Since I started this blog at the beginning of the year, there have been enough cases on the relationship between section 8 damages and patent validity that I have decided to add a new tag for that topic. The automatic stay available to the patentee under section 7(1) of the PM(NOC) Regulations is analogous to an automatic interlocutory injunction, and section 8 damages available to the generic are analogous to damages on the undertaking normally required of an applicant who obtains such an injunction. The difficulty arises because NOC proceedings and impeachment proceedings are entirely separate. Under the “no reach back” rule established in Apotex v Syntex / naproxen (NOC) 2010 FCA 155, the generic is not entitled to section 8 damages if it is unsuccessful in the NOC proceedings, even if the patent is ultimately held to be invalid in a subsequent infringement action. The generic will therefore have been wrongly excluded from the market under an invalid patent, and yet will have no remedy for the harm suffered as a result. In contrast, if the patentee had obtained an interlocutory injunction in an infringement action, damages on the undertaking would be available to the generic if it ultimately established the patent was invalid. (It would also seem to follow that if the patentee loses in the NOC proceedings, but prevails in the infringement action, the patentee will nonetheless be liable to the generic under section 8, though it would not have been liable on the undertaking on an interlocutory injunction. This point has not yet been established in litigation. For posts discussing the problem, click on the Section 8 and Patent Validity tag.)
The amlodipine besylate litigation exemplifies the issue. In 2006, Pfizer was ultimately successful in obtaining a prohibition order in the NOC proceedings – 2006 FCA 214 rev’g 2006 FC 220 – but the patent was declared invalid in subsequent infringement proceedings: 2010 FCA 204 aff'g 2009 FC 711. Ratiopharm would like section 8 damages, but under the “no reach back” rule, it is not entitled to them. In the motion that was the subject of the most recent decision in 2011 FCA 215, Ratiopharm sought to avoid the “no reach back” rule by applying to have the 2006 prohibition order set aside. Normally the NOC matter would be res judicata, notwithstanding the finding of invalidity in the infringement proceeding, so Ratiopharm applied under Rule 399(1)(a) and (b) of the Federal Court Rules to have the order of prohibition set aside on the basis that (a) the holding of invalidity in the infringement action was “a matter that arose or was discovered subsequent to the making of the order,” or (b) the order had been “obtained by fraud.”
The FCA held that the subsequent holding of invalidity was not a matter that would warrant setting aside the prohibition order under Rule 399(1)(a). This argument was in effect an attack on the “no reach back” rule itself, which was established in Syntex under the 1993 PM(NOC) Regulations. The FCA confirmed at [19] that the “no reach back” rule also applies under the 1998 Regulations. This should be no surprise: the 1998 Regulations on their face confirm the rule by providing that section 8 damages are triggered only if the application is dismissed “by the court hearing the application.”
The basis for argument under 399(1)(b) was that Hughes J at trial in the infringement action, 2009 FC 711, [195]-[204], had held that the patent was invalid under section 53(2) of the Patent Act, as containing material allegations that were untrue and made with “sufficient” intent to engage section 53(2). The FCA refused to set aside the order on this basis. The FCA held at [23] that as a matter of law “it must be established that were it not for the fraud, this Court would not have reversed the Federal Court decision and issued the 2006 order.” This follows directly from the Rule itself which requires that the order “was obtained” by fraud. The Court then held that Ratiopharm had not established the necessary materiality.
The misstatements held by Hughes J [197] to have engaged section 53 were the failure of the disclosure to describe desirable properties of other tested salts, thereby falsely enhancing the uniqueness and suitability of the claimed besylate. At its narrowest, the Court’s holding in the current decision was based on the view that these omissions were not material to the grounds that were argued in the NOC proceedings, which raised only anticipation, obviousness and improper selection [25]. In principle it could be said that if it had been clear that the besylate salt was not unique, but was in fact simply the best of the handful of salts that had been tested, this would have led to conclusion that the invention was obvious. However, the issue was tangentially raised in the NOC proceedings in arguments attacking the artificiality of threshold properties identified for the besylate, and as the FCA emphasized in the current case at [27] , the FCA in the NOC proceeding at [32] noted Ratiopharm had not objected to these thresholds in its NOA.
Strictly, then, this FCA decision does not hold that “fraud” under section 53 can never constitute fraud for the purposes of Rule 399(1)(b), but only that in this case sufficient materiality had not been established.
However, other passages suggest a higher standard.
[22] Of course, in order to be material, the fraud on the court must have been committed in the proceeding in which the 2006 order sought to be set aside was rendered.
[23] Ratiopharm must establish that fraud on this Court was committed in the NOC proceedings in the Federal Court and in the appeal of the Federal Court’s decision dismissing the respondents’ application for prohibition.
[28] No perjured evidence and no forged documents were filed in the NOC proceedings. . . . [T]he ‘393 Patent benefited from a presumption of validity which was not rebutted as Ratiopharm’s allegations of invalidity were found to be unjustified. . . .
[29] I cannot see how it can be said on the basis of the existing record that the impugned 2006 order in the NOC proceedings was induced by and resulted from the misrepresentations later found in the impeachment proceedings to have been made to obtain the Patent.
These statements suggest that fraud for the purposes of Rule 399(1)(b) must be a fraud on the court itself, and that misstatements in the patent will not suffice, even if they amount to material misstatements sufficient to invalidate the patent under section 53. This position is consistent with the “no reach back” rule, as it would mean that section 53 cannot be used to avoid that rule. An allegation of invalidity under section 53 is no different than an allegation based on obviousness or any other ground; it must be alleged in the NOC proceedings themselves if it is to be relied on.
I am inclined to think the broader reading of this decision is correct, but I have one reservation. In the infringement action the FCA took a decidedly skeptical view of Hughes J’s broad interpretation of section 53. It affirmed Hughes J’s decisions on other grounds, and at [34] tersely remarked that his determination pursuant to section 53(1) “has limited, if any, value as a precedent.” It is conceivable that in a clearer case of fraud, the court might come to a different conclusion. As the Court noted at [12] in a preliminary point holding that the motion was not moot “Fraus omnia corrumpit: fraud negates everything.”
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