What Did Whirlpool Decide?

Apotex Inc v Eli Lilly Canada Inc 2016 FCA 267 Pelletier JA: Boivin, Rennie JJA aff’g 2015 FC 875 Gleason J
            2,226,784 / tadalafil / CIALIS / NOC

This brief decision of FCA dealing with obviousness-type double patenting is important for its discussion of the FCA's view of precedent, both at the SCC level and its own. The decision first addresses the question of when the SCC should be taken to have settled a question of law. This topic is important not just for the issue at hand, but more broadly as the Federal Courts interprets and applies new Supreme Court precedent. The FCA also suggested that counsel might want to be more creative in thinking about how to approach obviousness-type double patenting. On both points, the FCA’s attitude bodes well for the future development of the law.

The 784 patent was attacked as being invalid for double patenting over patent 2,181,377 in two separate NOC proceedings, one involving Mylan and the other involving Apotex. The key issue in all the proceedings was the appropriate date for assessing obviousness-type double patenting: is it the claim date of the earlier patent, the claim date of the later patent, or the publication date of the later patent?

Mylan FC 2015 FC 17 was decided in Lilly’s favour in January 2015 (see here). The decision under appeal in this case, Apotex FC 2015 FC 875 was decided, also in Lilly’s favour, in July 2015 (see here). Mylan FC was affirmed by Mylan FCA 2016 FCA 119, which was issued in April of 2016. As discussed here, in Mylan FCA, the FCA rejected the latest date, namely the publication date of the later patent, and held that it did not need to decide between the two other possible dates, because the FC had held that on the facts, the 784 patent was not obvious over the 377 patent on either of the claim dates. Only a few days after Mylan FCA was issued, the appeal from Apotex FC was heard [8]. Pelletier JA remarked that “In the normal course, given that the double patenting issue is identical in both cases, this Court would have simply followed Mylan FCA and rejected Apotex’s double patenting argument on the basis that it had already decided this issue” [8]. But Apotex argued that Mylan FCA should not be followed because it was inconsistent with the SCC decision in Whirlpool 2000 SCC 67. The question therefore, was “What did Whirlpool Decide?” [28ff].

I won’t rehash the details of the Whirlpool decision, which was summarized by the FCA at [28]-[33]. Suffice it to say that Apotex made a plausible argument that the SCC in Whirlpool would have assessed double patenting as of the publication date of the later patent, if the issue had been before it [36-[37]. However, Whirlpool didn’t explicitly decide, or even address, the question of the appropriate date. The issue is whether the appropriate date should be considered settled by implication through exegesis of the SCC’s statements, or whether the question should be considered to have been left open.

Despite the appeal of Apotex’s argument, Pelletier JA rejected it (my emphasis):

[37] It is, in my view, improbable that Binnie J. would settle a significant point in the law of double patenting by implication and without addressing it directly. The care taken to justify the publication date of a patent as the date at which it is to be construed suggests that if Binnie J. intended to decide the issue of the comparison date of the claims of the patents in an obviousness double patenting suit, he would do so explicitly.

[38] Furthermore, the issue of the comparison date in double patenting cases had not arisen previously in the Supreme Court jurisprudence, nor in the works of the text book writers. It would be surprising, to say the least, if Binnie J. purported to deal with a novel question by implication. This is all the more so when one considers that the issue was there to be addressed if the Court chose to do so.

He therefore held that the question of the appropriate date remained open after Whirlpool [39].

In my view, Pelletier JA’s reasoning is both sound as a matter of policy and strongly supported by the SCC’s discussion in R v Henry 2005 SCC 76 [57]. In Henry the SCC reconsidered a number of its prior decisions, overruling some of them. The issue of the binding effect of SCC statements arose because R v Noël, 2002 SCC 67 was affirmed on its facts (Henry [49]) and the Attorney General of Ontario worried that some of the obiter would be seen as binding on trial courts. Binnie J, for the Court, that “ I do not think this ‘concern’ is plausible. The comment was neither part of the legal analysis nor a direction to trial courts. It was simply an observation by an experienced judge” [52]. Binnie J reviewed the law relating to the binding effect of its decisions, and summarized as follows (my emphasis):

[57] The issue in each case, to return to the Halsbury question, is what did the case decide? Beyond the ratio decidendi which, as the Earl of Halsbury L.C. pointed out, is generally rooted in the facts, the legal point decided by this Court may be as narrow as the jury instruction at issue in Sellars or as broad as the Oakes test. All obiter do not have, and are not intended to have, the same weight. The weight decreases as one moves from the dispositive ratio decidendi to a wider circle of analysis which is obviously intended for guidance and which should be accepted as authoritative. Beyond that, there will be commentary, examples or exposition that are intended to be helpful and may be found to be persuasive, but are certainly not “binding” in the sense the Sellars principle in its most exaggerated form would have it. The objective of the exercise is to promote certainty in the law, not to stifle its growth and creativity. The notion that each phrase in a judgment of this Court should be treated as if enacted in a statute is not supported by the cases and is inconsistent with the basic fundamental principle that the common law develops by experience.

This statement emphasizes that even direct statements by the SCC expressing a view on a point of law are not necessarily binding; it follows that inferences as to what the Court might have been thinking can never be binding. 

In his discussion, Binnie J acknowledged that in the 1970s the Court’s mandate shifted from error correction to development of the jurisprudence, and consequently, the Court’s work became more oriented to “the development of a general analytical framework which necessarily went beyond what was essential for the disposition of the particular case” [53]. While Binnie J noted that this is particularly true in the Charter context, there is no doubt that we have seen a similar shift in patent law as well. Binnie J acknowledged that this shift meant that some statements that are strictly dicta should nonetheless be considered to be effectively binding: “It would be a foolhardy advocate who dismissed Dickson C.J.’s classic formulation of proportionality in Oakes as mere obiter” [53]. Nonetheless, it is still true that “the common law develops by experience,” and much of that experience is gained at the trial and appellate levels. Binnie J cautioned that the lower courts should not be too ready to overly broaden what the SCC had decided, because:

the effect would be to deprive the legal system of much creative thought on the part of counsel and judges in other courts in continuing to examine the operation of legal principles in different and perhaps novel contexts, and to inhibit or skew the growth of the common law. This would be a consequence totally unforeseen and unintended by the Court that decided Sellars.[56]

The Supreme Court of Canada is the highest court in our system, and we like to think that it has some of the best judges, but very able judges are found at every level of court, and the Supreme Court justices are not omniscient oracles. A judge in the Federal Court or the Federal Court of Appeal, will have more insight into the proper disposition of a legal question that is immediately raised on the facts before her and fully argued by counsel, than can be found in the inferred intent of a Supreme Court judge. Binnie J’s assertion that it is not “plausible” that obiter statements by the SCC could be seen as effectively binding on lower courts, is, with due respect, clearly wrong, as we know well in patent law, but the remainder of his discussion is entirely compelling.

In summary, not only was the FCA in this case right to hold that the remarks in Whirlpool were not binding authority on the issue of the correct date for assessing obviousness-type double patenting, to have held otherwise would have been inconsistent with the SCC’s own guidance in R v Henry on the binding effect of SCC decisions.

Finally, on a point of considerable practical importance, Pelletier JA concluded with the following observation:

[40] I might add that the analysis in the Earlier Cases, in Mylan FCA, and in this case was driven by the fact that the parties chose to frame the issue in terms of the date for comparison of the claims of the patents in issue. Having conducted the analysis on the basis chosen by the parties, we should not be taken as having decided that this framework for analysis is the correct one. The fact that this issue has not arisen in this form in the past may be an indication that there may be other ways to approach it. Perhaps, the Court, having construed the claims of each of the patents with the assistance of the persons skilled in the art, simply compares the claims and decides whether the later claims are patentably distinct from the earlier claims on the basis of the insights which it has gained in the course of the construction of the patents. This appears to be what was done in [Comm’r of Patents v Hoechst [1964] SCR 49], and more recently in [Sanofi 2008 SCC 61]. This is not to argue that this approach is any more correct than the comparison date approach but rather that, going forward, parties should not feel that they are locked into the framework chosen by the parties in these cases.

This observation is of a piece with Pelletier JA’s discussion of Whirlpool. Adherence to precedent is important to the predictability which allows parties to plan in reliance on the law, but sound precedent cannot grow in a straightjacket imposed by the idiosyncracies of how particular cases were argued: to repeat Binnie J’s words, “The objective of the exercise is to promote certainty in the law, not to stifle its growth and creativity."

The Patentee, Not the Infringer, Elects an Accounting

Bayer Inc v Cobalt Pharmaceuticals Co 2016 FC 1192 Fothergill J
            2,382,426 / ethinylestradiol & drospirenone / YAZ YASMIN

After Fothergill J held in 2016 FC 1013 that Bayer’s 426 patent was valid and infringed by Apotex and Cobalt, he asked for submissions regarding Bayer’s entitlement to elect between damages and an accounting of profits [1]. Apotex made the “novel” argument that it, rather than Bayer, should be entitled to make the election, and that Bayer should be restricted to an accounting of profits [2]. The statutory basis for this argument was evidently that s 57(1) provides that in the court “may, on the application of the plaintiff or defendant, make such order as the court or judge sees fit. . .for and respecting inspection or account. . . .” The equitable argument was that Apotex had prevailed in the prior NOC proceeding [2], the implication being that its subsequent launch was justifiable, and so it should be subject to the more modest sanction of an accounting of its own profits. The insurmountable difficulty with the statutory argument, as pointed out by Fothergill J, is that pursuant to s 55(1) the successful patentee is statutorily entitled to damages, and the court has no discretion with respect to that remedy [4], [9]. The question then arises as to why s 57(1) specifies that the defendant may apply for an order. I suspect that this is targeted at the final phrase of the provision, which allows the court to make orders “generally, respecting the proceedings in the action.” Such general orders might be sought by either party.

Fothergill J’s analysis of whether Bayer should be allowed to elect between damages and an accounting was brief. He noted that “[t]he fact that a defendant has taken a business risk and has obtained authority to market an infringing product pursuant to the NOC Regulations will not deprive a successful plaintiff of an election between damages and profits ,” citing 2008 FC 825 [509]-[510] (Snider J) and 2009 FC 991 [655], [663] (Gauthier J).

As discussed here and here, there has been something of a debate as to whether a succcessful patentee will normally be permitted to elect an accounting unless there is some reason why that remedy should be denied, or, on the other hand, an accounting will be denied unless the plaintiff can show some positive reason why it should be granted. The more recent tendency seems to be towards generally allowing an election. Fothergill J’s conclusion was consistent with this tendency: “Given that Bayer is entitled to damages pursuant to s 55(1) of the Patent Act, and all parties agree that an accounting of profits may also be an appropriate remedy, I see no reason to deny Bayer an election between damages and profits” [11]. However, given that Apotex did not oppose Bayer’s entitlement to an accounting, but rather insisted on it, not too much can be read into this.

TRUVADA Patent Invalidated by Conference Call With Investors Outside of Grace Period

Gilead Sciences, Inc v Apotex, Inc 2016 FC 856 Brown J
            2,512,475 / TRUVADA

In this chapter of the continuing TRUVADA saga, Brown J held Gilead’s 475 patent invalid as being anticipated, or in the alternative, obvious, on the basis of a disclosure made by Gilead executives in the course of a conference call with investors. The filing date was 13 January, 2004, and the conference call, which was public [67], took place more than one year before, on 2 December, 2002, and so outside the one year grace period for disclosure by the inventor set out in s 28.2(1)(a) and s 28.3(a). The argument for anticipation or obviousness based on the conference call was very strong, and the main tactic of Gilead’s counsel was to try to keep the conference call transcript out of evidence by instructing the Gilead witnesses not to produce the conference call transcript, in violation of Rule 94(1), and without seeking the relief of Rule 94(2) [60], [61]. Brown J held that in the circumstances hearsay evidence of the conference call transcript introduced by Apotex was admissible as being both necessary and reliable [60]. The holding on anticipation [97] and obviousness [120-21] followed directly. Apotex also argued lack of utility, but Brown J construed the promise of the patent modestly [139], and found that the promised utility was soundly predicted [143].

As a minor point, Brown J found that the conference call, which was public [67], would have been known to a person skilled in the art [103], but I don’t see a specific holding by Brown J that it was part of the state of the art, in the sense of being common general knowledge or prior art which would be discovered in a reasonably diligent search directed to the problem at hand. As noted here, there is an issue as to whether the art that can be used in an obviousness attack includes only the state of the art, so defined, or all prior art. This would potentially have been an important point had the decision rested primarily on obviousness, but given that anticipation was the primary basis for Brown J’s holding of invalidity, nothing turned on it.

When Does a Submission for an NOC Trigger S 5 of the NOC Regulations?

Teva Canada Limited v Pfizer Canada Inc 2016 FCA 248 Dawson JA: Webb, Rennie JJA rev’g 2014 FC 1243 Gleason J
            2,409,059 / exemestane / AROMASIN
            2,261,630 / infliximab / REMICADE / INFLECTRA

Section 3.4.1 of the most recent (2012) Guidance Document: Patented Medicines (Notice of Compliance) Regulations, states that when a generic manufacturer of a drug that already holds an NOC licenses a second generic to sell “the identical drug,” the second / licensee generic need only file an administrative drug submission which does not trigger s 5 of the NOC Regulations. This reversed the prior policy, under which the second generic’s submission was considered to trigger s 5. The change in policy resulted from the Minister of Health’s interpretation of the term “submission” in s 5(1) of the NOC Regulations, and not from any change in the regulations themselves. In this decision, the FCA held that the Minister’s interpretation of the Regulations was owed deference, and that the new interpretation was reasonable, reversing Gleason J on both points. This means that a patentee cannot decide whether to respond to an NOA in light of the threat it perceives from the particular generic; instead, a patentee must respond to every NOA it receives, or take the risk that the generic in question will subsequently license. With that said, according to the Guidance Document, the submission by the second generic will only be considered administrative if the drug is “identical.” In the cases under appeal, the second generic certified that its product would be manufactured in the same location with identical specifications and procedures. That is, as I understand it, the first generic, which had received the NOC, was manufacturing the drug for sale by the second generic. The FCA decision suggested that when a drug is manufactured by the second generic in circumstances that give rise to a “to a new or different basis for asserting that a particular product is infringing” [89], the submission should not be considered administrative. I would imagine that manufacturing by the second generic in a different facility might by considered sufficiently different, even if under licence by the first generic, but the Guidance Document is not explicit on this issue. And regardless of this suggestion by the FCA, the Minister’s interpretation on this point would be reviewed on a deferential standard.

Is Recourse to the Disclosure Impermissible When the Words of the Claim Are Plain and Unambiguous?

Cascade Corporation v. Kinshofer GmbH 2016 FC 1117 Southcott J
            2,587,065 / I-LOCK and X-LOCK quick coupler

This infringement action ultimately turned entirely on claim construction. A key issue in claim construction was whether recourse to the disclosure was permissible; in the course of coming to opposite conclusions, the defendant’s expert started with the disclosure and relied extensively on it in construing the claims, while the patentee’s expert largely ignored the disclsoure. Southcott J began his discussion of claim construction by quoting the principle that recourse to the disclosure is “unnecessary where the words are plain and unambiguous”. As discussed below, Southcott J evidently took this as saying that recourse to the disclosure in claim construction is permissible only when the claims are ambiguous. In my view, that proposition is clearly wrong. Since Southcott J found the claims to be ambiguous, and hence recourse to the disclosure was permissible, the error made no difference to the result. Nonetheless, because Southcott J’s view was based on FCA authority, the point warrants some discussion.

Uncontested Change of Inventorship

Qualcomm Incorporated v. Canada (Commissioner of Patents) 2016 FC 1092 Southcott J
            2,630,594

This decision concerned an uncontested application by Qualcomm pursuant to s 52 of the Act to correct the name of the inventor on the 594 patent by adding the true inventor and deleting two incorrectly named inventors. In a previous Qualcomm decision, 2016 FC 499 (blogged here), Simpson J held that the affidavits that would be required to amend the inventorship for a pending application under s 31 are not strictly required under s 52. Qualcomm nonetheless provided affidavits, out of an abundance of caution [13], [14].

Qualcomm also sought to have certain documents recorded against the 594 patent, including a copy of replacements sheets for the PCT Declarations of Entitlement [1]. Southcott J declined to grant that relief, but without actually holding that the FC does not have the jurisdiction to grant such relief under s 52. Qualcomm did not urge the point very strongly, acknowledging that it would have other means have filing the replacement documents. Accordingly, in the absence of case law holding that s 52 authorized the FC to order the recording of documents, Southcott J declined to grant the relief, without any express holding as to whether he had the necessary authority to do so [16]-[17].

“How Is That a Proxy for the Value Associated with the Use of the Invention?”

Arctic Cat Inc v Bombardier Recreational Products Inc 2016 FC 1047 Roy J
            2,322,738

Complex products embody hundreds or thousands of patented components, all of which contribute a small amount to the overall value of the product. When one of those patents is infringed, how are damages to be assessed? That is problem is central to much of the high-profile litigation taking place internationally in the ICT sector concerning standard-essential patents (SEPs) subject to a commitment to license on fair, reasonable and non-discriminatory (FRAND) terms. Essentially the same problem was also raised, albeit in obiter, in Arctic Cat v BRP. As noted in Friday’s post, Roy J held that Arctic Cat’s 738 patent was not infringed. While it was therefore strictly unnecessary to consider damages, the case had not been bifurcated (“This is a case where bifurcation should have been more carefully assessed [349]), and Roy J went on to make a number of observations on the damages issue, though without arriving at any final figure. His discussion is of considerable interest as Canadian law has relatively few cases assessing damages for infringement when the invention is a minor part of a complex product.

The patentee sought damages in the form of a reasonable royalty for the use of the invention [352] and experts for both parties advanced a variety of methods for assessing those royalties. Ultimately Roy J concluded that most of the proposed methods were wholly unreliable, though one was inadequate as presented, but, with adjustment, could serve as a starting point [413]. Roy J’s criticisms of the various methodologies all turned on one fundamental point: “the Court must strive to compensate the claimed invention solely with respect to damages that can be attributed to the invention” [353]:

Where the invention is but one individual component of a multi-component product, the damages in the form of royalties must be in order to compensate the infringement of that individual component of the multi-component product that is captured by the invention. In effect, the royalty recognizes that the sales by the infringer are an illegal transaction which requires to be compensated. However, it is only the infringement that requires compensation.

The problem is that the invention is a method of tuning a two-stroke engine, in particular a snowmobile engine, for optimal performance by setting the ignition timing according to the exhaust temperature (see Friday’s post). How is the value of that invention to be separated from the value of all the other components of a snowmobile, or even of a snowmobile engine [354]? I will argue below that the method that found favour with Roy J is just as susceptible to this critique as those he rejected.

You Can’t Have the Claim Construction Cake, and Eat the Validity Cake Too

Arctic Cat Inc v Bombardier Recreational Products Inc 2016 FC 1047 Roy J
            2,322,738

In Arctic Cat v BRP Roy J held that Arctic Cat’s 738 patent was not infringed by BRP’s snowmobile engines. This holding turned primarily on the construction of the claims. Roy J also held that if he was wrong as to the proper claim construction, so that BRP’s engines did infringe, then the claims at issue were invalid for obviousness. The analysis raised no new issues of law, but it does illustrate the interaction between claim construction, validity, and infringement. The patentee was trying to argue for a broad construction for infringement and a narrow construction for validity, which made it difficult to mount a consistent argument on either point.

Is Trivial and Incidental Domestic Use of a Patented Intermediate Infringing?

Bayer Inc v Fresenius Kabi Canada Ltd 2016 FC 581 Brown J motion for reconsideration dismissed 2016 FC 970
            2,192,418 / moxifloxacin hydrochloride for injection / AVELOX IV / NOC

In Bayer v Fresenius Brown J granted Bayer’s application for an order of prohibition on the basis that the NOA was insufficient, even though the application would otherwise have been dismissed on the basis that Bayer had not established infringement [7]. Brown J held that the transient and insignificant use of the claimed invention in making Fresenius product which was then imported, was not an infringement. On this point he was on firm legal ground. But the implications of this legal rule, in light of the SCC decision in Monsanto 2004 SCC 34, has implications that go beyond the context of importation. It suggests that trivial and incidental use of a patented intermediate is not infringing, even if the use is entirely domestic.

[Update: On re-reading the decision, I believe I had previously misread a key passage from Brown J's decision. I am adding this note, and the explanatory footnote ** below, but it is my policy not to amend my posts to correct errors. When I'm wrong, I'm wrong.]

The Status of Intellectual Property Licences in Insolvency Proceedings

Today's post is a guest post by Professor Anthony Duggan, the Hon. Frank H. Iacobucci Chair in Capital Markets Regulation at the University of Toronto Faculty of Law.

THE STATUS OF INTELLECTUAL PROPERTY LICENCES IN INSOLVENCY PROCEEDINGS

1.      Introduction

If an intellectual property owner grants a licence and subsequently becomes insolvent, can the insolvency administrator disclaim the licence? Or, alternatively, can the insolvency administrator sell the intellectual property free and clear of the licence? Norman Siebrasse and I explored these questions in depth in a report we wrote for Industry Canada in 2013 and in an article, based on the report, which was published in the Annual Review of Insolvency Law in 2014.[1] The questions recently came up for consideration in Golden Opportunities Fund Inc. v. Phenomenome Discoveries Inc.,[2] where the court overlooked nearly all the key points.

2.      The disclaimer of intellectual property licences

Section 65.11 of the Bankruptcy and Insolvency Act[3] provides for the disclaimer of contracts in BIA proposal proceedings. Section 32 of the Companies’ Creditors Arrangement Act[4] is a parallel provision which applies in CCAA proceedings. BIA, s.65.11(7) and CCAA, s.32(6) apply to intellectual property licence agreements where the debtor is the licensor and they provide that disclaimer of the agreement does not affect the licensee’s right to use the intellectual property during the term of the agreement, provided the licensee continues to perform its obligations under the agreement. These provisions are loosely based on s.365(n) of the United States Bankruptcy Code.[5] Their immediate purpose is to protect the licensee’s reliance interest, but the larger objective is to preserve the licensing system as a means of sharing and exploiting intellectual property rights.

Inexplicably, there are no corresponding provisions for bankruptcy proceedings or receiverships. The GOFI case involved a receivership and the court held that the above provisions were inapplicable.[6] The court went on to hold that, in the absence of any relevant statutory provisions and subject to any relevant provisions in the receivership order, a receiver is not bound by the debtor’s contracts and is free to disclaim them.[7] This is subject to the exception that “a receiver cannot disclaim a contract that has granted a property right”.[8] However, in  the GOFI  case the court, following Royal Bank of Canada v. Body Blue Inc.,[9] held that a licence “does not confer any interest or property in the thing being licensed” and so the licensee’s rights are purely contractual.[10] The implication is that if the receiver in the present case had sought to disclaim the licence agreement, the court would have upheld its right to do so and it would further have ruled that the disclaimer precluded the licensee from continuing to use the intellectual property.[11]

But this is wrong as a matter of both law and policy. It is a mistake to think of the issue in terms of property rights. Disclaimer of a contract in insolvency proceedings is a breach of contract, not rescission. The essence of a licence agreement is that the licensor promises not to sue the licensee for infringement, provided the licensee observes the terms of the licence. Outside insolvency, if the licensor sued the licensee for infringement even though the licensee was in compliance with all its obligations under the licence agreement, the licensor would be in breach of its primary obligation under the licence agreement and the court would disallow the action. In principle, the position should be the same in insolvency proceedings. In other words, disclaimer of a licence should not prevent the licensee from continuing to use the intellectual property; if the insolvency administrator sues the licensee for infringement, the court should disallow the action, just as it would have done outside insolvency.[12] Furthermore, as indicated above, there are strong policy reasons for not allowing disclaimer. These policy reasons apply regardless of the form the insolvency proceedings happen to take. The court in the GOFI  case overlooked these points and the case is open to criticism on this score. But more importantly, perhaps, this aspect of the decision serves to underscore the unforgivably patchwork nature of Canada’s insolvency laws. The rules governing disclaimer of contracts should be the same across the board both in the interests of consistency and to discourage forum shopping (picking and choosing between insolvency regimes to take advantage of discrepancies between the regimes).

3.      Asset sales and licensee’s rights

As it happens, the receiver in the GOFI  case did not seek to disclaim the licence agreement. Instead, it applied to the court for approval to sell the intellectual property (a patent) free and clear of the licence. BIA, s.65.13 governs asset sales in BIA commercial proposal proceedings and CCAA, s.36 is a parallel provision applicable in CCAA proceedings. There is no corresponding provision for receiverships, but the courts have developed a similar set of criteria for approving asset sales in a receivership, including a requirement that, in deciding whether to approve a sale, the court should take account of third party interests.[13] In the GOFI  case, the court held that even though the licensee had no proprietary interest in the patent, it did have a contractual right (presumably in the form of a damages claim) which it was entitled to pursue against the sale proceeds.[14] The court framed the question in terms of whether it would be unfair to permit this right to be extinguished and on the facts of the case, it concluded that this question should be answered in the negative. Specifically, the court found that the licensor and licensee companies were both, in effect, alter egos of the same human actor (Dr Goodenowe) and that Goodenowe had years previously bargained away the licensee’s rights.

This conclusion seems plausible as far as it goes, but it must be stressed that it turns on the particular facts of the case. Furthermore, even if the facts had been different and the court had found in the licensee’s  favour, on the court’s own reasoning this would have served only to keep alive the licensee’s  claim for damages and the claim, being a provable one, would be poor compensation for loss of the licence.   In this connection, the policy considerations are the same as in the context of disclaimers:  an order approving the sale free and clear of the licence would be detrimental to the licensee’s reliance interest and, if the licence is central to the licensee’s business, it might trigger the licensee’s own insolvency. Furthermore, the risk that the licence may be defeasible in the licensor’s insolvency proceedings could have a significantly chilling effect on intellectual property licensing activity at large. In this respect, too, the  GOFI  case points to the incoherence of the Canadian insolvency laws: it makes no sense to enact provisions aimed at giving effect to these policies in the disclaimer context, but to leave the licensee exposed to the very same risk in the context of asset sales.

In the GOFI  case,  the court overlooks the possible application of the registration and priority rules in the Patent Act.[15] At least until recent amendments, the Patent Act clearly required exclusive licences to be registered[16] and it further provided that that an “assignment” was void against a subsequent assignee unless registered.[17] It was unclear  (1) whether “assignment” included an exclusive licence;  (2) if so, whether the provision meant that the holder of a registered licence had priority over a subsequent purchaser of the patent; and (3) if not, what the governing priority rule might be.[18] The disputed agreement in the GOFI  case was a non-exclusive licence and, as such, it was clearly not registrable. But it is still not clear how the priorities should be determined.  Poolman v. Eiffel Productions [19] suggests that the federal intellectual property registration provisions do not establish priority regimes and that priorities between competing interests in intellectual property are subject to provincial law, not federal law. 

On the other hand, the correctness of Poolman has been doubted. For example Professor Vaver argues that the federal statutes do determine priorities, at least as between registrable interests, and that there is no room for the application of provincial laws.[20] But Vaver’s reading of the provisions leaves open the question of how to determine the priorities where one or more of the competing interests is an unregistrable interest.[21]  Perhaps the answer is that, at least in the case of a non-exclusive licence,  the licensee has no proprietary claim and so no question of priorities arises.  In any event, to the extent that federal laws apply to determine priorities between competing interests in intellectual property, they should be equally relevant inside and outside insolvency proceedings. This means that, in considering third party interests when deciding whether to approve an asset sale in insolvency proceedings, the court should not confine itself  to asking whether the asset sale is “fair” to the third party; it should also ask whether and, if so, how, the federal intellectual property laws might apply. 

In the broader scheme of things, there is a strong case for reforming the intellectual property laws to establish a modern and comprehensive system for the registration of intellectual property interests and a coherent set of priority rules, along the lines of the provincial Personal Property Security Acts.  If the government were to grasp that nettle, the new priority provisions would clearly be front and centre in any asset sale proceedings involving intellectual property.

Anthony Duggan,

Hon. Frank H. Iacobucci Chair,

Faculty of Law,

University of Toronto

---

[1] Anthony Duggan and Norman Siebrasse,  The Treatment of Intellectual Property Rights in Insolvency : Report to Industry Canada (September, 2013); “The Protection of Intellectual Property Licences in Insolvency: Lessons from the Nortel  Case [2014]  Annual Review of Insolvency Law  19.

[2] 2016 SKQB 306 (the “GOFI  case”).

[3] RSC 1985, c.B-3 (“BIA”).

[4] RSC 1985, c.C-36 (“CCAA”).

[5] 11USC s.365 (n) (2012)

[6] At [21].

[7] At [23], quoting from an unreported judgment of Meschishnick J. in the same proceedings (July 19, 2016) at paras 8-10 which, in turn, cites Bennett on Receiverships  (Toronto: Carswell, 1999) at 341.

[8] Ibid.

[9] (2008) 42 CBR (5^th) 125, 2008 CanLII 19227 (Ont. SCJ).

[10] At [18].

[11] As it happens, the receiver did not seek to disclaim the licence agreement, but instead applied for approval to sell the intellectual property free and clear of the licence (see further below).

[12] Duggan and Siebrasse [ARIL],  supra note 1 at 33.

[13] See Toronto-Dominion Bank v. 101142701 Saskatchewan Ltd  2012 SKQB 289, quoted in the GOFI  case at [27].

[14] At [25].

[15] RSC 1985, c.P-4.

[16] Section 50(2), now replaced by s.49(3).

[17] Section 51, now replaced by s.49(4), replacing “assignment” with “transfer”.

[18] Duggan and Siebrasse [ARIL],  supra  note 1 at 38-46.

[19] (1991) 35 CPR (3d) 384 (Fed.TD).  Poolman  was a copyright case, but its reasoning seems equally applicable in the patents context.

[20] David Vaver, Copyright Law (Toronto: Irwin Law, 2000) at 248.

[21] Duggan and Siebrasse at 45.

Claim Construction in EXJADE Affirmed as Correct

Teva Canada Ltd v Novartis Pharmaceuticals Canada Inc 2016 FCA 230 Dawson JA: Gauthier, Near JJA aff’g 2015 FC 770 O'Reilly J
            2,255,951 / deferasirox / EXJADE / NOC

In the decision under appeal O'Reilly J issued an order of prohibition in respect Teva’s generic version of EXJADE on the basis of the ‘951 patent. The only issue on appeal was whether O’Reilly J, having correctly stated the law relating to the promise of the patent, had correctly applied that law in construing the promise of the ‘951 patent [4]. (The promise aspect of O’Reilly J’s decision is blogged here. See here and here for discussion of other aspects of his decision.)

In a brief decision, the FCA held that O’Reilly J’s construction of the promise was “correct” [25]. In light of the recent Nova v Dow , 2016 FCA 216 decision on the standard of review for claim construction (see here), it is interesting that the FCA did not discuss the standard of review at all. (To be clear, the FCA did not hold that the standard of review for construction of the promise was correctness; it simply did not discuss the issue.) Of course, a holding that the decision below is correct is consistent with upholding it on a less stringent standard of review, and it may be that the FCA simply felt no need to address the standard of review.

The FCA also went out of its way to quote Celebrex 2014 FCA 250 [66] (see here) to the effect that “the promise of the patent doctrine will hold an invention to an elevated standard of utility ‘only where a clear and unambiguous promise has been made.’ Where a patent’s validity is ‘challenged on the basis of an alleged unfulfilled promise, the patent will be construed in favour of the patentee where it can reasonably be read by the skilled person as excluding this promise’” [26]. Finally, the FCA re-affirmed that the point made in Celebrex (see here) that the promise doctrine applies on a claim-by-claim basis, so “different claims can have different utilities for the same compound” [23].

Repayment of Damages Paid Pending Appeal

Pfizer Canada Inc v Teva Canada Ltd 2016 FCA 218 Stratas JA:Gleason JA (Ryer JA*) refusing to vary 2016 FCA 161
            1,248,540/ 2,199,778 / venlafaxine / EFFEXOR XR

The circumstances of this motion are “unusual” [25]. In Teva v Pfizer 2014 FC 248 (here), Zinn J awarded Teva almost $125m, including interest, under s 8 of the PM(NOC) Regulations, as compensation for having wrongly been kept off the market for venlafaxine. Pfizer paid the damages award to Teva and launched an appeal [3]. Pfizer was successful, at least to the extent that in 2016 FCA 161 the FCA vacated Zinn J’s award because it was based on inadmissible hearsay evidence. The matter was remitted to Zinn J for redetermination (see here) [2]. Pfizer then asked Teva for the money back. Teva refused. The difficulty for Pfizer is that there was no provision in the FCA judgment requiring Teva to return the money. Pfizer therefore brought this motion, asking the FCA to vary its judgment to add a term requiring Teva to repay the money with interest [5].

The first issue was whether the two remaining members of the original panel has subject-matter jurisdiction, notwithstanding the retirement of the third. The Court concluded that it did have jurisdiction [10].

Nonetheless, and notwithstanding that “[i]n light of the judgment of this Court and on the record before us, Teva has absolutely no right to keep Pfizer’s payment” [4], the FCA refused to vary its judgment to order Teva to return the money. Pfizer’s failure to request the return of the money was fatal: “Without a formal, explicit request for specific relief in the notice of appeal, the request is not before the Court. . . . Now that judgment has been rendered, it is not possible to retroactively expand the scope of the appeal and then vary the judgment” [22].

Pfizer is not without recourse. The matter has been remitted to Zinn J for redetermination. He may again find that Pfizer owes substantial damages to Teva. If he does, in making his award of damages he “will be bound to take into account any payments that Teva might have received to which it is not entitled,” including consideration of interest [23]. That is, the amount already paid will be offset, with interest, against any future award. In the alternative, or if no damages are awarded on remand, Pfizer “can sue Teva for restitutionary recovery of monies wrongly withheld from it” [23].

*Ryer JA was a member of the original panel, but had retired and was functus by the time of this hearing [8].

The Complexities of Comity and Stare Decisis

Bayer Inc v Apotex Inc 2016 FC 1013 Fothergill J
            2,382,426 / micronized drospirenone / YAZ YASMIN

As noted in yesterday’s post Bayer’s ‘426 patent covers an oral contraceptive comprising drospirenone and ethinylestradiol, where the drospirenone is in the form of fast dissolving particles. The claims of the ‘426 had previously been construed by Hughes J and the FCA in the prior NOC proceedings: Bayer v Cobalt 2013 FC 1061 J aff’d 2015 FCA 116 (blogged here). This raised the question of the extent to which Fothergill J was bound to follow the claim construction arrived at by Hughes J (on the basis of comity) and the FCA (on the basis of stare decisis) [45].

Bayer argued that Fothergill J should adhere to the FCA’s construction “unless the evidence demonstrates the prior construction was wrong, or if different evidence compels a different result” [46], relying on Allergan 2012 FCA 308, [44] (here). This position is in some ways surprisingly modest. Allergan did state that test, but in the context of comity, which governs the relationship between courts of the same level. As noted in Pfizer 2014 FCA 250 [59] (here) (also relied on by Bayer), claim construction is a matter of law, and stare decisis implies that a subsequent lower court should be strictly bound by a holding of law by a higher court. On the other hand, Cobalt and Apotex pointed out that because of their summary nature, even holdings of law in an NOC proceedings are arguably not strictly binding at all in a subsequent infringement action: Lilly v Novopharm / nizatidine [1998] 2 SCR 129 [95]-[96]; Lilly v Novopharm /olanzapine 2007 FCA 359 [41].