What Is the Evidentiary Threshold for Denying a Permanent Injunction on Public Interest Grounds?

AbbVie Corporation v JAMP Pharma Corporation 2023 FC 1520 McVeigh J

2,504,868 / 2,801,917 / 2,904,458 / adalimumab / HUMIRA / SIMLANDI

As discussed in a previous post, in this decision McVeigh J denied a permanent injunction to AbbVie even though she found that its 458 patent was valid and infringed. This is very unusual. While it is clear that an injunction is a discretionary remedy, it is also well-established that a permanent injunction will only be refused in “very rare circumstances” (Valence v Phostech 2011 FC 174 [240]), as McVeigh J acknowledged [642]. Indeed, I believe this is the only decision apart from Unilever (1993) 47 CPR(3d) 479 (FCTD) to entirely refuse a permanent injunction to a successful patentee. In Jay-Lor 2007 FC 358 [263], Snider J declined to grant a permanent injunction on the basis that it was unnecessary, as the defendant had not manufactured an infringing product for over two years; and in Janssen v Abbvie 2014 FC 489 Hughes J granted a partial injunction, for reasons I will return to. There have also been a few cases in which the permanent injunction was tailored with a short run-off period in which infringing sales or delivery was allowed: Janssen-Ortho v Novopharm 2006 FC 1234 and Weatherford 2010 FC 667; in the UK see similarly Virgin Atlantic v Premier Aircraft [2009] EWCA Civ 1513.

As a matter of law, property rights of all kinds are normally protected by injunctive relief. Why? That question was famously answered by Calabresi & Melamed in one of the most cited law review articles of all time: “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral” (1972) 85 Harv L Rev 1089. Calabresi & Melamed argued that when a right is protected by injunctive relief the owner of the right can set the price at which the right is purchased in a voluntary negotiation, whereas when a right is protected only by damages it is the court that determines the value of the right. The advantage of property rights is that the parties will always know the true value of the right better than the court; the advantage of liability rules is that transaction costs and related problems, such as holdout, may mean that a voluntary negotiation does not reflect the true value of the property.

With that in mind, we can divide cases in which an injunction is properly refused into two broad categories. One is where the grant of an injunction would allow the patentee to extract substantial sunk costs. The classic article is Lemley & Shapiro, “Patent Holdup and Royalty Stacking” (2007) 85 Tex L Rev 1991. This is well-recognized as the main issue in the FRAND context, as well as with patent assertion entities (PAEs) aka ‘patent trolls.’ As a result, injunctions are regularly refused to PAEs in the US. Tailoring of injunctions to allow a runoff period or to allow for redesign, such as in Janssen-Ortho v Novopharm and Weatherford, may be an appropriate partial solution to this problem: see generally Contreras & Husovec (eds), Injunctions in Patent Law: Trans-Atlantic Dialogue on Flexibility and Tailoring (Cambridge University Press, 2022) (and see my Canada chapter in that volume for a discussion of Unilever).

The second is a more amorphous category of cases turning on traditional equitable principles, such as clean hands, laches etc. Jay-Lor is an example of the application of the maxim that ‘equity does not act in vain.’ Sometimes these cases can be explained in sunk cost terms: for example, undue delay in bringing an action may give time for an innocent infringer to invest substantial sunk costs in the infringing goods; while the injunction might be refused on the basis of laches, the result would be the same on a sunk cost analysis. This case, in which the injunction was refused on public interest grounds, falls into the second category. While JAMP no doubt has incurred some sunk costs in developing its biosimilar, costs of that nature are regularly incurred by infringing pharmaceutical companies and are never in themselves grounds for refusing an injunction.

When should an injunction be refused on public interest grounds? The premise of the patent system is that the return to the patentee is beneficial to society by inducing innovation. So, on the one hand, the return to the patentee must be protected. Harm to the public interest may be taken into account on the other side of the balance. This does not include harm in the form of higher prices, which is inherent in the patent exclusivity: the premise of the patent system is that the harm from higher prices for a limited term is more than outweighed by the concomitant incentive to innovate. The harm to the public that might warrant refusing an injunction is typically more idiosyncratic, turning on the facts of the case. In the US, harm to medical patients for whom the patentee’s product is not an adequate substitute for the infringer’s product is one of the more common reasons for refusing a permanent injunction, particularly in the context of medical devices: see Seaman “Permanent Injunctions in Patent Litigation After eBay: An Empirical Study,” (2016) 101 Iowa Law Review 1949, 1991.

In Canada, the point is illustrated by Hughes J’s decision in Janssen v Abbvie 2014 FC 489 (discussed here), which also related to HUMIRA. Janssen’s infringing product was STELARA, a biologic used to treat psoriasis, which, in its severe form, can be disabling [17]. While HUMIRA is used to treat psoriasis, and has significant market share, it is not a perfect substitute for STELARA: STELARA operates by inhibiting IL-12, while HUMIRA targets TNF-α [21]. There were also two other TNF-α drugs on the market. A common treatment scenario was for the physician to switch the patient among the TNF-α drugs before going to the sole IL-12 drug (STELARA) [23]. A permanent injunction would therefore have allowed AbbVie to prevent the sale of a drug which AbbVie itself does not supply, and which for some patients is the only effective treatment for a disabling condition. On these unusual facts, AbbVie did not even seek a complete permanent injunction. Instead, AbbVie sought a tailored injunction with an exception for existing patients and restrictions on new patients. The basic idea was to ensure that any patient who could effectively be treated by HUMIRA would be, and STELARA could only be used for patients who responded better to it. This is a classic example of the kind of case in which a permanent injunction might properly be denied for public interest reasons.

In this case, there were two key reasons why McVeigh J refused the permanent injunction. First, AbbVie has licensing agreements with seven other pharmaceutical companies in Canada that offer adalimumab biosimilars [632], [638]; second, JAMP’s SIMLANDI is the only product available as a low-citrate high-concentration (80 mg/0.8 mL) formulation [633]–[636].

The first point goes to the need to preserve the incentive to innovate. In lieu of an injunction, McVeigh J granted a AbbVie a reasonable, running royalty on future sales of SIMLANDI, saying “[t]his rate should easily be determined given the licensing agreements it has with seven other biosimilar pharmaceutical companies” [643].

With respect, the matter is not quite so simple.

There are broadly two reasons that AbbVie might have licensed. First, it might not have wished to enter the Canadian market directly. It is very common for innovative patentees to exploit their inventions by licensing, especially in secondary markets. Royalty rates paid by a voluntary licensee in such a situation are not directly comparable to the reasonable royalty assessed by a court. A voluntary licensee normally performs some kind of value-added services for the patentee, such as product development, reverse tech transfer, clinical trials, marketing, manufacturing or distribution, and may also receive additional value from the licensor, such as supporting IP such as trademarks or trade secrets relevant to the patented technology, or ongoing technical support. The royalty paid by the licensee reflects the value of those services in both directions, as well as the value of the patented technology itself. A compulsory licensee under a running royalty will not generally perform all the same services, though it may perform some. This means the royalty paid by the voluntary licensee cannot simply be applied to the compulsory licensee. Instead, the royalty should be adjusted to account for differences in the services provided by the infringer as compared with those provided by the voluntary licensee. See generally my article with Professor Cotter, A New Framework for Determining Reasonable Royalties in Patent Litigation, (2016) 68 Florida Law Review 929, esp 954ff and Ch 1 Reasonable Royalties § 1.3.6 Comparable Licenses in Biddle, Contreras, Love & Siebrasse (eds), Patent Remedies and Complex Products: Towards a Global Consensus (Cambridge University Press, 2019).

Another complication is that the value of a license will generally depend on the degree of exclusivity. The per unit rate the licensor charges to a single licensee will be higher than the rate it can ask if it licenses to two licensees who compete with each other in the same market. If the licensor does license to multiple licensees, it will typically provide some kind of territorial or product exclusivity to each. One way or the other, unless the market is already perfectly competitive, the entry of a new unrestricted competitor into the market will affect the rate that can be charged to voluntary licensees. So, even if the AbbVie now demands a royalty of $1/mg from its current licensees (to pick an arbitrary number), the entry of JAMP may reduce the value of the licence to those licensees, so future renewals may be at a lower rate due to the reduction in market power. This is a loss to AbbVie that must be compensated in the reasonable royalty paid by JAMP to AbbVie if the incentive to innovate is to be preserved. Further, it is not obvious that the current licenses will reflect some simple rate, such as $1/mg. The licenses may reflect individual bargaining power, or idiosyncratic advantages of the licensees, so that even if the voluntary licensees provide the same services, their royalties may be different.

Another possibility is that the current licenses were negotiated under the threat of litigation. In that case, the royalty rate would be discounted by the parties’ estimate that the patentee would prevail against the potential infringer / licensee in an infringement action. But after litigation, such as in this case, we know with certainty that the patent is valid and infringed, and the reasonable royalty must therefore be higher than the negotiated royalty to avoid the problem of double discounting. As we explained in Ch 1 of Patent Remedies and Complex Products at 22-23:

it is well established in U.S. law that the parties to the hypothetical negotiation are assumed to have known that the patent was valid and infringed, even though actual parties would not. This rule is required to achieve just compensation, because the opposite view – that the parties should be assumed to discount the royalty to allow for the probabilistic nature of the patent (as would presumably be done by parties to an actual negotiation) – would result in so-called double discounting; not only would the court-approved royalty derived from the hypothetical negotiation include a discount for the risk of nonliability, but then pre-litigation negotiations in which royalties were based on the expectation of such a court award occurring with a less than 100 percent probability would include a further discount for risk of non-liability.

Further, the rates in the various licenses might be quite idiosyncratic — there is no particular reason that each ‘generic’ would arrive independently at the same estimate of its probability of prevailing. And these royalties would also reflect the pricing issues with truly voluntary licenses, discussed above. It is also entirely possible that the current licensing situation is a combination, where AbbVie has entered into some licenses on a truly voluntary basis and others in contemplation of litigation.

There are some cases in which it is indeed easy to calculate an accurate reasonable royalty, such as when the patentee offers a licence to all comers on demand at a standard rate. This is clearly not such a case. With that said, it is possible that it will be easy to calculate an accurate reasonable royalty; not all of the difficulties described above will arise in every cases. But the mere fact that there are seven other licensees of similar products certainly does not give any guarantee that the reasonable royalty calculation will be easy.

The other side of the coin is the effect on patients of an injunction. McVeigh J relied on two points.

One is the potential that “non-medical switching” could negatively impact patients, through the “nocebo effect” which could result in a perception of increased injection site pain. It seems to me that if we give the nocebo effect any weight at all, a permanent injunction would never be granted against any infringing pharmaceutical that has actually been launched, as the effect, by definition, does not turn on any real difference in the product, but on the mere knowledge that the product is different [636].

The other point is that JAMP’s formulation is the only high-concentration / low volume, citrate-free product on the market. (It’s not clear to me whether YUFLYMA is on the market, but I’ll assume it’s not.) It is possible that the greater volume and / or the citrate could cause increased injection site pain for some patients, and “[t]hough the evidence is scant for those few patents, it could be very harmful” [635].

This raises two points of law. One is the threshold for the harm to the public interest. Though the point is not normally made explicitly, it is clear enough that we are willing to tolerate some degree of harm to the public beyond the increase in prices. For example, in Valence v Phostech 2011 FC 174, Gauthier JA refused to even tailor a permanent injunction by allowing a two year grace period for the completion of a new factory designed to use a non-infringing process. Presumably, requiring the infringing factory to shut down immediately would entail significant disruption to the workers, such as temporary or even permanent unemployment. (Moreover, in that case a strong argument can be made that tailoring would have been appropriate on substantive grounds, as the infringement appears to not have been intentional and the infringer had incurred very substantial sunk costs.) The question then is how much non-price harm to the public we are willing to allow.

It is not clear what McVeigh J meant by “very” harmful and “few” patients, but this seems to be a far cry from Janssen v AbbVie in which it was uncontested that there were a significant number of patients whose potentially debilitating psoriasis could only be effectively treated by the infringing product. In this case, as I understand it, it is not disputed that the non-infringing alternatives will treat the disorder just as effectively as SIMLANDI, and the harm is increased injection site pain. (Since there are several citrate-free alternatives [638], it seems that the main issue is the increased volume.) In principle, the issue is not the pain from the alternative as such that is important, but the incremental pain of the alternative over SIMLANDI. So, SIMLANDI is available in a 40 mg/0.4 mL pre-filled syringe where most of the alternatives are a 40 mg/0.8 mL — so, double the volume for a 40mg dose. As I understand the evidence (as well as from people I know), many people do not find the 0.8 mL dose to be at all painful or even uncomfortable, so presumably those who do are unusually sensitive to dose volume and might find a 0.4 mL dose to be painful as well, though presumably less so. The harm if the injunction is granted is not the pain to those patients from the 0.8 mL dose, but the additional pain as compared with the 0.4 mL dose. It is not clear to me from McVeigh J’s reasons whether the “very harmful” pain refers to the pain of the larger dose, or the incremental pain. (Perhaps the main harm is to those who are particularly sensitive to both citrate and injection volume, which would imply a smaller subset of affected patients.) Now, perhaps the harm is more significant than intuition suggests. It may be that there are some patients for whom the additional pain is so substantial that they would skip injections and impair their treatment rather than endure the injections with HUMIRA or one of the licensed alternatives. That would align this case more closely with Janssen.

Of course, the degree of harm is a matter for evidence. My point here is that it seems reasonable that there should be some substantive threshold for the nature of the harm suffered in order to warrant denying an injunction on public interest grounds. If evidence established that 10 patients in Canada would suffer arm soreness for two minutes after an injection rather than for one minute, I would suggest that should not be a sufficient harm to warrant refusing a permanent injunction on public interest grounds. From McVeigh J’s brief description, the harm in this case appears to be substantially less, both in its nature and its extent, than the harm at issue in Janssen v AbbVie.

As noted, the extent of the harm is not clear from McVeigh J’s reasons. This raises the second point: what is the proper evidentiary threshold for refusing injunctive relief on public interest grounds? In this case, we do not know how many patients would be affected and how serious the harm is, because the evidence is “scant” and “limited” [635]. All we know is that it “could” be very harmful. When evidence is scant, any degree of harm is possible. Suppose an expert witness was asked whether the injection site pain might dissuade some of patients from following the correct dosage schedule, and the answer was “Anything’s possible.” Would that be enough to warrant refusing the permanent injunction on public interest grounds? More generally, can a permanent injunction be denied on the basis of a speculative harm? Surely the presumption in favour of granting injunctive relief to a successful patentee is strong enough that more than mere speculation should be required to overcome it. The more difficult question is whether the standard should be something like the balance of probabilities, or a lower threshold, such as evidence which is clear and not speculative.

The substantive threshold and the evidentiary threshold are distinct issues. It might be uncontested that 1% of the patients would suffer soreness for two minutes instead of one minute; or one expert might provide unsupported opinion evidence that large numbers of patients would fail to comply to their injection schedule dosage. Given McVeigh J’s explicit acknowledgment of the limited nature of the evidence, it might be easier for the FCA to address evidentiary threshold. It will be difficult to address the question of whether the substantive threshold has been met when the extent of the harm is not actually established in the evidence.

On the whole, the reasons given by McVeigh J strike me as very tenuous grounds for denying a permanent injunction. Further, even if some kind of significant harm to some patients could be established on a non-speculative basis, this does not strike me as a good case for denying a permanent injunction entirely. A tailored injunction, along the lines of that granted in Janssen v AbbVie, which would allow the use of SIMLANDI by the specific patients who cannot tolerate HUMIRA or one of the other licensed biosimilars, would seems to me to strike a better balance.

Accounting and Injunction Denied Due to Patent Holdup

Rovi Guides, Inc v BCE Inc 2022 FC 1388 Lafrenière J

2,336,870 / 2,339,629 / 2,425,482 / 2,514,585 / Interactive Television Program Guide / Internet Protocol Television

In this decision Lafrenière J held that all of the asserted claims of Rovi’s patents were invalid for anticipation and / or obviousness in an analysis that turned entirely on the facts. Infringement was largely conceded [142]. The most import aspect of the decision was Lafrenière J’s discussion of remedies, though it was strictly obiter given his holding on validity [578]. Lafrenière J held that even if the patents had been valid and infringed, he would have denied both an accounting of profits and injunctive relief, expressly on the basis that “the present case exemplifies the patent holdup problem” [652]. In my view, Lafrenière J was right in both his analysis and his conclusions.

The trial in this case took place shortly after completion of the trial of the infringement action brought earlier by Rovi against Videotron, also before Lafrenière J, resulting in Rovi v Videotron 2022 FC 874* [36]. Rovi v Videotron involved two of the same patents, namely the 629 and 870 patents, as well as two additional patents, 2,337,061 and 2,730,344. (I’ve counted a total of 12 different Rovi patents that have popped up in various motions and other litigation, and no doubt this is only a selection from a large portfolio.) As discussed here, the result in Rovi v Videotron was much the same as in this case: Lafrenière J held all of Rovi’s asserted claims to be invalid, and he would have denied an accounting. Lafrenière J’s remedial analysis was also very similar in Videotron, though this decision is somewhat more explicit in discussing the holdup problem.

It is fortunate for the development of the law that this was a particularly clear case of holdup on the facts; it sets out the principle that an accounting and injunctive relief can be denied to address holdup, while leaving it to future cases to address more difficult borderline cases. I can’t say that the principle is now established, given that the remedial holdings in BCE and Videotron were obiter decisions at the trial level. But I hope they will be influential nonetheless, as Lafrenière J’s decisions strike me as a sound basis for further development of the law of patent remedies in the context of patent holdup and patent assertion entities.

A couple of preliminary points. This post is much too long, but to paraphrase Pascal, I didn’t have time to write a shorter one. I am going to blame Covid brain fog for the length and delay. Second, this is a very long decision, dealing with multiple patents and issues, and it would be very helpful if Lafrenière had asked his clerk to create a hyperlinked table of contents to go at the start of the decision. The decision is well-structured with headers (like most FC decisions), so all that would be required is to generate the ToC. I’ve seen this done in a number of decisions, and I’d like to see it become routine, at least for long decisions.

Variation of Injunction Refused

 Bombardier Recreational Products Inc v Arctic Cat, Inc 2020 FC 946 Roy J

          2,350,264

After protracted litigation and a couple of trips to the FCA, Bombardier Recreational Products (BRP) finally prevailed in its patent litigation against Arctic Cat and was granted a permanent injunction. In this motion Arctic Cat and its dealers sought to vary that injunction using Rule 399. This is Arctic Cat’s third attempt to avoid the injunction. The final substantive decision in this litigation was the 15 June decision of Roy J in 2020 FC 691: see here. After prevailing on the merits of the 264 patent (one of several that had been asserted), BRP had requested the usual permanent injunction, which would have the effect of prohibiting Arctic Cat and all its dealers from selling Arctic Cat’s current model year snowmobiles. Arctic Cat had resisted vigorously, arguing that the injunction should not be granted at all. Roy J rejected Arctic Cat’s arguments [178-94], and granted a permanent injunction “to restrain the Defendants, their . . . distributors and dealers having knowledge of the injunction” from “selling or offering for sale, making, using or distributing in Canada any [infringing] snowmobile.” BRP notified all the dealers after the injunction was granted, [12]-[13], so there was no dispute that the inventors had knowledge of the injunction. Arctic Cat then sought a stay pending appeal, which was refused: 2020 FCA 116, discussed here and here.

In this motion Arctic Cat, as well as some of its dealers (who had not previously been directly involved in the litigation), tried again, bringing motions under Rules 399(2) and 399(1), respectively, seeking an order to vary the injunction [1]. The effect of the variation would be to allow dealers to sell infringing snowmobiles that they held in stock as well as pre-ordered snowmobiles. The motions were unsuccessful, largely because Rule 399 isn't a vehicle for varying an injunction that has been granted after full argument on the merits.

While I agree with Roy J’s holding in the context of Rule 399, I would suggest that Canadian courts should be more willing to consider staying or tailoring a permanent injunction (eg by carving out certain products) in appropriate circumstances. As I discussed in a recent post on Nova v Dow, sunk costs and the difficulty of doing full patent pre-clearance means that the patent system can hinder rather than advance innovation. In Patent Remedies and Complex Products: Towards a Global Consensus § 4.4.3, p155-56, we argue that tailoring of injunctive relief in appropriate circumstances can mitigate some of the worst effects. This case was arguably appropriate for tailoring. I must acknowledge that in my post on Roy J’s decision granting the injunction, I noted that “Roy J’s analysis was brief and I agree entirely.” However, because the analysis was brief I didn’t fully grasp the issues, and moreover, the argument was framed as denying the injunction rather than staying or otherwise tailoring it. After blogging on the more recent proceedings, I have a better handle on the issues, and while I won’t say that the injunction in this case should necessarily have been stayed or tailored, I will say that the possibility should have been taken more seriously.

I am the author of the Canada chapter in a forthcoming book on the comparative law of tailoring injunctions, Contreras & Husovec (eds) Injunctions in Patent Law: a Trans-atlantic Dialogue on Flexibility and Tailoring (Cambridge U Pr) (expected release in spring 2021). In their synthesis chapter, Professors Contreras and Husovec divide countries into four groups. In Group A injunctions are granted essentially as of right, while in Group B injunctions are in fact discretionary. There are two subgroups in each category: A1 with automatic issuance upon a finding of infringement, most prominently Germany; A2, with automatic issuance upon a finding of infringement owing to attitudes of judges, despite the fact that that the law gives them some discretion eg Poland; B1, in which injunctions generally issue, but there is an individualized assessment in some cases, most prominently the UK; and B2, with individualized assessment in all cases, comprising only the US. While injunctions are clearly discretionary in principle in Canada, the suite of decisions in the Bombardier v Arctic Cat litigation, as well as decisions such as Valence v Phostech 2011 FC 174 (see here) indicate that Canada belongs in Group B2. I would like to see Canada move closer to the UK position, where injunctions are normally granted, but there is a real possibility of tailoring after a principled analysis in appropriate cases.

This point is only tangential to the main holding in the decision at hand. The thrust of Roy J’s decision was that if the injunction was to be tailored, it should have been done at first instance or on the application for a stay pending appeal; the opportunity has now passed. That seems right to me. 

However, I raise the point because some of Roy J’s obiter remarks suggest tailoring or staying injunctive relief is almost never appropriate. I recognize that Roy J’s remarks are broadly consistent with those of Rivoalen JA in the stay application in this litigation, and also with Gauthier J’s brief analysis in Valence v Phostech. It is because precisely because this series of decisions from different judges indicates a general view in the FC/FCA that I feel the point is worth pursuing. At the same time, I should also point out that Roy J’s original decision does show the possibility of tailoring, as Roy J deliberately refused to order delivery up of infringing snowmobiles in possession of the dealers, so as to allow them to sell those machines after the expiry of the patent. It is just this kind of flexibility that I suggest should be more often considered.

With that long preface, I’ll turn to the decision itself.

The main substance of Roy J’s decision dismissing both motions was fairly straightforward. Rule 399(2), relied on by Arctic Cat itself, allows the Court to set aside or vary an order “by reason of a matter that arose or was discovered subsequent to the making of the order.” There simply wasn’t any new matter [30]. Arctic Cat tried to argue that the scope of the injunction was unclear and this was discovered after the order was made [31], but this argument failed because any lack of clarity did not arise subsequent to the making of the order, so Rule 399(2) was not applicable [30]. In any event, the order wasn’t actually unclear at all [31]. Citing Abbvie 2014 FCA 176 [43], Roy J noted that Rule 399 is applicable “[o]nly if there is specific, particularized evidence of significant, unforeseen difficulty in following the terms of an injunction” [27]. The motion sought to allow the dealers to sell infringing snowmobiles that they owned and that were in their possession, but this was clearly prohibited by the express terms of the order restraining “dealers having knowledge of the injunction” from “selling or offering for sale” any infringing snowmobile. This could hardly be clearer [41]. Moreover, the scope of the injunction was not a mistake. Roy J noted that dealers had not been ordered to deliver up infringing snowmobiles in their possession. Roy J made this order deliberately, so as to allow dealers to retain those snowmobiles and sell them after the expiry of the patent [33]. But this reinforces the point that Roy J intended that dealers be prohibited from selling during the term [41]. Arctic Cat also argued that the pre-ordered sleds were already sold to the final customers, or at least that there was ambiguity on this point. Roy J had no difficulty concluding that the title to the pre-ordered sleds—which had not yet even been manufactured—had not passed to the customers [21].

The motion made by the dealers raised essentially the same issues. It was brought under Rule 399(1), which allows the court to set aside or vary an order that was made “(a) ex parte; or (b) in the absence of a party who failed to appear by accident or mistake or by reason of insufficient notice of the proceeding.” Again, the motion did not fit within the scope of the rule as the order was not made ex parte, and the dealers were not parties who failed to appear by mistake, as they were not parties at all [53]-[54].

With that said, the motion by the dealers raises an interesting issue precisely because they were not parties and they are now bound by the injunction even though they never had a chance to argue its merits. As Roy J pointed out, non-parties may be bound by an injunction: MacMillan Bloedel [1996] 2 SCR 1048. But that being the case, it would seem all the more reason why third parties who are bound by an injunction should have the chance to challenge the injunction after it has been granted, as they will not be in a position to argue the merits before the fact. Roy J remarked that “the issues raised by the Dealers were defended by Arctic Cat with a great deal of vigour. In essence, the Dealers seek to litigate that which has already been litigated” [53]. In a practical sense there is a great deal of force to that observation. But in our legal system parties normally have a right to be heard, and I am not very comfortable by dismissing this right by saying “Don’t worry, someone else argued your case for you without telling you about it, and we think they did a pretty good job”—even if it is true that the case was well argued. Given that breach of an injunction may be sanctioned by contempt, it seems to me that there is a strong prima facie argument that any party bound by an injunction should have the opportunity to challenge it on the merits. I doubt that such an opportunity would be abused. If indeed the original party did argue the case well, then the third party seeking to re-argue the injunction would face an uphill battle; it would probably lose and then would have to bear its costs as well as some part of the plaintiff’s costs. None of this is to criticize Roy J’s holding. Even if such a mechanism is desirable, it seems clear that Rule 399 isn’t the right vehicle. I have to wonder whether there is a procedural gap in the law in this respect, though I have not researched the point thoroughly.

Thus, I do agree with Roy J’s analysis and holding in respect of Rule 399. But Roy J also indicated that he would not have been inclined to vary the order in any event [36]-[37]. In part, this was because doing so would be tantamount to a compulsory licence: “The monopoly conferred by a patent is gone: moral hazard is a thing of the past, as there is an incentive to increase one’s exposure to risk by infringing on a patent because the infringer will not bear the whole cost. The infringer does not have to abide by an injunction as it can be substituted for a compulsory royalty” [38]. To repeat a point I made in an earlier post, this litigation has been ongoing since 2011, and BRP has been in effect subject to a compulsory licence for that entire period, as we now know that Arctic Cat was infringing the entire time, with the only consequence that it is liable in damages. The reason for this is that the Federal Court will never grant an injunction in patent cases, on the view that damages are an adequate remedy. If an interlocutory injunction was refused because damages are an adequate remedy, how can we then say that a permanent injunction must be granted because damages are inadequate? Certainly, there is a stronger case for a permanent injunction because we now have a substantive holding on the merits that the patent was valid and infringed; but this is a separate consideration from the adequacy of damages.

Roy J also remarked as follows (my emphasis):

[38] In the context of an infringement of the Copyright Act (RSC, 1985, c C-42), the Federal Court of Appeal found in R. v James Lorimer & Co. [1984] 1 FC 1065 [77 CPR(2d) 262] [James Lorimer], that “the copyright owner is prima facie entitled to an injunction restraining further infringement” (p. 1073). The Court goes on to “find no authority for requiring a copyright owner to acquiesce in a continuing infringement against payment of a royalty. That is tantamount to the imposition of a compulsory licence. In the absence of legislative authority, the court has no power to do that”. There is no reason to depart from the principle described in James Lorimer.

With due respect, to the extent that the emphasized statement suggests that the court has no power to refuse an injunction, it is wrong. In the first place, the provision of the Patent Act authorizing injunctive relief, s 57(1), provides that a court “may. . . make such order as the court or judge sees fit.” This expressly gives legislative authority to grant or refuse an injunction. Moreover, as a matter of general principles, injunctive relief is inherently discretionary as being an equitable remedy: “The traditional rule is that an injunction will be granted only where damages would provide an inadequate remedy” Sharpe on Injunctions and Specific Performance § 1.60. Now, it is true that “[w]here the plaintiff complains of an interference with property rights, injunctive relief is strongly favoured,” and “the conventional primacy of common law damages over equitable relief is reversed. Where property rights are concerned, it is almost that damages are presumed inadequate and an injunction to restrain continuation of the wrong is the usual remedy.” However, “as always with equity, this must be understood to be a principle rather than a rule” Sharpe § 4.10. Thus it is perfectly clear that a court has the inherent jurisdiction to refuse injunctive relief. It is true that there is only one Canadian case refusing to grant a permanent injunction to a successful patentee, namely Unilever (1993), 47 CPR(3d) 479 (FCTD)(1995), 61 CPR(3d) 499 (FCA) (though injunctive relief was moot on appeal as the patent had expired). But the fact that injunctive relief is normally granted does not mean the courts do not have the authority to refuse it. Indeed, in the UK at least, injunctive relief has been refused even in the case of trespass to land: see Jaggard v Sawyer [1995] 2 All ER 189 (EWCA).

I hope I have not been unfair in dwelling unduly on an issue that was not central to Roy J’s holding. But his views, coming on the heels of those of Rivoalen JA, suggest there may be a widespread view in the Federal Courts that a permanent injunction should always be granted. I do agree that an injunction should normally and presumptively be granted, but it is quite clear that the courts do have the authority to tailor or stay a permanent injunction, in appropriate circumstances, and I would welcome a more rounded discussion of when tailoring might be appropriate.

A Three-part Test for a Permanent Injunction?

Google Inc. v. Equustek Solutions Inc. 2017 SCC 34

In this case the SCC, in a 7-2 decision, affirmed an order requiring Google “to globally de-index the websites of a company which, in breach of several court orders, is using those websites to unlawfully sell the intellectual property of another company” [1]. The case is not directly patent related, so I won’t go through all of it (though I did blog here on the BCSC decision). This post will consider only a statement in the dissent of Côté and Rowe JJ that, if accurate, has implications for patent law.

The order was formally interlocutory, in that it was was effective “until the conclusion of the trial of this action” [51]. As it turned out, by the time it reached the SCC, Equustek had still not taken any action to proceed with the action, even by way of obtaining a default judgment, in the five years since the order was made [61]. The dissent was of the view that the order was, "in effect, a permanent injunction," [64], and consequently it should have been – or at least, it should now be – treated as one. (I must say that this whole line of reasoning strikes me as strange. I don't see why Fenlon J in the BCSC would have had any reason to believe that the effect of the order would be final, so she didn't make any error in treating as interlocutory. Nor did the dissent explicitly say that she had erred; the opinion avoided the question by using the passive voice. But it would seem very odd for an appellate court to reverse a decision for having applied the wrong test, if the application judge, when she made her decision, hadn't actually applied the wrong test. I would have thought that if the defendant was aggrieved by the effectively final nature of the interlocutory order, it should have applied to Fenlon J to have the order lifted.) 

 In any event, that reasoning led the dissent to the following statement:

[66] The Google Order also does not meet the test for a permanent injunction. To obtain a permanent injunction, a party is required to establish: (1) its legal rights; (2) that damages are an inadequate remedy; and (3) that there is no impediment to the court’s discretion to grant an injunction (1711811 Ontario Ltd. v. Buckley Insurance Brokers Ltd., 2014 ONCA 125, 371 D.L.R. (4th) 643, at paras. 74-80; Spry, at pp. 395 and 407-8).

This statement of law, if correct, would be potentially revolutionary. Compare the test introduced by the USSC in eBay (2006) 547 US 388, 391:

[A] plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

The key point is that under eBay there is in principle no presumptive entitlement to injunctive relief, and, under the first and second factors the plaintiff faces the hurdle of showing irreparable harm / inadequacy of damages before a permanent injunction will be granted. (The first two factors are generally seen as being indistinguishable, both conceptually and empirically: see Gergen et al, The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions, 112 Colum L Rev 203 (2012), discussing conceptual equivalence, and Seaman, Permanent Injunctions in Patent Litigation After eBay: An Empirical Study, 101 Iowa L. Rev. 1949, 1994 (2016), showing the factors are strongly correlated empirically.) The consequence of eBay in the US is that permanent injunctions are often denied to successful patentees on the basis that irreparable harm has not been established: see generally Seaman, Permanent Injunctions After eBay. The same structure as in eBay, and indeed the same language, is reflected in the second factor of the dissenters putative test in Equustek. Moreover, the test for an interlocutory injunction in Canada also has a requirement that the applicant show it would suffer irreparable harm if the application were refused ( RJR-MacDonald [1994] 1 SCR 311, 347, following American Cyanamid [1975] UKHL 1), and the Federal Court effectively invariably refuses to order an interlocutory injunction in patent cases, on the basis that this requirement has not been satisfied. Unless there is some distinction to be drawn between “damages are an inadequate remedy,” and “irreparable harm,” it seems that if the test for a permanent injunction stated by the dissent in Equustek really was the law, permanent injunctions should no longer be granted to a successful patentee in Canada.

Fortunately, the putative test stated by the dissent is not the law. First consider the cited case, 1711811 Ontario v Buckley Insurance 2014 ONCA 125 [74]-[80]. That passage addresses whether the test for a permanent injunction is different than the test for an interlocutory injunction, and concludes that they are indeed different. In this, the decision supports the dissent’s basic point. But as to the test itself, the relevant paragraph is 79, quoting Cambie Surgeries 2010 BCCA 396, [27]-[28], which notes that “irreparable harm and balance of convenience are relevant to interlocutory injunctions,” and then continues:

In order to obtain final injunctive relief, a party is required to establish its legal rights. The court must then determine whether an injunction is an appropriate remedy. Irreparable harm and balance of convenience are not, per se, relevant to the granting of a final injunction, though some of the evidence that a court would use to evaluate those issues on an interlocutory injunction application might also be considered in evaluating whether the court ought to exercise its discretion to grant final injunctive relief.

Well, that’s embarrassing. This passage stands for exactly the opposite proposition from that for which it is cited.

Consider then Spry, The Principles of Equitable Remedies (2014). The only relevant passage at 395 states that “Before the discretionary considerations according to which perpetual injunctions are granted or refused are considered, it is necessary to set out the circumstances in which the court declines to intervene because a remedy at law, such as that of damages, is considered to be adequate.” This is very far indeed from saying that adequacy damages is the second stage of a four-factor test, particularly as Spry goes on to provide 6+ pages of nuanced discussion, including the observation that “gradually there has developed a tendency not to regard damages as constituting adequate remedy for prospective injury to existing property of the plaintiff or his person,” and “it must now be accepted as settled ‘the rule that where the plaintiff has established the invasion of a common law right, and there is ground for believing that without an injunction there is likely to be a repetition of wrong, he is, in the absence of special circumstances, entitled to an injunction against such repetition.’” (397). This, he explains, is the source of what is effectively a strong presumption in favour of injunctive relief for violation of property rights in land. The same reasoning extends to property rights generally, hence the traditional position, still observed in Canada, that a permanent injunction will normally be granted to a successful patentee. Pages 406-07 are even further from stating a four-part test. Rather Spry emphasizes the need for a risk balancing exercise to assess “whether it is just, in all the circumstances, that an injunction should be granted.” And this considers only the authorities cited by the dissent itself. Much the same point is made by Sharpe JA in his authoritative treatise on Injunctions and Specific Performance, where he notes, for example, that “when the plaintiff complains of an interference with property rights, injunctive relief is strongly favoured. . . . [I]n practical terms, the conventional primacy of common law damages over equitable relief is reversed” [§4.10].

The fact is that, contrary to the statement by the dissent, there is no general test for a permanent injunction. There are general principles of equity, which have themselves evolved over time, particularly in light of the functional change wrought by the fusion of law and equity, and which have also been elaborated differently in various contexts, so that the approach to trespass is different from nuisance, is different from positive contractual covenants, is different from negative contractual covenants.

I was of half a mind not to write this post at all. The statement that concerns me was made almost in passing, in the dissent, and what was important for the dissent’s argument was not the precise test, but the fact that the approaches to interlocutory and permanent injunctions are different, which is true. But sometimes passing comments by the SCC have an outsized influence (see R v Henry 2005 SCC 76 [57], discussing when the Court’s statements are binding). My own view is that it would be a mistake for the Canadian courts to follow the eBay approach to permanent injunctions in the patent context: I much prefer the proportionality approach used by the English courts: see eg HTC v. Nokia (No. 2)[2013] EWHC 3778 (Pat). But If the Canadian courts do follow eBay, it should be as a result of a considered decision, and not on the basis of this tangential and poorly considered statement in Equustek.

Permanent Injunction Not Available as of Right

Abbvie Corp v Janssen Inc / Injunction 2014 FC 489 Hughes J
            2,365,281 / anti-IL-12 antibodies / STELARA

This decision raises a number of important points relating to the availability of a permanent injunction to a successful patentee. Hughes J makes it clear that a permanent injunction is discretionary in principle, though it will normally be awarded to a successful patentee absent unusual circumstances. Such unusual circumstances are not a purely theoretical possibility; on the facts, a complete permanent injunction was refused. The decision also shows that the question is not simply whether a permanent injunction should be granted or refused; the question is how a permanent injunction should be crafted to balance the relevant interests. On the whole, this case shows that Canadian law related to permanent injunctions is well-placed to deal with issues such as injunctions sought by non-practising entities and standard-essential patents, if and when those questions surface in Canadian litigation, but without over-reacting against patentees generally. An equivalent to eBay Inc v MercExchange (2006) 547 US 388, is not necessary or desirable in Canada.

This trial has been not just bifurcated, but trifurcated. In the first part on infringement and invalidity, Hughes J held that AbbVie’s 281 patent was valid and infringed by Janssen’s STELARA [1]: 2014 FC 55, blogged here. The remedies portion was further bifurcated into the question of injunctive relief, and damages or profits. Consequently, this AbbVie / Injunction decision deals only with the issue of whether the successful plaintiff, AbbVie, is entitled to a permanent injunction, and if so, on what terms.

Hughes J reviewed the law relating to the grant of permanent injunctions, and held that “An injunction normally will follow once the Court has found that a patent is valid and has been infringed” [35]” The word “normally” is important here, as it is clear from the permissive wording of the s 57 [34], the prior case law [35]-[38], and equitable nature of injunctive relief [35], that injunctive relief is a discretionary remedy, which is not available as of right, even though it will be granted except in “rare circumstances” [36]-[37].

(Hughes J also held at [38] that the RJR-MacDonald [1994] 1 SCR 311 test for an interlocutory injunction is not the test which should be applied in respect of a permanent injunction, citing the Ontario and BC Courts of Appeal: 2014 ONCA 125, 2010 BCCA 396. For what it’s worth, I agree with the reasoning expressed in those decisions, and in the passage quoted by Hughes J at [38].)

The facts in this case were indeed very unusual. AbbVie does not practice the 281 patent, but neither is it a patent assertion entity or “troll.” Janssen’s infringing product is STELARA, a biologic used to treat psoriasis, which, in its severe form, can be disabling [17]. Three other biologics are also approved in Canada for treating proriasis: HUMIRA, sold by AbbVie, REMICADE (Janssen) and ENBREL (Amgen) [21]. All four treatments have significant market share, and none except STELARA fall within the scope of the 281 patent [15]. By keeping STELARA off the market, AbbVie is seeking to preserve the largest possible “footprint” for HUMIRA in the market for prosiasis treatments [45]. The twist is that these products are not perfect substitutes. STELARA operates by inhibiting IL-12, while the other three target TNF-α [21]. Even the TNF-α drugs are not perfects substitutes with one another, and it was a common treatment scenario for the physician to switch the patient among the TNF-α drugs before going to the sole IL-12 drug (STELARA) [23].

A permanent injunction would therefore have allowed AbbVie to prevent the sale of drug which AbbVie itself does not supply, and which for some patients is the only effective treatment for a disabling condition. On these unusual facts, AbbVie, no doubt wisely, did not even seek a complete permanent injunction. In broad terms, AbbVie sought an injunction, with an exception for existing patients, and restrictions on new patients. All the sales permitted under the exception would be subject to an continuing royalty [43]. Nonetheless, the discretionary nature of a permanent injunction was squarely at issue because Hughes J refused to grant the injunction in precisely the terms sought by Abbvie. As Hughes J put it:

[16] Thus, the Court is required to balance on the one hand, the rights of a patentee to the exclusive use of their claimed invention, including the right to control, by licence, others who wish to use the claimed invention, with the commercial desire of the Defendant to sell the infringing drug and, with a medical need by some members of the Canadian public to have continued access to the infringing drug.

In particular, AbbVie has sought to require physicians to formally certify that the patient has a medical need for Stelara that cannot be met by Humira before prescribing Stelara to new patients [63], and Hughes J refused to impose this requirement [66]. AbbVie did not seek to restrain dissemination of technical information regarding STELARA [68], but it sought to restrain active marketing by sales reps or a “detail” person. Hughes J agreed to this [71]. AbbVie proposed that Janssen be required to approach the formularies with new critiera for listing [73], and that Janssen be ordered to comply only with lawful requests from Health Canada [77], and to write a letter to physicians stating that STELARA infringes AbbVie’s patent [78] Hughes J refused all of these requests. With respect to the letter, Hughes J noted that a “forced” letter implicates freedom of expression, and such a letter “is an exceptional thing” [81]. On the other hand, Hughes J did order a prohibition on Phase IV studies of STELARA in Canada, although this apparently turned, at least in part, on the fact that none were planned [87].

While the details of the injunction may no doubt be debated, in my view Hughes J’s decision represents a sound approach to balancing the various interests. At this point, I have to point out the theoretical counter-argument. In principle, if AbbVie were granted a complete injunction, prohibiting any sales of STELARA without AbbVie’s permission, this does not mean, at least in theory, that patients who need STELARA would be forced to go without. If a patient is not responding to AbbVie’s HUMIRA, and does respond to STELARA, it would be in AbbVie’s own interest to allow Janssen to sell the STELARA, subject to a royalty negotiated with AbbVie. The general point here is that injunctive relief does not necessarily mean that the prohibited activity will not take place; it just means that the terms on which it takes place will be dictated by the patentee. If a complete injunction were granted, AbbVie would decide the royalty payable on sales of STELARA to patients who did not respond to HUMIRA, while given the limited injunction that was granted, the royalty will be decided by the court in the third stage of this trial.

The obvious rejoinder to this analysis is that the question is not just as to the royalty: if an injunction were granted, AbbVie, and not the patient’s physician, would ultimately be responsible for deciding whether STELARA was medically necessary for the patient. It is an interesting theoretical question as to whether, in principle, there is a divergence between AbbVie’s interests and those of the patient, such that we should expect sub-optimal outcomes if an injunction were granted, assuming that AbbVie acted purely rationally. But whatever the outcome of such an analysus, it would take a compelling practical argument that the patient’s health would not suffer, and not merely a theoretical one, before the courts should be willing to put a patient’s health in the hands of a patentee.