Wednesday, April 20, 2011
Hiatus until May 11
I will be grading exams for the rest of the week, and then off for a two week vacation. I expect to resume blogging on May 11th.
Monday, April 18, 2011
Validity as a Defence to a Section 8 Action
Apotex Inc. v. Shire Canada Inc. / modafinil (NOC) 2011 FC 436 Tabib P
The modafinil litigation raises the question of whether a generic which has succeeded in an NOC proceeding can get section 8 damages even if the patent is subsequently determined to be valid and infringed in an infringement action. Shire is a licencee under the relevant patent and holds an NOC. The patent is owned by Cephalon. Apotex initiated NOC proceedings against Shire and was successful: 2008 FC 538. Apotex then brought an action against Shire for section 8 damages. In the meantime, Cephalon has filed an action for infringement against Apotex. In 2010 Shire sought to amend its statement of defence to add a defence to the effect that if Cephalon is successful in its action against Apotex, then Apotex should not be allowed to recover against Shire under section 8. It is important to note that at that time Shire did not propose to bring any evidence on the issue of validity and infringement; it wished to rely entirely on the outcome of the Cephalon action. This amendment was not permitted (2010 FC 828 affm’d 2010 FC 1001), on the basis that the Shire had not pleaded any material facts on which the court could make any direct determination. If Shire’s defence had been permitted, the outcome of the Shire action would depend entirely on the outcome of the Cephalon action, which is completely independent. In this motion, Shire sought to amend its statement of defence to plead directly that Apotex infringes. Prothonotary Tabib J dismissed this motion on the basis the Shire had not sought this amendment in a timely manner [40]. We therefore do not have any indication on the merits as to whether such a defence would be permitted. However, the modafinil litigation shows that there is no satisfactory answer.
The Court’s holding in 2010 FC 1001, that for procedural reasons Shire cannot be allowed to rely on the outcome of the Cephalon litigation, is entirely reasonable. The parties in the Shire litigation have no control over the Cephalon litigation, which might be prolonged indefinitely. But if Shire had raised the defence in a timely manner, and the amendment sought in this decision had been allowed, this would require an entirely separate determination of the validity of the modafinil patent as part of the section 8 action, in addition to the determination originally made as part of the main NOC proceeding, and also in addition to determination to be made in the Cephalon action. It is surely a waste of resources to have the same patent litigated three times against the same party.
In my discussion of the levoflaxin litigation I suggested that a subsequent finding of validity would not bar a section 8 claim in any event because of the “no reach back” rule articulated in Apotex v Syntex / naproxen (NOC) 2010 FCA 155. Whether that suggestion is correct remains to be seen. If it is, then the generic will be entitled to damages for having been kept out of a market that it had no right to enter, which is not satisfactory. If both the NOC litigation and the subsequent infringement action were between the same parties, as is often the case, then a cure for this might be to allow the patentee to claim reimbursement of the section 8 damages as part of its damages in the infringement action. Apart from any conceptual problems this might raise, the modafinil litigation shows that this is not a general solution, because the here parties are different; payment by Shire under section 8 is not a loss to Cephalon.
If this analysis is right, it is difficult to see how even an amendment to the NOC regulations could help matters. Perhaps there is some creative solution to the problem that is not apparent to me. But for now it looks as though this is another aspect of the problems caused by the separation of the statutory stay under the NOC regulations from the underlying infringement action: see here, here and here, for previous posts on this issue.
The modafinil litigation raises the question of whether a generic which has succeeded in an NOC proceeding can get section 8 damages even if the patent is subsequently determined to be valid and infringed in an infringement action. Shire is a licencee under the relevant patent and holds an NOC. The patent is owned by Cephalon. Apotex initiated NOC proceedings against Shire and was successful: 2008 FC 538. Apotex then brought an action against Shire for section 8 damages. In the meantime, Cephalon has filed an action for infringement against Apotex. In 2010 Shire sought to amend its statement of defence to add a defence to the effect that if Cephalon is successful in its action against Apotex, then Apotex should not be allowed to recover against Shire under section 8. It is important to note that at that time Shire did not propose to bring any evidence on the issue of validity and infringement; it wished to rely entirely on the outcome of the Cephalon action. This amendment was not permitted (2010 FC 828 affm’d 2010 FC 1001), on the basis that the Shire had not pleaded any material facts on which the court could make any direct determination. If Shire’s defence had been permitted, the outcome of the Shire action would depend entirely on the outcome of the Cephalon action, which is completely independent. In this motion, Shire sought to amend its statement of defence to plead directly that Apotex infringes. Prothonotary Tabib J dismissed this motion on the basis the Shire had not sought this amendment in a timely manner [40]. We therefore do not have any indication on the merits as to whether such a defence would be permitted. However, the modafinil litigation shows that there is no satisfactory answer.
The Court’s holding in 2010 FC 1001, that for procedural reasons Shire cannot be allowed to rely on the outcome of the Cephalon litigation, is entirely reasonable. The parties in the Shire litigation have no control over the Cephalon litigation, which might be prolonged indefinitely. But if Shire had raised the defence in a timely manner, and the amendment sought in this decision had been allowed, this would require an entirely separate determination of the validity of the modafinil patent as part of the section 8 action, in addition to the determination originally made as part of the main NOC proceeding, and also in addition to determination to be made in the Cephalon action. It is surely a waste of resources to have the same patent litigated three times against the same party.
In my discussion of the levoflaxin litigation I suggested that a subsequent finding of validity would not bar a section 8 claim in any event because of the “no reach back” rule articulated in Apotex v Syntex / naproxen (NOC) 2010 FCA 155. Whether that suggestion is correct remains to be seen. If it is, then the generic will be entitled to damages for having been kept out of a market that it had no right to enter, which is not satisfactory. If both the NOC litigation and the subsequent infringement action were between the same parties, as is often the case, then a cure for this might be to allow the patentee to claim reimbursement of the section 8 damages as part of its damages in the infringement action. Apart from any conceptual problems this might raise, the modafinil litigation shows that this is not a general solution, because the here parties are different; payment by Shire under section 8 is not a loss to Cephalon.
If this analysis is right, it is difficult to see how even an amendment to the NOC regulations could help matters. Perhaps there is some creative solution to the problem that is not apparent to me. But for now it looks as though this is another aspect of the problems caused by the separation of the statutory stay under the NOC regulations from the underlying infringement action: see here, here and here, for previous posts on this issue.
Thursday, April 14, 2011
Payment of Fees by the Wrong Agent – A Glimmer of Hope
Excelsior Medical Corporation v. Canada (Attorney General) 2011 FC 407 Hughes J
Hot on the heels of Unicrop 2011 FCA 55 affm’g 2010 FC 61 (discussed here), Excelsior Medical is another case in which an applicant changed patent agent but failed to notify the Patent Office of the change, with the result that maintenance fees were not tendered by the “authorized correspondent,” as required by Rule 6(1), prior to the expiry of the grace period for reinstatement of an application that has been deemed abandoned for failure to pay those fees. Unicrop held that the Commissioner is entitled to refuse payment, with the result on the facts that the application was held to be incurably abandoned.
Excelsior Medical provides a slender ray of hope for such an applicant. Where in Unicrop the Patent Office had refused the fees paid by the wrong agent, in Excelsior Medical the Patent Office accepted the fees and sent a notice to the agent of record stating that the application had been reinstated [6]. This was apparently an automatic response, generated without substantive review. On review, the Patent Office sent a further letter rescinding the reinstatement, on the basis that the fee should not have been accepted [4.12]. By the time this letter was received, the grace period had expired. Hughes J held that when the Commissioner receives and acts upon a communication, the application is reinstated, and the Commissioner cannot “un-perform” that function [38], [41]. (Unfortunately for the applicant, on the facts the new agent had subsequently requested and accepted a refund, and the application then became incurably dead [42].)
While this result is fair and reasonable, it is perhaps difficult to reconcile with the mandatory language of Rule 6(1), which states that the Commissioner “shall only have regard to communications from[] the authorized correspondent.” But a line must be drawn somewhere; it seems inconceivable, for example, that a patent could be declared invalid ab initio after having been granted and enforced, if it were discovered that fees had been paid by the wrong agent at some point during the application process. On the modern approach to statutory interpretation, the text must be interpreted in light of its purpose, and not in a purely literal fashion.
Hughes J also indicated that if detrimental reliance had been established, which it had not been on the facts, he would have considered the possibility of ordering equitable relief. The difficulty with this thought is that both levels of court in Unicrop refused to invoke equitable principles to order the reinstatement of the application despite expiry of the deadline: “equitable relief cannot be invoked in order to counter the application of a clear statutory rule” [FCA 38].
In the end, Hughes J did his best to temper the application of Rule 6(1), but all he could do was to provide a narrow window that will benefit few applicants. The root of the problem lies with the rule itself.
Hot on the heels of Unicrop 2011 FCA 55 affm’g 2010 FC 61 (discussed here), Excelsior Medical is another case in which an applicant changed patent agent but failed to notify the Patent Office of the change, with the result that maintenance fees were not tendered by the “authorized correspondent,” as required by Rule 6(1), prior to the expiry of the grace period for reinstatement of an application that has been deemed abandoned for failure to pay those fees. Unicrop held that the Commissioner is entitled to refuse payment, with the result on the facts that the application was held to be incurably abandoned.
Excelsior Medical provides a slender ray of hope for such an applicant. Where in Unicrop the Patent Office had refused the fees paid by the wrong agent, in Excelsior Medical the Patent Office accepted the fees and sent a notice to the agent of record stating that the application had been reinstated [6]. This was apparently an automatic response, generated without substantive review. On review, the Patent Office sent a further letter rescinding the reinstatement, on the basis that the fee should not have been accepted [4.12]. By the time this letter was received, the grace period had expired. Hughes J held that when the Commissioner receives and acts upon a communication, the application is reinstated, and the Commissioner cannot “un-perform” that function [38], [41]. (Unfortunately for the applicant, on the facts the new agent had subsequently requested and accepted a refund, and the application then became incurably dead [42].)
While this result is fair and reasonable, it is perhaps difficult to reconcile with the mandatory language of Rule 6(1), which states that the Commissioner “shall only have regard to communications from[] the authorized correspondent.” But a line must be drawn somewhere; it seems inconceivable, for example, that a patent could be declared invalid ab initio after having been granted and enforced, if it were discovered that fees had been paid by the wrong agent at some point during the application process. On the modern approach to statutory interpretation, the text must be interpreted in light of its purpose, and not in a purely literal fashion.
Hughes J also indicated that if detrimental reliance had been established, which it had not been on the facts, he would have considered the possibility of ordering equitable relief. The difficulty with this thought is that both levels of court in Unicrop refused to invoke equitable principles to order the reinstatement of the application despite expiry of the deadline: “equitable relief cannot be invoked in order to counter the application of a clear statutory rule” [FCA 38].
In the end, Hughes J did his best to temper the application of Rule 6(1), but all he could do was to provide a narrow window that will benefit few applicants. The root of the problem lies with the rule itself.
Tuesday, April 12, 2011
Obvious to Try – In Two Jurisdictions
Merck Sharp & Dohme Corp v Teva UK Ltd [2011] EWCA Civ 382 (08 April 2011) affm’g [2009] EWHC2952 (Pat)
Merck & Co. Inc. v Apotex Inc. / cosopt (NOC) 2010 FC 1042 O'Reilly J
In 2010 FC 1042 O'Reilly J refused an order of prohibition on a generic version of Merck’s Cosopt product for the treatment of glaucoma, on the basis that the co-formulation of dorzolamide and timolol claimed in Merck’s patent 2,065,965 was obvious. A prior art publication by Merck’s own researchers (the “Nadin” article) disclosed that dorzolamide and timolol had an additive effect, but did not specifically disclose co-formulation, as opposed to sequential administration. The question was whether co-formulation was obvious in light of that disclosure. O’Reilly J applied the “obvious to try” analysis. It seems (from the brief reasons) that it was conceded that it was obvious to try, and O’Reilly J found that there were no significant hurdles to be overcome – “co-formulation was routine” – and the co-formulation was therefore obvious. In [2009] EWHC 2952 (Pat) Floyd J held the same in an infringement action on the corresponding European patent patent EP 0 509 752 B1 for essentially the same reasons. (The main difficulty is that the two products perform optimally at different pH, so some experimentation was needed in arriving at an appropriate compromise, but there was no real difficulty in so doing.) Floyd J's decision was affirmed by [2011] EWCA Civ 382, which was released last Friday.
So far, so good. OReilly J’s decision is a good illustration of the application of the “obvious to try” analysis to hold that a claim invalid, and it is a nice bonus to see courts in different jurisdictions coming to the same conclusion on the same facts.
I have one quibble with the EWCA decision. Merck decided not to argue that the leap from co-adminstration to co-formulation was qualitatively inventive; instead it argued that the time between the publication of the Nadin article and the priority date was so short (six days) that the skilled team would have been unable to carry out the requisite experiments, routine though they might be [EWCA 31]. The EWCA rejected this, saying, inter alia, “If by reference to the relevant state of the art the invention is obvious then it matters not that it may take time to perform the necessary routine tests. It is a matter of simple comparison between the relevant art and the claimed invention” [36]. It is questionable whether this statement is consistent with Canadian law, as the Supreme Court in Sanofi [69] held that it is relevant to ask “[w]hat is the extent, nature and amount of effort required? Are routine trials carried out or is the experimentation prolonged and arduous, such that the trials would not be considered routine?” It is not merely a simple comparison between the relevant art and the claimed invention. In Canadian law the quantity of experimentation – the “amount of effort” – is relevant, not only the quality. As the Sanofi excerpt indicates, trials that are prolonged and arduous will not be considered routine, even if individually they may not require special skill. This is consistent with the view that a “patient searcher is as much entitled to the benefits of a monopoly as someone who hits upon an invention by some lucky chance or inspiration" American Cyanamid Co. v Berk Pharmaceuticals Ltd., 1976} R.P.C. 231, at 257, quoted with approval in Farbwerke Hoechst Aktiengesellschaft Vormals Meister Lucius & Bruning v Halocarbon (Ontario) Ltd. [1979 2 SCR 929. (This is not to say that the co-formulation in this case should have been held to be inventive in Canadian law. The basis for the decision of O’Reilly was there was no evidence of undue experimentation, and Floyd J’s decision might have been upheld on the same basis.)
This might seem like an overly technical reading of the EWCA decision, and perhaps it is. After all, the mere fact that it takes time to perform routine trials (if a fixed incubation period is required for what is otherwise a simple test, for example) would not render an invention obvious in Canadian law. However, the English courts have more than once indicated that routine work, no matter how prolonged and arduous, cannot amount to invention. This was expressed succinctly by Aldous LJ for the CA in Biogen Inc v Medeva PLC Court of Appeal (Civil Division) [1995] FSR 4: “There is no idea, no principle. A mere commercial decision is not an invention.” This was reversed by the House of Lords on the facts, [1996] UKHL 18 [53] but apparently agreeing with Hobhouse LJ on this point. My own view is that the Canadian position is preferable as a matter of policy, as it is more consistent with the incentive rationale for patent protection. But it should in any event be recognized that there is a principled point of difference here, and UK law should not be blindly followed.
Merck & Co. Inc. v Apotex Inc. / cosopt (NOC) 2010 FC 1042 O'Reilly J
In 2010 FC 1042 O'Reilly J refused an order of prohibition on a generic version of Merck’s Cosopt product for the treatment of glaucoma, on the basis that the co-formulation of dorzolamide and timolol claimed in Merck’s patent 2,065,965 was obvious. A prior art publication by Merck’s own researchers (the “Nadin” article) disclosed that dorzolamide and timolol had an additive effect, but did not specifically disclose co-formulation, as opposed to sequential administration. The question was whether co-formulation was obvious in light of that disclosure. O’Reilly J applied the “obvious to try” analysis. It seems (from the brief reasons) that it was conceded that it was obvious to try, and O’Reilly J found that there were no significant hurdles to be overcome – “co-formulation was routine” – and the co-formulation was therefore obvious. In [2009] EWHC 2952 (Pat) Floyd J held the same in an infringement action on the corresponding European patent patent EP 0 509 752 B1 for essentially the same reasons. (The main difficulty is that the two products perform optimally at different pH, so some experimentation was needed in arriving at an appropriate compromise, but there was no real difficulty in so doing.) Floyd J's decision was affirmed by [2011] EWCA Civ 382, which was released last Friday.
So far, so good. OReilly J’s decision is a good illustration of the application of the “obvious to try” analysis to hold that a claim invalid, and it is a nice bonus to see courts in different jurisdictions coming to the same conclusion on the same facts.
I have one quibble with the EWCA decision. Merck decided not to argue that the leap from co-adminstration to co-formulation was qualitatively inventive; instead it argued that the time between the publication of the Nadin article and the priority date was so short (six days) that the skilled team would have been unable to carry out the requisite experiments, routine though they might be [EWCA 31]. The EWCA rejected this, saying, inter alia, “If by reference to the relevant state of the art the invention is obvious then it matters not that it may take time to perform the necessary routine tests. It is a matter of simple comparison between the relevant art and the claimed invention” [36]. It is questionable whether this statement is consistent with Canadian law, as the Supreme Court in Sanofi [69] held that it is relevant to ask “[w]hat is the extent, nature and amount of effort required? Are routine trials carried out or is the experimentation prolonged and arduous, such that the trials would not be considered routine?” It is not merely a simple comparison between the relevant art and the claimed invention. In Canadian law the quantity of experimentation – the “amount of effort” – is relevant, not only the quality. As the Sanofi excerpt indicates, trials that are prolonged and arduous will not be considered routine, even if individually they may not require special skill. This is consistent with the view that a “patient searcher is as much entitled to the benefits of a monopoly as someone who hits upon an invention by some lucky chance or inspiration" American Cyanamid Co. v Berk Pharmaceuticals Ltd., 1976} R.P.C. 231, at 257, quoted with approval in Farbwerke Hoechst Aktiengesellschaft Vormals Meister Lucius & Bruning v Halocarbon (Ontario) Ltd. [1979 2 SCR 929. (This is not to say that the co-formulation in this case should have been held to be inventive in Canadian law. The basis for the decision of O’Reilly was there was no evidence of undue experimentation, and Floyd J’s decision might have been upheld on the same basis.)
This might seem like an overly technical reading of the EWCA decision, and perhaps it is. After all, the mere fact that it takes time to perform routine trials (if a fixed incubation period is required for what is otherwise a simple test, for example) would not render an invention obvious in Canadian law. However, the English courts have more than once indicated that routine work, no matter how prolonged and arduous, cannot amount to invention. This was expressed succinctly by Aldous LJ for the CA in Biogen Inc v Medeva PLC Court of Appeal (Civil Division) [1995] FSR 4: “There is no idea, no principle. A mere commercial decision is not an invention.” This was reversed by the House of Lords on the facts, [1996] UKHL 18 [53] but apparently agreeing with Hobhouse LJ on this point. My own view is that the Canadian position is preferable as a matter of policy, as it is more consistent with the incentive rationale for patent protection. But it should in any event be recognized that there is a principled point of difference here, and UK law should not be blindly followed.
Friday, April 8, 2011
Stay of Execution Pending Appeal
Phostech Lithium Inc v Valence Technology, Inc 2011 FCA 107 Pelletier JA
In Phostech v Valence 2011 FCA 107 Pelletier JA granted a stay pending appeal of the judgment of Gauthier J in 2011 FC 174. It is interesting to contrast this decision with that of the EWCA in Virgin Atlantic v Premium Aircraft [2009] EWCA Civ 1513 Jacob LJ: Patten LJ, Kitchin J granting a partial stay (a “carve-out”) pending a decision on an application for leave to appeal to the UK Supreme Court.
The major difference is that the FCA in Phostech applied the Cyanamid threshold of “a serious issue to be tried” on the merits portion of the test, while the EWCA did not, saying:
Surely this is a compelling argument. The reason given by Lord Denning in American Cynamid for lowering the old threshold of “a prima facie case” to “a serious question to be tried” was that “[i]t is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial" [1975] AC 396, 407. It follows directly that once the matter has been decided at trial, it is legitimate to consider the merits. Indeed, this was the position taken by the Supreme Court in Laboratoire Pentagone Ltée v. Parke, Davis & Co. [1968] SCR 269, a patent case in the Supreme Court refused a stay of execution pending appeal:
This argument is particularly compelling where the appeal turns on a point on which the trial judge is owed deference. But even on a point of claim construction, the point argued in Phostech [2], the considered opinion a trial judge after a full trial on the merits, must surely count for something. In Laboratoire Pentagone [1968] SCR 307 the SCC ultimately reversed the Quebec Court of Appeal on a point of law; this implies that the Court did not view the the nature of the point on appeal as being relevant to the test for a stay.
In Phostech v Valence 2011 FCA 107 Pelletier JA granted a stay pending appeal of the judgment of Gauthier J in 2011 FC 174. It is interesting to contrast this decision with that of the EWCA in Virgin Atlantic v Premium Aircraft [2009] EWCA Civ 1513 Jacob LJ: Patten LJ, Kitchin J granting a partial stay (a “carve-out”) pending a decision on an application for leave to appeal to the UK Supreme Court.
The major difference is that the FCA in Phostech applied the Cyanamid threshold of “a serious issue to be tried” on the merits portion of the test, while the EWCA did not, saying:
22 It should be noted the question is not the same when one is considering what to do on an application for an interim injunction pending trial. In that case the patentee has yet to establish his right, whereas after successful trial he has prima facie done just that.
Surely this is a compelling argument. The reason given by Lord Denning in American Cynamid for lowering the old threshold of “a prima facie case” to “a serious question to be tried” was that “[i]t is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial" [1975] AC 396, 407. It follows directly that once the matter has been decided at trial, it is legitimate to consider the merits. Indeed, this was the position taken by the Supreme Court in Laboratoire Pentagone Ltée v. Parke, Davis & Co. [1968] SCR 269, a patent case in the Supreme Court refused a stay of execution pending appeal:
The burden upon the appellant is much greater than it would be if the injunction were interlocutory. In such a case the Court must consider the balance of convenience as between the parties, because the matter has not yet come to trial. In the present case we are being asked to suspend the operation of a judgment of the Court of Appeal, delivered after full consideration of the merits.
This argument is particularly compelling where the appeal turns on a point on which the trial judge is owed deference. But even on a point of claim construction, the point argued in Phostech [2], the considered opinion a trial judge after a full trial on the merits, must surely count for something. In Laboratoire Pentagone [1968] SCR 307 the SCC ultimately reversed the Quebec Court of Appeal on a point of law; this implies that the Court did not view the the nature of the point on appeal as being relevant to the test for a stay.
Thursday, April 7, 2011
Overview of US FTC: The Evolving IP Marketplace
US Federal Trade Commission, "The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition,” (March 2011)
I have finally had time to read the most recent IP-related report from the US Federal Trade Commission, on "The Evolving IP Marketplace." In contrast to the 2007 Report on “Antitrust Enforcement and Intellectual Property Rights” which considered the intersection of IP law and competition law, this Report, like the 2003 Report “To Promote Innovation” focuses directly on patent law, on the view that a properly functioning patent system promotes competition, but a defective patent system will do the opposite. This is a trite observation from a patent perspective, and the implicit justification for FTC Reports on patent law is that it has a unique expertise in the economics of competition policy. In my view, that premise is borne out by the latest Report, which very interesting and balanced look at two main areas of patent law: the “notice” function of patents, and patent remedies. (The 2003 Report focused on patent quality, especially obviousness.) The Report is based on hearings and a workshop, as well as written submissions and independent research.
The Report begins with a descriptive survey of "the evolving patent marketplace" (ch 2). This focuses on how ex post licencing can impede innovation. If a firm is able to negotiate for patent rights before it has invested in creating or commercializing the technology, then the licence fee will reflect the value of the patented technology as compared with the non-infringing options available to the firm. However, if the firm licenses only after it has invested substantially in product development, the cost of the licence reflects not just the value of the patented technology, but also the sunk costs that would have to be abandoned if the activity were enjoined. This can impede innovation as a firm that cannot determine at the outset whether its activities will infringe must discount its anticipated profits to allow for the possibility of an ex post infringement action. Ex post licensing is not categorically undesirable, as the possibility of such an action is the major inducement to conduct patent clearance in the first place. However, when the patentee’s strategy is to avoid ex ante licensing in order to extract licence fees that are greater than the value of the technology, the effect is to impede both competition and innovation. I like to refer to “opportunistic ex post licensing” to refer to the latter strategy.
The take-home message is that the ability to conduct effective patent clearance is crucial to a sound patent system. This depends on the efficacy of the notice function of patents; the ability of a firm to predict what activities will infringe by discovering and interpreting relevant patents. The Report finds that patent clearance is generally effective (which is not to say ideal) in industries such as chemicals, pharmaceuticals, and biotechnology, but in other industries such as IT and telecommunications, it is essentially impossible to conduct effective patent clearance [77-78].
The discussion of the importance of patent notice is followed by a very useful description of the role of "patent assertion entities." This is the Report’s preferred term for what are more commonly known as “non-practising entities” or, pejoratively, patent trolls. The Report points out that many entities which do not practice their invention themselves, nonetheless exploit their patent rights in a very traditional manner, as when a start-up that has done the basic break-through research seeks to licence to a larger firm to take the product to commercialization. Patent assertion entities, in contrast, acquire patents to generate revenue through licencing. The Report notes that this may allow small patentee with insufficient resources to sustain an infringement action a way of enforcing their patent rights, but when the patents are asserted opportunistically ex post against an infringer which developed the technology independently, the effect on competition and innovation is likely to be negative.
Most of this discussion is found in Chapter 2 of the Report (pp.50 - 72), which is well worth reading. (About half of the space is taken up with footnotes, so it is not as long as it looks.) Chapter 3 of the Report focuses on specific recommendations as to how to improve patent notice, while chapters 4-8 look at patent remedies. In upcoming posts I will blog on specific points that are of interest from a Canadian perspective.
I have finally had time to read the most recent IP-related report from the US Federal Trade Commission, on "The Evolving IP Marketplace." In contrast to the 2007 Report on “Antitrust Enforcement and Intellectual Property Rights” which considered the intersection of IP law and competition law, this Report, like the 2003 Report “To Promote Innovation” focuses directly on patent law, on the view that a properly functioning patent system promotes competition, but a defective patent system will do the opposite. This is a trite observation from a patent perspective, and the implicit justification for FTC Reports on patent law is that it has a unique expertise in the economics of competition policy. In my view, that premise is borne out by the latest Report, which very interesting and balanced look at two main areas of patent law: the “notice” function of patents, and patent remedies. (The 2003 Report focused on patent quality, especially obviousness.) The Report is based on hearings and a workshop, as well as written submissions and independent research.
The Report begins with a descriptive survey of "the evolving patent marketplace" (ch 2). This focuses on how ex post licencing can impede innovation. If a firm is able to negotiate for patent rights before it has invested in creating or commercializing the technology, then the licence fee will reflect the value of the patented technology as compared with the non-infringing options available to the firm. However, if the firm licenses only after it has invested substantially in product development, the cost of the licence reflects not just the value of the patented technology, but also the sunk costs that would have to be abandoned if the activity were enjoined. This can impede innovation as a firm that cannot determine at the outset whether its activities will infringe must discount its anticipated profits to allow for the possibility of an ex post infringement action. Ex post licensing is not categorically undesirable, as the possibility of such an action is the major inducement to conduct patent clearance in the first place. However, when the patentee’s strategy is to avoid ex ante licensing in order to extract licence fees that are greater than the value of the technology, the effect is to impede both competition and innovation. I like to refer to “opportunistic ex post licensing” to refer to the latter strategy.
The take-home message is that the ability to conduct effective patent clearance is crucial to a sound patent system. This depends on the efficacy of the notice function of patents; the ability of a firm to predict what activities will infringe by discovering and interpreting relevant patents. The Report finds that patent clearance is generally effective (which is not to say ideal) in industries such as chemicals, pharmaceuticals, and biotechnology, but in other industries such as IT and telecommunications, it is essentially impossible to conduct effective patent clearance [77-78].
The discussion of the importance of patent notice is followed by a very useful description of the role of "patent assertion entities." This is the Report’s preferred term for what are more commonly known as “non-practising entities” or, pejoratively, patent trolls. The Report points out that many entities which do not practice their invention themselves, nonetheless exploit their patent rights in a very traditional manner, as when a start-up that has done the basic break-through research seeks to licence to a larger firm to take the product to commercialization. Patent assertion entities, in contrast, acquire patents to generate revenue through licencing. The Report notes that this may allow small patentee with insufficient resources to sustain an infringement action a way of enforcing their patent rights, but when the patents are asserted opportunistically ex post against an infringer which developed the technology independently, the effect on competition and innovation is likely to be negative.
Most of this discussion is found in Chapter 2 of the Report (pp.50 - 72), which is well worth reading. (About half of the space is taken up with footnotes, so it is not as long as it looks.) Chapter 3 of the Report focuses on specific recommendations as to how to improve patent notice, while chapters 4-8 look at patent remedies. In upcoming posts I will blog on specific points that are of interest from a Canadian perspective.
Monday, April 4, 2011
An Application Deemed Abandoned by Application of Law Cannot be Reinstated
M-Systems Flash Disk Pionerers Ltd v. Commissioner of Patents 2011 FCA 112 affm’g 2010 FC441
This brief decision of the FCA affirms its prior holding in DBC Marine Safety Systems Ltd. v. Canada (Commissioner of Patents), 2008 FCA 256 affm'g 2007 FC 1142, that the Commissioner has no discretion to reinstate an application that has been deemed abandoned by application of law. The only twist is that the applicant in M-Systems had argued that Rule 29, permitting the examiner to require identification of additional prior art raised in a foreign application, is inconsistent with the Act and “unconstitutional” under the s 2(e) of the Canadian Bill of Rights. Both of these last ditch arguments were rejected by de Montigny J at first instance and this was affirmed by the FCA.
This brief decision of the FCA affirms its prior holding in DBC Marine Safety Systems Ltd. v. Canada (Commissioner of Patents), 2008 FCA 256 affm'g 2007 FC 1142, that the Commissioner has no discretion to reinstate an application that has been deemed abandoned by application of law. The only twist is that the applicant in M-Systems had argued that Rule 29, permitting the examiner to require identification of additional prior art raised in a foreign application, is inconsistent with the Act and “unconstitutional” under the s 2(e) of the Canadian Bill of Rights. Both of these last ditch arguments were rejected by de Montigny J at first instance and this was affirmed by the FCA.
Friday, April 1, 2011
International Ex Turpi Causa as a Defence to an Undertaking in Damages
Les Laboratoires Servier & Anor v Apotex Inc & Ors [2011] EWHC 730 (Pat) Arnold J
In the latest decision in the perindopril litigation, Arnold J applied the maxim ex turpi causa non oritur actio in exercising his discretion to decline enforcement of an undertaking in damages given by a patentee who had obtained an interlocutory injunction.1 The issue arose because the product in question was patented in the jurisdiction of manufacture (Canada), but not in the jurisdiction of sale (the UK). It is thus one aspect of the larger problem of territorial limits to patent protection, and ultimately Arnold J’s decision turned on principles of international comity.
Servier obtained a compound patent for perindopril in both Canada and Europe. The European compound patent expired in 2001. The corresponding Canadian patent, which was governed by the old Act, was delayed in conflict proceedings. It was not granted until 2001, and will not expire until 2018. Servier was granted a further European patent for a crystalline form of perindopril in 2004. In 2006 Servier commenced an infringement action against Apotex based on the European crystalline form patent. Servier obtained an interlocutory injunction from Mann J [2006] EWHC 2137 (Pat), subject to the usual undertaking in damages. Servier’s European patent action ultimately failed as the crystalline form patent was declared invalid: [2008] EWCACiv 445 aff’g [2007] EWHC 1538 (Pat).
Apotex sought damages on the undertaking for the loss of UK sales. This was heard in June of 2008 and Norris J held that Servier was liable for £17.5 million: [2008] EWHC 2347 (Ch). Apotex’s loss was calculated on the basis that the perindopril would be manufactured at its facility in Canada and exported to the UK. However, at the same time Servier and Apotex were litigating the compound patent in Canada. On July 2, 2008 Snider J held that the Canadian patent was valid and on June 30, 2009 the FCA affirmed: Laboratoires Servier v. Apotex Inc./ perindopril, 2009 FCA 222 affm'g 2008 FC 825. Thus it became clear that manufacture in Canada of the product which Apotex would have sold in the UK but for the injunction, would have infringed the Canadian patent. Consequently Servier sought and ultimately obtained permission to amend its pleading to raise the defence that Apotex could not claim damages on the undertaking for lost sales when the manufacture of the product would have been illegal: [2010] EWCA 279 (Civ).
In the latest decision in the perindopril litigation, Arnold J applied the maxim ex turpi causa non oritur actio in exercising his discretion to decline enforcement of an undertaking in damages given by a patentee who had obtained an interlocutory injunction.1 The issue arose because the product in question was patented in the jurisdiction of manufacture (Canada), but not in the jurisdiction of sale (the UK). It is thus one aspect of the larger problem of territorial limits to patent protection, and ultimately Arnold J’s decision turned on principles of international comity.
Servier obtained a compound patent for perindopril in both Canada and Europe. The European compound patent expired in 2001. The corresponding Canadian patent, which was governed by the old Act, was delayed in conflict proceedings. It was not granted until 2001, and will not expire until 2018. Servier was granted a further European patent for a crystalline form of perindopril in 2004. In 2006 Servier commenced an infringement action against Apotex based on the European crystalline form patent. Servier obtained an interlocutory injunction from Mann J [2006] EWHC 2137 (Pat), subject to the usual undertaking in damages. Servier’s European patent action ultimately failed as the crystalline form patent was declared invalid: [2008] EWCACiv 445 aff’g [2007] EWHC 1538 (Pat).
Apotex sought damages on the undertaking for the loss of UK sales. This was heard in June of 2008 and Norris J held that Servier was liable for £17.5 million: [2008] EWHC 2347 (Ch). Apotex’s loss was calculated on the basis that the perindopril would be manufactured at its facility in Canada and exported to the UK. However, at the same time Servier and Apotex were litigating the compound patent in Canada. On July 2, 2008 Snider J held that the Canadian patent was valid and on June 30, 2009 the FCA affirmed: Laboratoires Servier v. Apotex Inc./ perindopril, 2009 FCA 222 affm'g 2008 FC 825. Thus it became clear that manufacture in Canada of the product which Apotex would have sold in the UK but for the injunction, would have infringed the Canadian patent. Consequently Servier sought and ultimately obtained permission to amend its pleading to raise the defence that Apotex could not claim damages on the undertaking for lost sales when the manufacture of the product would have been illegal: [2010] EWCA 279 (Civ).
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