A Predictable and Consistent Framework for the Assessment of S 8 Damages

Teva Canada Ltd v Pfizer Canada Inc 2014 FC 248 Zinn J
            1,248,540 / 2,199,778 / venlafaxine / EFFEXOR XR

While it is still early days for s 8 damages claims, the Teva Venlafaxine s 8 decision turned largely on factual issues, rather than on novel questions of law. This relative clarity in the law seems to be because the courts have adopted a but-for approach to determination of the loss which is consistent with the general damages principles, rather than creating a new jurisprudence specific to s 8. Consistently with this observation, the most contentious legal issues have related to the start and end date for the compensable period, which are governed directly by the statute, and with respect to double ramp-up, which turns on a statutorily based exception to the general principles of causation. Additionally, Zinn J’s holding on the date from which interest runs raised an interesting point of law relating to s 8 damages generally. With respect to the factual issues, Zinn J expressed a general preference for the so-called “analogue approach” to constructing the but-for world, not as a matter of principle, but because he felt that it will often be more closely tailored to the specifics of the product in question. If this view is shared more broadly in the FC, it will bring further predictability to the assessment of s 8 damages.

In Teva s8 venlafaxine, Zinn J summarized the general framework for assessing damages under s 8 of the PM(NOC) Regulations as follows [27]:

1. Determine the period of liability [the Relevant Period];

2. Determine the overall size of the market for the relevant pharmaceutical [the Relevant Pharmaceutical Market] during the Relevant Period;

3. Determine the portion of the Relevant Pharmaceutical Market that would have been held by generic manufacturers during the Relevant Period [The Generic Market];

4. Determine the portion of the Generic Market that would have been held by the plaintiff [the Plaintiff’s Lost Volume]; and

5. Quantify the damages that would have been suffered by the plaintiff in respect of the Plaintiff’s Lost Volume [the Plaintiff’s Net Lost Profit].

Yesterday’s post discussed the first issue. This post discusses the remaining issues. Recall that, as mentioned in yesterday’s post, Pfizer is the corporate successor to Wyeth, and in 2010, Novopharm changed its name to Teva, and Teva and Ratiopharm then amalgamated. Because the events in issue took place in the 2005 to 2007 period, Zinn J referred to the relevant pharmaceutical companies as Ratiopharm, Novopharm and Wyeth [3].

The Relevant Pharmaceutical Market: What is the size of the overall Venlafaxine Market?
The main issue relating to the size of the overall venlafaxine market was the factual question of whether Wyeth’s withdrawal of promotional efforts on generic entry would have resulted in a drop in demand.

Teva’s expert, Dr Hollis, used an “analogue approach” to answering this question. In effect, he started with the presumption that sales in the but-for world would have been the same as sales in the real world when the generic did actually enter, and then he asked whether there was any reason to believe that the but-for world would have been different [67]. Pfizer’s expert, Dr Tepperman, used a regression analysis [71].

One point of general interest is that “Both experts agreed that where there is a good analogue, that approach is preferred over a regression analysis” [80], and Zinn J accepted this, saying:

[80] In my view, Dr. Hollis’ analogue approach is an adequate and appropriate model for three reasons. First, it accounts for any trends that might be unique to Venlafaxine. Second, the difference in the actual time period between the real world and the but-for world is relatively insignificant as generic entry in the real world occurred on December 1, 2006 and on January 10, 2006, in the but-for world. Third, the market dynamics in the real world closely mirror those in the but-for world. Moreover, I agree with the observation of Justice Phelan in Pantoprazole FC 2013 at para 21 that quantification of damages in the but-for world should be grounded in the experience of the real world, and using an analogue approach where an adequate analogue is available is consistent with that approach.

This clearly indicates that an analogue approach is generally preferable. Note, however, that if there were a longer time between entry in the real world and in the but-for world, the analogue approach would be less appealing.

In the result Zinn J preferred Dr Hollis’ approach. While Zinn J did not say that a regression analysis can never be useful, he did reject Dr. Tepperman’s analysis because of problem with the specific analysis [79].

The Generic Market: What is the size of the Generic Venlafaxine Market?
Again, this was largely a factual issue. The experts both used the same “analogue approach” [82-83], which uses the actual sales as the basis for sales in the but-for world. The main adjustment related to the date of formulary listing [85].

Plaintiff’s Lost Volume: What is Ratiopharm’s Market Share?

            (a) Other Generic Entry
The analogue approach was also used in assessing Ratiopharm’s share of the generic market, but here a tricky adjustment had to be made because of the possibility of entry by other generics. In particular, Wyeth argued that Novopharm and Pharmascience would also have entered. Zinn J held that the burden of establishing entry by the other generics rests on Wyeth [91].

As discussed here, in Apotex s8 ramipril FCA 2014 FCA 68, the FCA held that in the hypothetical world, as the Regulatory barrier to entry which face generics in the real world, including the NOC Regulations, also affect all generics in the but-for world, with the proviso that the claimant generic would have been able to enter as of the start date of the compensable period. I called this the “minimalist approach,” as it assumes the smallest possible deviation from the real world. This means that in assessing whether other generics would entered, we must consider whether they would they have legally been able to enter, as well as whether they would have been motivated and had the manufacturing capacity to do so.

The answer to the first question was relatively straightforward with respect to Novopharm, which had entered into an authorized generic agreement with Wyeth which allowed Novopharm to obtain an NOC and seek formulary listing as soon as a second generic receives an NOC [95]. Thus there were no regulatory hurdles to Novopharm entering as soon after Ratiopharm as it was able. Novopharm’s manufacturing capacity was the real issue. There was evidence that Teva Israel, Novopharm’s supplier of venlafaxine, had serious manufacturing difficulties. While there was some suggestion that Novopharm could have entered sooner than it actually did had there been more urgency, in the end Zinn J concluded on the facts that because of the manufacturing problems, it would have entered in the but-for world on the same date as it did in the real world, namely December 1, 2006 [129].

With to respect to Pharmascience, Zinn J held that any generic other than the s 8 claimant must comply with the NOC Regulations even in the but-for world [130]. This is consistent with the FCA’s holding in Apotex s8 ramipril FCA. In view of this, they key question on the facts was whether Pharmascience would even have served an NOA. Zinn J concluded that it would not have done so, essentially because Pharmascience’s strategy was to time its launch to coincide with a positive decision regarding the 778 patent in favour of Ratiopharm, and consequently, it would not have been ready to launch earlier than it actually did [139]. Therefore it would not have served an NOA near the start date of the compensable period in the but-for world, because it would not have been able to launch even if successful.

Consequently Zinn J held that Pharmascience would not have entered the generic market during the Relevant Period [142]. The only two generics would have been Ratiopharm, entering on January 10, 2006, and Novopharm, entering on December 1, 2006 [143].

            (b) Ratiopharm’s Capacity
The next question was whether Ratiopharm would have had the capacity to supply the market. Zinn J held that “the burden of establishing that it could have come to market during the Relevant Period rests with Ratiopharm” [144], and more specifically

[148] To do so, it must both identify an API supplier (since it is the plaintiff generic), and it must show that the API supplier had the capacity to supply the market over the Relevant Period.

On the facts, Zinn J held Ratiopharm had discharged that burden [159].

(c) Formulary Listing

Then the question was when the competing generics would have been listed on the provincial formularies. This was entirely a question of fact [160]-[185]. There are two general points which may be made. First, the formulary analysis illustrates that the s 8 analysis is very fact specific. For example, the precise formulary updating schedule in the different provinces had to be taken into account. Second, in this section (as well as in some other sections), one expert’s evidence was discounted to some extent because of conflicting testimony in a different case [171]. If s 8 cases become common, it will be important for counsel to take the long view of an expert’s evidence, if that expert may be retained in subsequent cases.

Plaintiff’s Net Lost Profit: The Value of Ratiopharm’s Lost Sales

(a) Listing Price

Again, this discussion is very fact intensive. One point of general interest is that in Québec, generic manufacturers had to commit that they would match the best price in any other province in Canada as soon as that price was available [200]. However, in the real world, Novopharm did not drop its price in Québec until four months after the price dropped in Ontario. Zinn J held that:

[201] Although there is no explanation for why in the real world, Novopharm failed to honour its commitment to lower the price in Québec until four months after the price drop in Ontario, I am not prepared to accept that Ratiopharm would have disregarded its obligation, as Novopharm apparently did. It must be assumed in the but-for world that generic manufacturers adhere to their commitments and legal obligations, unless there is convincing evidence that the particular generic does not do so on a regular and consistent basis. There was no such evidence in respect of Ratiopharm’s practices.

This holding is a partial departure from the general rule that the but-for world is constructed purely as a factual inquiry into what actually would have happened, without presumptions or modifications based on rules of law.

(c) Trade-spend

The discussion of trade-spend – the rebates provided by pharmaceutical companies to purchasers – turned entirely on the facts [207] - [232].

Deductions for Regulatory Non-Compliance
Wyeth alleged that “Ratiopharm launched its product without having fully completed its validation and thus Ratiopharm contravened the F&D Regulations. Essentially, Wyeth's argument is grounded in equity: Because Ratiopharm did not comply with all legal requirements at launch, it should be precluded from recovering damages under section 8" [236]. Zinn J held that Wyeth had not established that Ratiopharm breached the F&D Regulations [238], and he therefore never reached the question of whether such a contravention, if established, would be a reason to preclude or reduce recovery of s 8 damages.

Ramp-Up [240]-[254]
In Teva s 8 ramipril FCA, the FCA held that no adjustment should be made to allow for double ramp-up, as discussed here. Zinn J came to the same conclusion, and his decision is therefore consistent with the law as stated by the FCA on this point.

Interest
Prejudgment interest is calculated “from the date the cause of action arose to the date of the order” [255]. The question was whether that date is August 1, 2007, when the Court of Appeal dismissed the Prohibition Application, on the view that Ratiopharm had no right to sue for s 8 damages before that time; or January 10, 2006, the start date of the compensable period, which is when Ratiopharm actually began to suffer a loss. Zinn J held that the latter date was appropriate:

[258] The disposition of a Prohibition Application does not ground liability, it simply confirms that liability exists. The cause of action arises on the date that damages that are the basis for the claim begin to be suffered. Typically, this will coincide with when the Relevant Period begins, as it did in Pantoprazole FC 2012 and as it does in this case. However, because the Relevant Period may begin before damage is actually suffered, this need not always be the case. For that reason, prejudgment interest must be tied to when the loss actually begins to be suffered irrespective of whether that date is the same as the start of the Relevant Period.

This is consistent with Zinn J’s general emphasis on the importance of causation, which was noted in yesterday’s post. This works both ways. On the one hand, the patentee will not be liable for losses not caused by the statutory delay, but on the other hand, it is presumptively liable for all losses that were caused by the statutory delay.

Causation of Loss in Determination of Compensable Period for s 8 Damages

Teva Canada Ltd v Pfizer Canada Inc 2014 FC 248 Zinn J
            1,248,540 / 2,199,778 / venlafaxine / EFFEXOR XR

Under s 8 of the PM(NOC) Regulations, a generic that successfully contests an order for prohibition is entitled to recover its losses due to having been improperly kept out of the market by the statutory stay which is triggered by the patentee’s application for the prohibition order. Section 8 cases now seem to be arriving in a flood. The leading cases to date have been Snider J’s decisions in Teva s8 ramipril FC 2012 FC 552, Apotex s8 ramipril FC 2012 FC 553 (here, here and here) and the very recent FCA decisions on appeal in those cases, Teva s 8 ramipril FCA 2014 FCA 67 and Apotex s 8 ramipril FCA 2014 FCA 68 (here, here and here). Zinn J’s decision in Teva s8 venlafaxine is another important contribution to this case law. It was released to the parties on 14 March 2014, the same date as the FCA decisions were released. This means that Zinn J did not have the benefit of the FCA decision in writing his reasons, and one of the questions is the extent to which his reasons are consistent with those of the FCA.

Zinn J summarized the general framework for assessing s 8 damages as follows [27]:

1. Determine the period of liability [the Relevant Period];

2. Determine the overall size of the market for the relevant pharmaceutical [the Relevant Pharmaceutical Market] during the Relevant Period;

3. Determine the portion of the Relevant Pharmaceutical Market that would have been held by generic manufacturers during the Relevant Period [The Generic Market];

4. Determine the portion of the Generic Market that would have been held by the plaintiff [the Plaintiff’s Lost Volume]; and

5. Quantify the damages that would have been suffered by the plaintiff in respect of the Plaintiff’s Lost Volume [the Plaintiff’s Net Lost Profit].

This post discusses the first issue. Establishing the relevant period turns on two distinct subsidiary questions, namely the start date and the end date. Note that Pfizer is the corporate successor to Wyeth, and in 2010, Novopharm changed its name to Teva, and Teva and Ratiopharm amalgamated. Because the events in issue took place in the 2005 to 2007 period, to avoid confusion, Zinn J referred to the relevant pharmaceutical companies as Ratiopharm, Novopharm and Wyeth [3]

Relevant Period: Start Date
S 8(1) provides that the liability presumptively begins on the patent hold date, “(ii) unless the court concludes that a date other than the certified date is more appropriate.” The patent hold date was December 7, 2005 [15], but in its ANDS and NOA challenging the 778 patent, Ratiopharm had agreed to wait for the expiry of the 540 patent, January 10, 2006, before launching. In Teva s 8 ramipril FCA a similar situation had arisen, and the FCA, affirming Snider J on this point, held that the appropriate start date was the expiry of the later patent, not the patent hold date. Though it did not have the benefit of the FCA decision, in this case, Ratiopharm nonetheless accepted that the appropriate start date should be the expiry date of the 540 patent, rather than the patent hold date. Zinn J accepted Ratiopharm’s submission on this point.

Wyeth argued that the start date should be February 13, 2006, “the date the Minister would have issued a NOC to Ratiopharm if it had served Wyeth with a NOA relating to the 778 Patent and Wyeth had not commenced a Prohibition Application within the 45 day period permitted by the PMNOC Regulations” [48]. That is, if I understand correctly, Wyeth’s position is that we should assume that the Regulations were completely effective, and the start date for the relevant period should be determined on the assumption that rather than applying for an order of prohibition on receiving Ratiopharm’s NOA, Wyeth would have done nothing, so that the NOC would have been issued at the end of the 45 period after service of the NOA.

This position was rejected by Zinn J. Before turning to Zinn J’s reasons, I note that his holding appears to be consistent with that of the FCA in Apotex s8 ramipril FCA. The basic difficulty with Wyeth’s position, in my view, is that it assumes the start date is to be determined as a matter of the construction of the “but for” world used to assess the loss suffered by the generic. If that were the case, then the question of exactly how the "but for" world is to be constructed – whether we should assume that the generic has served an NOA and wait out the reply period, or whether we should assume that the Regulations simply don’t apply at all – would be relevant. However, the “but for” world is relevant to the assessment of the loss, not to the determination of the start date, which is governed directly by s 8(1)(a). As Sharlow J noted in Apotex s8 ramipril FCA says that “the NOC Regulations are to be disregarded in determining the beginning of the section 8 liability period, as long as neither of the stated exceptions applies” [170].

In Teva s8 ramipril FC Snider J had held that as a matter of law, "the liability period cannot predate the statutory stay" [60]. The FCA reversed Snider J on this point [79], though, as noted, it affirmed Snider J in holding that the appropriate date was the later expiry of the later patent. In this case Wyeth also argued that the start date cannot predate the statutory stay. Zinn J rejected this position, consistently with the FCA holding [51].

The most interesting part of Zinn J’s reasons on this point was his very strong emphasis on the need for a causal link between failed NOC proceedings and the claimed loss:

the damages are those that the plaintiff generic suffered “by reason of the delayed market entry of its drug” as stated in the Regulatory Impact Analysis Statement [RIAS] [57]

The question for the Court is whether there is a causal connection between the failed PMNOC proceedings and the loss claimed as damages and if so when did that loss first arise. . . . [T]he damages claimed in an action under section 8 must be causally connected to the Prohibition Application” [61].

See similarly [44] in the context of discussing the end date. In Teva s8 ramipril FC Snider J had made a similar causation argument. As discussed here, the FCA indicated that it was not persuased by the causation point, saying that recovery is governed by s 8, which must prevail over general principles [78]. While that is no doubt true, I suggested that general principles, especially fundamental principles such as causation, should apply unless inconsistent with the Regulations, and I noted that the FCA did not say that causation should never be a consideration under s 8. In my view, Zinn J’s emphasis on causation is entirely sound, and is not inconsistent with the FCA decision in Teva s8 ramipril FCA. It will be interesting to see whether the addition of Zinn J’s voice to that of Snider J will persuade the FCA in future cases. My guess is that even if the FCA never holds that causation of loss is a necessary condition for recovery under s 8 as a matter of law, causation will be such a strong factor that it will be a de facto strict requirement.

Zinn J also noted that in unusual circumstances, the start date might be earlier than the patent hold date, so long as the losses arising prior to the patent hold date were caused by the improper delay [60].

It will be not uncommon that a generic will have agreed to wait for the expiry of a particular patent in its NOA, and will have been put on patent hold long before that expiry date. Between the ramipril decisions and this Venlafaxine decision, it now appears that in such circumstances, the patent expiry date will normally be the appropriate start date for the compensable period.

Relevant Period: End Date
Section 8(1)(b) provides that the relevant period ends “on the date of the withdrawal, the discontinuance, the dismissal or the reversal” of the application for a prohibition order. This contrasts with 8(1)(a)(ii) which explicitly allows the court to choose another more appropriate date. In Apotex s8 ramipril FC Snider J held that the court nonetheless has some discretion to choose a more appropriate end date as well, and this view was affirmed by the FCA. While this is not a live issue in this case, Zinn J disagreed with Justice Snider on this point, and held that the court has no discretion to choose a more appropriate date [44]. However, Zinn J would apparently have come to the same conclusion as Snider J on the facts before her, on the view that the compensable loss ended before the end date of the compensable period [44]. That is, rather than couching the issue as one of when the relevant period ends, he would have framed essentially the same issue as one of when the losses are no longer caused by the delay. This way of arriving at the same conclusion is attractive in that it is formally more consistent with the Regulations. The two approaches are not equivalent, however. Because of the Alendronate 2009 FCA 187 rule that s 8 does not allow for compensation for losses suffered outside the s 8 liability period, the two approaches are equivalent only when the last losses caused by the delay are incurred before the end date. In any event, none of this was a live issue, and on the facts the end date was August 1, 2007, the date on which the FCA dismissed Wyeth's application for an order of prohibition.

Deferential Standard of Review of Re-examination Board

Newco Tank Corp v Canada (Attorney General) 2014 FC 287 Mosley J
            2,421,384

In Newco Tank the patentee unsuccessfully appealed a decision of a Re-examination Board cancelling three of the claims of the ‘384 patent as being invalid for obviousness [1]. The patentee raised a number of points which complained, in effect, that the Board had applied the obviousness test too stringently. The main points illustrated by Newco are that Canadian courts continue to apply “an expansive and flexible approach to an obviousness inquiry rather than an overly rigid rule” [27], citing Sanofi 2008 SCC 61, [61]-[63], and that a deferential “reasonableness” standard of review will be applied to decision by the Board on questions of mixed fact and law, such as the application of the test for obviousness to the facts [22].

Double Ramp-up, Authorized Generics and Off-Label Indications in NOC Section 8

Apotex Inc v Sanofi-Aventis Canada Inc [Apotex s 8 Liability Appeal] 2014 FCA 68 Sharlow JA, Pelletier JA concurring, Mainville JA dissenting, var’g 2012 FC 553 Snider J ( blog blog);
Teva Canada Ltd v Sanofi-Aventis Canada Inc [Teva s 8 Liability Appeal] 2014 FCA 67 Sharlow JA, Dawson JA concurring, Mainville JA dissenting, var’g 2012 FC 552 Snider J (blog blog)
            ramipril / ALTACE

My two previous posts on these companion cases have dealt with the construction of the hypothetical world, and the start and end dates for the liability period. This post deals with some remaining miscellaneous issues, which are important as a practical matter, but which can be dealt with more briefly. Unless otherwise indicated, paragraph references will be to the Teva decision.

Double ramp-up
When a generic enters a new market, it takes some time to “ramp up” from zero to its full volume. At trial, the expert reports accepted by Snider J took account of this ramp-up period in constructing the hypothetical world, thus resulting in lower hypothetical sales volume, and lower hypothetical to the generic [250fcT]. The generics argued that this resulted in under-compensation because when they finally did launch in the real world, they experienced an actual ramp-up period of lower sales, which they would not have experienced at that time had they not been prevented from entering earlier by the statutory stay. In effect, the generics were subject to “double ramp-up” – once in the hypothetical world, and once in the real world. The generics argued that in order to avoid under-compensation due to double ramp-up, in the hypothetical world they should be assumed to have been able to enter immediately, without ramp-up. Snider J rejected this argument on the basis that it would amount to compensation for losses suffered after the end of the s 8 period, and this was prohibited by the FCA Alendronate 2009 FCA 187 decision, in which the FCA held, as Mainville J described it, “that section 8 of the NOC Regulations does not include compensation for losses suffered outside the section 8 liability period” [131].

It is not disputed that the generic’s argument is logically correct, and that a ramp-up period in the hypothetical world does result in under-compensation to the generics. The difficulty is that that the Alendronate decision, which refused to allow springboard losses to the generic (losses for reduced market share after the end of the s 8 liability period, resulting from late entry), clearly results in under-compensation. The FCA in Alendronate justified its conclusion on the text of the Regulations, and not on any point of principle. Consequently, the only question regarding double ramp-up is whether it is covered by Alendronate. Snider J held it was [253fcT], and the majority of the FCA agreed [189A]- [193A], even though Sharlow J expressly acknowledged “that not recognizing the double ramp-up represents a windfall for Sanofi. Indeed, it may well represent a windfall for other innovator drug companies in future cases. However, in my view that is the inevitable consequence of the decision of the Governor-in-Council to limit section 8 damages to losses incurred within the section 8 liability period” [192A]. Mainville J would have distinguished Alendronate, essentially on its facts [134]. I am sympathetic to Mainville J’s position, as I am inclined to think that Alendronate was wrongly decided, but given that it is established law, which even Mainville J did not seek to overrule, I have to agree with the majority that double ramp-up is covered by the Alendronate principle.

As Mainville J noted, there has been some controversy over double ramp-up in FC decisions by Phelan J and Hughes J. Mainville J agreed with Phelan J’s analysis [135].

Authorized generic [100T]
The FCA held that entry by an authorized generic could be considered as part of the hypothetical world, for the reasons given by Snider J in coming to the same conclusion (blogged here) [100]-[103].

Off-label indications
The FCA held that the generics were entitled to compensation for lost sales attributable to off-label indications, in this case the so-called HOPE indications, which were developed after the initial marketing authorization for ramipril for other indications.

Sanofi argued that sales attributable to the HOPE indications should not be compensable losses because they would have infringed Sanofi’s HOPE patents, which had not been challenged by Teva [311fcT]. Teva had also withdrawn the HOPE indications from its product monograph. Snider J rejected this argument for several reasons, summarized by Mainville J [67]:

(a) generic products are not promoted for specific uses, but rather sold as drug products; (b) off-label prescribing and substitution commonly take place and there appears to be nothing illegal about this practice; (c) Sanofi has not opposed in the real world the listing of Teva’s generic version of ramipril as fully interchangeable with its own product ALTACE; and (d) the availability to Sanofi of an action for patent infringement with respect to the HOPE patents:

In affirming Snider J, the FCA relied primarily on point (c): “Sanofi has taken no measure to enforce its HOPE patents, and has not opposed the listing of generic versions of ramipril as substitutes to ALTACE for any indication. . . . If Sanofi is not enforcing its HOPE patents in the real market, and is allowing the sale of generic versions of ramipril for HOPE indications in the real market without any serious opposition, I fail to understand why the situation should be deemed different in the hypothetical market” [115]. This leaves open the possibility that notwithstanding Snider J’s other points, losses from off-label indications might not be recoverable if the patentee had been opposing them through an infringement action in the real world.

Miscellaneous
Teva also raised a number of specific challenges to Snider J’s assessment, which were all rejected on the facts: [119]-[129]. The are two points of some more general interest. One is that the FCA rejected Teva’s claim for lost business value, on the basis that it “is essentially a claim for lost future profits which is precluded by the decision of this Court in Alendronate” [119]. The other related to Teva’s claim for its lost opportunity to reinvest the profits it would have made during the liability period. Affirming Snider J, Mainville J rejected this, pointing out:

[123] Moreover, as a matter of law, to the extent that Teva has lost an opportunity to invest the profits it would have made during the liability period, the Trial Judge was correct in concluding that pre-judgment interest was the accepted method for compensating this loss unless there is clear and non-speculative evidence of a lost opportunity that would exceed the interest otherwise payable:

Start and End Dates for Section 8 Liability Period

Apotex Inc v Sanofi-Aventis Canada Inc [Apotex s 8 Liability Appeal] 2014 FCA 68 Sharlow JA, Pelletier JA concurring, Mainville JA dissenting, var’g 2012 FC 553 Snider J ( blog blog);
Teva Canada Ltd v Sanofi-Aventis Canada Inc [Teva s 8 Liability Appeal] 2014 FCA 67 Sharlow JA, Dawson JA concurring, Mainville JA dissenting, var’g 2012 FC 552 Snider J (blog blog)
            ramipril / ALTACE

Under the patent linkage set provided for in the PM(NOC) Regulations, a generic that would otherwise be in a position to receive an NOC as a result of an ANDS will be placed on “patent hold” until it has addressed all the patents listed against the drug in question by the innovator / patentee whose drug was the reference product for the ANDS. The generic can respond with a Notice of Allegation, alleging invalidity or non-infringement, and if the patentee responds, a statutory stay is triggered under s 7, preventing the generic from receiving its NOC until the patents have expired or the generic has prevailed on its allegations in NOC proceedings. If the generic is successful, s 8(1) makes the patentee liable to the generic for losses suffered from having been wrongly (in hindsight) held off the market by the statutory stay. The patent linkage system is analogous to an automatic interlocutory injunction, and s 8 is analogous to the undertaking in damages which is usually required for a plaintiff to obtain such an injunction.

The Apotex and Teva s 8 Liability Appeals raise some unusual issues regarding the start and end dates for the section 8 liability period (which I have previously called the compensable period). While the facts were unusual, this means that the FCA had the opportunity to clarify some principles which are not as apparent in more routine situations.

What is the "But For" World under S 8 of the NOC Regulations?

Apotex Inc v Sanofi-Aventis Canada Inc [Apotex s 8 Liability Appeal] 2014 FCA 68 Sharlow JA, Pelletier JA concurring, Mainville JA dissenting, var’g 2012 FC 553 Snider J ( blog blog);
Teva Canada Ltd v Sanofi-Aventis Canada Inc [Teva s 8 Liability Appeal] 2014 FCA 67 Sharlow JA, Dawson JA concurring, Mainville JA dissenting, var’g 2012 FC 552 Snider J (blog blog)
            ramipril / ALTACE

In these companion cases, the FCA has split on a very difficult issue relating to calculation of damages under s 8 of the NOC Regulations.* Damages generally are assessed by a comparison of the actual world with a “but for” or hypothetical world in which the wrong had not occurred. Sharlow J for the majority in the FCA, Mainville J in dissent, and Snider J at trial, all accepted that this basic principle should apply to s 8. The question is how exactly to construct the hypothetical world in assessing damages under s 8. Should we assume that NOC Regulations were effective against all generics, so that everything would have unfolded exactly as it did, except that the claimant would have received its NOC, and entered the market, notwithstanding the statutory stay? Should we assume that the NOC Regulations did not exist at all in the compensable period, for either the claimant or other generics which might have entered the market? Should we assume that NOC Regulations were effective against all generics except the claimant? These were essentially the positions taken by Sharlow J, Mainville J, and Snider J respectively. In the end, there is no perfect answer to this question.

S 8 NOC Permits Recovery for Losses from Off-Label Indications

Sanofi v Teva / ramipril (NOC) 2014 FCA 69 Mainville JA: Sharlow, Dawson JJA aff’g 2012 FC 551 Snider J (blog)
            ramipril / ALTACE

Sanofi has been engaged in s 8 NOC litigation with both Teva and Apotex over ramipril. In Teva / ramipril (s 8) 2012 FC 552 (blogged here) and Apotex / ramipril (s 8) 2012 FC 553 (blogged here and jointly here), Snider J assessed s 8 damages against Sanofi. These are the first s 8 cases to go all the way to assessment of damages. They are referred to by the FCA as the Teva Liability Judgment (FC) and the Apotex Liability Judgment (FC), respectively. The FCA has apparently issued its decision on appeal from these liability judgments, largely confirming Snider J’s decision [4], [7], but these appeal decisions are not yet publicly available on the FCA website.

In the course of the same litigation, Sanofi also challenged the validity of s 8 of the NOC regulations on a variety of grounds. In the decision under appeal, 2012 FC 551 (referred to by the FCA as the “Validity Judgment,”) Snider J dismissed these challenges to s 8, as described here.

In this appeal, Sanofi appealed on a single question, namely “whether section 8 of the NOC Regulations can validly allow compensation to be paid to a generic drug manufacturer for lost sales attributable to so-called “unapproved” indications,” in particular the so-called HOPE (“Heart Outcomes Prevention Evaluation”) [14], which were covered by two patents (the HOPE patents). As I described in my post on the Teva Liability Judgment (FC):

Teva did not address the HOPE patents, as it chose instead to withdraw those indications from its product monograph 2012 FC 552 [311]. Snider J held that Teva was nonetheless entitled to recover for lost sales attributable to off-label indications, on the basis that in fact, such sales would likely have taken place [319], and the off-label prescribing by physicians is not itself illegal [314].

It appears that these conclusions have been affirmed in the not-yet-available FCA Liability Judgment [22], but “Sanofi nevertheless submits that, as a matter of jurisdiction, section 8 of the NOC Regulations cannot allow compensation to be paid to generic drug manufacturers with respect to sales for unauthorized indications such as the HOPE indications” [23]:

Sanofi essentially argues that since section 6 of the NOC Regulations only gives an innovator drug manufacturer the right to apply for a prohibition order with respect to a listed patent where that patent is worked on by the generic drug manufacturer for the purposes of securing its NOC, the generic drug manufacturer’s right to compensation under section 8 of the Regulations should therefore be limited to the lost sales arising from the uses identified in the patent which the generic drug manufacturer must deal with under the Regulations

The FCA rejected this argument, saying “Sanofi’s submission is a misguided attempt to transform a factual issue into a question of jurisdiction” [24]:

[26] The purpose of section 8 of the NOC Regulations is precisely to ensure that when an innovator drug manufacturer reaps the benefits of those Regulations by initiating unfounded prohibition proceedings, the generic drug manufacturer can then seek appropriate compensation for having been impeded from entering the market earlier as a result of those proceedings.

[28] In the case of both Teva and Sanofi, the Trial Judge simply determined as a matter of fact that “any loss suffered during the period” as referred to in subsection 8(1) of the NOC Regulations (emphasis added), included the sales related to the HOPE indications.

As I noted in my post on Snider J’s Liability Judgments “Generally, Snider J constructed the hypothetical world almost entirely as a matter of determining what would in fact have happened, without regard to various arguments that particular consequences should be ignored for policy purposes.” The FCA decision on the validity of s 8, with its refusal to treat the issue as being one of law, broadly affirms this approach. Compensation under s 8 is to be determined on the basis of an almost purely factual inquiry, rather than by holding that various types of loss are, or are not, recoverable as a matter of law. The major departure from this factual approach is the rule that springboard damages are not recoverable under s 8 as a matter law: Merck Frosst v Apotex Inc / alendronate (NOC) 2009 FCA 187. That rule is looking increasingly anomalous, but it is doubtless too well entrenched to be changed at this point.

This FCA decision provides some interesting hints as to how the FCA will handle the quantification of s 8 damages, but the real meat will come with the FCA Liability Judgments, once released.

Is Gunpowder Patentable Subject Matter?

The USPTO has issued new Guidelines on patentable subject matter in light of the USSC decisions in Myriad and Prometheus. It is evident from Examples C and D that gunpowder, if invented today, would not be considered patent eligible subject matter under the Guidelines. This result is peculiar, to say the least. One possibility is that the USPTO has misinterpreted the USSC, but in my view the Guidelines do a good job of reflecting the USSC jurisprudence. The real explanation for this peculiar result is that the USSC jurisprudence has run off the rails. For my argument that this is what has happened, starting with the Funk Bros 333 US 127 (1948) decision, see The Rule Against Abstract Claims: A Critical Perspective on US Jurisprudence, (2011) 27 CIPR 3, available in draft here. I was pleased to recently discover that I am not alone in this view: see this draft article by Jeffrey Lefstin, Inventive Application: A History. (The third possibility is that there really is some good reason why gunpowder should not be patentable subject matter, but I can't really think of any good arguments in favour of that position.)

Admissibility of Expert Evidence Must Be Raised at Trial

Pfizer Canada Inc v Apotex Inc / azithromycin (NOC) 2014 FCA 54 Gauthier JA: Stratas, Webb JJA aff’g 2013 FC 493 O'Reilly J
              ZITHROMAX / azithromycin / 1,314,876

This is an appeal from O’Reilly J’s finding of fact (blogged here) that Apotex’s generic product would not infringe Pfizer’s 876 patent. Pfizer attempted to turn this factual issue into a question of law by arguing that evidence of one of Apotex’s experts was not admissible under the test for the admissibility of novel scientific evidence set out in R v J-LJ, 2000 SCC 51. The FCA rejected this argument, holding first, that in this case the question was not one of the admissibility of novel scientific evidence, but merely the interpretation of recognized tests, so the R v J-LJ analysis was not applicable [6]; and secondly, objections of this sort must be raised at trial [7], in order to allow consideration of the evidence necessary to properly apply the R v J-LJ test [9].

Prizer also argued that O’Reilly J’s made a palpable and overriding error in giving weight to the disputed evidence [12]. The FCA readily dismissed this argument on the usual deferential standard applicable to factual findings.

Literal “Perfect Match” Construction of Claims Required for Patent Register Listing

Eli Lilly Canada Inc. v. Canada (Attorney General) 2014 FC 152 Bédard J
             2,379,329 / spinosad / TRIFEXIS

Bédard J’s Lilly / TRIFEXIS decision applies what is now the FCA’s established interpretation of the product specificity requirement in s 4(2) of the NOC Regulations to hold that the 329 patenet cannot be listed on Patent Register against TRIFEXIS, notwithstanding that a generic version of TRIFEXIS would necessarily infringe. As Bédard J pointed out, she was bound to come to this conclusion by the FCA decisions in Purdue / TARGIN 2011 FCA 132 (blogged here) and Gilead / COMPLERA 2012 FCA 254 (blogged here), which held that all the active ingredients in the product must be specifically mentioned by name in the claims. While there is no new law here, the decision illustrates the extreme nature of the product specificity requirement. Bédard J held expressly that a generic version of TRIFEXIS would infringe, and the description specifically mentioned the ingredient that was missing from the claims; but as Bédard J pointed out, neither of these points is a principled basis for distinguishing the prior FCA decisions. This further emphasizes that in order to ensure that a patent will be listable against the commercial product, it is not enough that the commercial product would clearly infringe, or even that the patent specifically describes all the ingredients of that product. The claims must specifically name the all of exact compounds found in the NOC. Bédard J aptly referred to this as a requirement of a “perfect match” [73]. References to a class of compounds, that would enable fewer, shorter, and clearer claims, do not suffice to allow listing, no matter whether they are fully adequate for infringement; all the members of the class must be listed in the claims themselves in order to ensure that a patent can be listed against the ultimate commercial product. This is a purely formal requirement, since all of the specific compounds could in principle be named in the claim itself, without changing the meaning of the claim, though it would make the claims bloated and difficult to interpret. This product specificity requirement also has the perverse effect of making it relatively easy to list an “evergreening” patent, in which a very specific change is made to an existing formulation, while making it almost impossible to list a true breakthrough patent, where the precise formulation of the ultimate commercial product is unknown at the time of filing.

TRIFEXIS is authorized as an oral dosage form of a drug that contains two active medicinal ingredients: spinosad and milbemycin oxime. The 329 patent claims an oral “formulation” of spinosad. The patent description defines “oral formulation” as follows (Bédard J’s emphasis, [9]):

The formulations of this invention may further include, in combination with the spinosyn component, one or more other compounds that have activity against the specific ectoparasite or endoparasite to be controlled, such as, for example, synthetic pyrethroids, natural pyrethins, organophosphates, organochlorines, carbamates, foramidines, […].milbemycins, […]

The term “oral formulation” means that the spinosyn component or components, either alone or in combination with one or more of the other types of compounds listed supra, formulated into a product or formulation suitable for administering to the animal by mouth.

Consequently, Bédard J construed the relevant claims of the 329 patent to be directed “not only to a formulation including spinosad as the only active ingredient, but also to formulations that include other active ingredients such as, but not restricted to, milbemycin oxime” [69]. Thus she in effect held that a generic version of TRIFEXIS would necessarily infringe the 329 patent.

However, this was not enough. While it is permitted for a patentee to create their own dictionary in the specification for the purposes of claim construction in the context of infringement, this is not permitted for the purposes of the product specificity requirement. The product specificity requirement of s 4(2)(b), requires “a claim for the formulation that contains the medicinal ingredient.” Notwithstanding that the claim of the 329 patent literal “contains” a claim to spinosad, “the medicinal ingredient” has been construed by the FCA as meaning all of the specific ingredients. It is “insufficient for a patent to meet the product specificity requirement by referring to a class of compound rather than to a specific medicinal ingredient” [84]. Rather, as Bédard J put it, there must be “a perfect match” between what is claimed and what has been authorized [73]. Note that the Minister’s position is that the exact text appearing in the NOC must appear in the claim. There are various types of milbemycins, and the Minister’s position was that it would not have been enough to refer to “milbemycin” in the claim; it would be necessary to refer to “milbemycin oxime” [12]. It is not entirely clear whether Bédard J accepted this position. She held that “Referring to the general family of milbemycins in the definition of oral formulation is not specific enough to conclude that the claims match the formulation contained in Trifexis” [85]. It is not entirely clear to me whether what was inadequate was the reference to the general family, or the fact that the reference was only in the specification, or both. That is, would the product specificity requirement have been satisfied if the claims, and not just the disclosure, had referred to milbemycins, but without reference to milbemycin oxime in particular? It is, however, clear that the Minister’s position is that a reference to milbemycin oxime in the claim itself is necessary, and this does seem to follow from the stringent nature of the product specificity requirement.

It must be emphasized that the specificity requirement is purely formal. By defining “oral formulation” in the disclosure, the claims were made more compact, but without changing the meaning of the claim at all, the definition might have been included in the claim by specifically listing synthetic pyrethroids, natural pyrethins, organophosphates, organochlorines, carbamates, foramidines, avermectins, milbemycins, insect growth regulators, nitromethylenes, pyridines and pyrazoles as compounds which would also be included in the formulation. Of course, according to the Minister this would not suffice. It would be necessary to specifically list the various types of milbemycin, namely (according to Wikipedia) milbemectin, milbemycin oxime, moxidectin, and nemadectin; and all the specific types of all the other possible components, such as organophosphates, would have to be similarly extensively listed in the claim itself. None of this would change the substantive meaning of the claim; it would be purely a formal change – and a formal change very much for the worse, as it would bloat the claim, making it much harder to understand.

I must say that I really cannot understand what purpose is served by this purely formal requirement. It is a dramatic departure from the general principle of purposive construction that is otherwise universally used in Anglo-Canadian law for the interpretation of patents and contracts, not to mention statutes. It has a perverse effect of making it relatively easy to list an “evergreening” patent, in which a very specific change is made to an existing formulation, while making it almost impossible to list a true breakthrough patent, where because the precise formulation of the ultimate commercial product will rarely be known at the time of the pioneer patent. Perhaps the answer is that no purpose is served, as the holding of the FCA in Gilead / COMPLERA 2012 FCA 254 (blogged here), was based on a textual analysis. In any event, Bédard J did not address any of these problems of principle, for the very good reason that these problems are inherent in the holdings of the FCA in Purdue / TARGIN and Gilead / COMPLERA, and she is bound by those decisions [73].

Promise of the Patent, Obviousness, and Overbreadth

Alcon Canada Inc v Cobalt Pharmaceuticals Co / olopatadine (NOC) 2014 FC 149 Gleason J
             2,447,924 / olopatadine / PATANOL

In Alcon v Cobalt / olopatadine (NOC), Gleason J held the 924 patent invalid for failure to satisfy the promised utility. It would be tempting to read this case as illustrating how the application of the promise doctrine has, or has not, changed since Plavix 2013 FCA 186 (blogged here). But I don’t really see this as a promise case at all. To my mind, on the facts as found by Gleason J, the claim is clearly invalid, and the more interesting question is on what ground it is invalid. I suggest that the better, or at least alternative, grounds for invalidity are that the claims at issue were obvious and overbroad.

The technical contribution underpinning the patent was the discovery that a common excipient, PVP, improves the physical stability of higher concentration olopatadine solutions [51]. On the facts, Gleason J found this insight not to be obvious [120]. As construed, the claims in issue, 2 and 7, were to olopatadine solution of a specified concentration, around the 0.2% found in PATANOL,

and PVP having an average molecular weight of 5000 [5K] to 1600K and in an amount sufficient to improve the physical stability of the solution” [47].

(The inventive concept also encompassed the fact that five other excipients, which were excluded from the claims, do not enhance stability, but this aspect of the patent was not ultimately significant to the finding of invalidity.)

The difficulty for Alcon is that while there was evidence 58K grade PVP would indeed stabilize 0.2% olopatadine solution [191], the evidence was not sufficient to either demonstrate or soundly predict that 1300K grade PVP would stabilize 0.2% olopatadine solution [197]. Consequently, Gleason J held that “the promise of utility” was not established across the entire range specified in Claim 2 [209].

The phrase “in an amount sufficient to improve the physical stability of the solution” did not help, because there was no evidence that any amount of PVP of that grade would improve physical stability. Claim 7 fell for essentially the same reason [215]. While Gleason J noted that the factual basis for a sound prediction had to be disclosed in the patent itself [125], this issue was not determinative, as there was no evidence extrinsic to the patent to show utility.

In some sense, the claimed invention had utility, in that the specified solution could be used to treat allergic and inflammatory eye reactions, even using 1300K PVP. So it seems natural to say that it lacks utility for the promised purpose, namely to stabilize the olopatadine solution. But Gleason J expressly held that the promise of the patent and its inventive concept are “one and the same” [60], [63]. Therefore we might equally say that the claimed invention lacks utility for the purpose of supporting the inventive step.

This is exactly the European position. This case is essentially the same as the famous decision of the EPO Appeal Board in T 0939/92 AgrEvo, which concerned a product claim for a class of chemical compounds useful as herbicides. While the patent sufficiently described how to make the claimed compounds, Board there was nothing inventive in doing so, and consequently, if there was any inventive step it must lie in the discovery that the compounds had herbicidal properties. Under the problem-and-solution approach to obviousness used by the EPO, the technical problem facing the inventor was to find new herbicidal compounds, and the question was whether it was obvious that the claimed compounds were the solution to this problem. But, the Board reasoned, the claimed compounds could only be an inventive solution to the problem if they were actually a solution to the problem: [2.6]. It is not obvious, in a literal sense, to say that a potion of cat hair and chocolate is a cure for cancer, but that claim is fanciful, rather than inventive, unless it is true (my example, not theirs). Consequently, the Board held that it had to be “credible” (“plausible” is now the usual term: see T 1329/04) that the compounds were herbicides, and moreover, this had to be true of “substantially all” the compounds falling within the claim [2.5.4, 2.6] Because this could not be established, the claims were held to be invalid as lacking the inventive step required by EPC Art 56.

The same line of reasoning is accepted in UK law, as was explained colorfully by Jacob LJ in Actavis v Novartis [2010] EWCA Civ 82, discussing the “5¼ inch plate paradox.”

[36] This runs like this. Suppose the patent claim is for a plate of diameter 5¼ inches. And suppose no-one can find a plate of that particular diameter in the prior art. Then (a) it is novel and (b) it is non-obvious for there is no particular reason to choose that diameter. The conclusion, that the plate is patentable, is so absurd that it cannot be so.

[37] What then is the answer to the paradox? It is this: the 5¼ inch limitation is purely arbitrary and non-technical. It solves no problem and advances the art not at all. It is not inventive. And although "inventive step" is defined as being one which is not obvious, one must always remember the purpose of that definition - to define what is inventive. That which is not inventive by any criteria is not made so by the definition. Trivial limitations, such as specifying the plate diameter, or painting a known machine blue for no technical reason are treated as obvious because they are not inventive.

So it is quite clear that in Europe, the 924 patent would have been found invalid for lack of inventive step (at least on the facts as found by Gleason J). But Gleason J held that the claimed invention was not obvious; she held that the inventive concept was that “PVP at sufficient concentrations improves the physical stability of higher concentration (0.2% to 0.6%) olopatadine solutions” [82], and that this concept was not obvious. The difference is that, implicitly at least, Gleason J did not require the claimed invention to be inventive across the full breadth of the claim. The inventive concept which she identified is that of the patent as a whole, not the inventive concept of the particular claims in issue. The inventive concept of Claim 2 in particular must be that PVP in the range of 5K to 1600K stabilizes olopatadine solutions. Suppose the claim in issue had been to 1300K PVP specifically. The European analysis would say that there is nothing inventive to a claim to 1300K PVP solution, because it does not in fact stabilize olopatadine solution. It is merely an “arbitrary” selection: T 0939/92 2.5.3. Consequently, a claim to the range including 1300K PVP is invalid on the principle that the claim must be valid across its breadth. It is clear in Canadian law that it is the inventive concept “of the claim in question,” which is at issue: Sanofi 2008 SCC 61, [67(2)], so the same analysis would imply that Claim 2 was invalid for obviousness in Canadian law as well.

The problem may also be characterized as one of overbreadth. While one way in which a claim may be overbroad is if the claim omits essential elements of the invention, the general principle is simply that “the monopoly claimed must not go beyond the consideration” Mullard Radio (1936) 53 RPC 323, 348 (HL). Straightforwardly, in this case a claim to 1300K PVP olopatadine solutions goes beyond the consideration, which is the discovery that 58K PVP olopatadine solutions has improved physical stability over what was previously known.

Gleason J did hold that the claim was overbroad, but she held that “overbreadth is simply another way of articulating the utility argument.” I am inclined to think that it is the other way around; the recent Canadian focus on utility, and the promise of the patent in particular, has led the parties and the courts characterize everything as an aspect of the promise doctrine. In the classic promise cases, the invention as claimed had sufficient utility to support a patent, and was otherwise valid, but some statement in the disclosure promised even greater utility, and that promise of greater utility was not met. In this case, the problem lies in the claim itself, which is where Gleason J found the promise at issue [55]. The real problem here is not that the specification promised more than the invention as claimed delivered; it is that the invention claimed more than the specification disclosed.

In UK law, the same problem might also be addressed as a matter of insufficiency, as discussed in Regeneron [2013] EWCA Civ 93 [100-01]:

It must therefore be possible to make a reasonable prediction the invention will work with substantially everything falling within the scope of the claim or, put another way, the assertion that the invention will work across the scope of the claim must be plausible or credible. . . .

On the other hand, if it is not possible to make such a prediction or if it is shown the prediction is wrong and the invention does not work with substantially all the products or methods falling within the scope of the claim then the scope of the monopoly will exceed the technical contribution the patentee has made to the art and the claim will be insufficient. It may also be invalid for obviousness, there being no invention in simply providing a class of products or methods which have no technically useful properties or purpose.

In context, the reference to insufficiency meant so-called “Biogen insufficiency.” I am not particularly a fan of Biogen insufficiency (and note that the EWCA says that the basis for invalidity may be either Biogen insufficiency or obviousness), as it is really another way of framing the overbreadth objection. Under the UK Patents Act 1949 the statutory basis for the overbreadth objection was the requirement in s 32(1)(i) that the be “fairly based” on the disclosure. The fair basis provision of the UK Act had been repealed by the time Biogen was decided, and As the High Court of Australia perceptively noted in Lockwood (No 1) [2004] HCA 58 [67], the House of Lords' reasoning in Biogen boils down “to the following Voltairean aphorism: ‘Since the fair basis doctrine no longer exists, it is necessary to invent it.’”

My inclination is to think that the obviousness and overbreadth approaches are most appropriate; the invention as claimed was not inventive, but arbitrary, and consequently the claim went beyond the consideration. For reasons just given, I do not see it as truly a promise case (whether or not the promise doctrine is sound), nor as a case of insufficiency, at least in the classical sense. But my point here is not to resolve this interesting conceptual debate, but simply to point out that while the promise doctrine is undoubtedly very powerful, not every defect in a patent is necessarily attributable to a false promise.

Cinar, Monsanto and Convoyed Goods

Cinar Corp v Robinson 2013 SCC 73, var’g 2011 QCCA 1361 var’g 2009 QCCS 3793

I have finally gotten around to reading through Cinar v Robinson, 2013 SCC 73, which is of interest in the patent context primarily because of its brief discussion of Monsanto v Schmeiser, 2004 SCC 34. Monsanto set out the differential profits approach to the accounting of profits remedy in patent law, and on a quick reading Cinar could be seen as suggesting that Monsanto does not state a general principled approach to an accounting, but rather a rule which applies in specific circumstances, namely when “an infringement allows the infringer to commercialize a good in a more profitable manner than he could have without the infringement” [80]. Despite this stray phrase, taken as a whole, it is clear that Cinar simply turned on the evidence, and no limitation on the differential profit approach was intended. On the contrary, Cinar reaffirms that lost profits from so-called “convoyed” goods are prima facie recoverable.

Use of Prosecution History in Claim Construction: The First Crack in the Free World Wall?

Distrimedic Inc v Dispill Inc 2013 FC 1043 de Montigny J
            2,207,045

I had somehow missed this decision last fall and was only alerted to it by the case note in the most recent IPIC bulletin. I am very glad it did not slip by me entirely, because it the case that we needed to generate a rational approach to the use of prosecution history in claim construction.

Residents of nursing homes often need a variety of different medicines to be dispensed on a weekly schedule at different times of the day. The ‘045 patent concerns a system for preparing a pill dispenser which facilitates keeping track of which pills are to be dispensed to which patient at what time of day. It consists of a plastic tray (“container-defining sheet”) with depressions to make a series of containers for holding pills to be taken four times per day (breakfast, lunch, dinner, and bedtime) over seven days [22]. After the pills are placed in the container, it is then covered by a sealing sheet on which is printed information about the prescription such as the names of the patient and the pharmacist, the date, and the medications in each container. All this was known in the prior art. It is important that the sealing sheet be properly aligned with the container, and because nursing home staff prepare many of these dispensers on a weekly basis, it is desirable to have a mechanism for aligning the container and the sealing sheet quickly and reliably. This was the problem facing the inventor [24]. The preferred solution, as described in the specification (p 3 line 13-15) was a positioning means comprising “one and preferably two upwardly projecting protuberances on the top surface of the recessed support,” and a corresponding number of “holes” in the container-sealing sheet (and see similarly p 8-9, describing the preferred embodiments).

Of course, an inventor is not confined to the most advantageous embodiment set out in the specification, and all the independent claims originally claimed a broader positioning means [206]:

Positioning means provided on at least the top surface of the container-defining sheet and on the container-sealing sheet to ensure that, in use, after the container-defining sheet is fitted onto the recessed support, the paper covering is peeled off from the bands of the container-sealing sheet and said container-sealing sheet is positioned on top of the top surface of the container-defining sheet, the bands covered with a self-adhesive material and their tearing lines be in exact superposition on top of the flanges and the dotted lines of the container-defining sheet.

These claims were originally allowed by the Patent Office, but the Notice of Allowance was withdrawn, and the claims were rejected when prior art, the Braverman Patent, was brought to the attention of the Patent Office [207].

In correspondence with the Patent Office, counsel for the applicant acknowledged that the Braverman Patent anticipated the invention as claimed, but pointed out that [208]:

BRAVERMAN does not disclose or suggest the following structural feature, which is the key feature of the present invention, namely:

d) positioning means provided on at least the top surface of the container defining sheet and on the container sealing sheet.

Such positioning means were defined in former claims 3 and 4 as being preferably protuberances and holes identified by reference numerals 5, 7 and 15 in the drawings of the present application.

Consequently, in order to overcome the objection based on the Braverman Patent, all the independent claims were amended to add a “wherein” clause specifying that the positioning means comprises

at least one upwardly projecting protuberance provided on the top surface of the recessed support, at least one hole provided into the container-defining sheet and at least one other hole provided in the container-sealing sheet, said at least one hole and one other hole being sized and positioned to correspond to and be engaged by said protuberance.

The defendant’s allegedly infringing container device had a raised outer edge of the container, and the sealing sheet was cut to fit, so that the sealing sheet was positioned by slipping it into the container. Prima facie, the defendant’s device did not use “holes” in the sealing sheet, so a key claim construction question was whether the positioning means defined by the wherein clause was an essential element of the claim.

Counsel for the defendants submitted that “it is difficult to imagine a clearer indication of the essentiality of a claim element than its addition to a claim in order to overcome an objection from the Patent Office” [208]. In my view this argument is entirely compelling. How can we allow a patentee to reclaim in litigation ground that was expressly given up in prosecution? This is the fundamental argument for the doctrine of file-wrapper estoppel, and the facts of Distrimedic powerfully illustrate the force of this argument.

Counsel for the patentee responded that prosecution history simply cannot be used in claim construction, relying on this paragraph from Free World 2000 SCC 66:

[66] In my view, those references to the inventor's intention refer to an objective manifestation of that intent in the patent claims, as interpreted by the person skilled in the art, and do not contemplate extrinsic evidence such as statements or admissions made in the course of patent prosecution. To allow such extrinsic evidence for the purpose of defining the monopoly would undermine the public notice function of the claims, and increase uncertainty as well as fuelling the already overheated engines of patent litigation. The current emphasis on purposive construction, which keeps the focus on the language of the claims, seems also to be inconsistent with opening the pandora's box of file wrapper estoppel. If significant representations are made to the Patent Office touching the scope of the claims, the Patent Office should insist where necessary on an amendment to the claims to reflect the representation.

de Montigny J responded by distinguishing Free World:

[210] While statements or admissions made in the course of patent prosecution shall not be used for the purpose of interpreting a claim, this is not what the Court is called upon to do in the case at bar. A change in the wording of a claim as a result of an objection from the Patent Office is an objective fact from which an inference may be drawn, and is not the same as representations made to the Patent Office.

There is a valid distinction between a statement or admission and a change in the wording of the claim, but, in my view, it is not enough to distinguish Free World, as statements and admissions were given only as examples of extrinsic evidence, and not an exhaustive definition. The general thrust of Free World is that extrinsic evidence and prosecution history generally are to be excluded.

However, the SCC’s holding in Free World is unpersuasive and unprincipled. The specific arguments made in [66] are unpersuasive:

[66] To allow such extrinsic evidence for the purpose of defining the monopoly would undermine the public notice function of the claims,

It would not undermine the notice function, because it operates purely as an estoppel. The worry seems to be that the public might be read the specification and claims, and believe they are safe, only to discover, after the prosecution history is consulted, that they are actually infringing. That would indeed be undesirable, because the public could not tread confidently based on the claims alone, but would have to consult the prosecution history before making any decisions. But this cannot happen. On the usual view, the prosecution history could only be used as an estoppel, preventing the patentee from reclaiming subject matter that it had given up in prosecution. The use of prosecution history can only narrow the claims, not expand them.

and increase uncertainty as well as fuelling the already overheated engines of patent litigation.

It will not increase uncertainty, because the prosecution history estoppel is not a free-standing tool. It will normally operate to clarify the meaning of claims that are uncertain on their face. In principle, the claim might be clear on its face, and then equally clear, but to the opposite effect, when the prosecution history is consulted, but this must be exceedingly rare in practice because it would mean that the examiner accepted a revision to the wording which, on its face, said the opposite of what the examiner had demanded. But in any event, even in that worst case, there would be no increase in uncertainty.

The current emphasis on purposive construction, which keeps the focus on the language of the claims, seems also to be inconsistent with opening the pandora's box of file wrapper estoppel.

It curious that Binnie J considers purposive interpretation to focus on the language of the claims, when Lord Diplock in Catnic [1982] RPC 183, 243 (HL) rejected a “purely literal” approach. The thrust of purposive construction, as compared to what went before, it to place more emphasis on the way a skilled person would read the claims. This necessarily requires going beyond the language of the claims, because a skilled person’s understanding is affected by the context of their experience in the field, their knowledge of the problems faced, and so on. Purposive construction clearly requires more extrinsic evidence, not less, than the lawyerly textual approach which it rejected. I do not see how it is inconsistent with using prosecution history. de Montigny J was quite right to say that “[a] purposive construction should obviously focus on the wording of a claim, obviously, but this is a far cry from saying that nothing else should be considered” [210]

If significant representations are made to the Patent Office touching the scope of the claims, the Patent Office should insist where necessary on an amendment to the claims to reflect the representation.

The Patent Office did insist on an amendment to reflect the representation, and the very reason we want to consult the prosecution history is to clarify the meaning of that amendment. We might always say that the Patent Office should have insisted on a clearer amendment, but the fact that textual expression is never perfect is the reason why claims construction is a crucial exercise in the first place.

The SCC’s position on the use of prosecution history estoppel is also unprincipled. As the SCC noted in Whirlpool 2000 SCC 67 [49e], a patent “is an enactment within the definition of ‘regulation’ in s. 2(1) of the Interpretation Act.” Purposive interpretation is really nothing more than the modern approach to statutory interpretation applied to the specific context of patents: see my article on “The Essential Elements Doctrine” (2011) 22 IPJ 223, 226-40. Prosecution history is the equivalent of legislative history. At one time there was an exclusionary rule against using any extrinsic aids to statutory interpretation, subject to a few narrow exceptions. That rule corresponds almost exactly to the exclusionary rule set out in Free World [66] – but that rule has long been abandoned in respect of legislation generally. (See generally Sullivan on the Construction of Statutes, 5^th ed, Ch 22.) The SCC now routinely consults legislative history in interpreting statutes. The practice is so common that citations are otiose; a quick database search will reveal multiple recent instances from the SCC alone. It is unprincipled to say that legislative history can be used to interpret legislation, and to acknowledge that patents are legislation as a matter of the Interpretation Act, and yet to refuse to use prosecution history, which is the equivalent of legislative history. Indeed, if anything, the argument in favour of considering prosecution history is even stronger than the argument for considering legislative history, as some of the traditional reasons for excluding legislative history, such as the difficulty of deciding who speaks for the legislature (see Sullivan at 595-98), have much less force in the patent context.

We should return briefly to de Montigny J’s distinction between representations and “[a] change in the wording of a claim as a result of an objection from the Patent Office [which] is an objective fact from which an inference may be drawn.” This is a sound distinction. The closest parallel in general statutory interpretation is legislative evolution, which is to say changes made in the succession of enacted texts. The use of legislative history is well established and is relatively uncontroversial, precisely because, as de Montigny J says, it is an objective fact (see Sullivan 577-78). If there is any kind of prosecution history which should be considered, this is it.

Finally, I note that the prosecution history was only one factor considered by de Montigny J in holding that the positioning means specified by the wherein clause was an essential element, and it was almost certainly not a determinative factor (see eg [211-12]). Consequently, de Montigny J’s holding regarding the use of the prosecution history could easily be distinguished by subsequent courts. It will be very interesting to see whether de Montigny J’s holding is indeed ignored, or if it is confined to changes in claim wording, or if it represents the first crack in the Free World wall, which might eventually lead to a more rational and principled approach to the use of prosecution history.