No New Cases for the Week of 23 June

No new patent / NOC / data protection cases were posted on the Federal Courts' websites for the week of 23 June 2013.

Patents to Oil Field Fluid Containment Products Invalid on the Facts

Zero Spill Systems (Int'l) Inc v 614248 Alberta Ltd 2013 FC 616 Barnes J
            2,258,064, 2,136,375, 2,166,265 Design 86793

Zero Spill Systems is a straightforward case turning on the facts. The patents and industrial design at issue related to oil field fluid containment products. The pipes used on oil rigs are full of fluid. When the pipes are disassembled it is desirable to catch that fluid, both to prevent environmental damage and to prevent the rig workers from getting “hosed.” Various fluid containment systems had been used almost since the beginning of the drilling industry [52].

Many of these systems consist of a tray adapted to fit around the flow nipple (the pipe that houses the drill pipe or string [6]), so that fluid spilled from pipes being disassembled above the nipple is directed back in to the flow nipple. The ‘375 patent was to an improved tray of this type. The uncontested evidence was that “a core inventive concept of the 375 Patent concerns the capacity of the upper tray to move telescopically relative to a fixed annular seal” [76], specifically by using a seal in the form of a flexible gasket between the tray and the flow nipple [88]. This was clearly an essential element, as it was only this feature which distinguished the invention of the ‘375 patent from the prior art [77]. On the evidence, Barnes J held that this feature was neither anticipated nor obvious [83], but neither was it infringed by either of the defendants’ containment systems. In one of those systems the seal fit snugly around the flow nipple, so as to be effectively mated and immovable [89], and in the other the tray functioned as a funnel sitting inside the flow nipple, and so was again effectively immovable [91].

The ‘064 patent concerned a containment tray adapted to fit around a “christmas tree.” There was some dispute as to how to interpret that term, but in the classic sense it means the collection of valves installed to control production on a service well. There was a dispute as to whether it could also be construed to include a blow out preventer used on a drill rig. Barnes J held that it included only a classic Christmas tree, but this point of construction does not seem to have been central to the holding of invalidity.

Barnes J held that the ‘064 patent was anticipated by the prior art Schuyler and Gayaut Patents [117], as well as by custom built solutions that had been used in the field. His reasoning on this issue was very brief; he did not identify the essential elements, and some passages suggest that his finding may have been based on obviousness. For example, he says “The 064 Patent was also anticipated by the prior use of lower trays as described by the industry witnesses. . . .Even if no exact replica of the 064 Patent apparatus was in prior use, I am satisfied that there is nothing about the design or fit up of the 064 Patent lower tray that would not have been obvious to a person of skill long before July 7, 2000" [118]. My impression is that this is a case that falls on the line between obviousness and anticipation. So, the Schuyler patent, US 5,377,748, describes a tray adapted to fit around “a variety of types of tubular members such as oil well casing, oil well pipe, and equipment attached to the casing having annular portions such as the wellhead of the oil well, well spools, blow-out preventers and the like.” The ‘064 patent claims a tray adapted to be positioned around “a christmas tree.” Does specifying a Christmas tree in particular, as opposed to a general tubular member, give rise to a potentially distinguishing selection patent, which must be assessed for obviousness, or is it a case of anticipation? The question calls to mind the statement of Lord Abinger in Losh v Hague (1838), 1 WPC 202 at 208,

it would be a very extraordinary thing to say, that because all mankind have been accustomed to eat soup with a spoon, that a man could take out a patent because he says you might eat peas with a spoon.

Whether it is invalid as anticipated or invalid as obvious, the result is the same.

Validity was the only issue in respect of the ‘265 patent, as the plaintiff no longer asserted infringement, but one of the defendants sought a declaration of invalidity [12]. Barnes J held this patent invalid for obviousness, essentially because there was no plausible evidence that the differences between the ‘265 patent and the prior art were anything but routine [139].

With respect to the ‘793 industrial design, Barnes J’s holding turned on the clear law set out in s 5.1 of the Industrial Design Act that industrial design protection does not extend to “features applied to a useful article that are dictated solely by a utilitarian function of the article” [127]. On the facts, there was no evidence that there were any common features between the design and the defendant’s products that were anything other than functional [132].

Finally, while it was unnecessary to deal with damages in light of the conclusions regarding validity and infringement, Barnes J pointed out that in order to claim lost profits damages, the patentee must show not only that the defendant sold an infringing product, but also that but for the infringement, the patentee's product would have captured that sale. In this case, there was no adequate evidence of lost profits [148]. Partly this was because the patentee rented their product, while the defendants sold theirs, so there was some difficulty in making a comparison, but more generally there were methodological flaws in the patentee’s analysis which rendered it unreliable. Barnes J concluded that “Without [reliable] evidence it is impossible to assess damages in this case on the basis of the Plaintiffs’ loss of profits” [148].

USSC in FTC v Actavis Holds Reverse Payment Settlements Subject to “Rule of Reason”

FTC v. Actavis, Inc. 2013 USSC

In FTC v Actavis, the USSC has held, by a 5-3 majority, that so-called reverse payment settlements are not presumptively unlawful as a matter of competition law, as the FTC had asked (M20), nor are they immune from antitrust scrutiny, as the 11^th Cir held, and the dissent would have affirmed. Instead, they are subject to competition law scrutiny on the basis of the “rule-of-reason” under which the agreements will be assessed for anti-competitive effects on a case-by-case basis. On the whole, the majority’s position strikes me as one which is reasonable as a matter of principle, but the specter of repeated, complex, and expensive litigation raised by the dissent is very real. In some ways either extreme position might have been preferable to the principled, but uncertain, position adopted by the majority.

In reverse payment settlements a patentee, normally a pharmaceutical patentee, makes a payment to an alleged infringer, normally a generic, in return for an agreement by the challenger to drop its challenge to the patent and stay out of the market until (closer to) the end of the patent term. The basic point made by Breyer J, for the majority, is that if the patent is in fact invalid, then, as compared with the scenario in which the patent is litigated to invalidity, this settlement will have the effect of keeping prices higher until the end of term. The patentee and challenger split the monopoly profit, and the consumer is the loser (M15). This is illegitimate and anti-competitive. Consequently, reverse payment settlements should be subject to antitrust scrutiny. On the other hand, a reverse payment settlement is a settlement, and it may have the same virtues as any other settlement, such as avoiding litigation expenses. The payment may also be compensation for ancillary services that the challenger agrees to provide under the agreement. Therefore, reverse payment settlements should not be presumptively unlawful. Instead, each settlement should be individually scrutinized to discern the true motivation (M19):

Although the parties may have reasons to prefer settlements that include reverse payments, the relevant antitrust question is: What are those reasons? If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.

Roberts CJ wrote for the dissent, and would have held that “If [the patentee’s] actions are within the scope of the patent, they are not subject to antitrust scrutiny” (D3). He acknowledged that there may be uncertainty as to the validity of the patent, but said that this does not justify subjecting the settlement to antitrust scrutiny:

The difficulty with such an approach is that a patent holder acting within the scope of its patent has an obvious defense to any antitrust suit: that its patent allows it to engage in conduct that would otherwise violate the antitrust laws. . . Its behavior would be unlawful only if its patent were invalid or not infringed. And the scope of the patent – i.e., what rights are conferred by the patent – should be determined by reference to patent law. (D4, D5, original emphasis)

I must admit that I am not sure whether I follow the point Roberts CJ is making. His argument seems to implicitly concede that the payments are unlawful if the patent is in fact invalid, and the point of the majority ‘s reasoning is that we will never make that determination as a matter of patent law if the reverse payments settlements are not subject to antitrust scrutiny. If Roberts CJ’s point is that it is somehow unprincipled to subject these settlements to antitrust scrutiny, then I am not persuaded.

But I think the point he is really making is that it is wrong to conduct a patent trial as part of an antitrust action. Settlements may make it more difficult to challenge invalid patents “but such a result – true of all patent settlements – is no reason to adjudicate questions of patent law under antitrust principles” (D11). The argument here appears to be pragmatic. If the patentee can raise validity of the patent as a defence in the antitrust action, then in those cases in which the settlement was a legitimate effort to avoid the costs of litigation, the whole point of the settlement will be defeated when the patentee is be forced to litigate validity as a defence (D11). The majority responds to this by saying that

it is normally not necessary to litigate patent validity to answer the antitrust question . . . An unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival. (M18)

But if this means that the patentee cannot raise the validity of the patent in the antitrust action, then the patentee may be found to violate antitrust law even though it has done nothing wrong (D12-13). There is also the practical problem that an inquiry into the patentee’s motivation will itself be uncertain (D13). Unless the majority is of the view that only settlements that are less than anticipated litigation costs are acceptable, which it nowhere states, then the majority implicitly accepts that uncertainty over validity may be a legitimate motivating factor; so, a settlement motivated by a 5% chance of invalidity of a valuable patent might pass antitrust scrutiny. And the majority clearly accepts that ancillary services “such as distributing the patented item or helping to develop a market for that item,” may form the basis for a legitimate settlement. This means that discerning the true motivation will be very difficult, the more so because ancillary services will no doubt start to feature prominently in such settlements.

Neither the majority nor the dissent addresses what seems to me to be the central issue in deciding whether a per se analysis is appropriate. If, as the FTC believes, reverse payment settlements are normally anticompetitive, then the dissent’s objections largely melt away. There will be no need to assess patent validity in the antitrust action, and while the result will be that patentees will sometimes be prevented from entering into legitimate settlements, this will be rare, and those rare errors are the price paid for the certainty and simplicity of a per se regime; it is better than the expensive errors of a rule of reason regime. By rejecting the per se rule, the majority implicitly acknowledges that legitimate settlements are reasonably common, and if that is so, then there is considerable force to the dissent’s complaint that the rule of reason scrutiny adds considerable complexity for little benefit. Overall then, my initial reaction is that the USSC should have directly addressed the central issue: are the reverse payments normally anti-competitive? If so, they should be per se unlawful, and if not, they should be immune from antitrust scrutiny. The rule of reason analysis may be sound in principle, but the litigation costs of that inquiry will defeat the point of legitimate settlements.

What does Actavis imply for Canadian law? The majority reasoning turned on, or at least adverted to, some features of the US system, such as the 180 day exclusivity for the first generic (M16), that make anti-competitive settlements attractive. As this paper by Ron Dimock & Geoff Mowatt explains, differences between the US and Canadian systems means that “there is a much greater incentive in the U.S. for the brand to bargain with the first generic.” This suggests that the argument for per se immunity is stronger in Canada than in the US. This implies that if Canadian law is influenced by Actavis, reverse payment settlements should not be considered presumptively illegal, and the argument for the dissenting position that they should be per se immune, is stronger here than in the US. Whether Canadian courts and policy makers will, or should, be influenced by Actavis is, of course, a different question.

Section 2.1 of the Act Gives the Federal Court Personal Jurisdiction over Provincial Crown Defendants

Safe Gaming Systems Inc v Atlantic Lottery Corporation 2013 FC 217 Proth Aronovitch

In Dableh v Ontario Hydro (1990) 33 C.P.R. (3d) 544, Dubé J held that the Federal Court lacked personal jurisdiction over Hydro-Québec and the New Brunswick Electric Power Commission, on the basis that as a statutory court, express legislation is required for Federal Court jurisdiction, and neither the Patent Act nor the provincial legislation of those provinces conferred such jurisdiction. The actions against those Crown Corporations was accordingly dismissed. The action was maintained against Ontario Hydro on the basis of the wording of the Ontario Proceedings Against the Crown Act.

In 1993 the Patent Act was amended to add s 2.1: “This Act is binding on Her Majesty in right of Canada or a province” (my emphasis).

In Safe Gaming Systems, Proth Aronovitch held that s 2.1 means what it says. Safe Gaming is the owner of patent 2,331,238 which it believes is infringed by Nova Scotia Gaming Corporation (NS Gaming), the Atlantic Lottery Corporation (Atlantic Lottery). Relying on Dableh, those defendants moved to strike the action against them on the basis that they are provincial Crown defendants and the Federal Court therefore lacks personal jurisdiction. Proth Aronovitch denied the motion to strike, primarily on the basis that s 2.1 of the Act has effectively reversed Dableh on this point.

Myriad Genetics

I've given my initial thoughts on the USSC Myriad Genetics decision in a guest post on IPKat.

Practice Notice on Dosage Regimes Difficult to Reconcile with Hughes J’s Finasteride Decision

The Practice Notice on Medical Uses released by CIPO on Monday is directed at “medical use claims, including dosage regimens and dosage ranges.” Unfortunately, it seems difficult to reconcile with the relatively recent decision of Hughes J in Merck v Pharmascience / finasteride (NOC), 2010 FC 510, 85 CPR(4th) 179 on exactly that point.

The notice begins by stating that “it is well established that methods of medical treatment and surgery are not statutory subject matter and are excluded from the definition of invention.” This is fair summary of the law. In my view the SCC decision in Tennessee Eastman v Commissioner of Patents, [1974] SCR 111, which is usually cited on this point, really turned on s 41, which is now repealed, but the Federal Courts have consistently read it more broadly, and the point is now established in the Federal Court jurisprudence, independently of the authority of Tennessee Eastman.

The Notice then states that “Medical use claims, however, are generally permitted as long as they do not equate to medical or surgical methods . . . The Federal Court has concluded, however, that inventions preventing physicians from exercising their skill and judgment in using a known compound for an established purpose effectively cover a method of medical treatment.” This is also a fair summary of the case law.

However, the Notice then goes on to say:

[If] it is determined after a purposive construction that a dosage regimen or dosage range is an essential element of a claim encompassing the use of a known compound in an established treatment, then the claim covers a method of medical treatment, and thus, is not compliant with section 2 of the Patent Act.

Where an essential element only serves to instruct a medical professional “how” to treat a patient, rather than “what” to use to treat the patient, this will lead to the conclusion that the claimed use encompasses a method of medical treatment.

The apparently blanket rejection of dosage regime claims is not consistent with the case law.

In Merck v Apotex / alendronate 2005 FC 755, 41 CPR(4th) 35, concerning 2,294,595, the inventive concept was the discovery that a single large weekly dose had fewer side effects than an equal amount taken on a daily basis [27], and the patentee claimed the composition in the specified dosage and dosing interval, as well the composition “for use” in the specified dosage and dosing interval [28]. Mosley J held that these claims were not an unpatentable method of medical treatment, though his reasoning was very cursory as he had held the patent invalid for obviousness [133]-[138]. In contrast, in Axcan v Pharmascience / URSODIOL 2006 FC 527, 50 CPR(4th) 321 concerning 1,318,590, Harrington J. in the Federal Court held that a claim to a dosage form of a pharmaceutical composition for treatment of cirrhosis was an unpatentable on the sole basis that it was a method of medical treatment. Harrington J described the holding of Mosley J in alendronate, but he did not attempt to distinguish it.

In finasteride Hughes J reviewed these cases and reconciled them by saying that "In Axcan, Harrington J. found the claim to be invalid because it was directed to a dosage range in which it was left to the physician to make on appropriate selection" [112]. At the same time Hughes J approved Mosley J's alendronate decision [112]. This is significant, because, as noted, subject matter was only a secondary consideration in Mosley J's decision, so it is relatively weak authority on its own. Consequently, Hughes J concluded that [114]:

a distinction must be made between claims that rely upon the skill and judgment of a medial practitioner and those that deal with a vendible product, be it a scalpel, X-ray machine or 1 mg tablet that are to be used or prescribed for use by such practitioner.

Thus in Hughes J’s view, it is not any dosage regime which is unpatentable, but only a dosage regime which requires skill and judgment.

This is reinforced by his holding on the facts that the claim in question was not unpatentable as being a method of medical treatment. In finasteride only Claim 5 of Patent 2,173,457 was at issue. After incorporation of prior references [5], Claim 5 reads:

5. The use of [finasteride] for the preparation of a medicament adapted for oral administration useful for the treatment of male pattern baldness in a person and wherein the dosage amount is about 1.0 mg.

Hughes J expressly construed this claim such that “having a dosage at about 1.0 mg” was an essential element [101]. Nonetheless, he held it was patentable subject matter: "In the present case, we have a 1.0 mg tablet taken as a daily dose. No skill or judgment is brought to bear. It is a vendible product and not a method of medical treatment" [114]. 

The Practice Notice cited Hughes J’s finasteride decision, but only in an introductory sentence saying that the Notice was intended to reflect judicial decisions. Despite that intent, I do not see how the statement that a claim is an unpatentable method of medical treatment if “a dosage regimen or dosage range is an essential element of a claim,” can be reconciled with finasteride. And apart from fine points of doctrine, there are now two cases holding dosage regime claims are patentable subject matter, and one to the contrary.

Golden Bonus Doctrine in Germany

A few weeks ago I posted about the "golden bonus" doctrine as it was applied in the US COMBIGAN decision. This doctrine says that if an invention is obvious for one reason, it does not become non-obvious merely because it has some non-obvious benefits (the "golden bonus"). This recent post on the Kluwer Patent Blog discussing the Bundesgerichtshof descision in Kosmetisches Sonnenschutzmittel III (X ZR 72/08), indicates that the same doctrine applies in Germany, though couched in European problem-and-solution terms. According to the blog post (unfortunately, I don't read German), the decision held that even if the invention is an inventive solution to the problem the inventors sought to address, it will be obvious if it is an obvious solution to a different problem which a skilled person would also be motivated to address. The post goes on to suggest that the more recent BGH decision in Trenn-Erderschalter (X ZR 160/11) casts some doubt on that holding, but so far as I can tell (again from the Kluwer blog post), the Trenn-Erderschalter decision simply said that the alternative problem itself was not obvious, and so even if its solution was obvious, it would not render the invention obvious.

Teva / Sildenafil Amended

Teva Canada Ltd v Pfizer Canada Inc, 2012 SCC 60, as amended, rev’g 2010 FCA 242 rev’g 2009 FC 638
            2,163,446 VIAGRA   Pfizer / sildenafil (NOC)

In its Teva / sildenafil decision the SCC held that the ‘446 patent is “void” [91], even though this was an NOC proceeding which normally has no in rem effect. In response, Pfizer moved under the SCC rules for rehearing or amendment. The SCC responded by amending its decision to make it clear the its holding does not have in rem effect. The new concluding paragraph [91] is “Therefore, I would allow the appeal with costs and hold that Teva established its allegation that Patent 2,163,446 is not valid, and dismiss Pfizer's application for an order of prohibition under s. 6(1) of the Regulations.” The full amending decision is available from Alan Macek's IPPractice site. This amendment is welcome, though not entirely surprising, as it would have been very unusual for the Court to overturn established law without argument, without mentioning that it was doing so, and without even being asked.

However, the is not the end of Pfizer’s troubles with this proceeding. In Apotex v Pfizer / sildenafil 2012 FC 1339 Zinn J granted summary judgment to Apotex in an impeachment action, holding the ‘446 patent to be of no force or effect, in part on the basis that the SCC had declared the ‘446 void. (In my previous comment on Zinn J’s decision, I focused on the question of whether the SCC had actually declared the patent void.) That point has now been clarified, but that was not the sole basis, or even the primary basis, for Zinn J’s decision. He held that

the determination by the Supreme Court in its Reasons that the ‘446 Patent fails to meet the requirement of sufficient disclosure pursuant to subsection 27(3) of the Patent Act is a legal determination binding on this Court and is dispositive of Apotex’s claim in this action that the ‘446 Patent is invalid due to insufficiency of disclosure, even if the Supreme Court grants Pfizer’s motion and deletes its declaration of invalidity from its Judgment [30] (my emphasis).

With respect, Zinn J must be wrong on this point. This holding a contrary to a very well established law at both the SCC and FCA level that NOC proceedings are not determinative of patent validity (see cases cited below). By holding that the SCC determination is dispositive, Zinn J’s determination effectively does an end-run around this line of cases. It implies that while the result in the NOC case does not directly invalidate the patent, that will be the practical effect because it determines the outcome of the subsequent infringement / impeachment action.

Zinn J did not directly address this line of cases, but instead referred to the rule that claim construction is a matter of law, and that the result turned on “three questions of law: (1) the determination of the invention or inventive concept of the patent, (2) the construction of the ‘446 Patent, and (3) whether the ‘446 Patent, properly construed, permitted the person of skill in the art ‘to make the same successful use of the invention as the inventor could at the time of his application.’”

There are two problems with this analysis. First, it seems to me that the first and third of these points must be questions of mixed fact and law. The inventive concept is the inventive technical contribution made by patentee over the state of the art. The state of the art is a question of fact, and the question of whether the contribution is inventive is mixed fact and law. What the “skilled person” could have taken from the invention requires evidence about the skilled person. I have argued that even the construction of the patent is really a question of mixed fact and law, since it requires factual evidence as to what terms would have meant to a skilled person. The reason the courts refer to it as a question of law is to reserve the ultimate question of claim construction to the court, rather than having to choose betweeen constructions provided by experts. This is entirely reasonable, but it does not mean that there is no factual underpinning to claim construction.

Moreover, I’m not sure I agree with Zinn J’s analysis of the Sildenafil decision. The decision is not easy to understand (I am just about finished a case comment), but my view is that it turned on the SCC's understanding that the other claims in the patent were invalid because the allegation of invalidity was not contested by Pfizer (because it was an NOC proceeding), or on the view that the patentee was trying to “game the system.” Both of these turn on factual issues that were not fully contested in the NOC proceeding.

And even if the determinations were in some sense a question of law, this misses the point of the case law holding that NOC proceedings are not determinative. The principle is based on institutional considerations, not whether a question of law is at issue. As the SCC said in Eli Lilly & Co v Novopharm Ltd [1998] 2 SCR 129, quoting Strayer J.A. in Pharmacia [1995] 1 F.C. 588, 600 (SCC emphasis):

If the Governor in Council had intended by these Regulations to provide for a final determination of the issues of validity or infringement, a determination which would be binding on all private parties and preclude future litigation of the same issues, it surely would have said so. This Court is not prepared to accept that patentees and generic companies alike have been forced to make their sole assertion of their private rights through the summary procedure of a judicial review application.

Similarly, in Lilly v Novopharm 2007 FCA 359 the FCA stated (my emphasis):

[41] NOC proceedings were never intended to be substitutes for an infringement action. Similarly, it is inappropriate to rely on NOC proceedings to set binding precedent on controversial and uncertain questions in patent law. NOC proceedings are supposed to be summary in nature and do not lend themselves to such determinations.