009 FC 991 at [283-84]. It is helpful to now have the point affirmed by the FCA.

[*See Update below] The puzzle for me on this point is that, so far as I can see, Phelan J never actually held that Celltrion infringed. Hospira’s argument, noted above, appears to be a general argument that the claims themselves were not infringed by any party, specifically including Hospira because they were to the use in manufacture, and manufacturing had been done outside of Canada. Phelan J rejected this argument on the basis of the Saccharin doctrine, holding that “Hospira cannot escape liability for infringement merely by housing its production overseas.” [FC 319]-[322]. This holding is expressly directed at Hospira, not Celltrion, and it was not disputed that Hospira acted within Canada by importing and distributing INFLECTRA [FC 17]. This holding therefore seems to be to be a correct application of the Saccharin doctrine, which helpfully clarifies that Swiss-type claims are subject to the Saccharin doctrine. Hospira’s liability for infringement on this basis does not appear to have been appealed.

While the FCA decision implies that Phelan J also held that Celltrion infringed, I couldn’t find any such holding in Phelan J’s reasons. Phelan J distinguished between Hospira [3] and Celltrion [17], rather than referring to them collectively as Hospira. As just noted, his holding regarding the Saccharine doctrine was directed at Hospira, as was his overall conclusion on infringement: “For all these Reasons, Kennedy’s claim against Hospira for infringement will be granted” [336]. With that said, I didn’t re-read every word of Phelan J’s decision, and perhaps I missed something, or perhaps there was such a holding in the formal judgment.

*Update: I've now seen a copy of Phelan J's Judgment, and he did find that Celltrion infringed, even though, as the FCA noted, there was no basis for that finding in his reasons. This entirely explains FCA decision on this point, as there was nothing in Phelan J's reasons to support a finding of infringement by Celltrion.

Tuesday, February 11, 2020

Patentability of Methods of Medical Treatment “Deserves Deep Analysis”

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2020 FCA 30 Locke JA: Rivoalen, Nadon JJA var’g 2018 FC 259 Phelan J
            2,261,630 / infliximab / INFLECTRA

Kennedy Trust’s 630 patent covers the adjunctive use of methotrexate [MTX] and infliximab for the treatment of rheumatoid arthritis [RA] in patients who do not respond fully to MTX alone. As discussed here, Phelan J at first instance held that Hospira’s infliximab product INFLECTRA, infringed several valid claims of the 630 patent. This appeal, reversing Phelan J on several points, raises a number of interesting (and mostly unrelated) issues, which I'll cover in a series of posts, starting, in this post, with the FCA's desire to reform the law related to patentability of methods of medical treatment.

As I argued in this blog post, the law related to patentability of methods of medical treatment is incoherent. In Cobalt v Bayer 2015 FCA 116 [101], the FCA agreed that the current law on the issue “calls for full consideration by this Court or the Supreme Court in a case where the issue is squarely raised on the facts.” However, the issue was moot in Cobalt because the patent was not infringed [100], and the FCA devoted only a single paragraph to the issue.

In this case, Hospira again raised arguments related to patentability of methods of medical treatment. Locke JA devoted several paragraphs to reviewing the state of the law. He summarized the Federal Court jurisprudence as holding that a claim to “a substance intended for the treatment of a medical condition, can be good subject matter for a patent claim, but not if the claim encompasses the skill of a medical professional such as a dosage range rather than a fixed dosage” [51]. He remarked that “it is not clear to me that the decisions of the Supreme Court of Canada that form the basis of the principle that methods of medical treatment are not patentable justify a distinction between a fixed dosage (or interval of administration) and a range of dosages (or intervals)” [52]. He then cited Cobalt (and also my blog post, I am pleased to say) and stated that “I agree that this issue deserves deep analysis” [53]. He concluded by saying that “[u]nfortunately, this does not appear to be the case for such an analysis,” because the claims at issue are of a type that are clearly patentable even in the current state of the law.

I read this as a clear signal that the FCA is willing, and even eager, to undertake a review of the law on this issue itself, rather than leaving the matter to the SCC. Locke JA considered it “unfortunate” that the case did not lend itself to treating the issue in depth, and he clearly stated that he does not consider the current law to be determined by the SCC jurisprudence, so leaving leeway for the FCA. Even the fact that Locke JA devoted almost four pages to the issue indicates the FCA wants to deal with the issue. Hospira raised so many issues on appeal that “it will not be practical to address each one specifically,” so Locke JA generally did not address those that were without merit [15]. He did, nonetheless, choose to address methods of medical treatment at some length, even though it was ultimately without merit. The panel in this case was differently constituted from that in Cobalt (Pelletier, Stratas and Webb JJA), so we now have six judges on two different panels indicating a willingness to review the law related to the patentability of methods of medical treatment.

Wednesday, February 5, 2020

Lump Sum Costs Awarded

Packers Plus Energy Services Inc v Essential Energy Services Ltd 2020 FC 68 O’Reilly J

In this costs decisions following from Packers Plus 2017 FC 1111 aff’d 2019 FCA 96, holding Packers’s 072 patent to be invalid and not infringed, O’Reilly J awarded the prevailing defendants lump sum costs of 40% of their taxable costs, plus disbursements (with some minor adjustments). O’Reilly J’s reasons for awarding a lump sum rather than following the Tariff were brief: “I also do not agree with Packers that costs should be assessed according to the Tariff. A lump sum is more appropriate given the complex nature of this case.” This seems to reflect a general sense that the Tariff scale is outdated and no longer adequate. A collective costs award calculated under the Tariff, even at the upper end of Column IV, would have resulted in an amount of about $375,000, when actual costs were apparently closer to $10,000,000.*

Another point is that there were multiple defendants, and Packers argued that there should only be one set of costs as the defendants’ interests were aligned and they could all have been represented by the same counsel. O’Reilly J rejected this submission, noting that

It was Packers’ choice to pursue each of the defendants separately. It could have limited its costs exposure by proceeding only against the first defendant, Essential Energy Services Ltd, and pursuing the other defendants later if successful. Its approach complicated the proceedings and increased the costs incurred.

He also noted that the defendants, as competitors, were entitled to be represented separately, and that “defendants’ counsel made considerable efforts to divide their labours and reduce duplication throughout the trial.” Accordingly he held the defendants were entitled to individual costs.

*The amount of the defendants’ actual fees is not stated in the decision, but Packers proposed an alternative lump sum amount of $1,003,000 and O’Reilly J remarked that this approach “would effect an arbitrary discount of the defendants’ fees and yield a reimbursement of only 10% of the defendants’ taxable costs.”

Monday, February 3, 2020

Determining the Rate of Return for Compound Interest Damages

Eli Lilly and Co v Apotex Inc 2019 FC 1463 Zinn J [Cefaclor Interest] remitted from 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA [Cefaclor Damages] aff’g 2014 FC 1254 Zinn J [Cefaclor Damages FC]
1,133,0071,146,5361,133,4681,150,725 [the Lilly Patents]
1,095,0261,132,5471,136,1321,144,924 [the Shionogi Patents]

Cefaclor Interest is devoted to assessing the proper rate of return for compound interest damages. While the determination was ultimately a matter of fact, it raises issues that will arise in any similar determination. I also suggest that an overarching lesson from the decision is that whatever particular approach is used, the determination of the rate of return as a matter of fact is likely to be a burdensome undertaking. As a matter of policy is might be desirable to amend the relevant statutory provisions to permit a successful party to claim compound interest at a modest rate as a matter of law, without the need for a fact intensive inquiry as to what exactly it would have done with the money.

As discussed here and here, the common law traditionally prohibited recovery of interest on a damages award. While that prohibition was reversed by statutory provisions permitting the award of pre-judgment interest, those statutes generally did not allow for compound interest. In Bank of America 2002 SCC 43 the SCC recognized that simple interest is not fully compensatory, and consequently, the SCC held that even if compound interest was not available under the relevant statute, it was available under the common law of contract as compensation, so long as it was claimed as such and proven.

In Cefaclor Damages FC, the damages portion of a bifurcated trial, Zinn J had awarded lost profits of just over $31m (the Lost Profits), with compound interest on the Lost Profits as damages: [4]. On appeal, In Cefaclor Damages the FCA confirmed that compound interest is indeed available in the patent context when interest is claimed as a head of damages: see here. However, Zinn J had held that the loss could be presumed, and the FCA reversed on this point alone, saying “a loss of interest must be proved in the same way as any other form of loss or damage” [158]. The FCA therefore remitted the matter to Zinn J for reconsideration of this point alone [164].

When compound interest is claimed as damages, the loss is the value of the lost opportunity to use the funds that the plaintiff would otherwise have had — in this case, the Lost Profits. The question in Cefaclor Interest therefore, was whether Lilly had proven a lost opportunity to use the Lost Profits, and how prove the applicable rate of interest: [18].