No New Cases for Week of 23 December

No new patent / NOC / data protection cases were posted on the Federal Courts' website for the week of 23 December.

Damages Calculations Are a “Broad Axe” Not a “Rapier Point”

Apotex Inc v Merck Canada Inc / alendronate (NOC) 2012 FC 1418 Hughes J, further reasons in respect of 2012 FC 1235

            2,294,595 – alendronate

These supplementary reasons by Hughes J resolve a narrow question regarding the calculation of damages, but they also illustrate the more general point that calculation of damages is not an exact science.

The decision concerned the calculation of Apotex’s damages under s 8 of the NOC Regulations for having been wrongly excluded from the market for alendronate. The applicable general principles were set out by Hughes J in his first damages decision, blogged here. One specific question concerned the calculation of rebates. As Hughes J explained in his first decision at [92]-[93], rebates are often paid by the seller, such as Apotex, to the purchaser, such as a pharmacy. The amount of the rebate varies considerably, depending on the relative bargaining power of the parties [94]. The rebate, which is usually calculated as a percentage of the sale price, will be smaller when the first generic in the market is the sole generic supplier, and so has more market power, and it will be larger after entry by multiple generics, when there is more competition. In his first decision, Hughes J held that one amount YY% (the actual number was redacted) should apply during the period when Apotex would have been the exclusive generic supplier, and another, larger, number XX%, should be applied in the subsequent period after entry by other generics, which, on the facts, would have been Novopharm [101].

The parties were unable to agree on how these numbers should be applied, and this second damages decision by Hughes J was to resolve this disagreement. The calculations by Merck’s expert simply applied a rebate of YY% up until the date when Novopharm entered the market, and XX% thereafter [5]. Apotex’s expert, in contrast, argued that in reality the rebate would not have suddenly have jumped from YY% to XX%, but would have adjusted gradually. This would have meant greater hypothetical profits for Apotex, and thus larger damages.

Hughes J preferred Merck’s approach, for two reasons. First, the approach advocated by Apotex’s expert had not been advanced at trial, where it was accepted that two figures would be applied, representing pre- and post-entry rebates [7].

Of more general interest, Hughes J also pointed out that Apotex’s approach involved a false sophistication. Even if it was true that in reality the rebate would have adjusted gradually, the fact is that the whole calculation was fraught with uncertainty. To adjust the XX figure to reflect a gradual entry was not likely to be more accurate than a simple two stage calculation, given that the XX percentage itself was a best guess, rather than a truly correct figure:

[8] As I expressed in my October Reasons, the whole area of rebates is a murky one. There is no one correct or absolute figure that can be established. At best, one can approximate what “would have” happened. It is not an area where exactitude or sophisticated calculations have a place. As some judges have said, the approach is more of a “broad axe” approach than that of a “rapier point”.

This is a reference to Lord Shaw’s remark in Watson Laidlaw (1914), 31 RPC 104 at 117-18 (H.L.) that “[t]he restoration by way of compensation is therefore accomplished to a large extent by the exercise of a sound imagination and the practice of the broad axe.”

That damages calculations are uncertain is important for two reasons. Most directly, as this case illustrates, there comes a point at which attempts to overly refine the damages calculation will add expense without adding accuracy. Secondly, it is important in the context of the irreparable harm requirement for obtaining an interlocutory injunctions. As I have argued in my article, Interlocutory Injunctions and Irreparable Harm in the Federal Courts, (2010) 88 Can Bar Rev 517, the fact that damages calculations are inherently unreliable implies that in most cases a party who is wrongly denied an interlocutory injunction will suffer irreparable harm, in the sense that damages will not provide full compensation for the loss.

Statute of Monopolies Redux?

Apotex Inc. v. Warner-Lambert Company LLC / quinapril 2012 FCA 323 Nadon JA: Sharlow, Dawson JJA rev’g 2012 FC 202 Lemieux J

            1,331,615

Is the Statute of Monopolies alive and well and hiding in Ontario? In 2009 Apotex brought an impeachment action seeking a declaration that two patents, including the ‘615 patent, are invalid. The ‘615 patent expired in August 2011, and the patentee, Parke Davis, moved to have the action dismissed in respect of it on the grounds of mootness. Apotex responded that the issue was not moot because the question was whether the ‘615 patent was ever valid, and the answer would affect its entitlement to a remedy under both the Statute of Monopolies of Ontario RSO 1897, c 323, and under s 8 of the NOC Regulations.

In the decision under appeal (blogged here), Lemieux J granted the motion on the basis that it was well established that subsequent success in an infringement or impeachment action could not affect a generic’s entitlement to s 8 damages, which are conditioned on success in the NOC proceedings themselves. However, Lemieux J did not address the Statute of Monopolies argument at all. 

In this decision, the FCA has held that Lemieux J erred in failing to address the Statute of Monopolies argument. The FCA then went on to allow the appeal on the basis that it was not clear that Apotex’s action based on the Statute of Monopolies could not possibly succeed. The Statute of Monopolies of Ontario, “reproduces in somewhat altered form, the original Statute of Monopolies enacted in 1624, 21 James I, Chap. 3,” originally appeared as Ch. 1 of the Statutes of Upper Canada, 1792, and is one of the unrepealed statutes remaining in force in Ontario: Gilbert v Horner (1960), 34 C.P.R. 17 (OCA). In holding that it might possibly form the basis for a remedy in favour of Apotex, the FCA relied on Gilbert v Horner, in which the OCA held that the interpretation of the statute was difficult, and there was almost no relevant case law, so that it could not be said that there was no prospect of success. As this was sufficient to allow the appeal, the FCA did not address the NOC arguments.

Named Co-inventor Has No Right to Be Heard Before Being Removed from Application

Baksh v Probiohealth LLC 2012 FC 1388, O’Reilly J

            Application 2,503,510

It seems that a named co-inventor has no right to be heard before being removed from an application. In 1999 Mr Bing Baksh was involved in helping Probiohealth develop a probiotic nutritional supplement involving bacteria suspended in oil and packaged in a particular encapsulation system. Mr Baksh had been primarily responsible for the encapsulation system, while a Dr Naidu was primarily responsible for developing the oil suspension [3]. In 2002 Priobiohealth filed a patent application, that became the ‘510 application, in which Mr Baksh and Dr Naidu were named as co-inventors [4]. In 2006 Dr Naidu assigned his rights to Probiohealth, but Mr Baksh refused to do so [5]. Probiohealth filed a voluntary amendment cancelling the claims related to the encapsulation system [6]. Probiohealth then filed a request under 31(3) of the Act to remove Mr Baksh as a co-inventor on the application [9], supporting this with an affidavit from Dr Naidu swearing that he was the sole inventor of the remaining claims. The Commissioner granted the request, and sent Mr Baksh a letter confirming that he had been removed as a co-inventor [11]. Mr Baksh appealed that decision and also sought judicial review. Both the appeal and the application for judicial review were addressed in O’Reilly J’s reasons.

The Inventive Concept Must Be Construed with Reference to the Disclosure

Apotex Inc v Allergan Inc / COMBIGAN (NOC) 2012 FCA 308 Noël JA: Stratas, Webb JJA aff’g for different reasons 2012 FC 767 Hughes J

            2,440,764 – COMBIGAN – brimonidine / timolol

The decision of the FCA in Apotex / COMBIGAN provides an important clarification of the second step of the Windsurfing/ Pozzoli approach to obviousness by establishing that it is necessary to have reference to the entire specification in order to construe the inventive concept. Implicitly, the statement by Jacob LJ that if any difficulty arises in determining the inventive concept, it can simply be ignored in favour of a focus on the claim as construed, is not the law in Canada.

The second step of the Windsurfing/ Pozzoli approach to obviousness, as approved by the Supreme Court in Sanofi 2008 SCC 61, [67] is to “[i]dentify the inventive concept of the claim in question or if that cannot readily be done, construe it.” This raises two questions. How is the inventive concept to be determined? As Hughes J put it in the decision under appeal, “The question is whether the “inventive concept” is something different from the claim at issue, even when that claim has been construed by the Court. Is the Court to embark on two separate missions; one to construe the claim, the other to define the inventive concept?” [135] Secondly, why bother construing the inventive concept at all? Jacob LJ remarked in Pozzoli [2007] EWCA Civ 588 [19] that identification of the inventive concept “can develop into an unnecessary satellite debate” and in such cases “the sensible way to proceed is to forget it and simply to work on the features of the claim,” as “[i]n the end what matters is/are the difference(s) between what is claimed and the prior art.” In Actavis UK Ltd v Novartis AG [2010] EWCA Civ 82 [20] he remarked similarly that “[t]he "inventive concept" can be a distraction or helpful. It is a distraction almost as soon as there is an argument as to what it is. It is helpful when the parties are agreed as to what it is.”

Comity Cannot Solve the Problem of Inconsistent NOC Decisions

Apotex Inc v Allergan Inc / COMBIGAN (NOC) 2012 FCA 308 Noël JA: Stratas, Webb JJA aff’g for different reasons 2012 FC 767 Hughes J

            2,440,764 – COMBIGAN – brimonidine / timolol

While the FCA has affirmed Hughes J’s decision (blogged here) granting an order of prohibition preventing Apotex from launching a generic version of COMBIGAN, the FCA decision is a thoroughgoing repudiation of Hughes J’s reasoning, in respect of both the main issues, comity and obviousness. The FCA decision is important on both these points. Today’s post will deal with comity and related issues, while my next post will focus on obviousness. 

The ‘764 patent covers a composition of two active ingredients, brimonidine and timolol, for the treatment of glaucoma. Such a composition is sold by Allergan as COMBIGAN. The ‘ 764 patent had previously been the subject of another NOC proceeding between Allergan and Sandoz, in which Crampton J had granted the order of prohibition sought by Allergan: Allergan v Sandoz / COMBIGAN (NOC) 2011 FC 1316. As discussed in my posts here and here, the sole issue respecting the ‘764 patent in the Sandoz / COMBIGAN litigation was whether it was invalid for obviousness. Crampton J held it was not. In the decision under appeal in Apotex / COMBIGAN (NOC), Hughes J found that the ‘764 patent was invalid for obviousness [FC 189], expressly disagreeing with Crampton J. This raised the question of the extent to which a FC judge should be influenced by a prior inconsistent decision. Hughes J therefore went on to review the case law and proposed a five-part approach for a court to adopt when faced with an earlier NOC decision involving failed invalidity allegations [FC 82]. Despite his conclusion that the claimed invention was obvious, Hughes J then went on to issue the prohibition order sought by Allergan, though it does not appear that Hughes J actually applied the five-part test which he had developed; rather he granted the order on the basis that the law regarding comity, and hence the precedential effect of Crampton J’s conclusion, required clarification by the FCA, and “[t]he only practical way to get the matter before the Court of Appeal is for me to grant the Order for prohibition in the likely expectation that Apotex will appeal” [FC 194].

Vacation

I will be on vacation (in New Zealand) for a few weeks. I expect to start posting again on December 13, starting with the cases I missed while away.

Sound Prediction and False Promise in Pfizer / sildenafil

Teva Canada Ltd v Pfizer Canada Inc, 2012 SCC 60 LeBel J for a unanimous court,* rev’g 2010 FCA 242 Nadon JA: Blais CJ, Trudel JA rev’g 2009 FC 638 Kelen J

            2,163,446 VIAGRA

While the SCC decided Pfizer / sildenafil on the basis that disclosure of the invention was insufficient under s 27(3), the issue of whether the factual basis for sound prediction must be disclosed in the specification was also raised. The SCC declined to decide this question, but what it did say on the point is nonetheless of some interest.

What Is the “Invention”?

Teva Canada Ltd v Pfizer Canada Inc, 2012 SCC 60 LeBel J for a unanimous court,* rev’g 2010 FCA 242 Nadon JA: Blais CJ, Trudel JA rev’g 2009 FC 638 Kelen J

            2,163,446 VIAGRA

As I noted in yesterday’s post, the Pfizer / sildenafil decision was fundamentally about the patentee’s duty to disclose the invention. But what is “the invention”? Sildenafil had not been explicitly identified in the description as compound which had been tested and found to work, but it had been separately claimed in Claim 7. The ultimate question was whether the identify of sildenafil as the tested compound was sufficiently disclosed. The doctrinal argument turned on whether each claim is to be considered a separate invention [53ff]. At trial, Kelen J had felt bound by the prior case law to hold that each claim defines a separate invention [FC 44, 148], and this was affirmed by the FCA [FCA 65].** This conclusion effectively determined the outcome. As the FCA explained at [71]:

The appellant argues that the Judge was not entitled to find that the patent was clear because Claim 7 was clear. However, the Judge was never actually required to find that the '446 Patent itself was clear. Rather, he was required to find that the '446 Patent clearly revealed the invention disclosed by Claim 7.

That is, once we have decided that the invention is sildenafil (more precisely, the use of sildenafil to treat ED), it follows that the invention was sufficiently identified, since the claim itself explicitly identifies sildenafil. The SCC reversed on the basis that in this case, the specification as a whole must be considered [64], and “there is only one invention: the use of the compound or compounds that are effective in treating ED” [68]. That being the case, it does not follow directly that the invention was sufficiently identified, because the question is whether Claim 7 (which is part of the specification), in conjunction with the disclosure, sufficiently identifies the tested compound. This will depend on the particular patent.

Disclosure Is the Quid Pro Quo

Teva Canada Ltd v Pfizer Canada Inc, 2012 SCC 60 LeBel J for a unanimous court,* rev’g 2010 FCA 242 Nadon JA: Blais CJ, Trudel JA rev’g 2009 FC 638 Kelen J

            2,163,446 VIAGRA

I wish I could say that my delay in writing this post has been because I was carefully pondering the implications of the decision, but the truth is that I was away at a conference (in Shanghai – a very interesting and dynamic city), and I have only just gotten to reading the decision. So these are my initial thoughts.

With that caveat, I do not see the SCC Pfizer / sildenafil decision as making a major change in the law. There is a tension in the disclosure requirement between the principle that the patentee must make full and complete disclosure, and the principle that some trials and experiments by the skilled addresses are permissible. The Federal Courts emphasized the latter principle, and the SCC emphasized the former. On the facts, this patent was close to the line, and either emphasis was reasonable. The disclosure was close to the line because the drafter was evidently deliberately pushing the boundaries of the disclosure requirement. Pfizer was apparently trying to high get a patent while trying to hide the effective compound from competitors; as Kelen J put it in “[t]e patent plays ‘hide and seek’ with the reader” [FC 135]. In my view, the SCC decision does not move the line, but rather clarifies where it lies. The decision should not have a broad impact, unless there are many other patents out there that are similarly trying to “‘game’ the system” [80]. In the end, the SCC holding is straightforward: the quid pro quo for a patent is disclosure. The patentee cannot have its cake and eat it too; it cannot keep its secret and its monopoly as well. The patentee tried in this case to minimize its disclosure, presumably to delay competitors from entering the market with patentable improvements. This is simply contrary to the disclosure requirement. Yes, competitors may be able to use the information disclosed, even prior to the end of the patent term. But disseminating information about the invention so others may make use of it, during the term as well as after, is the very purpose of the disclosure requirement.

First Quantum Judgment in Section 8

In what I believe is the first claim by a generic under s 8 of the NOC Regulations to go all the way to quantum, Apotex prevailed against Sanofi-Aventis for having been wrongly kept out of the market for ramipril: see Snider J`s decision in Apotex Inc v Sanofi-Aventis Canada Inc / ramipril (s 8) 2012 FC 553. Snider J`s judgment as to quantum has now been released. It awards Apotex $215 million in damages. As discussed here (and see also here), Apotex’s damages were calculated on the basis of strict “but for” causation, including an allowance for the likelihood of multiple generic entry, except that the generic is not entitled to the equivalent of springboard damages. Thus the damages principles are sound and, if anything, underestimate Apotex`s loss.  

Further, Sanofi is also liable to Teva on the same principles and in respect of the same market: see Teva Canada Ltd v Sanofi-Aventis Canada Inc / ramipril (s 8) 2012 FC 552 (blogged here and here). I now realize that the likelihood of multiple generic entry may provide a principled basis for refusing ``springboard`` damages to the first generic to enter. That is, damages cannot be recovered for permanent loss of market share after the generics enter the market, even if that loss was caused by the statutory stay. This rule has been justified on the basis that the NOC Regulations provide an overall balance between patentees and generics, even though it may be unprincipled if considered in isolation (see here). But if the overall generic share after the expiry of the stay is the same, then a loss of market share suffered by one generic is a gain to another, and it may be sound in principle and simpler in practice to deny all such awards than to try to adjust damages upwards and downwards for each generic.

Whether or not springboard damages are properly denied as a matter of principle, the point remains that Sanofi`s exposure is greater than the $215 million awarded to Apotex. Moreover, as the first comment to my IP Kat post on this award notes, the public also suffers a loss in the form of higher prices from the generics being wrongly excluded from the market, and the patentee is not liable at all for that loss. To the extent that s 8 is intended to provide an incentive for the patentee not to list patent of dubious validity, failure to capture the loss to the public means that the incentive is actually too small. This is the rationale for allowing the generic to claim an accounting of the patentee`s profit, which has so far been refused as a matter of statutory interpretation. An accounting would also raise difficult questions of apportionment between different generics; the patentee cannot be liable for its entire profit to every generic that would have entered.

A great deal has been written in the academic literature on the economic incentive effects of damages generally. With awards of this magnitude under s 8, it seems the time is ripe for a full principled analysis of s 8 damages.

The False Doctrine of False Promise

After having often been critical of the “promise of the patent” doctrine in this blog, I have finally finished an article on the subject, entitled "The False Doctrine of False Promise," which has now been accepted by the CIPR. The article is available through SSRN in essentially the final version (subject to copy-editing). Here is the abstract:

The emergence of the “promise of the patent” doctrine is an important recent development in Canadian patent law, which primarily impacts pharmaceutical patents. The doctrine holds that if the specification sets out an explicit “promise,” the utility requirement will be satisfied only if the claimed invention delivers on that promise. In practice, the promise of the patent, as set out in the disclosure, is now almost invariably the standard for assessing utility of a pharmaceutical patent. The result is that a patent may be held invalid for lack of utility, notwithstanding that the disclosed invention has sufficient utility to support a valid patent. This article shows that the doctrine originated in English law at a time when the grant of the patent was a discretionary exercise of the royal prerogative, so that the Crown might properly refuse to grant a patent even though it would be upheld by the courts if granted. Consequently, the patent was granted on the basis of all representations made by the applicant, and the promise of the patent doctrine reflected an unwillingness of the courts to second-guess the Crown in the exercise of its prerogative. This article argues that the doctrine is inconsistent with the Canadian Patent Act, under which an applicant is entitled to a patent as a matter of right if the invention satisfies the statutory criteria.

Leave to SCC Denied re Damages after Compensable Period

The SCC has denied Teva’s application for leave to appeal in Teva Canada Ltd v Nycomed Canada Inc 2012 FCA 129, in which the FCA reaffirmed that in a claim for damages under section 8 of the NOC Regulations, losses incurred by a generic after the end of the compensable period are not recoverable, even if the losses were caused by the statutory stay (blogged here). The FCA held that the issue “is now settled at the level of this Court,” [7] and “Teva's remedy is to apply again for leave to appeal to the Supreme of Court of Canada” [11]. Denial of leave does not imply that the SCC is of the view that the decision appealed from was correctly decided, as the primary criteria for granting leave is the “public importance” of the issue, but the SCC has now denied leave twice on this issue under the new Regulations, and once under the old Regulations (see the FCA decision). It therefore appears very unlikely that this question will be addressed by the SCC, unless it is raised as a subsidiary issue in a case in which leave is granted on the basis of some other question. As a practical matter, then, this point is now settled, barring amendment to the Regulations.

Ramipril Costs

Sanofi-Aventis / ramipril (Costs) 2012 FCA 265 Sharlow JA: Dawson, Trudel JJA

In this brief decision from the bench, the FCA dismissed nine appeals and four cross-appeals, relating primarily to Snider J’s costs awards in ramipril litigation between Sanofi-Aventis and Apotex and Teva, 2009 FC 1138 (Apotex) and 2009 FC 1139 (Teva / Novopharm). The appeals were dismissed on the basis that the costs awards were “well within the discretion of Justice Snider” [4]. Consequently, the neither the FCA decision nor the decision of Snider J establish a strong precedent on costs matters. Nonetheless, a several points from Snider J’s decisions are worth noting.

Scale of Costs

First, with respect to the scale of costs

In my view, the upper end of Column IV is appropriate, and not simply because this award "splits the difference". A review of recent jurisprudence on the issue of awards in intellectual property trials indicates that this scale recognizes the significance and complexity of the various issues in such a trial. [2009 FC 1138 ¶ 14, 2009 FC 1139 ¶ 13]

This is consistent with costs in Eurocopter v Bell, and higher than the scale used by Zinn J in the fenobibrate costs decision.

Offer to Settle

In the Teva / Novopharm case Snider J took into account an offer to settle that did not satisfy Rule 420 (emphasis added):

[22] Sanofi argues that Novopharm has not provided sufficient evidence to support a Rule 420 finding and, in any event, the settlement offers would not meet the criteria of Rule 420. I agree. However, I am also sympathetic to Novopharm's situation. It appears that, even if these offers were not formal or substantive enough to satisfy Rule 420, there is no doubt that they were made in a good faith effort to end the litigation. Further, while Sanofi now explains why the offers could not have been accepted, I see no evidence that Sanofi ever tried to make responding offers. In November 2008, Novopharm went so far as to draw up draft terms of settlement, to which there appears to have been no response. Even on the little evidence before me, I am satisfied that Novopharm made very serious efforts to settle the litigation both prior to and during the trial. Sanofi's attitude throughout, and its defensive, after-the-fact justification for its failure to properly consider the offers are simply not helpful. In the circumstances, while recognizing that the offers do not satisfy Rule 420, I am convinced that the settlement offers by Novopharm should result in an increase in the overall award of 50%.

In the Apotex case Snider J similarly took into account an offer to settle by Apotex , but increased the overall award by only 20% because the offer to settle was vague [22].

Bifurcation

In both cases over half the trial days related to remedies, which, with hindsight, turned out to be wasted as the patent was held to be invalid. Sanofi had brought a motion to bifurcate which had been resisted by both Apotex and Novopharm. Snider J ordered a 10% reduction in the overall award of costs to reflect Apotex and Novopharm’s responsibility for the unnecessary remedies phase. However, Snider J noted that in both cases resisting bifurcation was not initially unreasonable because there was a good faith belief that the remedies phase would be relatively brief.

As the reality became clear, the Plaintiffs could have brought a further motion or a motion for reconsideration. That did not happen. Further, Sanofi contributed to the length of this phase of the trial by not making an election between damages and profits until the commencement of the presentation of oral arguments.

Thus in different circumstances the discount for resisting bifurcation might have been greater.

Mere Verification and Anticipation

AstraZeneca Canada Inc v Pharmascience Inc / esomeprazole (NOC) 2012 FC 1189 O’Keefe J

            2,290,531 NEXIUM

As noted in my first post on this decision, here, the patent at issue claims an enteric coated pharmaceutical formulation of omeprazole using hydroxypropyl methylcellulose (HPMC) with a specified cloud point (CP) as a separating layer between the enteric coating and the active ingredient. The patent asserts that it has surprisingly been found that there is batch variation in the CP of HPMC which affects the rate of release of omeprazole. Pharmascience argued that the patent in question was not an invention on the basis that it merely ascertained the properties of a known substance [173ff]. O’Keefe J dismissed this argument, I believe correctly. However, I do have one concern.

O’Keefe J described the issue as “Is the ‘531 Patent not an invention as defined in section 2 of the Patent Act because it merely ascertains the properties of a known substance?” [92]. I suggest that this is not the best characterization of this issue. In some sense it is true that an invention that does not meet the requirements of patentability as set out in the Act is not an “invention” as that term is used in the Act, but now it is more usual to associate a particular attack with a particular established doctrine and its corresponding section. That is, we no longer say that an obvious invention “lacks subject-matter,” but rather that it is invalid for obviousness under s 28.3. Section 2 is associated with the attack that the invention is not patentable subject matter, as being, for example, a higher life form. I suggest that the argument that the invention merely ascertains the properties of a known substance is more properly considered an attack based on anticipation: see eg see King Pharmaceuticals, Inc v Eon Labs, Inc, 616 F3d 1267 (Fed Cir 2010), cited with approval on this point in Janssen Inc v Mylan Pharmaceuticals ULC / galantamine (NOC), 2010 FC 1123 at [54], treating this issue as being one of anticipation.

Double Ramp-Up in NOC Section 8 Damages

Apotex Inc v Merck Canada Inc / alendronate (NOC) 2012 FC 1235 Hughes J

Under s 8 of the NOC Regulations, if a patentee is unsuccessful in NOC proceedings, a generic which has been kept out of the market by the statutory stay is entitled to damages. While a number of cases have addressed preliminary questions regarding section 8, this is only the third decision quantifying those damages, after the ramipril companion cases decided by Snider J in Teva v Sanofi-Aventis / ramipril 2012 FC 552 and Apotex Inc v Sanofi-Aventis / ramipril 2012 FC 553 (Blogged here, here and here). Hughes J adopted (at [10]), the same approach used by Snider J in the ramipril cases, which compares the “but for” world which would have been if the generic had not been prohibited from entry by the statutory stay, with the real world, with one important caveat. In Merck Frosst Canada Ltd v Apotex Inc / alendronate (NOC) 2009 FCA 187 var’g 2008 FC 1185 the FCA held that the generic is entitled only to losses incurred during the statutory period. Apotex had argued that it was entitled to compensation for loss of permanent market share - springboard damages - but the FCA held that losses incurred after the statutory period are not compensable even if they were caused by the statutory stay.

In many respects the quantification exercise was remarkably straightforward. Hughes J provided a clear and logical structure of issues to be addressed such as the relevant period, the overall market size, generic share and so on [10]. He also identified four key factual determinations relating to when a generic would have entered the marketplace, such as when the generic would have had manufacturing capacity [44]. The parties agreed on many key factual issues, both at a broad level (for example, they agreed that “the [generics'] share in the ‘but for’ world, is the same as the share occupied by the generics in the subsequent ‘real world’ period” [42]) and at a more detailed level (agreement that the generic price would generally be set at 70% of brand price with only one generic in the market, and 63% with multiple generics [75-77]). There were of course a few factual disputes resolved by Hughes J, but on the whole this decision gives some reason for hope that quantification of s 8 damages may not always be a difficult exercise once the basic legal principles are clarified.

There was one contentious point of legal principle, related to the issue of “double ramp-up” [81-87]. “When an organization introduces a new drug product into the marketplace, there is an initial period during which the product has to be made or acquired, orders received from customers, and the product is to be shipped to customers” [81]. This is the ramp-up. The difference between the profits during the ramp-up period and the profits during the same time in the steady state is the “ramp-up loss.” The experts for the parties agreed that to determine Apotex’s profits in the “but for” world, this ramp-up loss must be taken into account, so that Apotex’s profits would be somewhat lower than if it had been able to sell at full capacity for the entire period [82]. The experts for the parties also agreed that as a matter of accounting practice and causation, Apotex should not suffer a double ramp-up loss [82]. Apotex actually suffered a ramp-up loss in the real world, and if a ramp-up loss is also deducted in constructing the “but for” world, then Apotex will face a double ramp-up loss, even though in either the real world or the "but for" world, the loss would have been suffered only once, albeit at different times. 

However, as noted above, the FCA has held that losses incurred outside the statutory period are not compensable, even if they were caused by the stay. Consequently, in Apotex Inc v Sanofi-Aventis / ramipril 2012 FC 553 [265-270] Snider J refused to allow Apotex to deduct the ramp-up loss that occurred in the real world, holding that this was precluded by the FCA decision. Hughes J disagreed with Snider J on this point:

[86] I am not satisfied, particularly given the common view of the accounting experts that, normally, compensation would be made to prevent a double ramp-up loss, that the Court of Appeal had this situation in mind.

Nonetheless, citing “the interests of comity and in the expectation of an inevitable appeal” he followed Snider J and he refused to allow compensation for the double ramp-up.

I expect that Hughes J is right to say that the FCA did not have this situation in mind, although Snider J’s holding that the principle enunciated by the FCA nonetheless covers the ramp-up issue has considerable force. It would have been instructive, and no doubt helpful for the FCA, to have had Hughes J’s analysis of the issue. I am not sure that the principle of comity required him to follow Snider J. The functional justification for following prior decisions of the same level of court is that once enough cases have consistently addressed a point of law it should be considered settled; legal certainty should not require an appellate decision. But a novel point of law should not be considered settled by a single decision. It would be perverse if the first judge to address a legal point decided one way, and five subsequent judges all disagreed, but nonetheless followed the first judge, simply because he was first.

On the whole, this decision suggests that many of the factual points arising from s 8 litigation may be relatively easy to settle, but the legal points will be settled narrowly and so will require many trips to the FCA.

Direct Evidence of Lack of Utility Is Useful

AstraZeneca Canada Inc v Pharmascience Inc / esomeprazole (NOC) 2012 FC 1189 O’Keefe J

            2,290,531 NEXIUM

This decision turned entirely on the evidence regarding utility, and no new points of law appear to be raised. The patent at issue claims an enteric coated pharmaceutical formulation of omeprazole using hydroxypropyl methylcellulose (HPMC) with a specified cloud point (CP) as a separating layer between the enteric coating and the active ingredient. The patent asserts that it has “surprisingly” been found that the CP of HPMC affects the rate of release of omeprazole. Pharmascience’s evidence was that not only was this surprising, it was incredible and false. The expert evidence for Pharmascience was to the effect that the HPMC was merely a separating layer and “could not function to control the rate of drug release” [40].

The case therefore turned primarily on the evidence on the issue of utility. O’Keefe J held that Pharmascience had met its evidentiary burden and put this allegation into play, and the burden therefore lay with AstraZeneca to show on the balance of probabilities that the patented invention was useful [172]. On the facts, O’Keefe J held that the experiments disclosed in the patent were sufficient to carry this burden [191]. Ultimately, Pharmascience’s case failed because AstraZeneca provided direct evidence that the invention worked as claimed, while Pharmascience did not provide any direct evidence to the contrary. There was considerable evidence from Pharmascience’s experts that it was very unlikely that the CP should affect the rate of drug release, but that only goes to show how surprising it is if the patent’s claim is true. Pharmascience did not provide evidence of direct tests of rate of release of formulations with the different CPs, as disclosed in the patent [193]. In the absence of evidence that the invention actually did not work, as opposed to evidence that it was unlikely to work, the patentee’s evidence that it did work carried the day.

Pharmascience also argued that the patent in question was not an invention on the basis that it merely ascertained the properties of a known substance [173ff]. O’Keefe J dismissed this argument. The patent did not merely measure the CP, but also disclosed how to use that knowledge to manufacture a superior product [176]. (Selecting HPMC with the disclosed CP would reduce product discard [97].)

On the fact O’Keefe J held that disclosure was adequate. This was purely a matter of the skilled person’s understanding of the disclosure, and no novel points of law were raised.

Finally, O’Keefe J dismissed Pharmascience’s argument that the invention was obvious. This follows directly from his holding on the evidence that the CP does affect rate of release, as Pharamscience’s own evidence established how surprising this was.

What Is a “Formulation”?

Gilead Sciences Canada, Inc v Canada (Minister of Health) / COMPLERA 2012 FCA 254 Trudel JA: Sharlow, Mainville JJA, aff’g 2012 FC 2 Mosley J (blogged here)

            2,512,475

A question left aside in last week’s week post on this decision was whether the patent in question claimed a medicinal ingredient, and so would be eligible for listing under NOC Reg s 4(2)(a), or a formulation, eligible under 4(2)(b).

The ‘475 patent at issue includes a claim to two medicinal ingredients, tenofovir and emtricitabine, in combination with a third medicinal ingredient from the class of non-nucleoside reverse transcriptase inhibitors [claim 34; FC 24]. A “claim for the formulation” is defined (emphasis added) under the NOC Regs s 2 as

"claim for the formulation" means a claim for a substance that is a mixture of medicinal and non-medicinal ingredients in a drug and that is administered to a patient in a particular dosage form;

As the FCA emphasized, this definition requires that a formulation contain non-medicinal ingredient [27]. The relevant claims do not. Consequently, the FCA held that the eligibility of this claim turned on para 4(2)(a), not (b)[32].

This is a straightforward conclusion on the text of the provision. Why then did the Minister argue, in a point accepted by Mosley J, that the listing should be considered under 4(2)(b) [FC 37]? I think the key to the argument is captured in a statement by Russel J in Bayer Inc v Canada (Minister of Health), 2009 FC 1171 [80], aff’d 2010 FCA 161, quoted by Mosley J at [FC 41]:

The essence of a compound patent is the medicinal ingredient; the essence of a formulation patent is the mixture of ingredients.

In this case, the inventive concept was the discovery that tenofovir and emtricitabine are chemically stable when combined with a third anti-viral of the claimed class [FC 25]. The essence of the invention was the mixture of ingredients, not the discovery of any new medicine. Thus a purposive perspective suggests that the Minister and Mosley J were correct in their interpretation. But text, context and purpose must all be read together, and “[w]hen the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process” Canada Trustco 2005 SCC 54 [10]. In this case, my view is that the text was sufficiently unequivocal that it should dominate, so that the FCA was correct in its interpretation. However, this case does illustrate a shortcoming in the drafting of 4(2)(b), in that the text is inconsistent with the apparent purpose. In this case no harm was done, as the FCA held that the claim was eligible under 4(2)(a). This implies that a mixture of medicinal ingredients is eligible under 4(2)(a) even when the mixture is desirable for reasons of formulation, and not because of a new medicinal effect. That conclusion is perhaps problematic from a purposive perspective, but it does solve the problem of this type of claim falling between the cracks of 4(2)(a) and (b).

Remand on Infringement Includes Factual Findings

Corlac Inc v Weatherford Canada Ltd 2012 FCA 261 Dawson JA: Nadon, Stratas JJA remanding 2012 FC 76 Phelan J

This decision is a second attempt by the FCA to have Phelan J clarify his reasoning on one issue in the Corlac v Weatherford litigation. The patent at issue relates to a seal assembly for use in oil well pumps. In Weatherford v Corlac 2010 FC 602, Phelan J held claims to the assembly itself to be infringed by Corlac, which sold seal assemblies. Claim 17 was to a method of detecting and restraining oil leaks using that assembly. While Corlac did not practice the infringing method, Corlac sold the assemblies with instruction manuals which, according to Weatherford’s expert, taught the practice described in claim 17 [175]. Phelan J held claim 17 to be infringed, but his reasoning on this point was brief and not entirely clear: see [199]. On appeal, 2011 FCA 228, a decision known primarily for its treatment of fraud on the patent office, the FCA affirmed Phelan J except in relation to claim 17. The FCA held that “the judge's reasons do not provide for meaningful appellate review” and consequently, “I would return the issue of infringement of claim 17, that is inducement, to the judge to be determined in accordance with the established test” [171, emphasis added].

On remand, in 2012 FC 76, (see here) Phelan J addressed each of the legal elements of the three-part test for inducement. However, Phelan J did not revisit a crucial factual issue, holding that it was rea judicata [6]. On appeal of that decision, in 2012 FCA 261, the FCA held that it had remanded the entire "issue of infringement of claim 17" to Phelan J, and "the issue" includes the factual issue. The FCA also pointed out that in his original reasons, Phelan J had never explicitly accepted the evidence of Weatherford’s expert: “At best, such a finding is implicit in the Judge’s finding of infringement” [36]. The FCA also pointed out that in its original decision it had never accepted this implicit factual finding; it merely pointed out how Phelan J had determined the point [33].

The FCA’s reasoning is logical. With that said, I understand why Phelan J did not address the factual issue in his original decision. While the FCA did explicitly remand “the issue of infringement," the FCA focused primarily on the legal test, and, as the FCA pointed out, the factual finding was implicit in Phelan J’s original decision. And since that factual finding was indeed implicit in his original determination, it would be surprising if his determination were to change now that he will be required to make it explicitly.

What Are Normal Costs in Hard Fought Litigation?

Fournier Pharma Inc v Sandoz Canada Inc / fenofibrate (Costs) 2012 FC 1121 Zinn J

A point of general interest in Zinn J’s costs decision from the fenofibrate litigation (blogged here and here) is his remark at [6] (emphasis added) that

Typically costs are assessed at the mid-point of Column III of the Tariff; however, numerous judgments of this Court have assessed costs in pharmaceutical litigation at higher levels. Given the complexity of this litigation, I find that the costs are to be assessed at the higher end of Column III.

Contrast this will Martineau J’s statement in his costs decision in Eurocopter v Bell at [22] that “an assessment of costs in accordance with the higher unit of column IV seem to be commonly maintained in [] lengthy and hard-fought patent litigations” (emphasis added). Eurocopter was an infringement action while the fenofibrate case was an NOC proceeding, but this does not seem to be a distinguishing factor, as Zinn J referred simply to “pharmaceutical litigation.”

Extreme Application of Product Specificity Requirement Affirmed

Gilead Sciences Canada, Inc v Canada (Minister of Health) / COMPLERA 2012 FCA 254 Trudel JA: Sharlow, Mainville JJA, aff’g 2012 FC 2 Mosley J (blogged here)

In this decision the FCA has affirmed a very strict application of the already strict product specificity requirement for listing a patent against a drug on the Patent Register that it set out in Purdue Pharma / TARGIN 2011 FCA 132 (blogged here). In my view, the requirement as set out by the FCA is overly strict and is not consistent with a purposive interpretation of the relevant provisions of the NOC Regulations.

Is the Test for Inducement “Strict”?

Weatherford Canada Ltd. v. Corlac Inc. 2012 FC 76 Phelan J (on remand from 2011 FCA 228)

The patent at issue relates to a seal assembly for use in oil well pumps. In Weatherford Canada Ltd. v. Corlac Inc. 2010 FC 602 varied 2011 FCA 228, Phelan J held a number of claims to be valid and infringed by Corlac. All of the claims in issue except one, claim 17, were to the assembly itself. Claim 17 was a claim to a method of detecting and restraining oil leaks using that assembly. On appeal, the FCA affirmed Phelan J except in relation to claim 17. The FCA at [162] re-affirmed the accepted three-part test for inducement:

            First, the act of infringement must have been completed by the direct infringer.

Second, the completion of the acts of infringement must be influenced by the acts of the alleged inducer to the point that, without the influence, direct infringement would not take place.

Third, the influence must knowingly be exercised by the inducer, that is, the inducer knows that this influence will result in the completion of the act of infringement

Layden-Stevenson JA, for the court, held that Phelan J had not explicitly applied this test, and “[i]n view of the stringent test for inducement, I cannot determine whether the judge, had he explicitly applied the test, would have arrived at a conclusion that the appellants indirectly infringed claim 17" [168]. The FCA therefore remanded the case to Phelan J for re-determination in accordance with the accepted test [171].

Perhaps the most interesting part of Phelan J’s decision concerns the standard of proof. Part of Corlac's complaint on appeal was that there was no direct evidence of direct infringement by end-users. Though the FCA did not accept that such evidence was necessary, it did hold that “[t]here seem to be significant gaps in the evidentiary basis needed to support what appears to be an implicit finding of third party use” [169]. Thus the standard of proof was a significant issue. Further, as Phelan J noted at [10], the FCA variously described the test as a “difficult one to meet”, “a stringent test”, and a “strict” test. But, as Phelan J pointed out at [11], “[t]he Supreme Court has confirmed that there are only two evidentiary standards – ‘balance of probabilities’ and ‘beyond reasonable doubt’ (see F.H. v McDougall, 2008 SCC 53),” and the civil standard is proof on the balance of probabilities, or “more likely than not.”

Having established that the standard of proof is the balance of probabilities, Phelan J then reviewed the evidence, explicitly applied the three-prong test for inducement and held, on that standard, that it had been satisfied, in effect because Corlac has sold the assembly with instructions directing the end-users to use it in an infringing manner. Phelan J was willing to accept, on the evidence that customers were likely to use the assembly according to the instructions and that Corlac would have intended that they do so. Consequently, Corlac was held liable for inducing the infringement of claim 17 [24].

So what does it mean to say that a particular test is “stringent”? As Phelan J noted, it cannot mean any change in the standard of proof. It strikes me that in saying the test was “stringent” or “strict” the FCA may simply have been saying that all three prongs must be met. In saying the test is a difficult one to meet, the FCA may have meant that because the three separate prongs must all be met, it will be generally be difficult for a patentee to establish inducement, even on the balance of probabilities. That is, these remarks were meant as an observation, rather than a proposition of law. But I am not sure it is right to say that the test is particularly difficult to satisfy in practice: as Mandamin J noted in Glaston v Horizon Glass 2010 FC 1191, in a number of cases “[i]nducement has . . . been found where a seller provides a purchaser with instructions or directions for using an infringing method” [89]. This decision adds to that list.

Infringement if Later ≠ Anticipation if Earlier

Bristol-Myers Squibb Co. v. Mylan / efavirenz (NOC) 2012 FC 1142 Barnes J

            2,101,572 – 2,279,198 – efavirenz – SUSTIVA

The traditional rule is that “what would infringe if later, anticipates if earlier”: Abbott Labs v Ratiopharm / clarithromycin (NOC) 2006 FCA 187 [25]; Lightning Fastener Co. v. Colonial Fastener Co., [1933] SCR 377 at 381. This is no longer true, since Sanofi 2008 SCC 61, following Synthon [2005] UKHL 59, held that anticipation requires enabling disclosure. This adage applies only to the disclosure prong of anticipation: Synthon [24]. If the prior use did not disclose the information necessary to enable the invention, it will not anticipate. It will still infringe if practiced later, since infringement does not require knowledge: Merrell Dow v HN Norton [1995] UKHL 14 [47]; Abbott / clarithromycin (NOC) [24]. The consequences is that if the prior use was not enabling, a later patent could confer a right to stop people from doing what they had done before. This is strikingly counter-intuitive: “Ever since the power of the Crown to grant monopolies was curbed by parliament and the courts at the beginning of the seventeenth century, it has been a fundamental principle of United Kingdom patent law that the Crown could not grant a patent which would enable the patentee to stop another trader from doing what he had done before”: Merrell Dow v HN Norton [17]. Nonetheless, that is the direct implication of the rule that anticipation requires enabling disclosure. So far the leading cases Canadian and UK cases have avoided this result on the facts, as in Merrell Dow, but this is not a satisfactory response. (US law has addressed the problem directly with the doctrine of inherent anticipation: “a prior art reference may anticipate without disclosing a feature of the claimed invention if that missing characteristic is necessarily present, or inherent, in the single anticipating reference”Schering Corp v Geneva Pharmaceuticals 339 F.3d 1373, 1377 (Fed Cir 2003).) The problem will arise one day in a context in which it cannot be avoided, and the courts will face a choice between preventing a person from doing what she has been done before, and adhering strictly to the requirement of enabling disclosure.

Use Claims and Choice in Construction of the Promise

Bristol-Myers Squibb Co v Mylan / efavirenz (NOC) 2012 FC 1142 Barnes J

            2,101,572 – 2,279,198 – efavirenz – SUSTIVA

Efavirenz is an anti-retroviral drug used to treat HIV infection, typically in combination with other anti-retroviral agents. Two patents related to efavirenz were at issue in this case: the ‘572 patent, expiring in July 2013,which claimed efavirenz; and the ‘198 patent, expiring in 2018, which claims a particular crystalline form of efavirenz (Form I) and a process for producing it. BMS was successful in obtaining an order of prohibition in respect of the ‘572 patent, but not in respect of the ‘198 patent. This post will focus on the ‘572 patent. The interesting question of how to construe the promise of the patent in the context of a use claim, where the utility is specified in the patent itself, was raised but avoided. The most interesting statement in the decision hints in dicta at a return to the older view that “. . it is sufficient utility to support a patent that the invention . . . affords the public a useful choice.”

Issues for the SCC in Olanzapine Decision?

Eli Lilly Canada Inc v Novopharm Ltd / olanzapine (No 2) 2012 FCA 232 Nadon JA: Sharlow, Trudel JJA aff’g 2011 FC 1288 O'Reilly J

2,041,113 – olanzapine – ZYPREXA

In Eli Lilly Canada Inc. v. Novopharm Ltd. / olanzapine (No 1) 2009 FC 1018 O’Reilly J held Lilly’s olanzapine patent, 2,041,113, to be an invalid selection patent over the genus patent 1,075,687. On the appeal, the FCA held that invalid selection is not an independent basis upon which to attack the validity of a patent and that O’Reilly J’s finding of invalidity was fatally tainted by this error: 2010 FCA 197. The FCA held that the patent was neither anticipated nor obvious, nor was it invalid for double patenting, but it remanded the case to O’Reilly J on the issues of utility and sufficiency. On remand in Lilly v Novopharm / olanzapine (No 2) 2011 FC 1288, O'Reilly J held that the disclosure was sufficient, but the patent was invalid for lack of utility. In a brief decision from the bench the FCA has affirmed this decision: “we have not been persuaded that the judgment under appeal is based on any error of law or principle or any palpable and overriding error of fact” [1].

This brevity of this FCA decision is both unfortunate and understandable. It is unfortunate because O’Reilly J’s decision directly raises two important issues of pharmaceutical patent law. It is understandable because the legal issues are relatively settled at the FCA level.

The first issue relates to the promise of the patent doctrine, which holds that “where the specification sets out an explicit ‘promise’, utility will be measured against that promise” Lilly v Novopharm / olanzapine (No 1) 2010 FCA 197 [76]. If the promised utility is greater than that which is necessary to support a patent, utility will be measured against that promise, with the result that a patent for an invention which has sufficient utility to support a patent may nonetheless be invalid for lack of utility. This appears to be exactly the what happened in this case, as explained in this post on O’Reilly J’s decision. Nonetheless, this doctrine is now firmly established in the Federal Court jurisprudence: in Lilly v Novopharm / olanzapine (No 1) the FCA went so far as to say that “[t]he promise of the patent is fundamental to the utility analysis” 2010 FCA 197 [93]. The real battleground now is how exactly to construe the promise of the patent in a given case. In Lilly v Novopharm / olanzapine (No 1) the FCA gave a very strong hint to O’Reilly J as to how it thought that the promise should be construed and on remand he took the hint and construed the patent as suggested by the FCA. It is therefore not surprising that the FCA should be unwilling to review either the doctrine or the construction of the promise in this case.

From this it seems clear that the promise of the patent doctrine is here to stay, at least until it gets taken to the SCC. In my view, the doctrine is fundamentally unsound, and the SCC should grant leave sooner rather than later. After often being critical of the doctrine in this blog, I decided to explore the issue in a full article, which I am just finalizing. In that article I show that the doctrine was originally premised on the fact that the grant of a patent was a discretionary exercise of the Crown prerogative, so the mere fact that an invention had sufficient utility to support a patent did not guarantee that the Crown would actually choose to grant a patent. In measuring utility by the promise of the patent, the courts were refusing to second guess the Crown as to whether the patent should have been granted. Now that the grant of a patent has shifted from a matter of discretion to a statutory right, the basis for the doctrine no longer exists. Indeed the doctrine is inconsistent with the fac that the Commissioner of Patents has “nodiscretion to refuse a patent . . . if the statutory criteria are met” Harvard Mouse 2002 SCC 76 [11] (Binnie J), dissenting), [119] accord (Bastarache J). I will be on a panel “Current Issues in Construction of a Patent,” at the upcoming IPIC AGM which will discuss this doctrine, and I expect to have a draft of my article available before then.

O’Relly J’s decision in Lilly v Novopharm / olanzapine (No 2) also raises a second important issue related to selection patents. The IG Farbenindustrie rules for selection patents which were adopted by the SCC in Sanofi 2008 SCC 61 as being “well accepted” [11] have since been repudiated by the EWCA as being unsound in principle. In Dr Reddy’s Laboratories v Eli Lilly / olanzapine [2009] EWCA Civ 1362, [2010] RPC 9 [39] Jacob LJ noted that

If one thinks about [the IG rules] it is difficult to see how, realistically, they could be complied with unless the patentee carried out an enormous range of experiments. How can you show your class (or compound) has a “substantial advantage” over the prior class without experimenting with at least quite a lot of the class – enough to make a sound prediction at the very least? Or how can you show that the quality which makes your selected class is peculiar to that class? If you put in your thumb and pull out a plum, how are you to say that there are no other plums in the pudding?

As I noted in a previous post on the FC decision, O’Reilly J invalidated the olanzapine patent exactly for failure to conduct enough experiments to show that olanzapine had a substantial advantage over the prior class. That is, his decision turned on precisely an application of the test which caused the EWCA to reject the IG Farbenindustrie rules as unsound. Nonetheless, in light of the four-year old decision inSanofi approving those rules, it is understandable that the FCA would not choose to revisit them. Again, it seems that if the doctrine is to be addressed, it will have to be done by the SCC.