Controlled Release Dosage Form Patent Not Invalid on the Facts

Valeant Canada LP/Valeant Canada SEC v Generic Partners Canada Inc 2019 FC 253 Fothergill J
            2,412,671 / NOC

Valeant v Generic Partners is the second case released this week, and the second to raise no interesting issues of law. Valeant’s 671 patent relates to a controlled release dosage form for drugs requiring gastric retention. One known mechanism for controlled release was a polymeric matrix which swells in the stomach so the dose cannot exit into the small intestine [2]. It turns out that some of these forms, particularly those with an elongated shape for easy swallowing, could nonetheless partially exit if the pill became lodged with the long dimension protruding into the pylorus (the opening to the small intestine) [3]. The 671 patent comprises a swellable dosage form with a particular shape that avoids this problem.

In this NOC proceeding, Generic Partners conceded infringement of several claims, and attacked the validity of the 671 patent on the basis of anticipation, obviousness, double patenting and insufficiency. The main attacks were anticipation and obviousness. These both failed on the facts, essentially because nothing in the prior art suggested that shape was a central component of gastric retention [71]-[72], [106]-[108]. Rejection of the double patenting attack followed directly from the conclusion on anticipation [111], and Fothergill J easily dismissed the insufficiency allegation [116].

What Does Actavis v Lilly Mean for Canadian Law?

I have a new article forthcoming in the Intellectual Property Journal, entitled “Protection Extending Beyond the Language of the Claim: What Does Actavis v Lilly Mean for Canadian Law?” The article will be published in two parts. Here is the abstract for Part I:

In its landmark decision in Actavis UK Ltd v Eli Lilly and Co, the UK Supreme Court held that the scope of protection afforded by a patent claim will sometimes “extend beyond” the meaning of the words of the claim, even when those words are read contextually. The Court also provided a structured approach to determining when extended protection is appropriate. This article considers what Actavis means for Canadian law. Part I argues that the Actavis approach represents a refinement of existing Canadian law, not a revolution. In the leading Supreme Court of Canada companion cases on claim construction, Free World Trust v Électro Santé Inc and Whirlpool Co v Camco Inc, the Court held that claim construction in Canadian law was, and always had been, based on purposive construction, including an identification of the essential elements of the claim. The extended protection of Actavis stems from the same recognition that omission of non-essential elements does not avoid infringement. Part II will argue that the Actavis approach is also sound as a matter of policy.

NEXIUM Saga Is Not Over Yet

AstraZeneca Aktiebolag v Apotex Inc 2018 FC 185 Locke J
            2,139,653 / esomeprazole / NEXIUM

While the SCC abolished the promise doctrine in AstraZeneca v Apotex 2017 SCC 36 rev’g 2015 FCA 158 rev’g 2014 FC 638, the associated litigation is not over yet. To recap, Apotex had prevailed in NOC proceedings (2010 FC 714). The subsequent infringement action was bifurcated to carve out any experimental and regulatory use exemption, as well as the quantum of any damages or profits [5]. In the first part of the bifurcated action, AstraZeneca initially lost, on the basis that the 653 patent was invalid for lack of utility, but then ultimately won when the SCC in AstraZeneca abolished the promise doctrine. At first instance, Rennie J had held that the 653 patent was invalid for failure to meet the promised utility, but had rejected all other validity attacks. The FCA had upheld the decision on the basis of lack of promised utility, but did not address Apotex’s appeal of the other validity attacks. In the meantime, Apotex brought a s 8 action consequent on its victory in the NOC proceeding. This went to trial before Locke J, after the SCC hearing but before its decision [9]. The parties agreed that Locke J should not issue his decision until after the SCC had issued its decision [10]. When the SCC decision issued, and after hearing supplemental submissions, Locke J dismissed Apotex’s s 8 NOC claim: 2018 FC 181. The second part of the birfurcated infringement action is ongoing, and this decision concerned motions as to how to proceed in light of the SCC AstraZeneca decision. The difficulty is that SCC had concluded its decision by holding that “The `653 patent is not invalid for want of utility” [64]. Apotex argued that this was not the same as a holding that the patent was valid, and the trial should be re-opened to allow the parties an opportunity to address the validity issues, in particular those which had not been addressed by the FCA, with additional evidence [27]. AstraZeneca, on the other hand, argued that the SCC decision had finally determined the validity of the 653 patent, and consequently the second part of the bifurcated trial, should proceed. Locke J ruled in favour of AstraZeneca, on the basis that he had decided in dismissing Apotex’s s 8 claim, in 2018 FC 181, [30]-[36] that “the validity of the 653 Patent was finally decided by the SCC, and that there remains no other validity issue to debate” [29].

Switching Costs, Path Dependence, and Patent Holdup

While this blog focuses on case law, I also do more theoretical work, including a new paper, “Switching Costs, Path Dependence, and Patent Holdup,” co-authored with Tom Cotter and Erik Hovenkamp, which we have just posted on SSRN. Here’s the abstract:

Patent holdup occurs when a patent holder extracts higher royalties ex post (after the payor has committed to use of the patented technology) than it could have negotiated ex ante, where the difference is not explained by an increase in the technology’s value. To date, the literature principally has focused on—indeed, sometimes conflated—two potential sources of holdup: the sunk costs the user has incurred ex ante to adopt the technology, and the “switching costs” of adopting an alternative ex post. We demonstrate, however, that this literature tends either to over- or underestimate holdup risk, because holdup may arise even when sunk costs are zero, or be absent despite high ex post switching costs. More generally, we show that patent holdup is best understood as an opportunistic exploitation of path dependence, arising when prior commitment to a technology creates some dynamic distortion in the technology’s incremental value over alternatives.

The Value of the Standard

My article, co-authored with Professor Tom Cotter, on “The Value of the Standard,” has just been published in Volume 101(3) of the Minnesota Law Review. Here is the abstract:

Standard-setting organizations (SSOs) often require member firms to license their standard-essential patents (SEPs) on undefined “fair, reasonable, and nondiscriminatory” (FRAND) terms. Courts and commentators in turn have proposed various principles for calculating FRAND royalties, among them that the royalty should not reflect “the value of the standard.” As we show, however, this principle could be understood to mean any or all of three distinct concepts, namely that the royalty should not reflect the implementer’s sunk costs; that the patentee should not be able to extract any of the value resulting from network effects; or that the royalty should be proportionate to the patent’s contribution to the standard.

This Article proposes, as an alternative benchmark, that a FRAND royalty should reflect the incremental contribution of the patent to the value of the standard to the user. This principle combines two related ideas: first, that royalties should reflect the hypothetical bargain the parties would have struck ex ante (prior to incurring sunk costs) in view of the incremental value of the technology over unpatented alternatives as revealed ex post; and second, that multiple patents reading on a standard should be valued in proportion to their marginal contribution (“ex post Shapley pricing”). Our proposal would prevent patentees from extracting sunk costs or a disproportionate share of standard value, but (contrary to some approaches) it would enable them to draw some of the increased value resulting from network effects. We show that our approach is more consistent with sound innovation policy, and suggest some practical applications.

Worldwide Interim Injunction Against Google

Equustek Solutions Inc v Jack, 2014 BCSC 1063

In Equustek Solutions, Fenlon J of the BCSC granted a worldwide interim injunction against Google Inc, ordering it to cease indexing or referencing in search results on its internet search engines certain specified websites operated by the defendants in the underlying action. While this isn’t a patent case, it’s interesting enough that I’ve decided to post on it. Given that the subject is outside my main expertise, this post is largely descriptive, but I will say that Fenlon J’s decision struck me as well reasoned. While this type of order has apparently never before been made by a Canadian court [107], I didn’t see any obvious gaps of law or logic. The result seems surprising, but it is important to recognize that “Google acknowledges that it can do what is being asked of it. Google does not assert that it would be inconvenienced in any material way or that it would incur expense to do so” [153].

Google is not a party to the underlying dispute, which related to passing off and the defendants’ use of the plaintiffs’ trade secrets. The defendants had failed to comply with various court orders made against them and continued to sell their product in violation of these court orders, including an order prohibiting the defendants from carrying on business through any website [7]. After that last order, Google voluntarily complied with the plaintiffs’ request to remove specific webpages or URLs from its Google.ca search results (ie from searches originating in Canada), but it was unwilling to block an entire category of URLs from its search results worldwide [9].

The bulk of the decision concerns jurisdictional questions. Justice Fenlon held that the British Columbia courts have territorial competence, in large part because Google does business in the jurisdiction by selling advertising to British Columbia clients, including to the defendants [50]. Google argued that this analysis would give every state in the world jurisdiction over Google’s search services, but Fenlon J noted that this “flows as a natural consequence of Google doing business on a global scale, not from a flaw in the territorial competence analysis” [64]. She then held that the BC courts were an appropriate forum as compared with the California courts. Google’s primary contention on this point was the difficulty of enforcing a Canadian judgment in California, which is the location of Google’s head office. Fenlon J noted that while Canadian courts are reluctant to grant injunctive relief against extra-territorial parties for this reason, the law did recognize exceptions to this general rule; there were some sanctions which the BC court could take in relation to Google’s activities in BC; Google had not established that the Canadian order would be unenforceable under California law; and in any event, Google had not shown that a California order (assuming one could be obtained) would be more appropriate than a BC order, as Google had not shown that the technical steps needed to carry out the order would be carried out in California. Fenlon J also noted that even though Google was not actively aiding the defendant’s contempt, that is not the sole ground for making orders against a non-party, including those outside the jurisdiction, as Norwich orders and particularly Mareva injunctions illustrate.

On the question of whether the injunction could be granted on the facts of the case, Google made four main arguments. First, Google argued that it cannot, as a practical matter, monitor content or arbitrate disputes over content. Fenlon J responded by noting that Google was not being required to monitor the content of the defendants’ websites, or the content of other websites that might provide information about the defendants’ products, but only to block the particular URLs which were specified in the order itself [137].

Second, Google submitted that de-indexing entire websites without regard to content of the specific URLs would constitute undue censorship. Fenlon J responded by noting that “Google acknowledges that it alters search results to avoid generating links to child pornography and ‘hate speech’ websites. It recognizes its corporate responsibility in this regard, employing 47 full-time employees worldwide who . . . take down specific websites, including websites subject to court order” [139].

Third, Google argued that an order affecting searches might “put Google in the impossible situation of being ordered to do something that could require it to contravene a law in another jurisdiction” [140]. Fenlon J noted that this concern could be addressed in appropriate cases by inserting a so-called Baltic proviso, such as was recognized in Bank Of China v NBM LLC & Ors [2001] EWCA Civ 1933, excusing the non-party from compliance with the order if to do so would breach local laws [143]. In any event, in this case, Fenlon J noted that most countries recognize the importance of protecting trade secrets, and Google did not suggest that the order sought would in fact offend California law, or the law of any other specific state or country in which a search could be conducted [144].

Fourth, Google argued that no court should make an order that has a reach that extends around the world. Fenlon J noted that the order need only be enforced in the particular jurisdiction from which the search engine is controlled. The effect of the order might be felt around the world, but that might also be true of any order relating to physical goods. " For example, a non-party corporation that warehouses and ships goods for a defendant manufacturing company might be ordered on an interim injunction to freeze the defendants’ goods and refrain from shipping them. That injunction could affect orders received from customers around the world" [147].

Finally, with all these preliminaries out of the way, the question remained as to whether the order should be granted on the facts of the case. This turned on whether the plaintiffs had made out a good arguable case, and then on a balance of the interests of the parties. On the first point, “the plaintiffs have not only raised an arguable claim; two of the defendants’ defences have been struck and they are presumed to have admitted the allegations” [151]. As for the balance of interests, the plaintiffs established that they are suffering irreparable harm by the defendants’ ongoing sale of the disputed product on the internet, and they had also established that blocking the defendant’s use of Google’s search services would cripple the defendants’ sales. On the other hand, “Google acknowledges that it can do what is being asked of it. Google does not assert that it would be inconvenienced in any material way or that it would incur expense to do so. The balance of convenience thus favours granting the injunction” [153].

Fenlon J therefore ordered that

Within 14 days of the date of this judgment, Google Inc. is to cease indexing or referencing in search results on its internet search engines the websites contained in Schedule A to the notice of application.

UPDATE: Leave to appeal granted 2014 BCCA 295