Silos or Not?

 Canada (Health) v Glaxosmithkline Biologicals SA 2020 FCA 135 Rivoalen JA

TFI Foods Ltd v Every Green International Inc 2020 FC 808 McHaffie J

In Canada (Health) v Glaxosmithkline [Shingrix] Rivoalen JA refused to grant the Minister of Health’s request for a stay of pending appeal of 2020 FC 397 (here). In TFI Foods McHaffie J granted an interlocutory injunction in a trademark case. Both, of course, use the same tri-partite test from RJR-MacDonald [1994] 1 SCR 311. I won’t go into the details of either case (for what it’s worth, I agree with both decisions).

Rather, I’ll make one observation. In TFI Foods, McHaffie J stated that “The elements of the RJR-MacDonald test are conjunctive, in that the moving parties must satisfy all three to obtain relief. However, they are not independent silos, and a stronger finding on one or more of the elements may lower the threshold for the other elements” [5]. In Shingrix, Rivoalen JA stated that “All three questions must be answered in the affirmative, and failure on any single question is fatal to the motion for the stay” [9]. Both positions have ample support in the case law. The silos approach is the normal in the Federal Courts, with the irreparable harm factor being the most prominent hard silo, which applicants often fail to escape. The “no silos” approach is dominant in most other Canadian jurisdictions: see eg Potash Corp 2011 SKCA 120 [57]-[58]; Apotex Fermentation 1994 CANLII 16694 (Man CA); Circuit World 100 OAC 221 (ON CA); Imperial Sheet Metal 2007 NBCA 51 [7].

So, silos or not?

Is Harm to Third Parties Taken into Account at the Second or Third Step of the RJR-MacDonald Test?

Arctic Cat, Inc v Bombardier Recreational Products Inc 2020 FCA 116 Rivoalen JA

2,350,264

Yesterday’s post provided an overview of the facts in Rivoalen JA’s decision to deny Arctic Cat’s application for a stay pending appeal. This posts focuses on a purely legal issue: is harm to third parties taken into account at the second or third step of the RJR-MacDonald test for an interlocutory injunction / stay? Why does it matter?

To recap the facts, AC and BRP are competitors in the snowmobile market. BRP sued AC for infringement of various patents and finally prevailed in a decision released in June: 2020 FC 691 (here). AC then sought a stay pending an appeal, which is the subject of this decision. The stay will determine whether AC can ship infringing machines for the upcoming winter season (summer-fall 2020 is the crucial window [13]). Since the patent expires next June, AC will be able to return to this design for the following season, regardless of the outcome of any appeal, which will affect only damages. The sleds that are affected have already been manufactured and are stored in US warehouses [9]. AC submitted that it would not be be possible to redesign them for the upcoming season [9] and Rivoalen JA’s decision proceeded on that basis [34], [35].

As usual in the FC approach to the RJR-MacDonald [1994] 1 SCR 311 test, whether AC would suffer irreparable harm was a key issue. In addition to the harm that AC argued it would suffer directly, AC argued that their dealers would suffer irreparable harm, especially because many are single-line dealers who may not be able to supply a competing product because of territorial exclusivity agreements [27].

On this issue, Rivoalen JA found that irreparable harm to the dealers had not been established on the facts [31], but:

[32] More importantly, whatever harm the dealers may suffer personally cannot be relied upon by the appellants to establish irreparable harm. Only harms suffered directly by the appellants can be considered in the second branch of the RJRMacDonald test. This Court has refused attempts to rely on third-party harms, other than by charities.

As authority, Rivoalen JA cited Glooscap 2012 FCA 255 at [29-30], [33-34]; Air Passenger Rights v Canada 2020 FCA 92 at [30], and Chinese Business Chamber of Canada 2006 FCA 178 at [6-7]. These decisions (none of which concern patents), do indeed state that the interests of third parties can only be considered at the third stage of the test, the balance of convenience, relying on RJR-MacDonald [1994] 1 SCR 311 at 341, in which the Court stated that the public interest, and by implication harm to third parties, “is more appropriately dealt with in the third part of the analysis.” (Metropolitan Stores [1987] 1 SCR 110 at 128 is also relied upon, but that statement is much more ambiguous.)

On the other hand, there are cases such as Marketing International (1977) 35 CPR(2d) 226 at 231 (FCA), Procter & Gamble Co v Bristol-Meyers Canada Ltd (1978), 39 CPR(2d) 171 at 177 (FCA) and, post-RJR-MacDonald, AstraZeneca Canada 2005 FCA 208 [20], holding that it is proper to take harm to the public into account at the irreparable harm stage.

Appropriate and Inappropriate Use of Cease and Desist Letters

Fluid Energy Group Ltd v Exaltexx Inc 2020 FC 81 McHaffie J

2,892,876 / 2,961,777 / 2,961,787 / 2,961,792 / 2,961,794 / 2,961,783

In the action underlying this motion, Fluid brought an infringement action against Exaltexx, and then sent cease and desist letters directed at third parties doing business with Exaltexx. In this decision, McHaffie J granted an interlocutory injunction based on s 7(a) of the Trademarks Act, enjoining Fluid from sending such letters. Yesterday’s post provides an overview of the facts and discusses McHaffie J’s analysis of the “serious question” branch of the RJR-MacDonald [1994] 1 SCR 311 test for interlocutory injunctions, including his treatment of the substantive elements of s 7(1). This post deals with the remaining aspects of the interlocutory injunction analysis. The overarching message I take from McHaffie J’s decision is that cease and desist letters serving the “laudable purposes” of “providing notice of a legal claim and a potential lawsuit, allowing the recipient to assess the claim and their conduct, and initiating discussions leading to resolution of the dispute before litigation is commenced,” are appropriate and will not be enjoined; but letters intended to put pressure on a defendant to settle regardless of the merits are an abuse of the legal process and will not be permitted.

Interlocutory Injunctions and Cease and Desist Letters: Everything You Ever Wanted to Know

Fluid Energy Group Ltd v Exaltexx Inc 2020 FC 81 McHaffie J

2,892,876 / 2,961,777 / 2,961,787 / 2,961,792 / 2,961,794 / 2,961,783

McHaffie J’s decision in Fluid Energy Group v Exaltexx is a tour de force on an important issue, namely the availability of an interlocutory injunction based on s 7(a) of the Trademarks Act to enjoin cease and desist letters directed at third parties doing business with the defendant in an infringement action. The decision covers many issues, both procedural and substantive, that will be relevant to any situation involving threatening cease and desist letters. McHaffie J’s decision complements that of Manson J in Excalibre 2016 FC 1279 (aff’d on cross-appeal 2019 FCA 121, appeal dismissed for delay 2019 FCA 22), awarding damages under s 7(a) for letters threatening to bring infringement actions against end-users of the defendant’s product that was ultimately held to be non-infringing: see here, here and here. Both decisions are fully reasoned, and we now have a good body of recent law on the application of s 7(a) to cease and desist letters. The entire decision will be required reading on the issue, and as I have little to add to McHaffie J’s analysis, for the most part I will simply summarize the issues and highlight a few choice passages. This post will focus on the application of s 7(a) to cease and desist letters, and the next post will consider the interlocutory injunction issues.

Fluid and Exaltexx are competitors in the sale of “safe acids” to the oil and gas industry. These are strong acids that have been modified by blending them with additives to be more environmentally and dermatologically safe [8]. In the underlying action, the patentee, Fluid, asserts that Exaltexx infringes its patents relating to safe acids. After commencing the action, Fluid sent cease and desist letters to various companies doing business with Exaltexx, including two chemical suppliers and a small trucking company that hauls product from Exaltexx to one of its customers [23]. These letters made broad-ranging assertions of infringement covering Exaltexx products, and alleged that the recipients of the letters were also infringing or inducing infringement by doing business with Exaltexx [3], [15]. The letters threatened patent litigation against the companies if they refused to comply with the demand to immediately cease and desist [3]. The letters were intended to induce those companies to stop doing business with Exaltexx, and at least one, and possibly two, of the companies did cease doing business with Exaltexx as a result of the letters [118].

Stay of Judgment Pending Appeal Granted

Evolution Technologies Inc v Human Care Canada Inc 2019 FCA 11 Webb JA granting motion for stay of judgment of 2018 FC 1304 Elliott J

At trial, Elliott J held that Human Care’s 392 patent was valid and infringed by Evolution Tech: see here. In this decision from January of 2019, only recently posted to the FCA website, Evolution sought a stay pending appeal. The applicable test is the same American Cyanamid test used in interlocutory injunctions, requiring a serious question to be tried on the merits, whether the applicant would suffer irreparable harm and and assessment of the balance of convenience [21]. The serious question threshold is low and was satisfied in this case [24].

Interlocutory injunctions are almost never granted by the FC in patent matters because of the very high threshold for establishing irreparable harm that is applied by the Federal Courts. However, irreparable harm was made out in the unusual circumstances of this stay application, for two reasons. First, Evolution established on the balance of probabilities it did not have enough money to pay the major part of the judgment and would be put out of business if required to pay [29]. This is well-recognized as perhaps the clearest type of irreparable harm: [29]. Second, normally a party seeking an interlocutory injunction will undertake to compensate the other party for any losses suffered as a result of the injunction if the injunction turned out to be ‘wrongly’ granted, in the sense that the other party ultimately prevailed on the merits. In this case, however, Human Care declined to give an undertaking to pay any amount to Evolution for any loss sustained by Evolution if the stay was not granted and Evolution was ultimately successful in its appeal [31]. Without such an undertaking, Evolution would be entirely uncompensated for its losses suffered as a result of being enjoined from selling the goods in question prior to the appeal decision, and that would clearly be a form of irreparable harm. The balance of convenience analysis followed largely from the irreparable harm issues. It is worth noting that Webb JA only stayed payment of the largest amount ordered, relating to the accounting of profits itself; the award of reasonable compensation, pre-judgment interest and costs were not stayed.

Human Care also raised two variants of an unclean hands argument, which, if successful would have meant that the stay would be denied without the need to consider the Cyanamid test. First, Human Care argued that Evolution had breached court orders by previously failing to disclose the financial documents which it has now tendered as part of its motion record [10], and so the documents should be inadmissible, following White v E B F Mfg 2005 NSCA 103 . Webb JA rejected this, and distinguished White, on the basis that a breach of the court orders had not been established [15]. Human Care also argued that Evolution had not fully disclosed its assets [16]. While Webb JA considered that Evolution had not been entirely forthcoming, this fault was not sufficiently related to the question of whether a stay should be granted [20].

In the end, Human Care’s refusal to give an undertaking was wise, as Evolution’s appeal was ultimately successful; see 2019 FCA 209, blogged here.

Stay Granted in Favour of Provincial Superior Court

Thermolec Ltée v Stelpro Design Inc 2019 FCA 301 Locke JA: Boivin, Nadon JJA rev’g 2019 FC 363 St-Louis J

This brief but significant decision from the FCA clarifies the circumstances in which a patent action in a Federal Court should be stayed in favour of an action in a provincial superior court. While the outcome seems right in terms of economy of judicial resources, the whole problem may be an unintended, and unwelcome, side-effect of the Federal Court’s unwillingness to grant interlocutory injunctions in patent cases.

As discussed in my post on St-Louis J’s decision, while the Federal Court has exclusive jurisdiction to annul a patent, its jurisdiction in respect of infringement is concurrent with that of the provincial superior courts (in this case Quebec): under the Federal Courts Act s 20(1)(2). When actions are brought concurrently, which, if either, should be stayed? One important consideration is that only the Federal Court can rule on the in rem validity of the patent and dispose of it at a national level. This would strongly imply that the FC action should not be stayed. To address this difficulty, the practice has arisen of the patentee giving an undertaking that if the final result in the litigation in the provincial superior court is that the patent is invalid as between the parties, the patentee would agree to the striking out of the patent by the Federal Court. This practice has now been sanctioned by the FCA in this decision [6].

If such an undertaking is given, the question largely boils down to judicial economy, which will be driven by the relative stage of proceedings in each court. In this case, St-Louis J had refused to grant a stay of the FC action, and the FCA has now reversed, giving the following list of the “most important considerations” on the facts of this case:

1) The advanced state of the Quebec proceeding relative to the Federal Court action;

2) The fact that the patent in issue, the issue of the validity thereof, and the parties are common to the two proceedings;

3) The duplication of efforts and the inefficient use of resources, both private and public, if both proceedings were allowed to proceed; and

4) In the event that the Quebec Superior Court determines that the patent in issue is invalid and the Undertaking is exercised, third parties (including the respondent) would be assured that they would not have to defend themselves from allegations of infringement in any other Canadian jurisdiction.

While this list was directed to the relevant facts of the case, it also provides more general guidance.

St-Louis J had not emphasized different factors; her decision to refuse the stay turned on her view that “the proceedings on the merits are still at an early stage in both courts” [FC 47]. The FCA pointed out that this observation is factually incorrect, and in fact the Quebec action was substantially further advanced [4]-[5], and it was primarily for this reason that the FCA reversed. This means that only the Quebec action will proceed, avoiding wasteful duplication.

While this outcome certainly seems preferable on the facts of this case, there is a larger question. In terms of efficacy of the overall judicial system, no doubt it is preferable to have a single action in provincial superior court as opposed to one there and one in the Federal Court. But arguably it would be even better to have a single action in Federal Court, which is, in effect, a specialized patent court, with trial and case management judges who are expert in patent law and the management of complex patent cases. Why are patentees foregoing these advantages? The cases on this issue show that it is typically the patentees who are seeking to avoid the Federal Court. It was a patentee who came up with the idea of giving an undertaking to allow its patent to be struck out, and a patentee who prefers to litigate in the Federal Court can tilt the scales in that direction by refusing to give such an undertaking.

So why do some patentees prefer to litigate in provincial superior court? I suspect that the choice may be motivated by the potential availability of an interlocutory injunction in provincial superior court, as opposed to the firm unwillingness of the Federal Court to grant interlocutory injunctions. That was clearly the case in Safilo v Contour Optik 2005 FC 278, and may also have been true in this case, as the patentee, Thermolec, was granted an interlocutory injunction in Quebec). Whatever the substantive merits on the Federal Court’s position on interlocutory injunctions was directing litigation to a less suitable forum, thereby undermining the efficiency of the patent litigation system as a whole.

Interlocutory Injunctions Update Part III: Trade-marks

Sleep Country Canada Inc v Sears Canada Inc 2017 FC 148 Kane J

Reckitt Benckiser LLC v Jamieson Laboratories Ltd 2015 FC 215 Brown J aff’d 2015 FCA 104 Noël CJ: Gauthier, Webb JJA

This is the third in a series of three posts looking at some more-or-less recent interlocutory injunction decisions. Last Thursday’s post considered some patent cases, Friday’s post discussed copyright cases, and today’s post focuses on a couple of trade-mark decisions. As discussed in Thursday’s post, most Canadian jurisdictions use a risk-balancing approach to interlocutory injunctions. In contrast, for about the last 25 years, the Federal Courts have used a high-threshold approach to irreparable harm, with the result that interlocutory injunctions have been very difficult to get in IP cases. Sleep Country and Reckitt are two trade-mark cases in which interlocutory injunctions have been granted. The question is whether the approach used in these cases can be reconciled with the high-threshold approach.

Interlocutory Injunctions Update Part II: Copyright Cases

Unilin Beheer BV v Triforest Inc 2017 FC 76 Gascon J
            2,475,076 2,522,321 / glueless locking laminate flooring

As discussed in yesterday’s post, most Canadian jurisdictions use a risk-balancing approach to interlocutory injunctions. The Federal Courts, in contrast, use a high-threshold approach to irreparable harm, with the result that interlocutory injunctions have been very difficult to get in IP cases. However, a series of copyright cases have held that in cases of blatant copying, the threshold for irreparable harm is much lower, and perhaps even nonexistent. These include the following copyright cases in which an interlocutory injunction was granted: IBM v Ordinateurs Spirales Inc (1984), 80 CPR (2d) 187 (FCTD), Reed J; Universal City Studios (1983), 73 CPR (2d) 1 (FCTD), Walsh J; Jeffrey Rogers Knitwear 6 CPR (3d) 409, Dubé J; 75490 Manitoba (1989) 29 CPR(3d) 89, Rouleau J; Diamant Toys 2002 FCT 384 Nadon J; Bell Canada 2016 FC 612 Tremblay-Lamer J. The question is whether these copyright cases can be reconciled with the patent cases, such as Unilin, and TearLab 2016 FC 606 J aff’d 2017 FCA 8 (discussed in yesterday’s post).

Interlocutory Injunctions Update Part I: Patent Cases

TearLab Corp v I-Med Pharma Inc 2016 FC 606 Manson J aff’d 2017 FCA 8 Scott JA: Boivin, de Montigny JJA

2,494,540 / TearLab System / i-Pen System

Unilin Beheer BV v Triforest Inc 2017 FC 76 Gascon J
            2,475,076 2,522,321 / glueless locking laminate flooring

In TearLab and Unilin v Triforest, interlocutory injunctions were refused in two patent cases. This is not very surprising, as this result is line with the restrictive approach adopted by the Federal Courts, as discussed in my article on "Interlocutory Injunctions and Irreparable Harm in the Federal Courts," (2010) 88 Can Bar Rev 517. TearLab was a particularly strong case for granting an interlocutory injunction, and, unusually, the decision was appealed, and affirmed; but otherwise these cases serve mainly to affirm the established restrictive approach to interlocutory injunctions in patent cases. However, there have also been some more or less recent cases that have granted interlocutory injunctions in copyright and trade-mark cases. This invites the question of whether all of these cases can be reconciled, particularly as Gascon J addressed the copyright cases at length in his Unilin decision. Today’s post will provide some background, and discuss the patent cases, and the next couple of posts will discuss the copyright and trade-mark cases.

How Accurate are Damages Calculations?

TearLab Corp v I-Med Pharma Inc 2016 FC 350 Russell J

2,494,540 / TearLab System / i-Pen System

This cases raises, albeit indirectly, the interesting question of how it could be shown that damages are inadequate for the purpose of establishing irreparable harm.

Russell J refused to grant an interim injunction in favour of TearLab which would have prevented I-Med from launching its allegedly infringing product pending a motion for an interlocutory injunction. (TearLab is the exclusive licensee of the University of California's ‘059 patent [6].) Russell J’s reasons followed established Canadian law. To get an interim or interlocutory injunction, the patentee must show irreparable harm, and the standard for showing such harm is stringent: the evidence of harm must be “clear and not speculative”, the harm itself must flow almost inevitably, and mere difficulty of calculating damages does not constitute irreparable harm, “provided there is some reasonably accurate way of measuring those damages” [43]. In this case, Russell J held that the evidence presented by TearLab did not satisfy these requirements.

Russell J’s conclusion was not very surprising on the facts. TearLab relied on the evidence of Mr Tierney, the retired business director of Allergen Eye Care, to the effect that there was no good model for quantifying TearLab’s losses [38]. But as Russell J pointed out, Mr. Tierney was not an expect in market forecasting or quantification of damages. And in any event, the courts have long acknowledged that damages assessment is a “broad axe” not a “rapier point,” and mere difficulty of calculating damages does not establish irreparable harm. There is an argument to be made that “meaningful doubt as to the adequacy of damages” should be sufficient to constitute irreparable harm, at least as a part of a balancing analysis, but that view has not carried the day in the Federal Courts.

This raises the question of whether it is possible, even in principle, for a patentee to establish to the satisfaction of the Federal Court that the difficulty in assessing damages is sufficient to constitute irreparable harm. The legal question is whether “there is some reasonably accurate way of measuring those damages.” On its face this seems to be an objective question capable of being addressed with the right kind of evidence. But question may be circular. The difficulty is that, so far as I know, the damages assessment itself is the best method we have of establishing the true loss. In s 8 and pharma damages cases, for example, sophisticated economic models are used to assess the difference between pharmaceutical prices with and without generic entry. In the absence of some more accurate method of assessment then it will be impossible to prove that damages are not reasonably accurate. But in light of the widespread judicial acknowledgement of uncertainties in damages calculations, even the best possible estimate of damages is not necessarily reasonably accurate. There is a difference between saying that damages are $1,000,000 plus or minus $1,000, and saying damages are $1,000,000 plus or minus $1,000,000. 

How accurate are damages assessments? In principle a formal error analysis of existing methods of damages assessment could address this question. However, that would be demanding from an evidentiary perspective, as the patentee and alleged infringer would be not only arguing over the quantum, but also over the accuracy of the quantum, which adds a layer of complexity to an already complex inquiry. And from a strategic perspective, the patentee would be caught in a squeeze, as it would want to argue that the errors are large in order to establish that damages assessments are not accurate in order to obtain an interlocutory injunction, but that would mean conceding the possibility that its subsequent damages claim might fall in the lower end of the range. My point isn’t that it is unfair to put the patentee in this squeeze, but rather that there are practical reasons why evidence of the accuracy of damages assessment is unlikely to be forthcoming. Another practical problem is that undertaking an error analysis in order to make the case for an interlocutory injunction would be very expensive and likely to be worth the cost only in pharma cases (if even there). Given that pharma has the NOC system which provides a statutory interlocutory injunction, it is hard to imagine a case in which it would be worthwhile for a plaintiff to incur this expense. Perhaps this is an issue that could be addressed by an academic economist.

In a Bifurcated Trial, What is the Proper Approach to a Stay of the Remedial Inquiry Pending Appeal of the Liability Phase?

Janssen Inc. v. AbbVie Corporation 2014 FCA 112 Stratas JA
            2,365,281 / anti-IL-12 antibodies / STELARA

This decision raises basic issues regarding the proper approach to a stay of the remedies phrase of a bifurcated trial pending appeal of the liability decision. AbbVie sued Janssen for patent infringement. On Janssen’s motion, the trial was bifurcated into liability and remedy phases. AbbVie was successful at the liability stage, and that decision is under appeal to the FCA. On a subsequent motion a Prothonotary further ordered the remedial phase bifucated into a phase on injunctive relief, and a phase on damages. Janssen has appealed this second bifurcation [10]. Janssen is therefore now facing two appeals, and if either is successful, the trial on injunctive relief should not go ahead, or should not go ahead separately from the damages phase [11]. Janssen sought a stay of the remedies phase.

The parties agreed that the test for whether a stay should be granted is the three-part test from RJR-MacDonald [1994] 1 SCR 311 that also governs an interlocutory injunction: a serious issue to be tried, irreparable harm, and the balance of convenience. The FCA held that each of these tests is a separate threshold, so that each must be answered in the affirmative in order for a stay to be granted [14]. Stratas JA pointed out that “[e]ach branch of the test adds something important” [19]. While that is true, it does not follow that each must be satisfied individually. The alternative is that all are balanced together. That balancing approach has been endorsed by Sharpe on Injunctions and Specific Performance, ¶2.90-2.100, and by Sask CA in Mosaic v PCS 2011 SKCA 120 [57] (blogged), and by Hoffmann J in Films Rover International Ltd v. Cannon Film Sales Ltd. [1986] 3 All ER 772 at 780 (Ch), who explained:

The principal dilemma about the grant of interlocutory injunctions. . . is that there is by definition a risk that the court may make the ‘wrong’ decision. . . . A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong.’

Stratas JA pointed out that it would be strange if a stay could be granted “in the face of a laughably weak or hopeless case,” [23], or on the basis of “vague assumptions and bald assertions” [24]. That is true, but that does not justify a threshold approach; a laughably weak case, and vague assumptions, would not support a stay under a balancing approach either, as they would be given very little weight. Stratas JA reviewed a number of FCA cases which use the irreparable harm requirement as a threshold test [24]. While I have not reviewed these cases in detail, that is certainly consistent with the approach taken to interlocutory injunctions in the patent context: see my article Interlocutory Injunctions and Irreparable Harm in the Federal Courts, (2010) 88 Can Bar Rev 517. While the FCA has been internally consistent in this respect, it should be recognized that it is increasingly out of step with other courts in Canada and elsewhere.

Having decided that each step is separate, the FCA refused the stay based solely on the irreparable harm branch, saying that

Janssen brought the motion to bifurcate the liability and remedies issues. It got the order it sought. . . . In short, Janssen got what it wanted and what it could reasonably expect - the prompt beginning of a remedial phase that would cause it to incur management time and legal and other costs. To the extent that this is harm, it is harm it brought upon itself by asking for bifurcation in these circumstances. It is avoidable harm [29]-[30].

This does not strike me as persuasive. As I understand it, an order for bifurcation isn’t a favour granted to one party, but an assessment by the court that the interests of the efficient administration of justice are best served by bifurcation. There is at least an argument to be made that the efficient administration of justice would also be served by a stay; Stratas JA never addressed this point because he never reached the balance of convenience. It is not clear to me why a concern for the efficient administration of justice should be disregarded, merely because the party raising the issue had previously raised another issue regarding the efficient administration of justice. In the bigger picture, the money that the parties spend in wasted legal fees are not just a cost to the parties; they are a cost to society as a whole. The money has to come from somewhere, whether it is reduced research expenditure, or higher consumer prices.

All this is not to say that I disagree with the result. Notwithstanding that the SCC in RJR-MacDonald did equate the test for a stay and an interlocutory injunction, the two situations are quite different. In an application for an interlocutory injunction, the court has only summary information on which to base any assessment of the merits. That is what led the House of Lords in Cyanamid [1975] UKHL 1 to downplay the importance of the merits in an interlocutory injunction application. (There is a strong argument to be made that in an appropriate case the merits deserve more weight than Cyanamid would give them, but that is a different issue.) In contrast, on an application for a stay, the court has a fully reasoned decision of a trial judge on a full evidentiary record. For that reason (as Professor Vaver pointed out to me), the UK courts do not treat a stay and an interlocutory injunction equivalently. In Virgin Atlantic [2009] EWCA Civ 1513 [22] Jacob LJ noted that

It should be noted the question [of a stay of an injunction pending appeal] is not the same when one is considering what to do on an application for an interim injunction pending trial. In that case the patentee has yet to establish his right, whereas after successful trial he has prima facie done just that. So in general, when an appeal is pending, the patentee will get his injunction provided he gives a cross-undertaking in damages against the possibility that the defendant's appeal would be successful. The question, however, remains one of a balance of convenience.

Stratas JA gave great weight to the importance of “The binding, mandatory nature of law – which I shall call ‘legality’ Indeed, it is an aspect of the rule of law, a constitutional principle.” [20], and he referred to the granting of a stay as a “temporary suspension of legality. ” [21]. I am not comfortable with that characterization. If in the end, if an appeal court holds that the trial judge was wrong on a matter of law, then it seems to me that legality would be temporarily suspended by refusing a stay, rather than by granting it. But without raising it to the level of a constitutional principle, the underlying notion that the fully reasoned decision of the trial judge is entitled to considerable deference is surely correct.

Even this does not mean that some kind of threshold test should be adopted. Jacob LJ was of the view that the question “remains one of a balance of convenience,” though the trial judge’s decision on the merits is given great weight.

I note also that a key aspect of the UK approach is that while the remedial phase will normally not be stayed pending appeal, if the appellant is successful, it will be awarded not just its costs on the appeal, but also the costs incurred in the remedial inquiry:

The general rule is that a successful claimant is entitled to pursue an inquiry for damages even if there is a possibility of an appeal. He normally does so at his own risk as to costs if the decision on liability is reversed on appeal” Virgin Atlantic [4].

While I am not familiar with the Canadian practice on this point, and Stratas JA, made no reference to costs of the remedial inquiry in dismissing the motion for a stay, the UK approach does strike me as a sensible one.

EWCA on Ex Turpi Causa

Les Laboratoires Servier v Apotex Inc [2012] EWCA Civ 593  rev'g [2011] EWHC 730 (Pat)

In earlier installments of the log-running perindopril saga, Servier obtained an interlocutory injunction preventing Apotex from marketing perindopril in the UK, on the basis of a European patent which was ultimately held to be invalid. Apotex sought damages on the undertaking, but Servier pointed out that the perindopril which would have been sold in the UK, but for the interlocutory injunction, would have been manufactured in Canada and would have infringed a valid Canadian patent. Arnold J, in a decision blogged here, held that ex turpi causa prevented Apotex from recovering damages on the undertaking  The EWCA has now reversed; but while Apotex will be able to claim on the undertaking, its damages will be reduced by the amount which Servier could recover under Canadian law for the infringing manufacture. My post on IPKat discusses the EWCA decision in more detail.

Sask CA Disagrees with FCA on Irreparable Harm in Interlocutory Injunctions

Mosaic Potash Esterhazy Limited Partnership v Potash Corporation of Saskatchewan Inc, 2011 SKCA 120

It is very difficult to obtain an interlocutory injunction in a patent case in the Federal Court, as the FCA jurisprudence uses irreparable harm as a strict threshold, in the sense that the balance of convenience stage will not be reached if the applicant cannot established that it will suffer irreparable harm, and the standard for establishing such harm is high: the applicant must show it “will actually” suffer irreparable harm on the basis of evidence that is “clear and not speculative.” For a critical review of the FCA jurisprudence, see my article Interlocutory Injunctions and Irreparable Harm in the Federal Courts, (2009) 88(3) Can Bar Rev 515. While not a patent case, or even an intellectual property case, Mosaic v PCS is an important appellate decision which fully considers the principles applicable to the grant of an interlocutory injunction, including a review of the leading authorities, and establishes an approach which is directly contrary to that used by the FCA. While the FCA is of course not bound by the SaskCA, this thorough and fully reasoned decision from an appellate court may give the FCA cause to reconsider its position when the occasion arises.

Interlocutory Injunctions in Australia

Apple v Samsung Electronics [2011] FCA 1164 (Aus)

In my article Interlocutory Injunctions and Irreparable Harm in the Federal Courts, 88(3) Can Bar Rev 515, I argued that the threshold for irreparable harm imposed in the Federal Courts is too high. My review of the Chancery cases in which the concept developed showed that adequacy of damages did not have a distinct role: “[w]hen the courts of equity declined to provide a remedy to the plaintiff, they would often say that this was because the remedies at law were adequate, but this was in effect a statement of the conclusion on the balance of convenience, rather than a distinct condition precedent to taking jurisdiction.” Accordingly, it would be preferable to abandon the requirement of irreparable harm entirely.

Because my review was historical, I neglected comparative law. In particular, I am embarrassed to admit that I was entirely unaware of the extremely interesting approach long taken by the High Court of Australia, which was brought to my attention by the recent decision of the Australian Federal Court in Apple v Samsung Electronics [2011] FCA 1164, reported by IPKat here. The law applied in that case derives from the decision of the High Court in Beecham Group v Bristol Laboratories [1968] HCA 1, a patent case. Beecham established a two-part test for an interlocutory injunction, which considered the probability of success and the balance of convenience; irreparable harm is not a factor at all. It is notable that this test was based directly on an analysis of the original Chancery jurisprudence. In Australian Broadcasting Corporation v O’Neill [2006] HCA 46 Gummow and Hayne JJ at [65]-[72] affirmed this test. Their opinion explained further that the assessment of the merits did not require a showing that it was more likely than not that the plaintiff would succeed; in this the decision was consistent with Lord Diplock’s speech in Cyanamid [1975] A.C. 396. However, the High Court expressly rejected Lord Diplock’s holding that the court need only be satisfied that the plaintiff’s claim is not frivolous or vexatious, for the very good reason that Lord Diplock’s statements “obscure the governing consideration that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.”

In my Irreparable Harm article I argued that the correct overarching principle is the “lower risk of injustice” stated by Hoffmann J in Films Rover International v Cannon Film Sales [1986] 3 All E.R. 772 at 780 (Ch.):

The principal dilemma about the grant of interlocutory injunctions. . . is that there is by definition a risk that the court may make the ‘wrong’ decision. . . . A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong.’

The general Australian approach, as I now understand it, is consistent with this principle, and seems entirely sound. The Beecham decision also had some very interesting specific guidelines regarding patent cases in particular. I regret that neglected this important jurisprudence when I wrote my article.

Irreparable Harm in Interlocutory Injunctions

Astrazeneca Canada Inc. v. Apotex Inc. / esomeprazole 2011 FC 505 Crampton J aff’d 2011 FCA 211 

On the second branch of the Cyanamid test, which requires the applicant to show irreparable harm, Crampton J’s decision was entirely consistent with Federal Court jurisprudence. I have criticized this jurisprudence at length in my article Interlocutory Injunctions and Irreparable Harm in the Federal Courts, 88(3) Can Bar Rev 515, and here I will simply outline some of the main points.

The Federal Court jurisprudence uses irreparable harm as a strict threshold. That is, if the applicant cannot show irreparable harm, the application will be dismissed without the need to consider the balance of convenience [154]. This is not consistent either with the traditional practice in Chancery, or with the general position in other Canadian jurisdictions, or with Cyanamid itself. Chancery practice is discussed in detail in my article. With respect to other Canadian jurisdictions Sharpe on Injunctions and Specific Performance para. 2.450 states that “attempts to make irreparable harm, and hence a condition precedent, and hence a threshold test, have been rejected.” In Cyanamid, which was itself a patent case, the main harm alleged by the patentee was the “[loss] of its chance of continuing to increase its share in the total market” ([1975 AC 396 at 409-10). The Federal Court jurisprudence requires the applicant to prove irreparable harm on the basis of evidence that is “clear and not speculative” [56], while in Cyanamid the interlocutory injunction was granted merely on the trial judge’s common sense inference that there would be loss of market share “[a]lthough there is not at present any evidence to that effect in this case” ([1974] FSR 312). The injunction granted by the House of Lords in Cyanamid would undoubtedly have been refused on current Federal Court jurisprudence.

The Role of the Merits in an Interlocutory Injunction

Astrazeneca Canada Inc. v. Apotex Inc. / esomeprazole 2011 FC 505 Crampton J aff’d 2011 FCA 211

Though I haven’t done a search, my impression is that it has been quite a while since I’ve seen an interlocutory injunction motion on a patent case out of the Federal Court. Perhaps patentees have more or less given up in light of the restrictive approach taken in the Federal Court of Appeal from about 1990. If so, there is nothing in this decision to change their minds. This is a typical case of a patentee pharmaceutical company seeking an interlocutory injunction to prevent generic entry pending an infringement action. The main twist – an important one in my view, though not in the view of Crampton J – is that AstraZeneca had been unable to obtain a order of prohibition in the related NOC proceedings. The result also is typical: the interlocutory injunction was refused. Crampton J’s opinion is entirely consistent with Federal Court precedent, and it was affirmed by the Court of Appeal on the basis that the decision was heavily fact based and therefore subject to a deferential standard of review. There is little new law in the decision. Nonetheless, in my view, the decision illustrates problems with the current approach to interlocutory injunctions, both in general and in the Federal Court.

There are three points of note: first is the role of an assessment of the merits in an interlocutory injunction; second is the stringency of the irreparable harm requirement in the Federal Courts; third is the view taken by Crampton J regarding the need to prove that patents encourage innovation in the pharmaceutical industry.

Stay of Execution Pending Appeal

Phostech Lithium Inc v Valence Technology, Inc 2011 FCA 107 Pelletier JA

In Phostech v Valence 2011 FCA 107 Pelletier JA granted a stay pending appeal of the judgment of Gauthier J in 2011 FC 174. It is interesting to contrast this decision with that of the EWCA in Virgin Atlantic v Premium Aircraft [2009] EWCA Civ 1513 Jacob LJ: Patten LJ, Kitchin J granting a partial stay (a “carve-out”) pending a decision on an application for leave to appeal to the UK Supreme Court.

The major difference is that the FCA in Phostech applied the Cyanamid threshold of “a serious issue to be tried” on the merits portion of the test, while the EWCA did not, saying:

22 It should be noted the question is not the same when one is considering what to do on an application for an interim injunction pending trial. In that case the patentee has yet to establish his right, whereas after successful trial he has prima facie done just that.

Surely this is a compelling argument. The reason given by Lord Denning in American Cynamid for lowering the old threshold of “a prima facie case” to “a serious question to be tried” was that “[i]t is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial" [1975] AC 396, 407. It follows directly that once the matter has been decided at trial, it is legitimate to consider the merits. Indeed, this was the position taken by the Supreme Court in Laboratoire Pentagone Ltée v. Parke, Davis & Co. [1968] SCR 269, a patent case in the Supreme Court refused a stay of execution pending appeal:

The burden upon the appellant is much greater than it would be if the injunction were interlocutory. In such a case the Court must consider the balance of convenience as between the parties, because the matter has not yet come to trial. In the present case we are being asked to suspend the operation of a judgment of the Court of Appeal, delivered after full consideration of the merits.

This argument is particularly compelling where the appeal turns on a point on which the trial judge is owed deference. But even on a point of claim construction, the point argued in Phostech [2], the considered opinion a trial judge after a full trial on the merits, must surely count for something. In Laboratoire Pentagone [1968] SCR 307 the SCC ultimately reversed the Quebec Court of Appeal on a point of law; this implies that the Court did not view the the nature of the point on appeal as being relevant to the test for a stay.

International Ex Turpi Causa as a Defence to an Undertaking in Damages

Les Laboratoires Servier & Anor v Apotex Inc & Ors [2011] EWHC 730 (Pat) Arnold J

In the latest decision in the perindopril litigation, Arnold J applied the maxim ex turpi causa non oritur actio in exercising his discretion to decline enforcement of an undertaking in damages given by a patentee who had obtained an interlocutory injunction.1 The issue arose because the product in question was patented in the jurisdiction of manufacture (Canada), but not in the jurisdiction of sale (the UK). It is thus one aspect of the larger problem of territorial limits to patent protection, and ultimately Arnold J’s decision turned on principles of international comity.

Servier obtained a compound patent for perindopril in both Canada and Europe. The European compound patent expired in 2001. The corresponding Canadian patent, which was governed by the old Act, was delayed in conflict proceedings. It was not granted until 2001, and will not expire until 2018. Servier was granted a further European patent for a crystalline form of perindopril in 2004. In 2006 Servier commenced an infringement action against Apotex based on the European crystalline form patent. Servier obtained an interlocutory injunction from Mann J [2006] EWHC 2137 (Pat), subject to the usual undertaking in damages. Servier’s European patent action ultimately failed as the crystalline form patent was declared invalid: [2008] EWCACiv 445 aff’g [2007] EWHC 1538 (Pat).

Apotex sought damages on the undertaking for the loss of UK sales. This was heard in June of 2008 and Norris J held that Servier was liable for £17.5 million: [2008] EWHC 2347 (Ch). Apotex’s loss was calculated on the basis that the perindopril would be manufactured at its facility in Canada and exported to the UK. However, at the same time Servier and Apotex were litigating the compound patent in Canada. On July 2, 2008 Snider J held that the Canadian patent was valid and on June 30, 2009 the FCA affirmed: Laboratoires Servier v. Apotex Inc./ perindopril, 2009 FCA 222 affm'g 2008 FC 825. Thus it became clear that manufacture in Canada of the product which Apotex would have sold in the UK but for the injunction, would have infringed the Canadian patent. Consequently Servier sought and ultimately obtained permission to amend its pleading to raise the defence that Apotex could not claim damages on the undertaking for lost sales when the manufacture of the product would have been illegal: [2010] EWCA 279 (Civ).