Is a Sale Accompanied by an Unrestricted Implied Licence to Use?

Pharmascience Inc v Janssen Inc 2024 FCA 10 Locke JA: de Montigny CJ, Goyette JA affg Janssen Inc v Pharmascience Inc 2022 FC 62 Manson J

2,655,335 / paliperidone palmitate / INVEGA SUSTENNA / NOC

This decision addresses a tricky and interesting point regarding implied licences in the context of the first prong of the Corlac 2011 FCA 228 [162] test for inducement, which requires that “the act of infringement must have been completed by the direct infringer.” Janssen’s 335 Patent relates to a dosing regimen for long-acting injectable paliperidone palmitate formulations for the treatment of schizophrenia and related disorders. It claims a dosage regimen comprising a first loading dose of 150 mg-eq of paliperidone palmitate on day 1; a second loading dose of 100 mg-eq on day 8; and subsequent maintenance doses of 75 mg-eq monthly thereafter [2]. Pharmascience proposed to sell the loading doses, but not the maintenance doses, which would be supplied by Janssen [17]. In this NOC proceeding, Pharmascience brought a motion for summary trial on the basis of non-infringement, arguing that even though the end-users, such as physicians and patients, would practice the invention, there would be no direct infringement because any end-user must be taken to have an implied licence from Janssen to use the maintenance dose for any purpose, including using it as part of the patented combination.

At first instance, Manson J held in favour of Janssen, finding that Pharmascience would induce infringement of the 335 Patent with its generic version of INVEGA SUSTENNA [3]: see here. The action proceed to trial on the patent validity issues raised by Pharmascience. Janssen again prevailed at trial, 2022 FC 1218. An appeal has been heard and is under reserve [3]. In my post on Manson J’s decision, I had noted that his decision in this case was essentially a companion case to Janssen v Apotex 2022 FC 107, which involved the same patent and the same type of generic product. However, the issues raised on appeal were quite different, as the Apotex appeal turned on the second prong of the Corlac test: see here.

This appeal therefore turned on whether the end-users, who purchased the maintenance doses from Janssen, should be taken to have an implied licence to use those maintenance doses to practice the invention in combination with the loading doses supplied by Pharmascience.

Locke JA started by summarizing the basic rule as follows: “it is clear that the sale of a patented article without restriction includes the right to use that article as the purchaser pleases,” unless a restriction is brought home to the purchaser on sale. He cited ample authority for this proposition [16], [15]. While Janssen did not dispute this rule, Janssen relied on MacLennan 2008 FCA 35, in which the patent related to “a saw tooth and tooth holder combination.” The tooth and tooth holder were separate parts, and the combination was attached to the periphery of a circular saw disc for feller heads in the forestry industry: MacLennan [4]. If the saw struck rocks while logging, individual teeth and sometimes also the holders would be broken without damaging the saw disc. The patentee sold both the tooth holder and the teeth themselves, and the defendant manufactured and sold replacement teeth to be used by the patentee’s customers with tooth holders purchased from the patentee [24]. Janssen argued that MacLennan was “on all fours” with the case at hand [25]. Pharmascience tried to distinguish MacLennan on the basis that the issue concerned the extent of the implied right of a purchaser to repair [26]. Locke JA quite rightly rejected this as being a misreading of MacLennan [26], [27].

How then can we reconcile MacLennan with the rule that the purchaser of an embodiment of the patented invention has the right to do as they please with it? Janssen argued that “the jurisprudence concerning implied license is limited to the patented article itself” [17]. Locke JA accepted this argument, saying that in MacLennan and similarly in Angelcare 2022 FC 507 (here), “the patented invention constituted a combination invention and therefore, the sale of a mere component of it was insufficient to grant the implied right to use the entire combination” [29]. He therefore held that:

[29] [T]he sale of a mere component of [a combination invention is] insufficient to grant the implied right to use the entire combination. To grant an implied licence, the sale of the entire combination had to occur, or at least, as in Slater Steel [(1968) 55 CPR 61 (Ex Ct)], the parties’ intended use of the component at the time of sale contemplated its use in the patented combination.

So, no implied licence arose in this case because Janssen sold the maintenance doses separately and this does not imply a licence to use the combination. That justifies the result in this case, as it means that the prescribers or patients who use the Pharmascience loading doses in combination with the Janssen maintenance doses are direct infringers.

But there is a problem. When does an implied licence arise? What about when Janssen sells a maintenance dose that is used in combination with a Janssen loading dose? Surely the users are not infringers. Under the first clause of Locke JA’s statement, the sale of the maintenance dose does not grant an implied licence to the use the combination, for the same reason as when the loading doses are sold by Pharmascience. Perhaps an implied licence is granted under the second clause, since it is certainly true in that case that “the parties’ intended use of the component at the time of sale contemplated its use in the patented combination.” The problem is that is also true when Janssen sells a maintenance dose that is then used in combination with a Pharmascience loading dose. If the second branch saves the user when the loading dose is sold by Janssen, it also saves the user when the loading dose is sold by Pharmascience. The only way that it is an infringement to use the Janssen maintenance doses in combination with the Pharmascience loading doses, but not with the Janssen loading doses, is if the sale by Janssen is accompanied by a restricted implied licence, which allows the use of the Janssen product only with another Janssen product.

The root of the problem is the notion that when a licence is implied, it is a licence “without restriction [that] includes the right to use that article as the purchaser pleases.” The licence that arises in MacLennan, Angelcare and in this case, is a restricted licence, to use the article in combination with another article that is also sold by the patentee. There is no way to reconcile these cases with the notion that a sale implies an unrestricted licence to use the article, no matter how the conditions of the sale itself are qualified. If the licence to use the product is unrestricted it doesn’t matter whether we say it arises when the product is sold, or only when the combination is sold, or what the intent of the parties is; the only way to get an answer that is consistent with the cases such as MacLennan is if the implied licence is restricted. Moreover, we can’t even say that the general rule is that the sale in the context of a combination invention grants a restricted implied licence to use the article in combination with other articles sold by the patentee, because in Slater Steel the patentee only sold one component of the combination (namely a power line reinforcing rod), and the other part of the combination (the power line) was supplied by third parties. In Slater Steel, the sale did convey an unrestricted implied licence.

Thus, I would suggest that the basic rule that “the sale of a patented article without restriction includes the right to use that article as the purchaser pleases,” while well supported by the authorities cited by Locke JA, is not sound as a general proposition. The sale of a patented article will often imply a licence to the use the article on the particular facts, but this is not the same as saying that it necessarily implies an unrestricted licence to use.

The difficulty arises because the proposition that the sale implies a right to use is based on logic that conflates ownership rights with patent rights. Consider the following passage from the decision of Pratte JA in Eli Lilly v Apotex (1996), 66 CPR (3d) 329, 343 which was quoted with approval by the SCC in Eli Lilly [1998] 2 SCR 129 [99]:

A patentee has a monopoly. By virtue of his patent, he has, says section 42 of the Patent Act, "the exclusive right, privilege and liberty", during the term of the patent, "of making, constructing and using the invention and selling it to others to be used". If a patentee makes a patented article, he has, in addition to his monopoly, the ownership of that article. And the ownership of a thing involves, as everybody knows, "the right to possess and use the thing, the right to its produce and accession, and the right to destroy, encumber or alienate it" [quoting Jowitt's Dictionary of English Law]. If the patentee sells the patented article that he made, he transfers the ownership of that article to the purchaser. This means that, henceforth, the patentee no longer has any right with respect to the article which now belongs to the purchaser who, as the new owner, has the exclusive right to possess, use, enjoy, destroy or alienate it. It follows that, by selling the patented article that he made, the patentee impliedly renounces, with respect to that article, to his exclusive right under the patent of using and selling the invention. After the sale, therefore, the purchaser may do what he likes with the patented article without fear of infringing his vendor's patent.

The logic is that ownership of the thing includes the right to use it, and therefore the transfer of the thing transfers to the right to use it. But ownership rights in the tangible product and patent rights relating to that product are distinct, as Pratte JA himself recognizes, and as a consequence, transfer or ownership of tangible product embodying the patent rights does not necessarily imply any transfer of patents rights.

This is illustrated by Eli Lilly itself. The SCC held that “it is clear that, in the absence of express conditions to the contrary, a purchaser of a licensed article is entitled to deal with the article as he sees fit, so long as such dealings do not infringe the rights conferred by the patent” [101] (my emphasis). The SCC accepted that “the rights of use and sale” are inherent in the unrestricted purchase of a licensed article [98], but this does not necessarily extend to the right of making. The purchaser had bought bulk product from a licensed vendor and reformulated it into final-dosage form. The SCC held that this reformulation did not constitute “making” [101], but it is clear that if it had, that would have constituted infringement. On its face, Eli Lilly holds only that a licence to use and sell are implied by an unrestricted sale, not a licence of all patent rights. Now, this is not inconsistent with the rule stated by Locke JA, which was only that the right to use is implied. The cases cited usually include the right to sell as well. But Eli Lilly shows that transfer of ownership in the tangible property embodying a patented invention is separate from the patent rights.

If the transfer of ownership in the thing does not necessarily transfer the right to make, as is clear from Eli Lilly, on what principle does it necessarily transfer the right to use? One answer is that the right to use is inherent in the right of ownership. This was the position taken by the JCPC in National Phonograph v Menck (1911) 28 RPC 229 (JCPC) 245, in which Lord Shaw began with the principle that the owner of “ordinary goods” is entitled to “use and dispose of these as he thinks fit,” so that a transfer of the right of ownership transfers that right to use and sell the goods. An implied patent licence to use and sell was seen as a way of reconciling that principle with the patentee’s patent rights: Menck 245.

But it is not strictly true that the owner of ordinary goods has the right to “use and dispose of these as he thinks fit,” because many rights and obligations distinct from the ownership right may constrain the owner’s right to use the goods they own. For example, if I own a car, I do not have the right to drive over the speed limit on the highway, and by the same token, if I sell the car to you, you do not acquire the right to exceed the speed limit. Similarly, if I own a quantity of an unpatented drug, I nonetheless do not have the right to use it for a patented purpose, unless I have a licence from the patentee. If I sell that drug to you, I clearly do not transfer the right to use it for the patented purpose, because I am not the patentee.

In response to this, it might be said that the prohibition on speeding is imposed by the state, not by me. My sale to you does not imply that no one else will interfere with your use of the car, but only that I will not interfere with your use of the car. But if I park my car in my own driveway, my sale of the car to you does not give you the right to park in my driveway, even if you might find it convenient to do so. That is because my ownership rights in the car and my rights in my land are separate, and a grant of one does not imply a grant of the other.

The general point is that the transfer of ownership rights in a tangible product good does not generally imply a licence to use those goods free of any other rights that the vendor might have that potentially restrict what the purchaser wants to do with the purchased goods. And it is clear my sale of a tangible thing that I own cannot transfer patent rights I do not own. But what if I do own the patent rights as well as the ownership rights? Is there something special about patent rights such that an unrestricted licence to use must always be implied in such a case?

Suppose P discovers a new drug, call it ‘tramifloxin,’ which P discovered is useful in treating ulcers. P gets a patent on the drug per se and successfully markets it for treating ulcers under the brand name ULCEX. P’s product patent on tramifloxin ultimately expires and P exits the market entirely, leaving it to the generics. But because P has expertise in tramifloxin, it continues to research new uses, and discovers, surprisingly and unexpectedly, that tramifloxin is also useful in treating psoriasis. P then get a second patent for the use of tramifloxin in treating psoriasis. P then successfully markets and sells tramifloxin, under the brand name PSOREX, for treating psoriasis. In that case, P’s sale of tramifloxin would not grant anyone else a licence to use tramifloxin to treat it psoriasis. But suppose P did not exit the market for ulcer treatment after the product patent expired, but instead continued to sell ULCEX. Would P’s sale of ULCEX be accompanied by an implied licence to use it to treat psoriasis? Would it matter if P sold ULCEX through an authorized generic?

What if P discovered and patented the psoriasis use before its patent on the tramifloxin per se expired, and while it was still actively marketing ULCEX. Would it matter if ULCEX was the bigger market? Would the sale of tramifloxin under the ULCEX brand imply a licence to use it to treat psoriasis? It might be said that the answer is yes, unless P gives notice that it is to be used only for treating ulcers. But that is not desirable either for P or for society. P does not want the use of ULCEX to be restricted to treating ulcers. It is in the interest of both P and society for purchasers to develop new off-label purposes, as that will expand P’s market and cure more diseases for the benefit of society. What P wants is for ULCEX not to be used to treat psoriasis. In response to that, it might be said that P should give notice on the ULCEX that it is not to be used to treat psoriasis. But how could P have given such notice before P knew that tramifloxin could be used for treating psoriasis? Does that mean that the stock of ULCEX that was in circulation before P obtained the patent can now be used to treat psoriasis? Further, if it was a third party, not P, that had obtained the psoriasis use patent, the person purchasing ULCEX from P would not get an implied licence to use it to treat psoriasis, regardless of whether P gave any kind of notice on the ULCEX. Why should P be in a worse position than that third party? Whether P holds the patent or a third party does makes no difference to the purchaser, who in either case will be is ‘surprised’ (or not) to discover that ULCEX cannot be used to treat psoriasis. Patent rights are strict liability, and the mere fact that a purchaser might not know that it does not have unrestricted rights to use has never been sufficient grounds to imply a licence. For example, if P sold the ULCEX to a intermediary subject to an express restriction that it could not be resold or used for the purpose of treating psoriasis, a purchaser from the intermediary would not acquire a right to use it for the patented use: Isler (1906) 1 Ch 605, 611 (CA). Of if P had assigned the use patent to a third party before selling the ULCEX, the purchaser would clearly not acquire a licence to use it to treat psoriasis: Betts v Willmott (1871), LR 6 Ch App 239, 244.

I am not arguing for any particular answer to these questions. My argument is only that these are difficult questions and it is not obvious that a simple rule that the sale of the product implies a licence to use the patent. Whether a licence should be implied is a question that should be answered on the facts, and not on the basis of a broad rule. These examples are somewhat artificial, but that is because it is true that a sale of a product will often imply a right to use the patented technology embodied in that product.

On that note, it might be said that the true rule is that if P sells V a product that can only be used in a way that would infringe P’s patent, then a licence to use should be implied. Most of the leading cases relied on by Locke JA were of this type — the patent at issue claimed a product, and the use of the product would necessarily infringe, so when the patentee sells that product, it would necessarily be accompanied by an implied licence to use the product. But this theory runs right into MacLennan, as the patentee in that case sold the tooth holder which could only be used in the patented combination. That is why Locke JA was forced to restrict the rule to a case in which the entire product was sold, or the entire combination was sold, or in which the patentee sold only one component but intended it to be used in the patented combination. At this point, we do not have much of a general rule left. What is the difference between stating a general rule that is tailored to a set of very specific circumstances, and simply saying that a licence will be implied when it is reasonable to do so on the facts?

This brings me back to my original point. Patent rights and rights of ownership of an embodiment of the invention are separate rights. The transfer of ownership does not necessarily imply any transfer of the patent rights. It is clear from Eli Lilly that the sale does not imply a licence to make. There is no difference in principle in respect of a right to use. It may be that it is more common that a licence to use will be implied from a sale on the facts, but that is not a matter of principle. In the context of combinations, an implied licence to use may be restricted, or unrestricted; that turns on the facts, and is not a matter principle. I suggest that the general point that emerges from all this is simply that there is no general principle that sale of a product implied a licence to use. Whether an implied licence accompanies the sale is a matter for the specific facts.

Locke JA was in a difficult position. The basic rule that “the sale of a patented article without restriction includes the right to use that article as the purchaser pleases,” is supported by ample authority. But that rule is inconsistent with MacLennan, which was clearly correctly decided. Locke JA had to find some way to restrict the scope of the general rule. The distinction he chose is intuitively appealing, but I have argued that it is ultimately unsatisfactory. With that said, I can’t think of a better approach, short of recognizing that the basic rule is itself unsound as a general proposition.

What Is the Threshold for Influence in Inducement?

Apotex Inc v Janssen Inc 2024 FCA 9 Locke JA: de Montigny CJ, Goyette JA affg Janssen Inc v Apotex Inc 2022 FC 107 Manson J

2,655,335 / paliperidone palmitate / INVEGA SUSTENNA / NOC

This decision addresses the second prong of the Corlac 2011 FCA 228 [162] test for inducement in the pharma context. In some ways it is perfectly straightforward. Manson J found as a fact that Apotex’s product monograph (PM) was the ‘but for’ cause of direct infringement and the FCA affirmed on that basis. Locke JA’s decision nonetheless raises two notable issues. First, there seems to be an unresolved tension between this decision and Teva v Janssen 2023 FCA 68 as to the standard for influence on the second prong of the Corlac test; while this decision endorses a high threshold of ‘but for’ causation, Teva v Janssen apparently endorses a lower threshold. Second, while Locke JA explicitly endorsed a test of ‘but for’ causation, some of his comments imply a different approach.

Manson J’s decision was heavily redacted and I did not fully appreciate the issues when I wrote my post on it. The FCA decision has not been redacted and the key issues are much easier to understand. With that said, some aspects of the FCA discussion remain obscure to the extent that they turn on redacted discussion of the facts at trial. In my earlier post I had noted that Manson J’s decision in this case was essentially a companion case to Janssen v Pharmascience 2022 FC 62, which involved the same patent and the same type of generic product. However, the issues raised on appeal were quite different, so I’ll deal with the Pharmascience decision in a separate post.

Janssen’s 335 Patent relates to a dosing regimen for long-acting injectable paliperidone palmitate formulations for the treatment of schizophrenia and related disorders. It claims a dosage regimen comprising two loading doses of 150 mg-eq and 100 mg-eq, and subsequent monthly maintenance doses of 75 mg-eq [2]. In this NOC proceeding, Apotex brought a motion for summary trial on the basis that it would not infringe because it would not provide the 75 mg-eq dose, which is an essential element of the claimed invention [3]. That is, Apotex intended to market the loading doses but not the maintenance doses, which would be supplied by Janssen: see Pharmascience [8]. This looks like a strategy to get part of the market while trying to avoid infringing. At first instance, Manson J held in favour of Janssen, finding that Apotex would induce infringement of the 335 Patent with its generic version of INVEGA SUSTENNA [3].

The direct infringers would be the prescriber (eg a physician or a nurse practitioner) or patient [24] and Janssen therefore relied on inducement. Infringement by inducement is governed by the three part Corlac test, which Manson J correctly summarized as follows [4]:

There is a three “prong” test for inducement: (1) direct infringement by a third party; (2) the inducer influenced the third party to the point that the infringing act would not have occurred without the influence; and (3) the defendant knew that its influence would bring about the infringing act.

All three prongs were disputed at trial, with Janssen prevailing on all three [5]. On appeal, Apotex only took issue with Manson J’s decision on the second prong.

The second prong of the Corlac test is normally satisfied if the defendant supplies a non-infringing product accompanied by instructions to use that product in an infringing manner. So, in a typically skinny label case in the pharma context, the drug itself is unpatented but a use is patented. Direct infringement and knowledge are normally conceded, and the case will turn on the second prong, and in particular whether the generic has managed to scrub its product monograph (PM) clean of any reference to the infringing use. This case is different, as Apotex’s PM “would essentially be a copy of that for INVEGA SUSTENNA” [14]. I take it from all this that Apotex did intend to supply its non-infringing product — the loading doses — accompanied by instructions to use it in an infringing manner, which is to say as part of the patented regimen. The FCA decision isn’t more explicit than the phrase I have just quoted, and the FC decision isn’t clear on this because of the redactions, but on appeal in the Pharmascience case, it was no longer disputed that Pharmascience’s PM contained instructions concerning the use of the 75 mg-eq. dose (Pharmascience [11]) and while that is of course a difference case, my understanding is that the facts were essentially the same. This post therefore proceeds on that assumption.

Given that defendants are regularly found to be inducing infringement by supply of an unpatented product accompanied by instructions to use it in an infringing manner, and Apotex did just that, how did Apotex try to avoid liability?

Apotex’s main argument was to the effect that no one will read Apotex’s PM and therefore no one will be induced by it. This argument has been made before, and always failed: see generally my paper “Is 'But For' Causation Necessary to Establish Inducement?” But the point turns on the evidence, and it is at least plausible — no one is arguing that physicians always consult the generic PM and prescribe strictly according to it—so it is always worthwhile for a generic to try the argument again, to see if it can get a better result on the facts.

The legal aspect of the argument turns on the threshold for causation at the second prong. Corlac [162] itself put the test this way: “the completion of the acts of infringement must be influenced by the acts of the alleged inducer to the point that, without the influence, direct infringement would not take place.” This implies a test of “but for” causation. While there is certainly considerable caselaw that articulates the test this way, I have argued that other caselaw supports a less stringent test, along the lines of “encouragement to infringe,” and that there is very little caselaw in which the result actually turns on the precise test for causation at the second prong: see “Is 'But For' Causation Necessary to Establish Inducement?”

The threshold is important because if it is simply “encouragement to infringe,” then any party who sells a product along with instructions to use it in an infringing manner will be liable for inducement (if the other prongs are satisfied). But if the threshold is “but for” causation, then it matters whether the direct infringer actually pays any attention to the instructions. If no one actually reads the instructions and therefore no one changes their behaviour as a result of the instructions, then any direct infringement would have happened in any event and it cannot be said that “without the influence, the direct infringement would not take place.”

So, consider a hypothetical case where the patent relates to the use of ammonia, an unpatented bulk commodity, for a novel purpose, namely to encourage growth of subterranean bacteria to aid in fracking. The patentee, P, sells ammonia for that purpose. In Scenario 1, the direct infringer, DI, goes to P to buy ammonia for fracking, and discovers it is priced at $2000/t, while the market price for bulk ammonia is $400/t. DI politely walks out of P’s establishment and instead buys ammonia from a different vendor, V, who sells bulk ammonia to clients who mostly use it for fertilizer production. V does not have a licence from P to sell ammonia for fracking. DI nonetheless uses the ammonia purchased from V for fracking. DI is therefore a direct infringer. V did not influence the direct infringer at all. V had no idea what DI planned to do with the ammonia; indeed, V had no idea that ammonia could be used for growing subterranean bacteria and would have mocked the idea. It is clear law that V is not an indirect infringer, even though V supplied the ammonia used by DI to infringe. Doctrinally, it is the second prong—the influence requirement—that relieves V from liability in this example, because V did not induce influence DI’s plan. This would be true even if DI had told V what he was going to use the ammonia for, and V had replied “Sure, buddy, whatever. It’s yours once I sell it to you.” That is why the influence prong is separate from the knowledge prong.

Now, in Scenario 2, suppose that DI did not initially know that ammonia could be used for fracking, but V did. DI goes in to buy ammonia for another purpose, and V says “Do you know ammonia can also be used for fracking.” DI is curious and V hands DI an instruction sheet on how to use ammonia for the infringing purpose. DI says “That sounds great! I can make a bundle” — and buys some ammonia and uses it to infringe. In that case, V is clearly inducing infringement, even on the high “but for” threshold, since DI would not have infringed but for V’s influence.

Finally, in Scenario 3, suppose that both DI and V knew that ammonia could be used for fracking. DI goes in to buy ammonia for that purpose. At the time of sale, V hands DI an instruction sheet entitled “Three great things to do with ammonia.” The first thing on the list is fracking, with detailed instructions. DI takes the sheet, glances at the title, and thinks “I don’t need tips — I know perfectly well what I’m going to do with this ammonia.” DI scrunches the sheet into a ball and throws it away, without reading anything past the title. In that case, the instructions do not actually influence DI. The test from Corlac is “without the influence, direct infringement would not take place.” In this scenario, direct infringement would take place, even without the influence, and so, on its face, the second prong of the Corlac test is not satisfied.

Apotex’s basic argument, as I understand it, is that this is a Scenario 3 situation. Yes, it supplied instructions to infringe, in the form of its PM, but the direct infringers never paid attention. They got their information from Janssen’s PM, or from the scientific literature, but not from Apotex’s PM.

This argument rests on two pillars. The first pillar is legal. The threshold for influence has to be high; on an encouragement standard, it is enough that Apotex sold the product with instructions to use it in an infringement manner and it does not matter if no one paid attention to Apotex’s PM. The second pillar is factual. It has to be established on the evidence that the users did not pay attention to Apotex’s PM. If at least one person was (or would be, in an NOC action) actually influenced to infringe by the PM, then it does not matter whether the threshold is high or low.

Turning to the first pillar, what is the threshold for influence? In this case, Manson J clearly endorsed a strict “but for” causation:

[127] The “but for” influence required in the second prong of the Corlac test sets a high bar – higher than “encouragement to infringe,” a “subtle reference” to the infringing use, or “attempting to induce others to infringe.”

Locke JA affirmed this high threshold:

[13] Apotex urges this Court to treat the threshold as a “but for” test, and it cites jurisprudence that calls this a causation test. I have no objection to Apotex’s characterization of the test, but I do not find it to be more helpful that the “would not have occurred without” and “sine qua non” characterizations provided in the jurisprudence of this Court. In my view, these are merely different ways of describing the same threshold.

This clearly affirms a high “but for” threshold, pointing out some equivalent ways of stating the same test.

While this statement is clear, there is a problem. In Teva v Janssen 2023 FCA 68 revg Manson J’s decision in 2020 FC 593, the FCA apparently endorsed a lower threshold, calling the “but for” threshold which Manson J had endorsed [FC 264] “unduly onerous” [FCA 82]: see here for my discussion. As just noted, in this case Locke JA clearly endorsed a “but for” causation threshold for influence, so it looks to me like there is a tension between these cases. Perhaps I misunderstood Teva v Janssen and read too much into it. I am not going to try to sort this out in this post, except to say that it is not clear to me how reconcile the decisions. Presumably the FCA will clarify matters in due course. I note that the panels were different — Stratas, Gleason, Woods JJA (for the Court) in Teva v Janssen, with Locke JA, de Montigny CJ and Goyette JA concurring, in this case. Locke JA was clearly aware of the Teva v Janssen decision, as he referred to it, albeit not directly on this point [8].

In any event, it is clear that the high “but for” threshold applies for the purposes of this case. One pillar of Apotex’s argument is in place.

What about the second pillar? Apotex argued that the evidence was that the direct infringers did not pay any attention to the PM. This is how Manson J described it:

[132] The crux of Apotex’s argument related to this second prong is that the experts all agree that the ultimate dosing decision is based on physician skill and judgment, not the language in the product monograph. Further, physicians have been steeped in the claimed dosing regimen throughout their training, clinical experience, and use of the INVEGA SUSTENNA® product. As such, the introduction of the product monograph for the APO Product will not influence or change their prescribing practices and will not amount to the level of influence necessary to meet the second prong of the Corlac test.

This argument was rejected by Manson J, who said the following:

[147] Notwithstanding the exercise of skill and judgment by prescribing physicians in selecting the dosing regimen for patients, the evidence before the Court in this case establishes that acts of infringement will be influenced by the acts of the alleged inducer, Apotex, to the point that, without the influence, direct infringement will not take place. Apotex’s product monograph will influence prescribers and patients to implement the claimed dosage regimen, thereby directly infringing the 335 Patent.

[148] I am satisfied, on the evidence before the Court that Janssen has proven, on a balance of probabilities, that at least some prescribers of the impugned APO Product will be sufficiently influenced by the Apotex product monograph to induce infringement by those prescribing physicians.

The details of the evidence are not clear due to the redactions, but this conclusion certainly looks like a finding of fact that some direct infringers would be influenced, even on a ‘but for’ test.

Apotex tried to challenge this finding, arguing that “none of the experts went so far in their testimony as to state explicitly that any direct infringement using Apotex’s product would not occur without Apotex’s influence” [26]. Locke JA rejected this on the straightforward basis that this is a factual finding that Manson J was entitled to make:

[25] As indicated at paragraph 11 above, the Federal Court concluded at paragraphs 147 and 148 of its reasons that such infringement would be influenced by Apotex to the point that, without the influence, direct infringement would not take place. It is in this sense that the Federal Court was entitled to conclude that the second prong of the test for inducing patent infringement was met.

[27] In my view, this is a factually suffused issue on which Apotex would have to establish that the Federal Court made a palpable and overriding error. The Federal Court did not err in law.

That all seems to say that in fact, on the evidence, the direct infringers would be influenced by Apotex to the extent that the influence prong is satisfied even with a legal threshold of “but for” causation. Thus, Apotex succeeded on the legal pillar of its argument, but failed on the factual pillar. That is what I had understood to be the basis for Manson J’s decision when I wrote my post on it.

That much is very straightforward, and I would not normally have devoted so much space to it. But it is necessary context to some further, more puzzling remarks by Locke JA. Apotex’s central argument on appeal was as follows:

[14] Apotex relies on the fact that its product monograph would essentially be a copy of that for INVEGA SUSTENNA, and the assertion that prescribing practices of physicians would not change if Apotex were allowed to market its generic version of INVEGA SUSTENNA. In light of the foregoing, Apotex argues that any influence that its product monograph could have on any ultimate act of direct infringement could not rise to the level required in Corlac.

As we’ve just seen, Locke JA rejected this argument on the facts. Here is the puzzle — he also rejected it on the law:

[23] The main weakness of this argument is that it depends on there being a requirement that prescribing practices of physicians be altered because of Apotex’s activities. In fact, this is not necessary.

I’m not sure how to reconcile this statement with the “but for” threshold which Locke JA endorsed. The test from Corlac is “without the influence, direct infringement would not take place.” This clearly states that the influence must cause a change in outcome — with the influence, there is infringement, without it, there is not. If nothing changes as a result of the influence, how can it be said that the influence caused anything?

Locke JA continued (original emphasis):

[23] What is required is that the ultimate act of direct infringement occur because of Apotex’s activities. . . .

[25] It follows that, even if the practices of prescribing physicians were to remain unchanged following the introduction to the market of Apotex’s generic version of INVEGA SUSTENNA, the fact would remain that activities by patients (and by prescribers) that had previously been non-infringing (because the drug was sourced from Janssen) would be infringing once the drug was sourced from Apotex, an unlicensed supplier.

Here, Locke JA seems to be saying that indirect infringement is established because the direct infringers would use Apotex’s product instead of Janssen’s. That is undoubtedly true. But that is not enough to establish infringement by inducement. It is also true in Scenario 1. DI’s activity, that would have been non-infringing if the ammonia had been sourced from P, is infringing because it was sourced from V instead. But that in itself does not make V liable for inducement. It is uncontroversial and long-established law that a party who does no more than supply a non-infringing product that is used to infringe is not thereby an infringer, even if it causes the direct infringer to change suppliers; that is why the second prong of the Corlac test requires influence by the indirect party. This is entirely apart from the question of the specific threshold for influence.

What was motivating these remarks? Why did Locke JA not simply affirm Manson J on the factual finding of “but for” causation, and leave it at that? I would speculate that Apotex’s argument on the facts was quite strong, notwithstanding Manson J’s finding. (As noted, the evidence supporting his finding is unclear due to the redactions.) My impression from the evidence in the pharma inducement cases generally is that the substantial majority of physicians and pharmacists really do not rely on the generic PM and the courts are struggling with the evidence to make the result come out the way it ‘should’ by finding that at least some do rely on the generic PM. Perhaps Locke JA wanted to provide an alternative basis for the decision that would not turn on the factual finding alone. Perhaps this was to set the stage for the day that a trial judge finally decides on the facts before them that physicians do not read the generic PM. If so, I sympathize with Locke JA’s dilemma, but the statements in these two paragraphs seem to go beyond endorsing a lower threshold and seem tantamount to removing the influence requirement altogether.

With that said, I do not disagree with the result. In my view, there are two sound and principled bases by which the same result could be arrived at, even if it had been established on the facts that the direct infringers did not pay any attention to Apotex’s PM. One would be contributory infringement, a US doctrine under which the mere supply of good especially adapted to infringe, constitutes indirect infringement, without any need for inducement. For reasons I explain in my article “Contributory Infringement in Canadian Law” (2020) 35 CIPR 10, I am of the view that contributory infringement is a sound doctrine which is consistent with the bulk of Canadian caselaw. However, it is not recognized in Canadian law: see MacLennan 2008 FCA 35 [33], [38], [40]. And is most certainly not the basis for Locke JA’s decision in this case. The other basis would be under a lower “encouragement” threshold for influence. But that was not used by Locke JA in this case.

I’ll end this post on a different point entirely. As noted in my post on Manson J’s trial decision, this was essentially a companion case with Janssen v Pharmascience 2022 FC 62, also before Manson J, in which Pharmascience sought to launch the same kind of product as Apotex, ie the loading doses but not the maintenance doses. There was considerable overlap between Manson J’s two decisions — indeed, too much. Parts of para 138 of his Apotex decision were “lifted” from his Pharmascience decision, and consequently contained some factual inaccuracies; for example, para 138 referred to four experts, when there were in fact five in the Apotex case [17]–[18]. While Apotex tried to make something of this on appeal, Locke JA concluded that this was a “slip of the pen” error which did not demonstrate that Manson J had failed to fully consider the issues [20].

An Action under the PM(NOC) Regs Has the Same Effect as an Action under the Act

Janssen Inc v Apotex Inc 2023 FCA 253 Locke JA: de Montigny CJ, Goyette JA revg 2023 FC 912 Manson J

2,655,335 / paliperidone regimens / INVEGA SUSTENNA / NOC

This decision addresses two issues of interest: abuse of process under the PM(NOC) Regs and the kinds of activities that may properly be enjoined. This post deals with each in turn.

Apotex sought to launch a generic version of Janssen’s INVEGA SUSTENNA. To that end, Apotex served an NOA alleging non-infringement. Janssen responded by bringing an action pursuant to s 6 of the PM(NOC) Regulations. Apotex lost: 2022 FC 107 discussed here. (An appeal has been heard and the FCA decision is pending [4]). After losing that action, Apotex served a second NOA in respect of the same product, this time alleging invalidity instead of non-infringement. Janssen again brought an action pursuant to s 6, which Apotex defended on the same invalidity basis as in its NOA. Janssen moved for summary judgment on the basis that this is an abuse of process by relitigation. Manson J held it was not, and dismissed Janssen’s motion for summary judgment. The FCA has now reversed.

The overarching point emerging from Locke JA’s decision is that “an action under section 6 of the Regulations is to proceed and have an effect much like a normal patent infringement action” [46]. In the absence of special circumstances, a defendant in a normal patent infringement action that defended itself on the basis of non-infringement, without challenging the validity of the patent, would not be allowed to commence a separate impeachment action concerning the same patent [47]. The same reasoning applies to actions under the Regulations [47]. That follows from the general principles of “judicial economy, consistency, finality and the integrity of the administration of justice” which underpin the law related to abuse of process by relitigation: [10]–[11], citing C.U.P.E. 2003 SCC 63 [37]. While Manson J’s decision relied on a rather technical reading of the Regulations (see here) to distinguish actions under the Regulations from actions under the Act, this distinction is not sound. There is no tension between general principles of abuse of process and the principles applicable under the Regulations. On the contrary, the RIAS to the 2017 amendments “makes it clear that a principal aim was to avoid multiple proceedings concerning patents on medicines, regardless of whether those proceedings are within or outside the Regulations” [44]; moreover, “the aim of avoiding multiple proceedings was front and centre” [45].

Under the old Regs, the second person was held strictly to its NOA, and this might have provided a reason for distinguishing NOC proceedings from a regular action. But Locke JA noted that under the new Regs, it is now established that it is permissible to amend the pleadings in an action under s 6 so as to introduce issues not raised in the underlying NOA: [46], citing Sunovion v Taro 2021 FCA 113 (see here).

Locke JA pointed out that the other arguments made by Apotex as to why there are good reasons to permit sequential NOAs can equally be made in the context of normal patent infringement actions, and are no more persausive in the NOA context [48]. Consequently:

[53] In my view, it was intended that the second person should raise all of its allegations in its NOA, and it should not to keep some in reserve in the event that it is not initially successful. Though this might lead to more complicated proceedings, it would meet the explicit goal of addressing all issues in a single action.

Locke JA therefore held that Manson J had erred in law by not recognizing that the same principle applies in the context of an action under the Regs as in an action under the Act [43]. Neither party asked that the matter be remitted, and Locke JA consequently considered Janssen’s motion anew [59] and declared that Apotex’s invalidity defence to be an abuse of process [60]. If Apotex wished to raise an invalidity argument, it should have done so in the first action [60]. Janssen was accordingly granted the relief it sought [71].

An entirely separate point of interest was raised regarding the remedy. Janssen requested an injunction prohibiting Apotex from making, selling or using the invention; these are the patentee’s express rights under s 42. This much was uncontroversial. But the injunction sought by Janssen also included prohibitions on “(i) offering for sale, (ii) marketing, (iii) having marketed, (iv) importing, (v) exporting, (vi) distributing, or (vii) having distributed” [64]. The exclusive right to engage in these activities is not explicitly granted by the Act. Apotex objected to the inclusion of these acts in the injunction on the basis that they fall outside the scope of the patentee’s rights.

Locke JA dismissed Apotex’ objection. He noted that injunctions in such terms had been granted in other cases [65]–[66] — though I don’t think much weight can be put on that unless the terms were contested. More significantly, he noted that “[w]hile section 42 of the Patent Act refers specifically to the patentee having ‘the exclusive right, privilege and liberty of making, constructing and using the invention and selling it to others to be used’, it is well understood that this does not constitute a definition of infringement” [67]. The SCC in Monsanto v Schmeiser 2004 SCC 34 [34] defined infringement as being “any act that interferes with the full enjoyment of the monopoly granted to the patentee.” As Locke JA noted [68], the SCC in Schmeiser [58] also held that “[i]f there is a commercial benefit to be derived from the invention, it belongs to the patent holder.” Consequently, Locke JA held that

[69] I am satisfied that the wording proposed by Janssen for the injunctive relief is appropriate. All of the activities that Apotex objects to including in the injunction are commercial in nature, and would presumably be done for a commercial benefit. The activities of distributing and having distributed are essentially sales and are thus clearly infringing. The other activities involve commercial use of the patented invention as contemplated in Schmeiser, and would therefore presumably also be infringing. The principle goal of the injunction is to prevent future infringement of the exclusive rights granted by the 335 Patent. In my view, the proposed injunction achieves this, and in clear terms.

Locke JA is of course quite right to say that the rights of the patentee are not limited to the rights enumerated in s 42, per Schmeiser. But there remains a question as which specific non-enumerated rights are exclusive to the patentee. Locke JA’s discussion might well be taken as holding that the activities listed in the injunction and objected to by Apotex — (i) offering for sale, (ii) marketing, (iii) having marketed, (iv) importing, (v) exporting, (vi) distributing, or (vii) having distributed — are per se infringement, at least when done for commercial purposes. While there is caselaw that comes close to saying that activities such as importing and exporting are infringing, I don’t think the point is quite settled. While it would certainly be consistent with Schmeiser to hold that these activities are infringing, it does not flow inexorably from Schmeiser, and there are some issues with so holding that were not addressed in this brief paragraph.

So, Locke JA stated that “distributing and having distributed,” are “clearly infringing” because they are “essentially sales.” This strikes me as potentially problematic, depending on what is meant by “distributing.” Does this mean that the common carrier which transports infringing goods from the manufacturer’s warehouse to a retailer is an infringer? Is a logistics company which organizes distribution of infringing goods on behalf of the manufacturer an infringer which can be named as a defendant in an infringement action? These activities do not seem to me to be “essentially sales.” Perhaps these activities should be considered infringing, but this is a different question from whether Apotex, which has been found to infringe on the enumerated grounds, should be prohibited from engaging in distribution.

Locke JA also said that the other activities are “presumably” also infringing. There is some difficulty with “offering for sale” in particular. In Domco Industries v Mannington Mills (1990) 29 CPR(3d) 481 (FCA) 492, the FCA held that a sale was not established even though “[t]here is no doubt that [the defendant] offered infringing goods in Canada” (491). It might be argued that Domco, which predates Canada’s accession to TRIPS, is no longer good law in light of TRIPS Art 28, which requires that a patent shall confer on its owner the exclusive right of “offering for sale.” On the other hand, a treaty such as TRIPS has to be implemented in legislation, and the statutory language defining the patentee’s exclusive rights has not changed since Domco. It might also be argued that Domco is no longer good law because it is inconsistent with Schmeiser. Or Domco might be distinguished because of the cross-border nature of the activity in that case. But it is difficult to accept that Locke JA intended to hold definitively that “offering for sale” is infringing in a decision that didn’t even mention Domco. I don’t mean to comment on the scope or continued vitality of Domco, one way or the other, but I don’t think Locke JA meant to either.

Consequently, I think it is probably better to read Locke JA’s decision more conservatively, as holding only that an injunction is properly granted to prohibit these activities, even if they are not infringing per se, essentially on a quia timet basis. That does not imply any change in the law. Even under Domco it is clear that once infringement has been established, the infringer may be enjoined from offering to sell: see eg AlliedSignal (1995) 61 CPR(3d) 417 (FCA) 446. And in appropriate circumstances offering to sell or marketing may form the basis for a quia timet injunction: see eg No-Fume (1935) 52 RPC 231 (CA) 251–52. This interpretation implies that an infringer, like Apotex, which has been found to infringe on the basis of the enumerated grounds, might properly be enjoined from “distributing and having distributed,” while leaving open the question of whether a logistics company or common carrier engaged in distribution would itself be an infringer.

Inducement in the Pharma Context is an Inherently Hard Problem

Apotex Inc v Janssen Inc 2023 FCA 220 Locke JA: Mactavish, Monaghan JJA affg 2022 FC 996 (reasons) 2022 FC 995 (judgment) Pallotta J

            2,659,770 / macitentan / OPSUMIT / NOC

This brief decision, affirming Pallotta J’s finding at trial that Apotex’s sale of Apo-Macitentan would induce infringement of Janssen’s 770 patent, deals with a difficult issue of inducement in the pharma context. Two main doctrinal points emerge: first, explicit instructions to infringe are not necessary to establish inducement, and second, it may sometimes be effectively impossible for a generic to avoid inducement by scrubbing its product monograph (PM) clean of references to the infringing use. More broadly, this case illustrates why indirect infringement in the pharma context is an inherently difficult problem that does not appear to have any good solution.

As discussed here, this is in many ways a typical ‘skinny label’ case, in which a generic seeks to sell a drug that is itself unpatented, but which may be used in a manner that is patented. In this case, Janssen’s 770 patent covers the use of macitentan in a combination therapy with a PDE5 inhibitor in the treatment of pulmonary arterial hypertension (PAH). Apotex sought to sell macitentan, which is itself unpatented, for monotherapy treatment of PAH. Combination therapy is about 80% of the market and monotherapy is about 20% [FC 162].

In such cases, the generic is not a direct infringer, so infringement by inducement must be established under the three-part Corlac test, 2011 FCA 228 [162]. This typically reduces to the question of whether the generic’s PM will induce infringement by prescribing physicians, who will read the PM and thereby be induced to prescribe the generic product for use in an infringing manner. A central question is therefore whether the generic’s skinny label has been sufficiently scrubbed clean of any reference to the infringing use. This turns on the details of the generic PM.

In this case, the details are a bit difficult to follow because of redactions, but the key point is that much of the information in the Apo-Macitentan PM is clinical trial data from a landmark SERAPHIN study, which established the efficacy of macitentan for both monotherapy and combination therapy [12], [FC 186]. PAH is a rare disease and macitentan can only be prescribed by about 30 specialists who work in recognized PAH centres [FC 184]. All of these specialists would be aware of the landmark SERAPHIN study and so even though the Apotex PM was scrubbed clean of explicit references to combination treatment, specialists reading the Apotex PM would recognize it referenced the SERAPHIN and so would understand that Apo-Macitentan is also suitable for combination therapy. This was the basis on which Pallotta J found that Apotex’s PM would induce infringement.

The first key doctrinal point is that explicit instructions to infringe are not necessary to establish the second prong of the Corlac inducement test:

[17] The weakness of Apotex’s position in this regard is that it assumes that an absence of explicit instruction and of intention that direct infringement should result equals an absence of influence sufficient to satisfy the second prong. That is not necessarily the case. While explicit instruction and intention may be relevant to the issue of influence, I do not accept that either is required. Even without explicit reference to combination treatment, the Federal Court was entitled to find that the Apo-Macitentan PM would influence use of macitentan in that way.

In Novopharm 2007 FCA 167 [11], the FCA remarked that “an inducement to infringe generally cannot be inferred from a mere reference to the new use in the product monograph, for example, in the course of explaining contraindications or drug interactions, or as part of a list of scientific references.” Locke JA [13]-[14] distinguished this on the basis that in Novopharm the unpatented use of the drug in question was for an entirely different use, whereas in this case, the unpatented use was for the same indication. This is consistent with the qualifier “generally” in Novopharm and this holding may be explained by the unusual expertise of the end-users in this case who would recognize the indirect allusion. Nonetheless, the point remains that in some cases a “mere reference” to an unpatented use may indeed suffice to establish inducement.

The second doctrinal point is implicit. So far as I can tell, there is nothing that Apotex could have done to avoid inducement. Certainly there was no suggestion in either the FC or FCA decision that Apotex could have done more to scrub its PM of references to the combination therapy. And in this case, there was no suggestion that there would have been any way for Apotex to have avoided such a reference. The implication is that it is simply not possible for Apotex to sell macitentan for the unpatented use.

The broader point illustrated by this case is that the problem of inducement in the pharma context is inherently very difficult. Ideally we want to allow free generic entry in the market for the unpatented use while at the same time giving the patentee exclusivity in the market for the patented use. The obvious way to do that is to sue the direct infringer, which allows the patentee to control how the product is used after it is sold. But sometimes it is not practical or desirable to sue the direct infringer, as is particularly the case with respect to pharma. That is when inducement is most important.

The law of inducement tries to target the direct infringer indirectly. The theory underpinning the Corlac test is that the product sold by the defendant will be used in accordance with the instructions, so the product will only be used to infringe if the instructions supplied by the defendant instruct infringement. This is a second-best solution, but it can work tolerably well if the end-users generally read and follow the instructions provided by the defendant. But that theory appears to be substantially wrong in the pharma context. The basic problem is that physicians are to some extent experts, with their own independent sources of information. The situation in this case, where there are only a handful of prescribing physicians who are truly expert in this area, is just an extreme version of a pervasive problem. Of course, there will be some people who are experts in almost any field, but the problem of general end-user (physican) expertise means that the standard theory is particularly weak in the pharma context.

The result under the Corlac approach is that the generic will only be allowed to sell its unpatented product if it scrubs its PM clean of any references to the infringing use. The generic will also argue that even if its PM does instruct an infringing use, that doesn’t constitute infringement because the prescribers don’t pay any attention to the generic PM in any event, though I don’t believe that argument has ever prevailed on the facts. This approach has an air of unreality about it. I can’t help but imagine a scenario in which no doctor ever reads the PM for a generic product, except one scrupulous physician in a rural community where there is nothing else to do, who compulsively reads and follows the PM for any drug she prescribes. If the generic PM instructs infringement, she will be induced, so it is essential to scrub the generic PM clean in order to avoid liability. And then one day she retires, and now the generic PM can say whatever it wants.

In any event, even if there is some substantial number of physicians who pay attention to the generic PM, it seems clear enough that most do not. (And my understanding is that physicians normally prescribe generically and pharmacists do not normally know the indication, so even if the physician knows that the generic drug is not indicated for the patented use, it may be dispensed for that use nonetheless.) This means that if the generic is permitted to sell its product, we will get desirable competition in the unpatented market, but at the price of substantial infringement in the market for the patented use.

What can be done? One approach would be to favour one side or the other. In AB Hassle v Apotex 2002 FCA 421 [57], the FCA gave a strong policy statement suggesting we should favour competition in the unpatented market:

Thus [the defendant] cannot be prevented from obtaining [marketing authorization] solely on the basis that it will sell [the known compound]. If it were otherwise, then serious policy issues would arise. If there was any likelihood that a patient would consume a generic product for a patented use, then the generic product would not be approved. This would prevent new uses from being approved for existing drugs because there is always the possibility that someone somewhere will use the drug for the prohibited, patented purpose. This would result in a real injustice: since a generic company cannot possibly control how everyone in the world uses its product, the prevention of the generic from marketing the product would further fortify and artificially extend the monopoly held by the patent holders. The patent holder would, therefore, effectively control not just the new uses for the old compound, but the compound itself, even though the compound itself is not protected by the patent in the first place. The patent holders, as a result, would obtain a benefit they were not meant to have. In the end, society would be deprived of the benefit of new methods of using existing pharmaceutical medicines at a lower cost.

This logic is sound, but we have to keep in mind that we are striking a balance between the right of the patentee to exclusivity for its patented use and the need to incentivize development of new and useful treatment, and the right of the generic to sell the unpatented product for unpatented purposes and the desirability of competitive prices in the unpatented market. That balance is easy to strike if the only problem is that “someone somewhere will use the drug for the prohibited, patented purpose.” But what if the problem is that everyone everywhere will use the drug for the patented purpose?

Suppose a drug has long been generic, like aspirin, and the patentee invents a new use that represents 0.1% of sales. It seems clearly wrong as a matter of policy to prohibit the generic from selling aspirin, even if we know with certainty that it will be used for the infringing purpose. The benefit to the public of allowing generic prices for 99.9% of uses more than outweighs need for an incentive to innovate for niche uses. But conversely, if the patented use represents almost all of the market, it seems wrong to undermine that exclusivity simply because there is an unpatented niche use. The need to provide an incentive to develop major innovations that constitute the primary use for the compound outweighs the desire to allow generic prices in the niche market. So, if we can’t control direct infringement either through a direct action against the end-user or by restrictions on the product instructions, it is reasonable on policy grounds to say that the generic should be allowed to sell the product if the unpatented uses predominate but should not be permitted to sell the product if the patented uses predominate.

If we apply that reasoning to the facts of this case, in which the unpatented use is only about 20% of the market, it seems reasonable on policy grounds to prohibit the sale of the generic product. Yes, this is a bad solution and it shuts down competition in the market for the unpatented use, but all the solutions are bad—the question is which solution is the least bad. In my post on Pallotta J’s decision, I suggested that her finding may have been motivated by “the fact that combination therapy is the primary use for macitentan, with only 10–30% of patients getting monotherapy [162]. If the opposite were true, so that eg only 10% of the use was in the patented combination, then I wonder if it would have gone the other way.” This view is consistent with the two doctrinal points emerging from Locke JA’s decision on appeal. Taken on its own, the idea that a mere indirect reference to the patented use can support a finding of inducement is novel and somewhat extreme, as is the notion that it may be impossible for Apotex to sell a generic version of this drug. But both are readily understandable if the FCA was stretching existing doctrine in order to strike an appropriate balance by protecting the primary market.

I don’t really know where to go from there. I am reluctant to suggest abandoning the Corlac approach, which focuses on the instructions, even in the pharma context. The Corlac approach is logical and principled, and it works reasonably well in many contexts. The rule just doesn’t work as well in the pharma context, where most physicians do not get their information about how to use a generic drug from the manufacturer’s instructions. But it would be difficult to implement a market share approach in the pharma context, even if this could be done doctrinally. If the market shares for the patented and unpatented uses are 1%/99% or vice versa, it seems easy to say whether we should allow the generic sales. But where is that line to be drawn? Any firm line—50/50? 30/70?—seems arbitrary, but any line that turns on the facts will likely be both arbitrary and unpredictable. All I can say is that this case illustrates that the problem of inducement in the pharma context is very difficult, and I don’t see any easy solution.

Infringement by Import, Export, and Possession

Deeproot Green Infrastructure, LLC v GreenBlue Urban North America Inc 2023 FCA 185 Mactavish JA: Gleason, Woods JJA affg 2022 FC 709 McDonald J

2,552,348 / 2,829,599 / Integrated Tree Root and Storm Water System

DeepRoot’s 348 and 599 patents relate to a landscaping system to promote healthy urban trees using a subsurface structural cell system that supports the hardscape (eg sidewalk and paving), enables stormwater retention and filtration, as well as allowing tree roots to grow in uncompacted soil. In DeepRoot v GreenBlue 2021 FC 501 (see here), McDonald J held that DeepRoot’s patents were infringed by GreenBlue’s RootSpace product. She consequently enjoined GreenBlue from infringing. The claims require that 85% of the volume of the cell is empty (to be filled with soil once installed). After this liability decision, GreenBlue revised its product by adding the “Airform Insert” component to reduce the empty space to less than 85%. (The empty volume with the Airform Insert is about 82%.) In response, DeepRoot brought a contempt motion against GreenBlue. McDonald J dismissed the motion in a decision that turned entirely on the facts, on the basis that DeepRoot had not proven beyond a reasonable doubt that GreenBlue’s revised system was infringing: see here. The FCA has now affirmed, generally on the basis that McDonald J’s decision turned on the facts and DeepRoot had not established any palpable and overriding error. My last post gave an overview of the facts and discussed the issues of non-functional design-around and the infringing intermediate.

This post discusses the import / export question. The key fact for this discussion is that the patent claims a structural cell or cell system, in which the cells comprise a base and supporting members. The cells are delivered as a kit of parts and assembled on-site. The only difference between the infringing product and the non-infringing redesigned product is the Airform Insert, which is inserted during assembly. So anyone in possession of all the components of the RootSpace Airform system is also in possession of all the components of the original infringing RootSpace system. DeepRoot alleged that GreenBlue had infringed by importing the components of the infringing system into Canada for transshipment into the US. It seems also to have been argued that possession of the components in Canada was also infringement, though this point was largely run together with the export argument.

The ‘import’ argument was as follows:

[123] DeepRoot argues that the importation of all of the component parts of a patented invention for simple assembly constitutes patent infringement. As GreenBlue is importing all of the components of Claim 1 of the 599 patent, it is therefore infringing the 599 patent, thereby violating the terms of the Federal Court’s injunction.

The export argument was that “The purchase or possession of infringing articles in Canada, for the purpose of export, constitutes infringement” [124].

These issues were “very much a secondary issue at the contempt hearing” [125] and the argument failed on appeal, in large part because there was no evidence on some of the key points [141]. The legal issues are nonetheless noteworthy, as infringement by import and export is unsettled. It is uncontroversial that “[t]he exclusive rights conferred under the [Act] are territorially confined to Canada” [128], and neither import, export, nor possession are explicitly encompassed by enumerated grounds of infringement, as s 42 explicitly grants only the rights “of making, constructing and using the invention and selling it to others to be used.” Whether these additional rights should be read into s 42 is a matter of statutory interpretation. As the FCA pointed out in Biolyse 2003 FCA 180 [13] (my emphasis), “the clearer the ‘ordinary meaning’ of the text, the more compelling the contextual considerations must be in order to warrant a different reading of it, especially when that involves adding words to those used by the legislator.” Similarly, in Canada Trustco 2005 SCC 54 [10] the SCC noted that “When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process” and in Celgene 2011 SCC 1 [21], the Court noted that “[t]he words, if clear, will dominate; if not, they yield to an interpretation that best meets the overriding purpose of the statute.” In this case, the words of the statute are clear: import, export, and possession are not enumerated rights. To read those words into the provision requires strong contextual or purposive arguments.

The Import Issue

Mactavish JA dealt with the import issue briefly:

[131] It is true that the importation of the component parts of a patented invention for simple assembly constitutes patent infringement: Dominion Chain Co. v. McKinnon Chain Co. (1919) 58 S.C.R. 121 at para 53. However, in this case the Federal Court found as a fact that there was no evidence of the sale or assembly of the original RootSpace product in Canada after the Court issued its permanent injunction against GreenBlue.

Thus, the argument was dismissed on the facts, and Mactavish JA’s statement that importation constitutes infringement is obiter. This is important because I would suggest that this issue is not as well settled as Mactavish JA’s brief statement implies.

In Dominion Chain, Anglin J did say that “[t]he importation of all the component parts of the patented invention ready to be put together by some very simple process would in my opinion constitute an infringement of the patent” (132). However, he was not interpreting the granting provision, which was in essentially the same terms as today (using “vending” instead of “selling”). He was interpreting the term “imports” in an entirely different provision, which was repealed in 1935. When Dominion Chain was decided, patent law was still conceived of being a tool of industrial policy, to encourage the establishment of new industry in Canada. The Act consequently required that the patentee commence manufacturing the invention in Canada within two years of grant: see s 38(a) of the Act of 1906. This was reinforced by s 38(b), which provided that the patent would be void if the patentee “imports, or causes to be imported into Canada” the invention for which the patent is granted. The invention in Dominion Chain related to traction chains for car tires. The component parts were imported into Canada in what amounted to a kit form “‘adapted to be put together’ by a simple process which ‘any school boy,’ if endowed with sufficient strength, could apply” (133). The question was whether the import of those kits for final assembly in Canada amounted to importation within the meaning of s 38(b) (131). The SCC held that it did. Anglin J’s statement that importation would constitute infringement was obiter, as infringement was not at issue; the question was whether the importation of the parts ready for assembly constitutes importation. In effect, the SCC held that importation of the kit for assembly was importation of the invention just as much as importation of the fully assembled invention. Given that the Act expressly provided the patent would be void if the invention was imported, it does not matter whether importation also constitutes infringement. Anglin J’s obiter statement, in the course of interpreting the term “imports” in a since repealed provision of the Act, is a very slender basis for reading the right of importation into s 42, against the clear text of that provision.

The strongest support for reading in additional rights to s 42 is Schmeiser 2004 SCC 34 [55], where the SCC discussed Lord Wilberforce’s remarks in Pfizer v Ministry of Health [1965] AC 512 (HL) 572, in which he stated that possession as such is not an infringement, but possession with an “additional ingredient,” in particular possession “with a view to trade,” constitutes infringement. But for its citation by the SCC, the decision in Pfizer would not be particularly persuasive in Canadian law, as it turned on a peculiar provision of the UK Act and not on the general infringement provisions. In Pfizer, the defendant was selling the infringing product to the Crown and would clearly have been liable for selling, but for an exception for Crown use found in s 46 of the Patents Act 1949 (UK). Because that provision exempted use, but not sale, the question was whether importing, stocking and selling the infringing product constituted “use.” The House of Lords answered in the affirmative.

But since the SCC did discuss Lord Wilberforce’s remarks with apparent approval, this suggests that possession with a view to trade constitutes infringement as such. This would indeed read words into the grant provision. More conservatively, I would suggest that even if possession with a view to trade does not constitute infringement as such, it would support a quia timet action on the basis that future use is likely once possession with a view to trade is established, though I must acknowledge there is no suggestion of this theory in the Court’s brief discussion. However, the Schmeiser decision is a bit difficult to interpret on this point, as the Court also discussed two distinct principles. The Court [56], [58.6] also clearly held that that possession may give rise to a rebuttable presumption of use. This proposition does not require reading any words into s 42, as the right being infringed remains the right to use. The SCC also held that infringement may arise by passive exploitation of the invention’s “stand-by utility” [56],[58.5]. For example, a patented fire-extinguisher is “used” if it is standing in the corner of a room, ready for use in case of a fire, even if the trigger has never been pulled by the time of trial. Again, this does not require reading any words into s 42, as the holding is that stand-by use is indeed use. Of these three aspects of infringement by possession, only the latter two, which do not require reading words into the Act, were listed by the Court in its summary of the proposition emerging from its discussion: [58]. Moreover, this entire discussion seems to have been obiter, as the FC and FCA held that infringement was established on the basis of use (growing the patented seed) and sale, both of which are enumerated rights (2001 FCT 256 [123], [127]; 2002 FCA 309 [46]) and the SCC apparently affirmed this reasoning: Schmeiser [82], [92].

So, there is support in Schmeiser for the view that possession with a view to trade constitutes infringement as such, which required reading words into the granting provision. However, the decision is by no means unequivocal on this point, as it is also possible to read the decision as turning on theories which do not require reading words into the Act, namely possession giving rise to a presumption of use, stand-by use constituting use, or possession with a view to trade, being a sound basis for a quia timet action.

Possession with a View to Trade

Returning to the case at hand, Mactavish JA stated that:

[129] The jurisprudence does establish that the purchase or possession of infringing articles in Canada, with a view to sale or trade, or for the purpose of export, constitutes infringement: Laboratoires Servier v. Apotex Inc., 2008 FC 825 at para. 143, aff’d 2009 FCA 222, leave to appeal dismissed, [2009] S.C.C.A. No. 403.

In Servier v Apotex [143], Snider J stated “Servier submits (correctly, in my view) that the purchase or possession of infringing articles in Canada, with a view to sale or trade, or for the purpose of export, constitutes infringement.” However, this was obiter, as Snider J held on the facts [144]–[160] that there was no sale in Canada when goods were delivered abroad to foreign purchasers and title to the goods did not pass until the product was delivered to the foreign country. While Snider J’s decision was affirmed, this legal point was not at issue on appeal.

Snider J relied on Schmeiser, just discussed. Even if we accept on the authority of Schmeiser that possession with a view to trade constitutes infringement, there is a question as to what “a view to trade” encompasses. Keeping in mind the clear principle that patent rights are territorial, it is arguable that “a view to trade” should be interpreted as meaning “a view to trade within Canada.” For example, suppose an exhibitor at an international trade show held in Canada displays an article that is manufactured abroad and patented in Canada. It would be a principled distinction to say this constitutes infringing possession if the exhibitor intends to conclude sales within Canada, but not if the interest generated at the trade show is reflected only in contracts entered into abroad, for manufacture and delivery abroad. At this point, I am not saying that this distinction should be drawn, but only that it is a principled distinction which requires further consideration. The SCC in Schmeiser did not explicitly suggest any such limitation, but the rule against extraterritoriality was not at issue, as all of the allegedly infringing activity was purely domestic.  

 Snider J also relied on Wellcome v Interpharm (1992) 41 CPR(3d) 215 (FCTD) 226–27, apparently for the proposition that possession for the purpose of export constitutes infringement. Wellcome v Interpharm did quote Hoffman-LaRoche [1977] FSR 200 (Ch), in which Whitford J stated that possession for export constitutes infringement. But Joyal J himself held only that “manufacture” for sales abroad constitutes infringement even if the product is intended for sale abroad—that is, this is a straightforward case of infringement by making. Snider J also relied on Fox 4^th 393, but Fox relied only on UK cases, such as Pfizer, discussed above.

The Export Issue

The key case on whether the export of component parts for assembly abroad constitutes infringement is Beloit v Valmet-Dominion [1997] 3 FC 497 (FCA) varg JM Voith v Beloit [1993] 2 FC 515 (FCTD). At trial, Rouleau J had held that “when the defendants shipped the unassembled parts in question out of the country, they cannot be said to have made, constructed, used or sold to others, in Canada, the plaintiff’s invention” (543): that is, he held that export is not one of the enumerated rights and was therefore not infringing. While the FCA reversed, Mactavish JA [135] pointed out that the FCA began its analysis by noting that “[a] person who, beyond Canada, makes, constructs, uses, or sells the invention commits no breach of the Canadian patent,” so that consequently, the focus must be on the domestic actions of the respondent [33]–[34]. As Mactavish JA [137] also noted, the FCA held that Rouleau J had erred because he “failed to consider that the respondent GEC had in fact sold in Canada the patented invention when it signed contracts in Montréal” [43] (my emphasis). The FCA in Beloit also noted that “[w]here the elements of an invention are sold in a substantially unified and combined form for the purpose of later assembly, infringement may not be avoided by a separation or division of parts which leaves to the purchaser a simple task of integration and assembly” [41]. Thus, the sale entered into in Canada was a contract for the sale of the invention, notwithstanding that the parts were to be assembled and used abroad [45]. So, the basis for the holding of infringement was not that export (either of the invention or parts for assembly) constitutes infringement, but rather that the sale—an enumerated right—took place in Canada where the contract was entered into.

As Mactavish JA [138] also noted, the FCA in Beloit further pointed out that the machines had been assembled for testing in Canada before being disassembled for shipment abroad, and the Court held that this “constitutes ‘making’ a patented invention for the purposes of [what is now section 42] of the Act” [47]. Thus it is clear that the FCA found infringement on the basis of domestic acts—sale and making—which fall squarely within the rights enumerated in s 42.

In this case, while it was clear that GreenBlue had exported the components of the infringing RootSpace system to the US, it was unclear as to where the sale took place [145] and even who the parties were to the sale (GreenBlue’s UK parent company was also involved) [142]–[144]. (Recall that this issue was not at all prominent at trial.) In this case, there was no evidence of assembly in Canada after the injunction was issued [141]. Consequently, the FC did not err in declining to find infringement [146].

DeepRoot had relied on Varco 2013 FC 750 for the proposition that “the shipment of parts outside of Canada, along with the relatively simple later assembly, constitutes the shipment of the assembled product from Canada” [124]. In Varco, Phelan J [260] interpreted Windsurfing (1985) 8 CPR(3d) 241 (FCA) and Beloit in the same way as Mactavish JA did in this case, as turning on the point that “the sale was made in Canada.” Consequently, Mactavish JA held that Varco was distinguishable because in this case there was no evidence that GreenBlue had made the sale [141].

While it was not mentioned in this case, either at first instance or on appeal, I would also note that in Apotex v Sanofi-Aventis 2011 FC 1486, Boivin J held that “Apotex committed acts of infringement by manufacturing, using, importing, exporting, possessing and selling a product protected by the [patent at issue]” [210]. However, this broad statement must be read in conjunction with his specific findings, namely that “the transfer of title occurs in Canada,” and “[t]he sales by Apotex Corp. [Apotex’s US marketing entity] are made pursuant to an Abbreviated New Drug Application (ANDA) in the name of Apotex and regulatory approval obtained by Apotex Inc. with Apotex Corp. acting as its agent” [209]. Thus, the sale took place in Canada and the sale was for the benefit of Apotex. In light of these facts, Boivin J’s analysis appears to be consistent with Mactavish JA’s analysis in this case.

In summary on the export point, while Mactavish JA did not expressly hold that export as such does not constitute infringement, that seems to be the implication of the decision. While it was not clear where the sale took place or who the parties were, it does seem clear that GreenBlue exported the components, and this implies that GreenBlue would have been found to infringe if the FCA considered that export as such constitutes infringement.