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].