Section 8 Damages Law is Mature

Teva Canada Limited v Pfizer Canada Inc 2017 FC 332 Phelan J
            pregabalin / LYRICA / NOC s 8

It seems that the law related to s 8 damages is now mature. Phelan J’s decision in Pregabalin s 8 runs to 78 pages, without raising any new points of law. This had to happen eventually, as s 8 damages are based on the same basic principle of ‘but for’ causation that is applicable to monetary remedies generally, in which the actual world is compared with a “but for” world (“BFW” to adopt Phelan J’s abbreviation). There were a number of legal issues peculiar to the s 8, because the statutory provisions limit ‘but for’ causation in some ways (in particular with respect to the compensable period), and raise some unique puzzles (ie should it be assumed that the NOC Regulations would not exist at all in the ‘but for’ world), but those issues have largely been hammered out, most importantly in the Apotex s 8 Damages FCA 2014 FCA 68 aff’d 2015 SCC 20 (blogged here, here, and here) aff’d 2015 SCC 20, and the companion case Teva s 8 Damages FCA 2014 FCA 67. No doubt narrow legal issues raised by unusual fact patterns will continue to arise, as in any area of law, but the main issues are settled.

Following Apotex s 8 Damages FC 8) 2012 FC 553 [11], Phelan J noted that there are five steps in assessing s 8 damages [8]

• determine the duration of the period of liability [the Liability Period];

• determine the overall size of the Pregabalin market during the Liability Period;

• determine the portion of the Pregabalin market that would have been held by Teva and any other generic manufacturers during the Liability Period – the generic market;

• determine the portion of the generic market that would have been held by Teva – its lost volumes; and

• quantify the damages that would have been suffered by Teva in respect of its lost volumes (net lost profits).

I won’t go through the details of each determination, which all turned on their facts. I do have just a couple of general observations.

First, Phelan J stated that [13], [14]:

The real world plays a significant role in the construction of the BFW [‘but for’ world]. The BFW is to mirror, as much as possible, the real world experiences and circumstances – to use history as the basis for assessing the assumptions advanced in the BFW scenarios.

So for example, Ratiopharm (now Teva) had failed to follow up promptly on the patent hold letter in the real world, and that failure to act expeditiously in the real world undermined Teva’s argument that it would have acted expeditiously to obtain an NOC in the ‘but for’ world [147]. With that said, Phelan J did not hesitate to find that the BFW would have differed from the real world when the facts so established. For example, Pfizer argued that it in the BFW it would have entered with its own generic, GenMed, as it did on genericization of the market in the real world [220], but the evidence established that GenMed was not a part of Pfizer’s “toolbox” in 2010 [223].

There is also one factual issue that has more general ramifications for s 8 actions. The more generics that would have entered the market in the ‘but for’ world, the lower Teva’s market share and therefore the lower Pfizer’s s 8 liability. This meant that Pfizer wanted to prove that other generics would have entered. This meant that Pfizer had to elicit evidence that would ultimately be helpful to Pfizer from generic drug company executives. That is easier said than done. Phelan J noted that [95, [96]:

Pfizer called six generic drug companies who competed with Teva in the Pregabalin market. All appeared under subpoena and only one agreed to meet with counsel beforehand. Some of the evidence was confidential because of the competitive circumstances. The Court recognizes the difficulty faced by counsel trying, in direct examination, to elicit positive evidence from competitors, even where such examination is skillfully and artfully done as in this case.”

The evidence given was ultimately unhelpful in establishing potential generic entry [98]. Despite the rivalry between innovators and generics, there is no suggestion that the witnesses were trying to undermine Pfizer’s case; rather, “[f]or most it was an exercise too remote from what they did in real life – too theoretical for their comfort” [97]. This illustrates a difficulty than any patentee will face in making its case in s 8 proceedings. With that said, I can’t be too sympathetic to Pfizer’s dilemma; the argument is that but for the statutory stay, the patentee would have lost market share to some generic, just not to the particular generic that had filed the NOA and triggered the NOC proceedings. But the other generics that would have entered in the BFW would not be able to claim damages because they had not actually filed an NOA in the real world. So in arguing that other generics would have entered, the patentee is trying to avoid being held liable for loss it actually caused, albeit not to the particular party in s 8 action. Put another way, the legal rule that entry by other generics must be considered is in itself favourable to the patentee, so patentees can’t complain too much about difficulties of proof they might face in establishing the point on the facts.

Another Piece of the Double Patenting Puzzle

Bristol-Myers Squibb Canada v Apotex Inc 2017 FC 296 Manson J
            2,366,932 / 2,519,898 / dasatinib / SPRYCEL / NOC

Patent law has a reputation of being an arcane and technical area of law. To me, it doesn’t generally seem that much worse than, say, corporate law, or even administrative law (where as soon as everyone figures out what the law is, the SCC changes it). But double patenting definitely lives up to the billing of being both arcane and technical. Manson J’s Dasatinib decision is significant in holding that the appropriate date for assessing obviousness-type double-patenting is the claim date of the second patent, in a case in which it actually mattered on the facts. However, the holding was not strictly necessary to the result, as the claims in question were invalid under a standard obviousness analysis, and Manson J’s reasons for selecting that date were brief. On the whole, the question of whether the claim date of the first or second patent is appropriate, remains open.

Obviousness-type double patenting is a judicially created doctrine which prevents an inventor from obtaining a second patent for an invention which is an obvious variant of an invention disclosed in its own unpublished prior application, even though that prior application is not part of the state of the art defined in s 28.3. The problem arises when the first patent is published after the claim date of the second patent (because otherwise it will typically be prior art in any event). The problem has normally been framed as involving a choice between three possible dates (from earliest to latest) (see Mylan FCA 2016 FCA 119, [45]):

(1) the claim date of the first patent (First Claim date);

(2) the claim date of the second patent (Second Claim date);

(3) the publication date of the second patent (Second Publication date):

The question is important only when the state of the art has changed in the interim. Keep in mind that when we are considering the correct date for assessing double patenting, it must already have been established that the double patenting doctrine applies, and so it is established that the first patent is considered to be part of the state of the art against the second, regardless of what date is used.

Recently, the law has been developed primarily in the context of NOC litigation dealing with two patents related to tadalafil, the earlier 377 patent, and the later 784 patent. In Mylan FC 2015 FC 17, discussed here, de Montigny J held that the appropriate date was (1), the First Claim date. Then, in Apotex Tadalafil FC, dealing with the same two patents, Gleason J expressed a preference for (2), the Second Claim date, but on the facts it was not necessary for her to decide between the First and Second claim dates: see here. The next decision, chronologically, was Mylan FCA, the appeal from Mylan FC. As discussed here, the Rennie JA, speaking for the FCA, definitively ruled out (3), the Second Publication date, but held that it was an open question as to whether the First or Second Claim date was correct. This effectively over-ruled de Montigny J’s holding that (1), the First Claim date, was appropriate, though he was affirmed in the result, because on the facts the result was the same whether the First or Second Claim date was used. Then, in Apotex Tadalafil FCA, Apotex argued that Whirlpool 2000 SCC 67 had held that (3), Second Publication date, was correct. The FCA rejected that argument and encouraged some out-of-the-box thinking: see here. Thus, coming in to this case, we have a clear holding from the FCA eliminating (3), the Second Publication date, but otherwise an entirely open question as between (1) and (2), the First or Second Claim date.

In this case, Manson J held that (2), the Second Claim date, is the correct date. This mattered on the facts, because Manson J held the claim at issue to be obvious as a consequence, but if the First Claim date was used, the claim at issue would not have been obvious [207]. With that said, he had already held that claim to be obvious on a traditional obviousness analysis [202].

I must say that I find Manson J’s reasoning on this issue more difficult to follow that the rest of his decision. He said that in Apotex Tadalafil FCA the FCA had

declined to affirm Justice Rennie’s exclusion of the Second Publication date (Apotex Tadalafil FCA at para 41). Therefore, the law as it currently exists on the appropriate date for the obviousness-type double patenting analysis is inconclusive. [212]

I find this passage confusing. It might be read as suggesting that Apotex Tadalafil FCA had doubted Rennie JA’s holding and re-opened the Second Publication date as a possibility, but I can’t read the decision that way. Apotex’s argument in Apotex Tadalafil FCA was Mylan FCA was wrongly decided because it was inconsistent with Whirlpool. This FCA rejected the inconsistency argument, and that is why Pelletier JA said “there is no reason for us to depart from Mylan FCA” [41]; he was not suggesting that Mylan FCA was doubtful authority and might be reconsidered.

Manson J then went on to say that he found the policy arguments made by Apotex for using Second Publication date to be persuasive in principle [209], [213]. However, those arguments were only briefly described, as being to the effect that the evil of double patenting “is to force the public to endure a prolonged monopoly on an invention,” and the publication date of the second patent “is the first date at which the patentee can enforce the second patent and the public is threatened by the risk of liability for infringement” [209]. I must say that I don’t see the force in this at all. An inventor is entitled to an invention which is not obvious as of the claim date, so the monopoly is “prolonged” only if the patent was obvious as of the claim date. Many valid patents are granted for inventions which would be obvious as of their publication date. And while the point about enforcement and liability is more or less true (though strictly, the patentee can’t enforce the patent until it is granted), I don’t really see the relevance. Manson J made the point only briefly, and no doubt it was clearer from the submissions.

No doubt Manson J’s discussion of the policy arguments was so cursory because he then went on to say, albeit in a roundabout way, that he was in any event bound by Mylan FCA to reject the Second Publication date [213]. Then, quoting a passage from Apotex Tadalafil FC [132] in which Gleason J said that “a sound argument” could be made for using (2), the Second Claim date, Manson J held that the Second Claim date, or more specifically, the Second Priority date, was indeed the correct date [216]. As discussed here, while Gleason J made a number of good points in her careful analysis, she did not definitively come down in favour of the Second Claim date. (I note that Manson J referred to the “Second Priority date,” while I have been referring to the “Second Claim date.” As discussed here, I think it is implicit in the decisions that it is really the choice between the earlier or later claim date that is at issue, even though in most of the cases this has been the priority date.)

In summary, Manson J’s Dasatinib decision is significant in holding that the appropriate date for assessing obviousness-type double-patenting is the Second Claim date, in a case in which it actually mattered on the facts. However, the holding was not strictly necessary to the result, as the claims in question were invalid under a standard obviousness analysis. Moreover, Manson J’s decision was thinly reasoned on this point. Given that Gleason J in Apotex Tadalafil FC did not feel bound to follow the much more thoroughly reasoned decision of de Montigny J in Mylan FC, I would say that it remains an open question as to whether the First or Second Claim date is appropriate.

Promise Doctrine Applied

Bristol-Myers Squibb Canada v Apotex Inc 2017 FC 296 Manson J
            2,366,932 / 2,519,898 / dasatinib / SPRYCEL / NOC

Apotex sought an NOC for APO-Dasatinib, using BMS’ SPRYCEL as the Canadian reference product [3]. In response, BMS sought an order of prohibition based on the 932 and 898 patents, both of which are related to dasatinib [2]. Manson J held the 932 patent to be invalid for lack of sound prediction of utility, in reasons which don’t make any new law, but which do demonstrate the continued impact of the promise doctrine. He also held the 898 patent to be invalid as being obvious-to-try and for double patenting. The obvious-to-try aspect of the decision turned on the facts, but there were a couple of legal points of passing interest. I’ll address double-patenting in a subsequent post.

Dasatinib is used to treat a form of chronic myelogenous leukemia (“CML”). Claim 27 of the 932 patent, the only independent claim at issue [52], claims the compound dasatinib [75], while various uses of dasatinib are claimed by dependent claims [55]. Claim 27 of the 932 patent was held invalid for lack of sound prediction of utility, but this result was driven by the analysis of the promise of the patent. As is normal in disputes over the promise of the patent, the patentee argued for a relatively modest patent, and the generic argued for a more demanding promise. In this case, Manson J adopted the promise proposed by the expert for Apotex, which required, inter alia, that the compounds were therapeutically useful [97]. The patentee did not dispute that there was no sound prediction of therapeutic utility for dasatinib at the claim date [99], and so the finding of lack of sound prediction followed directly from the construction of the promise of the patent. The main point of general interest is that Manson J distinguished Apotex Imatinib 2013 FC 141 (blogged here), on the followin basis (my emphasis):

[95] In the ‘932 Patent, the language used in the specification is not equivocal in the same manner as the Apotex Imatinib patent (i.e., “can be used”). There are numerous instances in the Utility section where the inventors have stated that the compounds “are” useful for treatment of disease.

In other words, in describing the uses of the invention, the word “are” can sink your patent, while the words “can be used” may save it, notwithstanding that the information communicated to the public is substantively the same. This type of “meticulous verbal analysis,” of the type disparaged in Catnic [1982] RPC 183, 243 (HL) is now entrenched in our law, unless and until the SCC addresses the promise doctrine in its forthcoming NEXIUM decision.

Turning to the 898 patent, the only claims at issue were to the oral use of dasatinib for treating imatinib-resistant CML (Claims 1 and 3, respectively) [126]. While both parties agreed that it was not obvious at the relevant date that dasatinib would be an effective oral treatment for these purposes[173], Manson J agreed with Apotex that it would have been obvious to try [186], [202]. This holding turned on the factual finding that the work needed to arrive at the invention was routine, in light of the relevant prior art.

Two points made in passing are of some interest. First, there was a dispute as to whether two patent applications that would have been publically available before the relevant date for assessing obviousness [151], were part of the prior art. In ruling that they were, Manson J stated that “The Federal Court of Appeal has held that prior art relevant for the purposes of assessing obviousness is limited to that which the POSITA “would locate conducting a reasonably diligent search” (E Mishan & Sons Inc v Supertek Canada Inc, 2015 FCA 163)” [154]. I’m not sure that is quite right; it is more accurate to say, as Locke J said in Pollard Banknote 2016 FC 883, [193], that the FCA “declined an opportunity to revisit the question,” whether it was so limited: see here. With that said, it didn’t make any difference in this case, because the immediate question was whether Apotex was limited to prior art found by its experts, or could also consider prior art found by the respondent. Manson J’s real holding was that “while it may be best practice when asking experts to opine on prior art or the common general knowledge to have them perform the necessary searches, the NOC process can constrain a respondent, who must ensure that all facts that they will rely upon at trial are part of the NOA; therefore, a respondent is likely to have curated the prior art before hiring experts” [154].

Secondly, Manson J also held, rightly, in my view that “[t]he fact that there are multiple obvious routes towards an invention does not necessarily render any or all of them all non-obvious,” noting that “[t]his is particularly true given the methods through which scientists screen compounds for potential therapeutic activity” [196].

Subjective or Objective Test for Sound Prediction?

Teva Canada Limited v Leo Pharma Inc 2017 FCA 50 Gauthier JA: De Montigny, Gleason JJA aff’g 2015 FC 1237 Locke J
            2,370,565 / calcipotriol & betamethasone / DOVOBET

In Teva v Leo Pharma the FCA affirmed the decision of Locke J (blogged here) granting an order of prohibition. Yesterday's post discussed the FCA holding regarding sufficiency. Teva also raised an interesting technical argument regarding sound prediction.

The test for sound prediction set out in AZT, 2002 SCC 77, requires a sound line of reasoning from which the desired result can be inferred from the factual basis [11]. In Bell Helicopter 2013 FCA 219 [154], the FCA held that the elements of the sound prediction doctrine, including the line of reasoning, need not be explicitly disclosed in the specification if they would be self-evident to the skilled person [12]. Teva argued that the line of reasoning which supports a sound prediction must nonetheless be the actual line of reasoning followed by the inventors of the invention at hand [15.1]. Teva referred to this, appropriately, as a “subjective” approach [28]. This is in contrast to an objective approach, under which it would suffice if a sound line of reasoning would be apparent to the notional skilled person, whether or not the inventors did not have that particular line of reasoning in mind.

The FCA rejected this argument, treating it essentially as a factual matter. It is undisputed that a skilled person would have to have a sound line of reasoning, and it is open to the court of first instance to infer, as a matter of fact, that the inventors shared that line of reasoning, even if the inventors were not personally called to testify [28]. Gauthier JA pointed out that such an inference must be permissible if the inventor had died before trial, and if it is permissible in that case, it must be generally permissible, as being simply a matter of how the patentee has chosen to prove a fact [29]-[30].

While that response was sufficient to dispose of the issue, it leaves open the technical question of whether the correct test for a sound line of reasoning is indeed subjective, or objective. Given the FCA’s point regarding how the facts may be proven, this will not often make any difference, but I’m not sure it will always be moot. Gauthier JA noted that

[31] From the perspective of a person skilled in the art, I see no difference in this case between an express sentence [stating the inventor’s line of reasoning] and conveying the same logic through technical information disclosed in the specification read as a whole. In both instances, the inventor conveys his or her logic to the person to whom the patent is addressed, thereby fulfilling its part of the patent bargain if this line of reasoning is held to be reasonable and sound at the relevant times. In short, in both instances, the person to whom the patent is addressed, namely, the person skilled in the art, understands the sound line of reasoning of the inventors premised on what is said in the patent.

In my view, this is a compelling argument for the objective approach. The patent bargain is an objective one; it is what the inventor actually gave the world, not what she might have thought she was giving the world. If an inventor truly believes that she was making full and sufficient disclosure, but in fact she was not, the patent will be invalid notwithstanding her subjective intent. The converse should also hold; if the inventor in fact make a disclosure that was sufficient for a skilled person, and thereby gave the invention to the world, that fulfils the bargain, even if the inventor subjectively did not understand her own invention.

Viagra Did Not Change the Test for Sufficiency

Teva Canada Limited v Leo Pharma Inc 2017 FCA 50 Gauthier JA: De Montigny, Gleason JJA aff’g 2015 FC 1237 Locke J
            2,370,565 / calcipotriol & betamethasone / DOVOBET

In Teva v Leo Pharma the FCA has affirmed the decision of Locke J (blogged here) granting an order of prohibition. Teva raised two arguments on appeal, relating to sound prediction and insufficiency. While the appeal was dismissed largely on the facts, the decision is noteworthy for the FCA’s brief but helpful discussion of Viagra / Sildenafil 2012 SCC 60, which clarifies both what Viagra did and did not hold.

Like Arctic Cat in 2017 FC 207, blogged here, Teva in this case argued that Viagra had changed the standard for sufficiency, so that now, not even a minor research project is permitted [57]. The FCA rejected this with a brief explanation of the true import of Viagra:

[58] The case before us is very different from the one that was before the Supreme Court of Canada in Sildenafil, where the patentee had deliberately omitted essential information, thereby obscuring the fact that only one of the compounds claimed actually worked (Sildenafil at paras 72, 73 and 76) . Thus, the invention itself was not even properly disclosed.

That is, Viagra concerns a situation where the patentee has deliberately obscured the nature of the invention. The FCA continued:

[59] Furthermore, the Supreme Court refers to the factual findings of the Federal Court in Sildenafil which found that in that case, one would require a minor research project to determine the true invention. This statement of Justice Lebel is, as mentioned, perfectly in line with the law as I understand it, not only in Canada but elsewhere, such as the U.K. and Europe, which recognizes that some non-inventive trial and error may be required to put a properly disclosed invention into practice. Had the Supreme Court wished to change the law on this point in Sildenafil, one would have expected a much more fulsome analysis of the issue and discussion of the relevant authorities. In the absence of such a discussion, I do not believe that the Supreme Court changed the law in Sildenafil in the manner Teva argues.

So, Viagra did not change the standard for sufficiency. I agree with Gauthier JA’s holdings on both these points.

Otherwise, Teva was largely trying to re-argue the facts, and the appeal failed for that reason [54].

(A post on the punitive damages issue in Airbus v Bell Helicopter 2017 FC 170 will be forthcoming soon, but I am taking a break from that case to clear up my blogging backlog.)

What Does It Matter If There Is No NIA?

Airbus Helicopters S.A.S. v. Bell Helicopter Textron Canada Limitée 2017 FC 170 Martineau J
            2,207,787 / helicopter landing gear

The hot topic in Canadian remedies law lately has been the role of the “non-infringing alternative” or “NIA” in assessing monetary remedies. The legal test for an NIA was set out in Lovastatin 2015 FCA 171 (discussed here and here), and modified by Perindopril 2017 FCA 23 (here). Consequently, it is not surprising that Martineau J’s analysis began with an extended discussion of the issue, concluding on the facts that there was no valid NIA [171]-[214]. But it is a bit odd that in his actual assessment of damages, reviewed in yesterday’s post, his conclusion that there was no valid NIA concept played no particular role in his analysis. In this post I’ll suggest that when reasonable royalties are claimed, there is always a valid NIA; the NIA is, by definition, whatever the infringer would have done in the ‘but for’ world. This means that whether or not an NIA is explicitly identified, we can always work backwards from the damages assessment to figure out the implicit NIA. I’ll also suggest that it probably is not usually helpful to start by applying the modified Lovastatin test to identify the legally available NIA. Rather, it is normally better to start with the key factual question – what would the infringer have done but for the infringement? – and then apply the Lovastatin test to ask whether that NIA-in-fact is also an available NIA-in-law.

MWA and MWP in Compensatory Damages

Airbus Helicopters S.A.S. v. Bell Helicopter Textron Canada Limitée 2017 FC 170 Martineau J
            2,207,787 / helicopter landing gear

The 787 patent claims a type of helicopter land gear known as a “moustache” landing gear [3]. As discussed here (FCA) and here (FC), in Eurocopter v Bell Helicopter Textron Canada Limitée 2012 FC 113 aff’d 2013 FCA 219, Martineau J held one claim of the 787 patent, owned by Eurocopter (now the helicopter division of Airbus) to be valid and infringed by Bell. This decision is the damages phase of that bifurcated trial [1]. In the result, Martineau J awarded $500,000 in compensatory damages and $1,000,000 in punitive damages, plus pre-judgment and post-judgment interest [2], [108]. The decision is interesting and important in several ways. It is significant as one of very few Canadian patent cases to award punitive damages. The issue of compensatory damages is also important, because it deals with the inherently difficult problem of assessing reasonable royalty damages for a complex product.

Martineau J’s reasons are correspondingly lengthy and wide-ranging, and a discussion of every issue raised would require a law review article. On the topic of law review articles, Martineau J cited several of my articles, including an article which I co-authored with Tom Cotter, “A New Framework for Determining Reasonable Royalties in Patent Litigation, (2016) 68 Fla L Rev 929, which is so recent that I only received my hard copy in the mail in the same week that the decision was released. (Martineau J evidently cited to the SSRN version.) It is of course very gratifying to me personally to be cited, but I’m particularly excited because Martineau J cited a range of scholarship, including empirical articles on behavioural psychology [107]. In an era when some courts are finding law review articles to be increasingly unhelpful, it is very encouraging to find courts that are willing to engage with the latest scholarship, and scholars who are doing work that the courts do find useful.

Turning back to the decision, I will limit myself to commenting on some of the fundamental points. The first couple of posts will consider compensatory damages. This post provides an overview, and considers the treatment of the hypothetical negotiation, and particularly the concept of the patentee’s minimum willingness to accept and the infringer’s maximum willingness to pay. The next post will consider the problem of the non-infringing alternative, again restricting myself to compensatory damages. A third post will consider the issue of punitive damages.

Side-by-side Comparison of NOC and Impeachment

Apotex Inc v. Shire LLC 2016 FC 1099 Tabib J
            2,547,646 / lisdexamfetamine dimesylate / VYVANSE

I’m still working on my post on the very interesting, but very long, damages decision in Airbus Helicopters v Bell Helicopter 2017 FC 170. I hope to post about it on Wednesday morning. In the meantime, while I don’t usually blog on procedural issues, this decision by Tabib J provides an  interesting side-by-side procedural comparison of an NOC proceeding and an impeachment action.

Apotex brought an NOC application in respect of a generic version of Vyvanse, and in response Shire applied for a prohibition order. Ten days later, Apotex brought an action seeking a declaration that the 646 patent is invalid and not infringed [2]. Shire then brought this application to partially consolidate the proceedings, with a common hearing on viva voce evidence, but subject to the parties’ ability to argue the admissibility or relevance of evidence to one or the other proceeding, in light of the different burden and the fact that the allegations in the NOC application are circumscribed by the NOA [3]. Apotex resisted, arguing that it would be disadvantaged in several ways, one being that if the NOC proceeding and the declaratory action were heard together, this would de facto, though not de jure, erase the difference in the burden of proof applicable to each proceeding “effectively robbing Apotex of the advantage it enjoys in the prohibition proceeding” [17]. Tabib J rejected Apotex’s arguments, and ordered the proceedings to be consolidated in the manner suggested by Shire. The decision generally is of interest for its detailed discussion of the procedural differences between the types of proceedings, and the implications for expense and strategy.

With that said, I can’t resist commenting on one point. Tabib J did not accept Apotex’s argument that when the court was relying on a common evidentiary record, the court “might be unable or unwilling to properly apply the burden of proof, or that it might be unwilling or unable, where the application of the evidentiary burden requires it, to reach a result which is not uniform but is nevertheless appropriate to each process” [19], saying that there was no evidence for authority for this proposition. I note that in Gleevec, in which, as Tabib J noted [13], an NOC proceeding 2013 FC 142 and declaratory action 2013 FC 141, were consolidated on consent [13] (see here), Snider J dismissed the impeachment action, holding the key claims not to be invalid. She consequently granted the prohibition order, saying simply that “it follows that the allegations of invalidity contained in the NOAs cannot be justified” [2013 FC 142, 7]. This suggests there may be some basis for Apotex’s concern, because Snider J did not find it necessary to decide whether the allegations of invalidity in the NOC proceeding might be justified, if considered in light of the fact that the burden is on the patentee rather than the generic in the NOC proceeding. 

Even if Apotex's concern has more merit than Tabib J was willing to accept, I don’t know that it would have affected the outcome, as Tabib J held that the partial consolidation proposed by Shire “would lead to very significant savings of time and expense for both parties, [and] represents the most efficient and judicious use of the Court’s resources, eliminates wasteful duplication.” [25]. She also noted that

It was Apotex’s decision to trigger both proceedings at the same time that makes the litigations particularly taxing, but it is also that decision which makes the partial joinder possible and necessary to alleviate the burden. Apotex cannot impose its own schedule on Shire and on the Court while at the same time resist reasonable and just means to make the most efficient use of scarce judicial resources, all for the sake of preserving its own perceived tactical advantage” [27].

While that was explicitly only an observation, and not the basis for her decision [26], it’s a strong point, and it seems to me that Apotex would have had to make a case for some kind of significant procedural or substantive injustice in order to have been able to successfully resist the order for consolidation.

UPDATE: Tabib J's decision was affirmed 2017 FC 139 Strickland J

How Much Experimentation Is Permitted Before a Specification Is Insufficient?

Bombardier Recreational Products Inc v Arctic Cat Inc. and Arctic Cat Sales Inc, 2017 FC 207 Roy J
            2,293,106 / 2,485,813 / 2,411,964 / 2,350,264

As discussed in yesterday’s post, the Rider Position Patents at issue in Bombardier v Arctic Cat survived all validity attacks but one, and Roy J held they would have been infringed if valid. However, Roy J held the patents invalid for insufficiency, on the basis that the patents “do not describe how the inventions are to be put in operation [605]. That a person skilled in the art would be able to make the invention in light of the disclosure, was, according to Roy J, “beside the point” [561]:

Ever since Consolboard, the law has been clear that the specification alone is to be used to put the invention into practice, without the assistance of a minor research project.”

See similarly [549], [568], emphasizing that if even a “minor” research project is required, the specification is inadequate. The above reference to Consolboard notwithstanding, Roy J’s primary authority for this point is the Viagra decision, Teva Canada Ltd v Pfizer Canada Inc, 2012 SCC 60, which was cited throughout Roy J’s decision.

The proposition that a specification is insufficient if it requires the skilled person to carry out a minor research project to put the invention into practice, is with due respect, an error of law. This proposition is not entirely novel. Some very early cases did indeed suggest that the specification had to explain in detail how to work the invention, “without the necessity of trying experiments” Turner v. Winter (1787) 99 Eng. Rep. 1274, 1276-77, 1 WPC 77, 80 (KB); and see R v Arkwright (1785) 1 WPC 64, 66; Morgan v Seaward (1836), 1 WPC 170, 175. But these cases did not address the precise degree of experimentation permissible. The difficulty with a strict rule excluding any experimentation at all, is that in almost any field there are some steps that require some degree of routine trial and error. To require a patentee to describe all steps with sufficient particularity to avoid such trials would leave the patent open to technical attacks. In some cases it might be impossible to frame a valid claim, even though a skilled person would easily be able to work the invention on the basis of the disclosure. Such remarks were therefore immediately tempered by the principle that they are addressed to a person skilled in the relevant art; as Jessel MR said in Otto v. Linford (1882) 46 L.T.(NS) 35 at 41, in the course of holding that the disclosure was not insufficient because it did not specify the precise proportions for fuel and air necessary for combustion, “[t]he first thing to be remembered, in specifications of patents, is that they are addressed to those who know something about that matter.” And even before that, in Morgan v Seaward, Alderson B at 175, stated that the specification “must actually and plainly set forth what the invention is, and how it is to be carried into effect, so as to save a party the trouble of making experiments and trials,” but he went on to say, at 176, that the workman brings his “ordinary knowledge” to the job and if the size of the parts is not specified, this is not fatal: “He says, ‘I see this will not work because it is too small,’ and then he makes it a little larger, and finds it will work.”

Experimental Use Exception to Anticipation Applied

Bombardier Recreational Products Inc v Arctic Cat Inc. and Arctic Cat Sales Inc, 2017 FC 207 Roy J
            2,293,106 / 2,485,813 / 2,411,964 / 2,350,264

In Bombardier Recreational Products v Arctic Cat Roy J held that the asserted patents were invalid by reason of insufficiency and ambiguity [572], but all other validity attacks failed, and the patents would have been infringed if valid. Today’s post provides an overview of the case and a few points, the most interesting of which is that Roy J applied the experimental use exception to anticipation. Tomorrow’s post discusses the insufficiency issue.

In the late 1990s, Bombardier Recreational Products (BRP) made a “significant breakthrough” in snowmobile design [415]. Its so-called radical evolution vehicle (REV), introduced in 2002, moved the rider weight forward, so that instead of sitting back as if on a couch, the rider is balanced forward, as if riding a dirt bike [414]. The REV was a great commercial success that left other snowmobile makers “swallowing hard and running fast to catch up” [417]. BRP obtained four patents related to its new design. The three Rider Position Patents (106, 813 and 964), claimed a snowmobile with a rider forward position; the 264 patent, aka the Frame Construction Patent, claimed a new frame design with enhanced rigidity [100]. While it seems that the frame construction claimed by the 264 patent was used in BRPs commercial REVs, the frame construction was not specifically directed at the rider forward position, so that the two groups of patents were quite distinct. Roy J held that the 264 patent was not infringed, in a holding which turned on claim construction [379], [382], but the Rider Position Patents were infringed – or would have been had they been valid. While the patentee fended off attacks based on anticipation [521], obviousness [539-40], and material misrepresentation [574], Roy J held the Rider Position Patents to be invalid for ambiguity and insufficiency [560].

Non-infringement of the Frame Construction Patent turned on standard claim construction issues, so I will say no more about it, in order to focus on the more interesting Rider Position Patents. 

The key point on both infringement and validity was the way in which these patents were drafted. They all claimed a snowmobile comprising all the usual parts, but the key innovation was not described in terms of the structure of the snowmobile itself, but rather in terms of the position of the rider on the snowmobile. For example, Claim 1 of the 106 patent was as follows:

1. A snowmobile, comprising: [standard parts] constructed and arranged such that, when the standard rider is . . . in a biomechanically neutral position . . . the snowmobile has a first center of gravity without the standard rider and a second center of gravity with the standard rider and a distance between a vertical line passing through the first center of gravity and a vertical line passing through the second center of gravity is between 0 cm and 14 cm inclusive.

Since the rider is a significant part of the weight of a snowmobile, and the rider sits behind the center of gravity of the snowmobile itself, the center of gravity of the combination of the rider and sled will be behind the center of gravity of the sled alone. The further back the rider sits, the further back the combined center of gravity will be. By defining a maximum distance between the two, the claim is to a snowmobile constructed such the rider will normally sit in a forward position. As another example, Claim 1 of the 964 patent claims a snowmobile constructed such that, when the rider is in the normal position, “the hips of the standard rider are disposed above its knees.” That is contrasted with the prior art, where the rider was in a more reclined position. Other claims added refinements, such as specifying that the ankles should be behind the knees. The 813 patent was similarly drafted, except it defined the rider position in terms of angles, rather than body parts or centre of gravity. None of the claims specify how the sled should be constructed to achieve this result.

The defendant Arctic Cat raised a number of claim construction issues related to phrases such as a “standard rider,” but Roy J had no difficulty construing these in light of the disclosure, with “a mind willing to understand” [298], and stressing that “common sense is not excluded from the Court room” [299]. In light of the recent debate, it is worth noting that Roy J used a disclosure-first approach rather than a claim-first approach, but this did not appear to have been a point of contention. Very unusually, Roy J also adverted to the prosecution history during claim construction, but this did not have any impact on the claim construction [323].

The claim drafting method came to the fore in determining infringement.“In order to perform measurements that would be compared, it was deemed necessary to follow a protocol which would reflect the three Patents-in-suit” [429], and there questions, for example, as to what position should be taken by the rider to determin the steering, footrest and seating position [430], and to define the “biomechanically neutral” position that was specified in the 106 and 813 patents [431]. BRPs experts were able to follow the definitions provided by the patents, so as to replicate the conditions – down to the drop in height caused by the weight of the rider – to calculate the various centers-of-gravity [432]. Roy J was very impressed with the experts [425], [434], who “had nothing to hide and had excellent expertise” [434]. One further obstacle was that BRP’s experts had only measured 17 of Arctic Cat’s models, while 378 models were alleged to infringe. BRP was nonetheless able to establish that all models infringed [469]. BRPs expert showed that AC’s models fell into nine groupings, with models in each grouping sharing the same overall geometry, and the models that were measured were representative of each group [452-54]. AC’s response was to challenge the validity of the groupings, and rather than offering its own measurements. While the defendants are entitled to adopt this strategy, Roy J was not impressed: “the Defendants take the posture that they should sit back and challenge peripherally groupings that they are capable of reviewing with great precision” [457], and he concluded that AC’s challenge to the groupings was not sufficient to displace BRP’s evidence. (Of course, that is not to suggest that AC’s strategy was unsound, as direct measurements of its own models might have reinforced BRPs conclusions even more forcefully.)

Turning to validity, Roy J held that the Rider Position Patents were not anticipated or obvious [476], and they also survived a few other “last-ditch” attacks [581]. The holding of non-obviousness was straightforward on the facts [536], particularly in view of the “overwhelming” secondary evidence of non-obviousness, such as commercial success [540].

Several of the anticipation arguments similarly turned on the facts. The most interesting anticipation issue was one of the “last-ditch” arguments. Some of the testing of BRPs prototypes was carried out in public or semi-public locations, though precautions, such as riding at night or while shielded between other sleds, were taken to avoid being seen. AC argued that that constituted public disclosure “because someone could have witnessed the rider’s hips above his knees, and the ankles behind the knees, and the hips behind the ankles” [581]. Roy J rejected this argument primarily on the authority of Conway v Ottawa Electric Railway Co., (1904), 8 ExCR 432, 442, which was recently revived in litigation related to YAZ, as discussed here and here. He noted that “Conway would appear to be good law” [492], citing Hughes J in the YAZ litigation, 2014 FC 436. I summarized Hughes J’s decision as holding that “This seemingly establishes a broad experimental use exception to what would otherwise be anticipating disclosure, which applies to any clinical trial, so long as reasonable steps are taken to ensure that the unused tablets are returned.” Roy J went on to apply this law to the facts:

[582] There is not even a suggestion by AC that the use of public trails was anything but for reasonable experimentation. Since at least 1904, our law has recognized the need to experiment in order to bring the invention to perfection [Conway]. This exception was recognised recently by our Court. In this case, the evidence is that BRP was conscious of the need for confidentiality and took steps to ensure it would be protected. The experimentation was necessary in view of the many uses that would be available for that new configuration. Actually, AC did not address at all the well-recognized experimental use exception, making its argument on the sole basis that prototypes were out on public trails and that a passerby would have been able to identify the positioning. In my view, the experimental use exception would suffice to dispose of that argument.

The comment that “BRP was conscious of the need for confidentiality and took steps to ensure it would be protected,” echoes Hughes J’s comment in YAZ [121] that “Bayer took reasonable steps to ensure the confidentiality of the relevant documents and to ensure that unused tablets were returned.” Roy J did go on to hold that even if there was disclosure, it was not enabling, though I am not entirely satisfied with this reasoning on that point, for reasons I will explain in tormorrow’s post. In any event, the experimental use exception to anticipation was clearly the primary basis for his decision. In YAZ, Hughes J had described the exception as long established [119], and in my post I suggested that “ one decision more than a century old is not strong enough authority to say this point is well-established.” Now we have another decision holding that a public disclosure that is necessary for reasonable experimentation will not constitute anticipation if the inventor took reasonable steps to ensure confidentiality. In both YAZ and BRP v Arctic Cat, it was not clear that there was actually enabling disclosure at all, and the true test of this doctrine will come when the disclosure is clearly enabling on the facts, notwithstanding the reasonable efforts to keep it confidential. But for now we can at least say that the rule is increasingly well-established.

Interlocutory Injunctions Update Part III: Trade-marks

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

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

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

Interlocutory Injunctions Update Part II: Copyright Cases

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

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

Interlocutory Injunctions Update Part I: Patent Cases

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

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

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

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

Blogging Pause

Regular readers may have noticed the lack of activity on my blog in the past couple of weeks. I've fallen behind because what had started as a brief post on a couple of recent interlocutory injunction decisions, has ballooned into a minor research project, at the same time as other new decisions have come out. The interlocutory injunction post (or posts) are still not ready, and between that and my other teaching and research obligations, it will be a few more days before my next post. I hope to have my first post on interlocutory injunctions out early next week, and then I'll catch up on the other recent decisions and get back to my regular blogging schedule.

The Value of the Standard

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

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

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

Specific v General Motivation in the Obviousness Analysis

AstraZeneca Canada Inc. v. Mylan Pharmaceuticals ULC 2017 FC 142 Diner J
            2,449,098 / naproxen-esomeprazole dosage form / VIMOVO / NOC

In this decision Diner J held AstraZeneca’s 098 patent to be invalid for obviousness, relying in part on the obvious-to-try analysis set out in Sanofi 2008 SCC 61. The decision turned essentially entirely on the facts. There were a few legal points of some interest, the most notable being the discussion of the distinction between specific and general motivation in the obviousness analysis. More broadly, I must admit that I did not find the obvious-to-try analysis as set out in Sanofi itself to be pellucid, but the Federal Courts have nonetheless consistently applied it in a robust and principled manner to invalidate patents for invention which were the result of routine testing of alternatives that was more or less guaranteed to arrive at a solution to the problem at hand, even if the precise solution could not have been predicted in advance.

Before turning to obviousness, there are a couple of other issues worth mentioning. As discussed here, there has been an ongoing debate as to whether recourse to the disclosure as an aid to construing the claims is always permissible, or is permissible only if the claims are ambiguous on their face. While claim construction was not particularly controversial in this case [28], and Diner J did not address the debate directly, he provided the following summary of the law (citations omitted):

[26] In sum, a patent is to be construed through the eyes of the POSITA having a mind willing to understand the invention, and the claims are to be approached in a purposive manner and construed in light of both the disclosure and the claims. That said, while it is permissible to read the disclosure in order to assist in understanding the terms used in the claims, the disclosure cannot be used to construe the claims more narrowly or widely than the text of the claims allows

This strikes me as both sensible and an accurate summary of the law.

The issue of blinding the experts also arose. Mylan argued its experts should be preferred because they were blinded to the NOA, and AstraZeneca responded that Mylan’s experts should be ignored because they failed to address the NOA [74], [76]. Diner J stated that “Blinding experts does not necessarily produce a more reliable outcome” [77]:

[78] In this case, the approach of both sides in the preparation of their witnesses was acceptable, and as a result neither warrants exclusion or less weight. Rather, my analysis turns on which of the experts provided the most compelling evaluations of the common general knowledge held by the POSITA, the state of the art, and other factors in the obviousness analysis.

While the debate over blinding is not over yet, and no doubt is will continue to be a helpful practice in some situations, Diner J’s remarks seem to me to reflect and reinforce a trend towards not putting too much weight on the question of blinding.

The key substantive issue was obviousness. Naproxen was a known NSAID, and like other NSAIDs it can cause gastrointestinal [GI] injuries if taken alone [5]. Various mitigating strategies were known, including co-administration with a PPI [6], but co-therapy was known to have patient compliance problems [7]. The asserted claims of the 098 patent solved this problem with a sequential release tablet comprising esomeprazole, a PPI, in immediate release form (not surrounded by an enteric coating), with a delayed release of naproxen, an NSAID [107]. The parties largely agreed that the difference between that inventive concept and the state of the art was the sequential release profile, which was achieved by the decision not to fully enteric coat the PPI [113]. This was arguably inventive, because PPIs were sensitive to acid, so that it was common practice to enteric coat PPIs [46]. After a review of the facts, including consideration of the obvious-to-try factors, Diner J found the difference between the invention and the state of the art to be obvious [130], [171]. This holding turned largely on the facts, but one statement of law is worth quoting, as it reflects a common thread through the Federal Court’s obvious-to-try decision:

[134] Furthermore, neither the fact that (i) no one knew whether the claimed invention would provide any additional benefit (i.e. the non-enteric coated PPI), nor that (ii) there were other options amongst gastroprotective agents apart from PPIs, render the claims non-obvious. The following words of Justice Barnes in Janssen Inc v Teva Canada Limited, 2015 FC 184 at para 113, are apposite:

…The fact that the formulator had a few choices to make and would need to test the formulation to ensure its efficacy does not render this exercise non-obvious. Here I adopt the point made by Justice Roger Hughes in Shire Biochem Inc. v. Canada (Minister of Health), 2008 FC 538 (F.C.) at para 80, [2008] F.C.J. No. 690 (F.C.), that the existence of number of possible routes to solve a problem does not mean that the route taken was not obvious. In Brugger v. Medicaid Ltd. (No. 2), [1996] R.P.C. 635 (England P.C.) at p 661, the same point was stated in the following way:

First a route may still be an obvious one to try even if it is not possible to be sure that taking it will produce success, or sufficient success to make it commercially worthwhile. ... Secondly, if a particular route is an obvious one to take or try, it is not rendered any less obvious from a technical point of view merely because there are a number, and perhaps a large number, of other obvious routes as well. If a number of obvious routes exist it is more

Finally, Diner J’s discussion included a fairly extensive discussion of the significance of general vs specific motivation in the obviousness analysis [148ff]. AstraZeneca seems to have argued that the invention would not be obvious unless the POSITA would have had a specific motivation to come up with the particular inventive concept of the 098 patent [140], while Mylan argued that specific motivation is not required [150]. Diner J agreed with Mylan [150].

Diner J suggests that a “general” versus “specific” motivation distinction “may be a false dichotomy” [152]. He made two suggestions. First, “the measure to be taken is one of difference or degree, not kind. Like with many subjective measures, the notional skilled person’s motivation would at best be identified as somewhere along a spectrum” [153]. This means it would be confusing rather than helpful to require a binary determination[154].

Diner J also had a second suggestion:

[159] [S]pecific motivation arguably cuts both ways. It could be said that its existence indicates that it was likely obvious that someone would eventually get there, without inventiveness. On the other hand, it could be said that the existence of specific motivation before the claimed invention was patented only reinforces Beloit’s classic question (at para 21): if it was obvious – and there was specific motivation to try it – why didn’t you?

Similarly, in Janssen-Ortho 2007 FCA 217 [25.5], the FCA suggests that general motivation is important because if there has been a long-standing general motivation to solve a problem, and no one has been able to do so, this is evidence that the solution someone finally does come up with was not obvious. On the other hand, if there wasn’t any general motivation to solve a problem, then the answer to Beloit’s classic question may be “no one bothered to try.” This suggests that even if motivation were a binary question, “[i]ts relative importance will depend on the context and factual backdrop of each case” [151]. Again, this leads to the conclusion that a distinction between general and specific motivation is a false dichotomy. That does not mean that general and specific motivations are the same, but rather than the effect of motivation on the obviousness analysis depends on how it interacts with the other relevant facts, and not which category it falls into.

Is Litigation Insurance Separable?

Apotex Inc. v. ADIR 2017 FCA 23 Dawson JA: Boivin, Woods JJA rev’g in part 2015 FC 721 Gagné J
            1,341,196 / perindopril / COVERSYL

As discussed in Friday’s post, Perindopril Accounting is the accounting portion of a bifurcated action. In the liability decision, 2008 FC 825 aff’d 2009 FCA 222, Snider J held that the defendants had infringed the plaintiff’s ‘196 patent and she allowed the plaintiff to elect an accounting of profits. A substantial amount of the infringing material manufactured by Apotex in Canada was destined for export to markets such as the UK and Australia. Friday’s post dealt with the issue of whether Apotex might have made the same profits by manufacturing in some other jurisdiction for export to those markets.

The subject of today’s post is a second question raised on appeal, relating to the provision of litigation insurance by Apotex as part of the transfer price agreements [8.ii]. Apotex Inc sold the infringing product to affiliated companies, Apotex UK and GenRX, for sale in the UK and Australia respectively. The transfer price agreements had two different prices defined, with a higher price payable by the purchaser when the product was considered a “Patent Challenge Product,” which meant that there were good reasons for expecting the affiliate to be subject to patent litigation in the export market (ie the UK or Australia). The same transfer price agreement also provided that Apotex would pay all legal expenses and indemnify the foreign purchaser against any such claims that might be brought [37]. (See here for more detail.)

Apotex argued that it was really selling two things in a single contract, namely infringing perindopril and litigation insurance, and the profits due to the infringing perindopril should be disgorged, but not those derived from litigation insurance. At trial, Gagné J accepted Apotex’s argument in principle on the basis that “that the provision of foreign litigation services and of an indemnity for liability under foreign patents does not constitute an infringement of the 196 Patent” [30]. While she held that it was not established on the facts that the increased payments for a Patent Challenge Product really were in the nature of insurance payments [67], this implies that this the same basic argument might succeed if the transfer pricing agreement were drafted differently.

Apotex appealed this point, and the FCA affirmed, but on entirely different grounds:

[79] What drove Apotex’ sales of perindopril were the new and useful characteristics of the drug. Had perindopril not been protected by the 196 Patent, there would have been no need for Apotex to provide an indemnity to protect the fragility of its affiliates. “But for” the infringing qualities of perindopril, Apotex would have earned nothing on its sale, whether attributable to the drug itself or to the indemnity required to protect the affiliates. Thus, the profit resulting from the sale of perindopril was entirely causally attributable to the invention. It follows that no apportionment is warranted.

That is, in the ‘but for’ world, Apotex would have sold non-infringing perindopril, and if it had sold non-infringing perindopril, it would not have had to provide litigation insurance, as there would have been no risk of litigation. On this approach, it would not matter how the agreement is drafted, because no matter how the agreement is drafted, Apotex would never be in a position to sell litigation insurance where there is no risk of litigation.

On its face, this logic is a compelling and straightforward application of ‘but for’ causation.The answer to Gagné J’s point is that the profits to be disgorged are those caused by the infringement, not the profits associated with infringing products; so the question is not whether provision of litigation insurance is an infringement, but whether Apotex would have made those profits but for the infringement. There is a parallel with convoyed goods, where a patentee may recover lost profits on the lost sale of unpatented goods, if it would have made those sales but for the infringement: see eg Jay-Lor 2007 FC 358, [198].

I have just a couple of questions. First, suppose that the litigation insurance would not be required in the ‘but for’ world, and suppose also that in the real world the litigation insurance had been provided by an entirely independent firm, rather than by Apotex. Would the patentee be able to get an accounting of the insurer’s profits on the basis that those profits were caused by the infringement, even though the insurer itself had not infringed? If so, on what basis? If not, why should Apotex be treated differently in respect of its insurance business? I have no good answer to these questions, one way or the other.

Second, the FCA indicated that litigation insurance was required because perindopril was protected by the Canadian 196 patent [79]. But my understanding from the trial decision is that litigation insurance was required because of the possibility of litigation based on a patent that was effective in the export country, ie a UK or Australian patent: see [FC 38]. So, according to Apotex’s version of the but for world, as I understand it, if Apotex had not manufactured perindopril in Canada that infringed the 196 patent, it would have manufactured in some other jurisdiction in which perindopril was not patented, but it would still have exported to the UK and Australia, where there was a risk of litigation based on the UK and Australian patents. If that’s right, then it seems to me that Apotex would have provided the same litigation insurance, even though it would not have infringed the 196 patent. The FCA’s discussion of this point was quite brief, and it may be that I’ve misunderstood either the reasoning or the factual underpinnings. In any event, this point was not essential to the disposition of the case, as the FCA nonetheless went on to consider the specific contracts and the facts of the case, and held that Apotex had not demonstrated that the transfer price agreements had intended to apportion the revenue between the product and the litigation insurance [106-7]. However, if that conclusion turns on the particular contract rather than on a general principle of causation, then the possibility remains open that the revenues might be apportioned if the contract were differently drafted.