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.

Stay Pending Appeal Denied in the Absence of an Undertaking

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

2,350,264

In this decision, Rivoalen JA denied Arctic Cat’s application for a stay pending appeal. That in itself is not so unusual, but what is odd is that there is no suggestion that the patentee, BRP, provided an undertaking in damages to address the issue of irreparable harm. From the complete absence of any discussion of the point, I have to suspect that an undertaking was not even requested by AC, or offered by BRP. In any event, the absence of an undertaking substantially affects the analysis, and accordingly, I will focus on that issue in this post.

As discussed here, the patents at issue related a “significant breakthrough” in snowmobile design made by BRP, that moved rider weight forward. BRP’s “Rider Position Patents” covered the forward position itself, and the 264 “Frame Construction Patent” relates to a frame assembly that facilitates the construction of sleds with the rider forward position. The litigation started when BRP filed its statement of claim in December of 2011 [43]. The trial started in 2015, with Roy J’s decision 2017 FC 207 following in 2017. Roy J held the Rider Position Patents to be invalid, and the Frame Construction Patent to be not infringed. On appeal, Roy J’s decision on the invalidity of the Rider Position Patents was upheld, but the FCA 2018 FCA 172 reversed on claim construction in respect of the Frame Construction Patent and remanded to Roy J to determine validity and infringement on the correct construction. Finally, on 15 June 2020, eight years after litigation started, and with less than a year left on the term of the 264 patent, BRP prevailed, with Roy J’s decision on remand, 2020 FC 691, holding the Frame Construction Patent to be valid and infringed. Roy J granted a permanent injunction, as is normal, over the objections of AC: see here.

Hearsay Evidence Not Enough to Ground Stay Pending Appeal

Western Oilfield Equipment Rentals Ltd v M-I LLC 2020 FCA 3 Nadon JA refusing to stay 2019 FC 1606 O'Reilly J
            2,664,173 / Shaker and Degasser Combination

In this decision, Nadon JA refused Western Oilfield’s motion for a stay pending appeal of 2019 FC 1606, in which O’Reilly J found that Western infringed the 173 patent and had consequently granted an injunction, as well as awarding damages and costs against Western in the vicinity of $5 million [2]. Western moved for a stay on the basis that its assets, covered by security interests, are insufficient to cover the monetary award and that unless a stay is granted, its creditors will enforce their security interests and it will become insolvent [4].

While being put out of business is normally considered a type of irreparable harm sufficient to establish the second branch of the RJR-MacDonald test, [1994] 1 SCR 311 at 341, Nadon JA emphasized that any such harm must be established on the evidence [11-12]. In this case, the main evidence was provided by Western’s controller [13]. She testified that Western did not itself have adequate funds to satisfy the award [16], but the crucial issue was the position of its financiers. She gave evidence that should Western inform its bank of the decision against the it, the likelihood is that the bank will execute its security interests over Western’s assets [17]. She also gave evidence that Western’s venture capital backers would cease funding Western if Western were prevented from earning revenue as a result of the injunction [21].

The difficulty is that all this evidence as to what Western’s financiers would do, was hearsay [22]. Nadon JA held that Western should have produced “an affidavit from their bank outlining its position following the rendering of the judgment and its position in the event that a stay was not granted” [18] and a similar statement from the managing director of the venture capital companies as to “the impact of the Decision on their funding decisions and whether or not a stay of the Decision would lead to a different position on their part” [19]. This information was crucial to his determination regarding irreparable harm [19], and in its absence he was not satisfied that the irreparable harm branch of the RJR-MacDonald test was satisfied [24].

It seems that as of the time of the hearing, Western had not yet informed its bank of the trial decision, apparently out of a concern that had the bank been informed of the Decision, it might, irrespective of the possibility of obtaining a stay, have called in Western’s advance and exercised its security interests [17]. If that concern is well-founded, then this decision puts Western between a rock and a hard place.

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.

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.