A New Framework for Determining Reasonable Royalties

Tom Cotter and I have posted on ssrn a revised version of our paper A New Framework for Determining Reasonable Royalties in Patent Litigation, which is forthcoming in the Florida Law Review. Here is the abstract:

Conventional analysis often assumes that there are only two theoretical options for calculating a reasonable royalty in patent disputes: a “pure ex ante” approach, under which a court reconstructs the hypothetical bargain the parties would have struck prior to infringement, based on the information available to them at that time; and a “pure ex post” approach, under which the court considers the bargain the parties might have reached as of some later date such as the date of judgment. The first approach avoids patent holdup — basing the royalty partly on the infringer's sunk costs — but cannot easily explain other longstanding features of how royalties are calculated, and can lead to awards that reflect the parties’ erroneous ex ante expectations. By contrast, the pure ex post approach uses more accurate information about the invention’s actual value, but it also enables the patentee to capture some of the patent’s ex post holdup value. In this Article, we show that a “contingent ex ante” framework, under which the court reconstructs the bargain the parties would have reached ex ante, based on all relevant information that is available ex post, is superior to both of the conventional approaches. More specifically, our framework enables courts to base the royalty on the most accurate information available of patent value while avoiding the holdup risk arising from the pure ex post approach. We analyze how courts can apply our approach in various settings, including cases involving SEPs, sequential infringement, regulatory uncertainty, and unexpected exogenous events.

Invalidity of Tadalafil Formulation Patent Upheld

Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC (NOC) 2015 FCA 286 Dawson JA: Near, Boivin JJA 2015 FC 178 aff’g de Montigny J
            2,379,948 – Tadalafil formulation – CIALIS

In my post on de Montigny J’s Tadalafil formulation (NOC) decision, which held Lilly’s ‘948 patent to be invalid and not infringed, I noted that “The decision turned entirely on the facts. As counsel for Lilly stated at one point, ‘a lot of it just comes down to which expert the Court is going to go with’.” It is accordingly unsurprising that the FCA, in very brief reasons, has now affirmed “substantially for the reasons given by the Judge” [5]. The main legal ground of attack was that at one point de Montigny J had incorrectly articulated the “obvious to try” test, but the FCA held that on the whole it was clear that de Montigny J understood and applied the correct test, and so the error in his initial articulation of the test was immaterial [4].

Complete Code Bars Class Action for Recovery of Profits from to Invalid Patent

Low v Pfizer Canada Inc, 2015 BCCA 506 Garson JA: Bennett, Savage JJA rev’g 2014 BCSC 1469 Smith J (blogged here).
            2,163,446 / VIAGRA / sildenafil

In Low v Pfizer, the BCCA refused to certify a class action seeking disgorgement of the excess profits earned by Pfizer on sales of Viagra during the period when Pfizer’s market position was protected by a patent which was ultimately held to be invalid. The BCCA decision was based on three points: (1) the plaintiff was essentially seeking to create a tort of breach of statute, contrary to Saskatchewan Wheat Pool [1983] 1 SCR 205; (2) the patent regulatory regime is in any event complete code; (3) and the claims in unjust enrichment and unlawful interference with economic relations would fail on their own merits independently of the complete code argument. From a policy perspective, the BCCA was concerned about “tortifying” regulatory law and upsetting the complex balance of patent incentives that have been established by the legislature.

Pre-Amalgamation Settlement Agreement Does Not Bar Action by Amalgamated Entity

Pfizer Canada Inc v Teva Canada Ltd 2015 FCA 257 Gauthier JA: Webb, Near JJA
            2,163,446 / VIAGRA / sildenafil

In this decision the FCA held that a pre-amalgamation settlement agreement entered into by one of two subsequently amalgamated entities does not bar an action by the amalgamated entity based on pre-amalgamation events affecting the other entity.

In 2006-08, Teva (then Novopharm) and ratiopharm both filed ANDS for sildenafil. Pfizer sought orders of prohibition in respect of both under s 6 of the PM(NOC) Regulations. Pfizer and ratiopharm settled, and under the terms of the Agreement ratiopharm agreed not to launch until expiry of the patent. Teva and ratiopharm then amalgamated. The s 6 action against Teva proceeded, and Teva ultimately prevailed: Viagra 2012 SCC 60. The Minister granted an NOC in respect of Teva-sildenafil and Teva then brought a s 8 action for damages for having been keep out of the market by the NOC proceeding. Teva did not claim any damages relating to ratio-sildenafil, but only in respect of Teva-sildenafil. Pfizer brought a motion for summary judgment on the basis that Agreement entered into with ratiopharm barred the action by Teva. Pfizer acknowledged that when the Agreement was entered into, the parties did not intend to cover Teva’s product, but it argued that the scope of the Agreement changed as a result of the amalgamation [21]-[22]. Not very surprisingly, the FCA, affirming O’Keefe J, held that the Agreement only bars Teva from seeking s 8 damages in respect of ratio-sildenafil, and Teva's action in respect of Teva-sildenafil can proceed: [25].

Whether HAL HCl is an ester of ALA HCl is a Matter of Fact

Photocure ASA v Canada (Health) 2015 FC 959 Kane J
            hexaminolevulinate hydrochloride / CYSVIEW [aka HEXVIX]

In this application for judicial review Kane J declined to interfere with the Minister’s decision refusing to add Photocure’s drug CYSVIEW to the Register of Innovative Drugs. The key issue was whether the Minister’s decision involved matter of law or matter of fact. The case does not really raise any questions of general legal interest, though there was some suggestion by Kane J that whether the Minister’s interpretation of the Data Protection Regulations is to be reviewed on a correctness standard turns on the particular legal issue.

Is Minerals Separation Still Good Law?

Leo Pharma Inc v Teva Canada Ltd 2015 FC 1237 Locke J
            2,370,565 / calcipotriol & betamethasone / DOVOBET

In this NOC proceeding Locke J granted an order of prohibition as infringement of multiple claims was conceded, and he held that Teva’s allegations of obviousness, lack of utility and insufficiency were not justified [193]. The holding turned on the facts of the case, but the claim construction argument raises the question of the continued vitality of Minerals Separation.

The claimed invention is a dermal cream formulation for the treatment of psoriasis. Vitamin D and vitamin D analogues, specifically calcipotriol, were previously known for treatment of psoriasis, as were corticosteroids (such as betamethasone), and these were commonly used sequentially. There was consequently a motivation to develop a combined formulation, but the two drugs could not simply be mixed because they were pH incompatible, which is to say that calcipotriol was unstable at any pH value which was favourable to the stability of a corticosteroid, and vice versa [54], [55], [108]. Leo discovered a stable formulation containing these compounds plus the solvent POP-15. Claim 1 was to a formulation comprising vitamin D or a vitamin D analogue (component A), a corticosteroid (component B) and a solvent selected from a large class, while Claim 17 specified POP-15 as the solvent. (Claim 17 was the only claim held to be useful and infringed. The utility of the other infringed claims was not addressed.)

The patent itself disclosed that a formulation using propylene glycol as a solvent was unstable [19]. Teva argued that because the wording of the claims is non-exhaustive (using "comprising") and there is nothing in the claims to suggest that they are limited to compositions that are useful in treating psoriasis, the claim should therefore be construed as encompassing formulations with an additional  component, such as propylene glycol, which would not be useful [89]. More generally, if Teva’s argument were sound, any claim using “comprising” language would be invalid unless it was expressly limited to safe or effective formulations, as a claim not so limited would encompass the formulation plus Compound X, where Compound X is a poison.

Can a Compound Claim Be Supported by an Inventive Process?

Amgen Canada Inc v Apotex Inc (NOC) 2015 FC 1261 Hughes J
            1,341,537 / filgrastim / NEUPOGEN

In Amgen / filgrastim Hughes J held Claim 43 of the Amgen’s ‘537 patent to be invalid for obviousness, though it survived novelty and utility attacks. This post focuses on Hughes J’s obviousness analysis, which seems to me difficult to reconcile with Sanofi 2008 SCC 61.

Human granulocyte colony-stimulating factor (G-CSF) stimulates the growth of white blood cells. Naturally occurring G-CSF was first isolated and purified in small quantities by Welte and others at Sloan-Kettering Institute [16]. However, Welte had not determined any of the amino acid sequence [18]. If the DNA sequence of the naturally G-CSF could be determined with sufficient precision, G-CSF could be produced in commercial quantifies by recombinant DNA technology. Amgen was ultimately successful in doing so, leading to the invention of filgrastim, sold by Amgen as NEUPOGEN, which is used to boost the production of white blood cells and therefore help prevent infection in people whose immune system is compromised as a result of chemotherapy.

I G Farbenindustrie Strikes Again

Amgen Canada Inc v Mylan Pharmaceuticals ULC 2015 FC 1244 Phelan J
            2,202,879 / cinacalcet / SENSIPAR

In Amgen / cinacalcet Phelan J held the ‘879 patent invalid over the 2,115,828 patent (which shares most of the same inventors). While this conclusion is clearly correct on the facts as found by Phelan J, there were some difficulties along the way which illustrate that the law of selection patents in Canada remains in need of clarification – or, preferably, as I have suggested in a previous post, the concept should be abandoned entirely.

The facts are reasonably straightforward. The parathyroid gland regulates calcium levels in the body through the secretion of parathyroid hormone [6]. At one time it was thought that parathyroid cells respond to calcium through a “calcium channel.” The inventors discovered that the true mechanism was a calcium-sensing receptor. This was a real breakthrough [15]. It lead to the realization that compounds that mimic the effect of calcium at the parathyroid calcium receptor could be effective in treating diseases related to poor calcium regulation [8]. Accordingly, the ‘828 patent claimed a large genus of such compounds [25].

Claim 5 of the subsequent ‘879 patent claims cinacalcet, which falls within the claims of the ‘828 patent. On the evidence, cinacalcet had no particular advantage over any of the other compounds disclosed and claimed by the ‘828 patent [70]. The patentees had initially pursued a different compound, which was specifically disclosed in the ‘828 patent [69], but when that turned out to have toxicity problems, they picked another, namely cinacalcet, with comparable properties [70]. The patentees had no particular reason to believe cinacalcet had any special properties as compared with the other compounds of the genus, as it had not even been synthesized as of the claim date of the ‘879 patent [71].

Data Protection Regulations Apply to Post-NDS Supplementary Information

Hospira Healthcare Corporation v Canada (Health) and Sanofi-Aventis Canada Inc 2015 FC 1205, 2015 FC 1206 Gagné J
            2,196,922 / oxaliplatin / ELOXATIN

The main decision in these companion cases is the 1205 decision, in which Gagné J held that the data protection provisions of the Food and Drug Regulations (C.08.004.1) apply to supplementary submissions made after the filing of an NDS. In my view this holding was clearly correct, though the unusual facts may illustrate some problems with other aspects of Canada’s drug approval regime.

Oxaliplatin has long been a “standard of care” drug in the treatment of colorectal cancer. Oxaliplatin was discovered in Japan and subsequently licensed to and acquired by Sanofi [14].* However, until 2006 Sanofi did not seek an NOC for its oxaliplatin product, ELOXATIN, which had been sold in Canada since 1999, but only under the Special Access Program [14]. From 2004 to 2006, Hospira sought to file an NDS for its OXALIPLATIN FOR INJECTION product. However, Hospira did not have clinical trial data, and because by that time oxaliplatin was internationally recognized as the most therapeutically effective treatment for colorectal cancer, clinical trials could not ethically be performed. Nor could it file an ANDS referencing Sanofi’s product, because Sanofi had not yet obtained an NOC for sale in Canada. Consequently, in late 2006 Hospira filed its NDS without any clinical data, but only literature references and reports of post-marketing experience.

After various exchanges and litigation, Hospira’s NDS was rejected in 2012 because the literature references were not sufficiently robust to establish the clinical safety and efficacy required under C.08.002(2)(g), (h) [31]. Meanwhile, in the fall of 2006, within a month Hospira’s submission, Sanofi also filed an NDS which did include clinical trial data [18]. Sanofi’s submission was given priority status and an NOC was issued for ELOXATIN in 2007 [18], [21]. Hospira responded to the 2012 Notice of Noncompliance with new information, including, ultimately, the ELOXATIN Product Monograph [33], [34]. While this was enough to satisfy the safety and efficacy requirements, Hospira was then informed that because Hospira had made comparisons in its submission to ELOXATIN which was listed on the Register of Innovative Drugs by 2012 (though not in 2006), the data protection provisions Food and Drug Regulations (C.08.004.1) applied and the NOC for OXALIPLATIN FOR INJECTION would not be issued until the expiry of the term of market exclusivity for ELOXATIN [40].

It was uncontested that Hospira had indeed made comparisons in its submission to ELOXATIN [75], but Hospira argued that the data protection provisions, in particular C.08.004.1(3) do not apply to post-filing amendments made pursuant to subsection C.08.004(2), which permits the manufacturer to file additional information. The basic argument was textual: C.08.004.1(3) provides that data protection is invoked if a manufacturer “seeks a notice of compliance” for a new drug on the basis of a direct or indirect comparison with an innovative drug, and para (a) provides it cannot “file a new drug submission” until the data protection period expires. Since Hospira did not originally “seek” its NOC on the basis of a comparison, it was not barred from submitting its NDS and so, argued Hospira, the Minister could not refuse to issue the NOC under para (b), even though the approval would ultimately have been granted on the basis of such a comparison [65], [75].

Gagné J applied the standard approach to statutory interpretation, which requires consideration of the text, context and purpose surrounding the provisions at issue [77]. She noted that the purpose of the data protection provisions is in part to prevent unfair use of undisclosed clinical or other data generated by an innovative manufacturer to support its drug submission [73], [83]. This purpose clearly supports the view that the data protection provisions should apply to supplementary information, and the text was not sufficiently clear to override this purposive analysis, particularly when read in context [79], [83].

Because of the unusual facts, Hospira was in a difficult position, and it does seem problematic that Sanofi enjoyed a de facto market exclusivity under the SAP program from 1999 to 2007, and then obtained an additional 8.5 years of data protection starting from 2007 when its NOC was issued (though I’m not familiar with the background, so perhaps there is some good reason for this). But as a matter of statutory interpretation and the policy underlying the NOC Regulations, Gagné J’s holding is certainly correct.

Note that Gagné J also re-affirmed that the applicable standard of the Minister’s interpretgation of the data protection provisions is correctness [49], relying primarily on Takeda Canada 2013 FCA 13 [26]-[30], and also Pfizer Canada 2014 FC 1243 [57]-[104].

The sister decision 2015 FC 1206 concerned Hosipra’s difficulties with the PM(NOC) Regulations. Injectable oxaliplatin was also covered by the ‘922 patent, and the Minister had required Hospira to address that patent before an SNDS for Hospira’s ready-to-use injectable oxaliplatin solution would be considered [12]. Gagné J held that the refusal was moot issue, as the patent has expired and in any event the Mininster is prevented from issuing the NOC due to the data protection provisions, as discussed above.

*While not specified in the 1205 decision, when Gagné J stated that Sanofi “acquired” oxaliplatin, presumably she meant it acquired the ‘922 patent.

Authorized Generics Are Subject to PMPRB After All

Canada (Attorney General) v Sandoz Canada Inc 2015 FCA 249 Noël CJ: Pelletier, Rennie JJA rev’g 2014 FC 501, 2014 FC 502 O’Reilly J partially aff’g PMPRB-10-D2, PMPRB-08-D3

In this decision the FCA has held that authorized generics fall within the jurisdiction of the Patented Medicine Prices Review Board, reversing O’Reilly J’s decision (blogged here). The FCA also reaffirmed the constitutionality of the provisions of the Patent Act setting up the PMPRB and giving it the authority to regulation prices of patented medicines, affirming O’Reilly J on this point. While the FCA’s ultimate holding is important, the argument turned on points specific to the relevant statutory provisions.

Two appeals were heard together. In the first case, ratiopharm sold an anti-asthmatic medicine called ratio-salbutamol HFA, which is the generic equivalent of the Ventolin HFA, a patented medicine manufactured and sold in Canada by GlaxoSmithKline (GSK). GSK sold ratio HFA to ratiopharm and granted ratiopharm an exclusive licence to set the price and sell ratio HFA in Canada without any right to sub-licence [6]. The second case involved Sandoz, a wholly owned subsidiary of Novartis. Sandoz sold medicines covered by patents owned by Novartis, which allowed Sandoz to sell the generic version and to refer to those medicines in obtaining the required NOCs. There was, however, no express licensing agreement [9].

The Board requested information from both ratiopharm and Sandoz pursuant to ss 80, 81 and 88 of the Act, which require a “patentee” to provide pricing information. The Board also held that ratiopharm had sold ratio HFA at excessive prices, contrary to s 83 of the Act which applies to a “patentee.” Sandoz and ratiopharm appealed the Board decisions, primarily on the basis that they were not “patentees” within the meaning of the provisions. The constitutionality of the provisions was also challenged, as trenching on provincial jurisdiction over property and civil rights, and Sandoz also argued that the Board erred in finding that it had an implied licence.

The main question turned on the definition of “patentee” in s 79(1), which applies to the relevant sections (my emphasis):

“patentee”, in respect of an invention pertaining to a medicine, means the person for the time being entitled to the benefit of the patent for that invention and includes, where any other person is entitled to exercise any rights in relation to that patent other than under a licence continued by subsection 11(1) of the Patent Act Amendment Act, 1992, that other person in respect of those rights;

The Board noted that the definition does not on its face require ownership, and in light of the purpose of the provisions, which is to protect consumers from unreasonable pricing, the definition should be interpreted to include licensees. Applying a deferential standard of review of the Board’s interpretation of its home statute [63], the FCA upheld as reasonable both the Board's understanding of the purpose of the provisions [67], and its determination that both ratiopharm and Sandoz, as licensees, were "patentees" within the meaning of s 79(1) [91]. The FCA also re-affirmed the constitutionality of the relevant provisions, essentially on the basis of well-established precedent [116], and affirmed the Board’s finding that Sandoz was an implied licensee as being a factual determination which was supported by evidence and therefore entitled to deference [108].

In the result, it is clear that authorized generics will fall under the jurisdiction of the Board. However, neither the Board nor the FCA provided an explicit definition of the scope of the provision. The Board’s key reasoning in ratiopharm [08-D3, 42] is as follows:

The Agreements gave ratiopharm the exclusive right to set the price of and to sell ratio HFA and to obtain the necessary regulatory approvals to do so. Absent the licence granted, these acts would have violated rights held exclusively by GSK pursuant to section 42 of the Act.

In Sandoz, after reviewing the facts, the Board concluded [10-D2, 57], that “Sandoz is a patentee, within the meaning of subsection 79(1) of the Act, of any patent owned directly or indirectly by Novartis AG, where that patent is for an invention pertaining to a medicine that Sandoz is authorized by its parents to sell in Canada.” The FCA concluded that the Board correctly held that including persons "who exercise selling rights under a patent" is within the ambit of subsection 79(1) [122]. The FCA also made it clear that in order to be a licensee it is not necessary that a party’s products would actually infringe the patent but for the licence; it is enough that a licence agreement exists which would protect the party if infringement were alleged [103]. 

The parties raised a variety of arguments as to why a narrower interpretation was warranted. I will not review these arguments in detail, as most were not particularly powerful, in my view. The most interesting was that the Board's definition would capture wholesalers, retailers and pharmacies [79]. This argument was rejected by the Board, on the basis that “subsection 79(1) only captures persons who sell to consumer classes protected by the Board, and wholesalers, hospitals and pharmacies do not come within that class.”* The FCA affirmed this point as well, saying "The fact that the respondents operate under a licence to sell the patented medicine whereas wholesalers, retailers and pharmacies derive their right qua owners of the products which they purchase for re-sale provides a principled basis for the distinct treatment" [79].

Thus even though a patent confers an exclusive right to make, sell and use the invention (s 42), the "benefit of the patent" in s 79(1) encompasses only a restricted subset of those rights, namely the right to sell to persons selling to consumer classes protected by the Board. It does not encompass the right to use, or even the right to sell to the public generally. This is certainly an awkward distinction to draw on the basis of the text of the provision, as "benefit" is prima facie a broad term, as the Board emphasized. I am not really persuaded by the FCA's reasoning that there is a principled distinction between a licensee and a party having rights as an owner of the tangible embodiment of the patented invention, as ownership of the tangible embodiment does not in itself give any rights under the patent, unless by express licence, implied licence or exhaustion. With that said, the distinction is sound on a purposive interpretation of the provision, and given that a purposive analysis informs and can even dominate the textual analysis (Canada Trustco 2005 SCC 54 [10]), I do agree that the distinction is sound. This is a case in which text itself is not ideally drafted, but the interpretation given by the Board and FCA best accords with the purpose of the provision. 

I must say that I am very skeptical of the basic mandate of the PMPRB, which strikes me as antithetical to the purpose of the patent system. But the legislature was evidently of a different view, as the provisions setting up the Board are in the Patent Act itself. And if we accept that policy decision, as we must (at least for the purposes of statutory interpretation), it seems to me that the FCA decision is clearly correct. 

* The FCA cited the Board’s decision [08-D3, 15, 16] as stating that [21], but the cited paragraphs are not to that effect, and while that position is certainly consistent with the Board’s reasoning, I was unable to find any express statement to that effect in the Board decision.

Inventorship Not Material for Purposes of S 53

Gilead Sciences, Inc v Idenix Pharmaceuticals, Inc 2015 FC 1156 Annis J
            2,490,191 2,527,657 / sofosbuvir / SOVALDI

Previous posts have discussed Gildead’s utility and sufficiency attacks on Idenix’ 191 patent. This post deals primarily with Idenix’ s 53 attack on Gilead’s 657 patent. Section 53 provides that a patent is void if “any material allegation” in the application is untrue and wilfully misleading. Annis J’s decision adds to the growing body of case law holding that an error in inventorship is not a “material” allegation giving rise to invalidity under s 53. While we are still not at the point of a per se rule that errors in inventorship can never be material, we are getting close.

Idenix argued that the ‘657 Patent was invalid under s 53 for knowingly omitting naming Dr Lieven Stuyver as inventor [877]. The first question was whether he was an inventor at all. The argument failed on the facts on this point, as Annis J held that it had not been established that Dr Stuyver contributed to the inventive concept [904], [916]. 

Annis J nonetheless went on to consider whether the omission would have been material if Dr Stuyver had been an inventor. He noted that “a fair reading of Corlac [blogged here] indicates that the Court very much minimized the impact of improperly omitting a co-inventor on the determination of materiality in section 53(1)” [919] He also pointed out that the FCA in both Corlac and in Wellcome /AZT [2001] 1 FC 495, had noted that it would illogical to hold a patent invalid for failure to name an inventor, because that would deprive that inventor of any effective remedy [921], [922]. Annis J summarized the FC and FCA decisions in Corlac as being to the effect that failure to name an inventor will only be material for the purposes of s 53 if that failure affects “the term, substance or ownership of the ‘657 Patent, or the public’s ability to use the invention” [923] (and there was no such detriment in this case). That is, there must be some detriment to the public to warrant invalidating the patent. That strikes me as a sound view of this provision.

"Retrosynthetic Analysis" Fails to Establish Sufficiency

Gilead Sciences, Inc v Idenix Pharmaceuticals, Inc 2015 FC 1156 Annis J

            2,490,191 2,527,657 / sofosbuvir / SOVALDI

Yesterday’s post provided an overview of the facts in Gildead v Idenix and dealt with Gilead’s successful utility attack on Idenix’ 191 patent. Today’s post deals with Gilead’s sufficiency attack, which was also successful.

Recall that as of the filing date Idenix had not made any of the 2’-C-Me/F compounds which it claimed, and the disclosure dealt primarily with 2’-C-Me/OH compounds, which had been synthesized. Consequently, Gildead argued straightforwardly that the disclosure was not sufficient to allow a skilled person to make any of the compounds falling within the claims [413]. This is a classic "how to make" attack, which was perhaps the most common reason for invalidating a patent in the early days of UK patent law, but which we don’t often see anymore. As with utility, the result turned on the facts. This case does provide a good illustration of the point that making the invention may be insufficient as requiring “undue experimentation” even if the effort exercised by the skilled person does not rise to the level of invention. Annis J’s restrained interpretation of the SCC’s Viagra 2012 SCC 60 decision is also of interest, as are his comments on the proper approach to experiments intended to simulate the efforts of a skilled person.

Gilead v Idenix Table of Contents

Gilead Sciences, Inc v Idenix Pharmaceuticals, Inc 2015 FC 1156 Annis J
            2,490,191 2,527,657 / sofosbuvir / SOVALDI

Gilead v Idenix does not contain the Table of Contents which was recently been a welcome feature in longer FC decisions. I have compiled one which is available here (though it is not hyperlinked to the decision itself).

Gilead v Idenix: Overview and Utility

Gilead Sciences, Inc v Idenix Pharmaceuticals, Inc 2015 FC 1156 Annis J
            2,490,191 2,527,657 / sofosbuvir / SOVALDI

In his first outing as a judge in a patent case, Annis J has delivered a decision of Arnoldian proportions (outstripping Arnold J’s own effort in the parallel UK case by 313 paragraphs). The case turned largely on the facts, with the bulk of the decision taken up with a meticulous review of the evidence on each point. The decision is primarily concerned with Gilead’s attack on the validity of Idenix’ 191 patent, which was held to be invalid for lack of utility and insufficiency (though Annis J did hold the 191 patent would have been infringed by Gilead’s product SOVALDI (sofosbuvir) had it been valid). Idenix’ counter-claim challenging Gilead’s 657 patent for lack of novelty and wilful misleading was dismissed. This post provides background and discusses the utility attack on the 191 patent. Legally the most interesting point is that Annis J followed Rennie J’s holding in Apotex / esomeprazole 2014 FC 638 (blogged here), that the requirement to disclose the basis for a sound prediction in the patent itself applies only to claims for a new use, and not to compound claims.

In the early 2000s both Idenix and Pharmasset (which was subsequently bought by Gilead), were working on nucleosides for the treatment of the Hepatitis C virus. Idenix discovered that some known nucleoside analogues with a 2’-C-Me/OH structure had activity in in vitro assays against the HCV class of viruses [27]. In 2002 and 2003 Idenix filed the US applications which were the priority documents for Idenix’s 191 patent [18]-[21]. Despite having only synthesized and tested compounds with a 2’-C-Me/OH structure, Idenix’ application also claimed compounds with a 2’-C-Me/F structure. CIPO objected to the application for lack of unity of invention, with the examiner having identified 15 different genera encompassed by the 23 “Forumlas” identified in the application. Indenix responded by narrowing the scope to the class of “Formula IX” compounds, claiming the 2’-C-Me/F genus. However, the disclosure was not amended [22]-[24]. (Presumably these compounds were selected because by that point – 2009 – it was apparent that the flouro compounds had the most promise.) The application was then granted as the 191 patent. The important point to take form this history is that none of the compounds claimed by the 191 patent had even been synthesized, much less tested, by Indenix as of the priority date, and they were barely discussed in the disclosure. Idenix started trying to synthesize the 2’-C-Me/F nucleosides in early 2002, but did not clearly succeed until March of 2005.

In the meantime, Pharmasset, having spotted an apparent gap in an earlier Idenix application, also set about synthesizing a 2’-C-Me/F nucleoside in early 2003 and succeeded a few months later (in May 2003) [42]-[43]. In the same month, Pharmasset filed the US application which ultimately matured to the 657 patent (now owned by Gilead after its acquisition of Pharmasset). Gilead subsequently commercialized SOVALDI, which is covered by the 657 patent. Anticipating an infringement action by Idenix based on the 191 patent, Gilead sought a declaration under s 60(1) that the 191 patent was invalid on the basis of lack of utility, overbreadth and insufficiency. Idenix counterclaimed for infringement and for a declaration that Gilead’s 657 patent is invalid.

Utility of the 191 Patent
It was common ground that utility of the patent had not been demonstrated as Idenix admitted that it did not test any compound falling within the scope of the claims of the ‘191 Patent until March 2005. Idenix therefore relied on sound prediction [221].

Annis J began the utility analysis by noting if the patent contains a promise, utility will be measured against that promise, though he noted that such a promise must be clear and unambiguous [227]. I must admit, though, that it is not entirely clear to me what standard for utility was actually applied. The parties agreed that the 191 patent contained a promise that the compounds “are useful” in the treatment HCV infections, in humans and other hosts [231], and this is evidently higher than the minimum scintilla necessary to establish utility in the absence of a promise (potential use against HCV would likely suffice). Annis J also held that the patent promised a satisfactory therapeutic index [238], and effectiveness in combination with low toxicity [240]. All of this suggests that utility was assessed against a standard which is higher than the minimum which would otherwise be necessary. But Annis J then stated explicitly that “the ‘191 Patent makes no promise of any specific result or level of treatment,” and “Gilead must therefore, prove that Idenix has not demonstrated or soundly predicted a scintilla of utility” [241].

In any event, this point was moot because Annis J concluded on the facts that there was no basis for a sound prediction of any antiviral activity in a 2’-C-Me/F nucleoside prior to its synthesis [255]; the patent would therefore lack utility whether the standard for utility was a mere scintilla or something higher.

The key question on the facts is whether the activity of the 2’-C-Me/F compounds could be predicted from the known activity of the 2’-C-Me/OH compounds [253]. The evidence was “overwhelming” that the answer was no, largely because the 2’ down position was recognized as a highly conserved and selective position, and fluoride is an unpredictable substituent particularly regarding potential toxicity [284], [376]. This case illustrates that the fact that a particular candidate compound is worth trying does not amount to a sound prediction of success [319].

More interesting in terms of the development of the law is that Annis J, following Rennie J’s holding in Apotex / esomeprazole 2014 FC 638 (blogged here), held that the requirement to disclose the factual basis and line of reasoning for sound prediction in the patent itself applies only to “new use” inventions [378]-[381]. Because the claim in the ‘191 patent was to a compound, the heightened disclosure requirement did not apply [380]. (Annis J went on to hold that if he was wrong, and there was such a requirement, the disclosure in the 191 patent was not adequate to support a sound prediction of utility [412].) The holding that there was no such disclosure requirement was strictly obiter (as was Rennie J’s), as Annis J had already determined there was no factual basis at all, disclosed or not. Nonetheless, while Annis J’s discussion was brief, he did not adopt Rennie J’s position out of comity, but because he agreed with the reasoning [380]. This adds to the weight of authority, though the point will ultimately have to be decided by the FCA.

FC Has Authority to Vary Ownership When Uncontested

Imperial Oil Resources Ltd v Canada (Attorney General) Exxonmobil Upstream, 2015 FC 1218 LeBlanc J
            2,740,481

This was an uncontested application by Inperial Oil and Exxonmobil Upstream, as listed co-owners of the ‘481 patent, to amend inventorship and ownership. The application for the patent listed11 inventors. During prosecution, the scope of the claimed subject-matter was restricted, and only three of the 11 inventors contributed to the elected subset of claims and in consequence of the change in inventorship, Upstream should not have been listed as owner. The patent was issued without the proper modifications. This was all uncontested, and the only question was whether the court had jurisdiction to order the amendment pursuant to s 52. The application was not opposed by the Commissioner.

LeBlanc J noted that “This Court has interpreted the word ‘title’ in section 52 of the Act broadly to include ‘matters relating to the root of title’ such as inventorship” [12] and consequently the court had jurisdiction to amend the inventorship. On the issue of ownership, LeBlanc J noted that while the court does not have jurisdiction under section 52 of the Act to determine ownership of patents, as this would require the application and interpretation of the provincial law on contracts, in this case there was no substantive issue as to ownership, and therefore the Court had jurisdiction to vary the ownership of the ‘481 Patent as a consequence of correcting inventorship [18].

No New Cases for the Week of 19 October

No new patent / NOC / data protection cases were released for the week of 19 October 2015. Keep in mind that I do not normally blog on procedural cases. To keep up with all IP cases, I recommend Alan Macek's IPPractice Daily IP News service.

Calling All Costs Scholars

Novartis Pharmaceuticals Canada Inc v Teva Canada Ltd 2015 FC 1123 O'Reilly J
            2,255,951 / deferasirox / EXJADE

I mentioned in an earlier post that the costs practice in the FC are “a hybrid [between the English and American rules] in which costs awards are big enough to fight over (thus increasing costs), but not big enough to make any difference to litigation strategy. That may be the worst of both worlds.” This is illustrated by O’Reilly J’s costs decision in Deferasirox , in which Novartis claimed its fulls costs were $950,468.40 in fees. O”Reilly J rejected Novartis’ claim for costs on a partial indemnity basis, and instead awarded costs on the upper end of Column IV, which is now more or less standard for patent litigation. This resulted in an award of $102,512.00 in fees, which is just under 11% of actual costs. (Though recovery on disbursements was $215,727.57 out of $242,642.55, or just under 90%). This is not to criticize O’Reilly J, whose decision strikes me as consistent with the current rules and practice, but it does suggest that it would be better to reform the rules, either to simplify matters by getting rid of costs awards entirely, or by increasing costs awards to something more nearly reflecting actual expenditures.

Much to its credit, the Federal Courts have recognized the shortcomings in the current costs rules, and the Rules Committee has issued a discussion paper asking a comprehensive set of questions about all aspects of the costs regime. (See here for a summary.) Presumably the Committee intends to ultimately recommend reform if consensus can be reached, but the stated aim of this discussion paper is to “spark debate and discussion about costs at the Federal Court and Federal Court of Appeal.” This modest initial goal is wise, as the question is a very difficult one. There is a substantial body of law and economics literature on costs shifting, and while I am not an expert on costs, I believe the main result is that neither the English rule (costs-in-the-cause) nor the American rule (each party bears their own costs) is generally better; which is superior depends on the nature of the litigation. (That does suggest that there is a prima facie case for applying different costs rules to different types of litigation, as raised by Q4, though the question of which types should be treated differently (Q5) is more difficult.) Given that even such a basic question has no clear answer, even in theory, this project will be as challenging as it is important.

Feedback is requested by 23 November 2015. That is a short time frame given the complexity of the issue, but as noted, this seems to be still only an initial step. See the discussion paper for contact details.

No New Cases for the Week of 5 October

No new patent / NOC / data protection cases were released for the week of 5 October 2015.

No New Cases for the Week of 28 September

No new patent / NOC / data protection cases were released for the week of 28 September 2015. Keep in mind that I do not normally blog on procedural cases. To keep up with all IP cases, I recommend Alan Macek's IPPractice Daily IP News service.

Why Switching Costs Are Irrelevant to Patent Holdup

Professor Thomas Cotter and I have a jointly authored post on his blog explaining why switching costs are irrelevant to patent holdup.

There Is No Requirement to Refer to Evidence of Demonstrated Utility in the Patent

Eli Lilly Canada Inc v Apotex Inc / tadalafil formulation (NOC) 2015 FC 1016 Gleason J
            2,379,948 / tadalafil formulation / CIALIS, ADCIRCA

After the discussion of abuse of process issues in Friday’s post, this post turns to the substantive issues in this Tadalafil Formulation decision. Gleason J held that Apotex’ product did not infringe the 948 patent [72], which claims a particular formulation of tadalafil, and that the 948 patent was invalid for obviousness as being obvious to try [112], but that it was not invalid for lack of utility [145].

The holdings on infringement and obviousness turned entirely on the facts, and Gleason J came to the same conclusion as did de Montigny J in Mylan Tadalafil III 2015 FC 178 (blogged here), which she referenced. Two points of some interest are that Gleason J relied on comity in coming to the same conclusion as de Montigny J regarding the inventive concept [92]; and Gleason J took a very dim view Lilly’s expert Dr. Bodmeier for having changed his evidence to avoid a conclusion unfavourable to Lilly [56]-[57].

The discussion of utility was interesting in two respects. It started, as is now standard, by considering the promise of the patent. Lilly submitted that the promise of the patent was limited to rapid onset of pharmacological response [124], while Apotex argued for a broader promise, including advantages such as improved stability, among others. Gleason J ultimately held in favour of the more modest promise advanced by Lilly [137]. 

What is interesting is that Gleason J emphasized throughout that a patent need not have a promise. As Gleason J noted in her general statement of the law, it is established that in principle a patent need not have any promise at all ([117], [118], [120]), but it nonetheless remains the norm to assess utility against a promise which is more stringent than the scintilla that would otherwise be required to support a patent. Consequently, it is not surprising that Lilly chose to advance a modest promise rather than arguing that the patent contained no promise at all. Even so, in her analysis Gleason J suggested at several junctures that the patent might not contain any promises. She noted that while a promise must be explicit “the Patent nowhere makes an explicit promise of any sort” [133], and after reviewing the particular statements of advantage in the patent, she remarked that “There is little in these few statements to found a promise, but, despite this, it is common ground between the parties that this Patent does make a promise” [136]. Her holding that there was a modest promise was qualified by statements such as “To the extent there is any promise made in the 948 Patent” [136] and “to the extent the relevant claims in the Patent make a promise,” it is a modest one [137]. Given the current state of the law, it is no doubt tactically safer for a patentee to choose to argue for a modest promise rather than none at all, but it is apparent that in this case Gleason J would have been open to finding that the 948 patent did not make any promise.

The utility discussion also raised an important legal point on the requirement to disclose evidence of utility. It is now established in Canadian law that when utility is based on sound prediction, the factual basis for that prediction must be disclosed in the patent itself. (Though there has recently been some suggestion that this rule is limited to certain types of patents: see here and here.) In this case, no studies or tests at all were disclosed in the 948 patent, so Lilly did not appeal to sound prediction to establish utility, and appealed instead to demonstrated utility [123].

On the basis of Latanoprost 2011 FCA 236, [30], Pharmascience / NEXIUM 2014 FCA 133 [39], [40], and Sildenafil FCA 2010 FCA 242, Apotex argued that even evidence supporting demonstrated utility must be at least referred to in the disclosure [129], [140]. This interpretation of those cases had been accepted by Roy J in Gliclazide Dosage Form 2015 FC 108, which Apotex also relied on [140]. Gleason J dismissed this argument:

[141] With respect, I believe that Justice Roy’s determination on this point is erroneous and ought not be followed as it takes the obiter statements in Sildenafil FCA and Latanoprost out of context and does not address the many other cases where an opposite conclusion was reached.

I entirely agree with this view of of Latanoprost 2011 FCA 236 and Pharmascience / NEXIUM 2014 FCA 133, as discussed in my post on Roy J’s decision. Indeed, the FCA remarks relied on by Roy J were so tangential to the issues in those cases that I didn’t even mention them in my posts on those cases (see here and here). I must say that I read the Sildenafil FCA decision as providing stronger support for a requirement to disclose evidence of demonstrated utility in the patent, but that decision was brief and not entirely clear, and only a single sentence from it was being relied on. Moreover, in my view Gleason J was entirely right to conclude from her review of the case law generally that “the weight of authority is to the effect that the evidence of demonstrated utility need not be referenced in the patent for the patentee to rely on it” [142].

Gleason J’s holding on this point was not obiter, as she went on to find the promised utility was demonstrated on the basis of evidence that was not disclosed or even referred to in the patent [143]-[144]. I hope that Gleason J’s holding will settle this point, at least at the FC level

Vigamox Decision Affirmed on the Facts

Actavis Pharma Compagny v Alcon Canada Inc / moxifloxacin (NOC) 2015 FCA 192 Boivin JA: Dawson, Webb JJA aff’g 2014 FC 462 Phelan J

1,340,114 / moxifloxacin / VIGAMOX

Alcon Canada Inc. v. Actavis Pharma Company / moxifloxacin (NOC) 2015 FCA 191 Boivin JA: Dawson, Webb JJA aff’g 2014 FC 462 Phelan J
            2,342,211 / moxifloxacin / VIGAMOX

These companion cases concern separate appeals, involving different patents, from a single decision by Phelan J. In both cases the FCA affirmed, essentially on the basis that the appellants were really attempting to re-argue the case on the facts and asking the FCA to re-weigh the evidence, which is not the role of a Court of Appeal.

Phelan J’s decision respecting the 211 patent is blogged here, and his decision on the 114 patent is blogged here and here.

Fairness in Abuse of Process: Which Party Will be More Severely Prejudiced

Eli Lilly Canada Inc v Apotex Inc / tadalafil formulation (NOC) 2015 FC 1016 Gleason J
            2,379,948 / tadalafil formulation / CIALIS, ADCIRCA

In Apotex Tadalafil Formulation Gleason J found that Apotex’ product did not infringe the 948 patent [72], which claims a particular formulation of tadalafil, and that the 948 patent was invalid for obviousness as being obvious to try [112], but that it was not invalid for lack of utility [145]. The main points of interest are Gleason J’s discussion of abuse of process, and her discussion of the suggestion in some recent case law that evidence of demonstrated utility must be disclosed in the patent. I will discuss abuse of process in this post, and utility in Monday’s post.

The abuse of process issue arose because de Montigny J ruled against Lilly on the same issues in respect of the same patent in Mylan Tadalafil III question, and in Sanofi Ramipril 2007 FCA 163 the FCA held that when an a patentee has failed in an NOC proceeding against one generic, it is generally an abuse of process within the meaning of paragraph 6(5)(b) of the NOC Regulations to relitigate the same allegation of invalidity when made by second generic. However, as Gleason J noted [11], the FCA did note that the doctrine of abuse of process should be applied on a case by case basis, “to ensure the application of the doctrine of abuse of process does not give rise to unfairness in the circumstances” (Sanofi Ramipril [40]). Gleason J held that “in the rather unique circumstances of this case, this application is not an abuse of process” [10]. The main distinction relied on by Gleason J was the fact that an appeal of de Montigny J's Mylan Tadalafil III decision was still pending, whereas in Sanofi Ramipril [40] appeals of the earlier decision had been exhausted [12], [14].

More important that this specific distinction is the general principle articulated by Gleason J:

[19] I believe the key issue for consideration involves determination of which party will be more severely prejudiced by a negative determination on the dismissal request.

Gleason J then went on to provide a detailed analysis of the consequences to both parties of allowing the prohibition application to proceed on the merits in this particular case. This principle strikes me as valuable in providing structure and meaning to the assessment of fairness in the exercise of the court’s discretion under s 6(5)(b), and indeed when dealing with abuse of process more generally. It is not an exhaustive principle (nor did Gleason J say it was), as it does not address concerns such as economy of judicial resources and the risk of conflicting judgments which go beyond the interests of the parties to the particular litigation, and which were emphasized in Sanofi Ramipril. But it is nonetheless a helpful elaboration on the question of fairness, which was adverted to but not developed in Sanofi Ramipril.

Gleason J’s statement and her subsequent discussion of the facts acknowledges that consideration of fairness requires a comparative balancing analysis, as opposed to focus solely on the plaintiff. A plaintiff may have legitimate reasons for bringing a subsequent action, even if considerations of judicial economy and fairness to the defendant ultimately warrant dismissal of the action for abuse of process. Implicit in Gleason J’s analysis is a risk analysis; there would be prejudice to Lilly from losing its ability to present its case on the merits, and that prejudice would be greatly magnified if it prevailed on the appeal in Mylan Tadalafil III [21]. In that sense, Gleason J’s analysis is broadly analogous to the “lower risk of injustice” principle enunciated by Hoffmann J In the context of interlocutory injunctions in Films Rover [1986] 3 All ER 772, 780. That is, even though one party might suffer a more substantial prejudice on a negative determination on the abuse motion, that prejudice should be discounted if that party would be unlikely to prevail on the merits. That would explain why it is relevant to ask whether the appeals from the prior decision are exhausted, which implies that the merits remain somewhat uncertain.

Non-Infringing Alternative and Intentional Infringement

Apotex Inc v Merck & Co, Inc / Lovastatin Damages 2015 FCA 171 Dawson JA: Stratas, Boivin JJA aff’g 2013 FC 751 Snider J
            1,161,380 / lovastatin / MEVACOR

In a comment to my post “Relevance of Infringer's Outside Option in Non-infringing Alternative Analysis,” on the FCA’s Lovastatin Damages decision, Ephraim Stulberg raises a point that deserves a full analysis:

My reading of the case is that the FCA has concluded (rightly or wrongly) that the NIA defence will typically be open only to unintentional infringers. The "but for" reconstruction cannot simply be based on the proposition that "had we only known the court would have found the patent valid"; otherwise, the actions of the defendant in the real world will be held against them (i.e. if the NIA was really such a good idea, why did you decide to roll the dice?)

I agree that the FCA did seem to be saying that an intentional infringer cannot normally raise the availability of an NIA in constructing the “but for” world. That is directly supported by the FCA’s repeated references to intentional infringement [91], [93] and it makes sense of the court’s reference to “brazen” infringement, which is otherwise puzzling [90]. It is also consistent with the court’s repeated references to Apotex’ belief that the 380 patent was invalid [92], [93], which indicates that, in the view of the FCA, Apotex intentionally infringed because it believed the patent was invalid.

The difficult question is why the FCA was of the view that intent is an important consideration. It is one thing to say that an intentional infringer cannot normally raise the availability of an NIA, but there must be some rationale for that holding, which would otherwise simply be unprincipled.

The reading I provided in my first post – that the FCA was saying that an infringer will not be able to raise the NIA in the damages assessment if it would not have been more profitable than the best outside option – is not strongly supported by the FCA’s emphasis on intent. As I explained in the footnote (*) in my first post, on that reading it doesn’t really make sense to say that an intentional infringer will not usually be able to raise the NIA analysis, because intent doesn’t say anything about whether the defendant believed it had a better outside option. On the other hand, my reading is quite strongly supported by the FCA’s only specific statement as to why as Apotex’ evidence was insufficient [94]; but if that reading is correct, the FCA’s emphasis on intent was misplaced.

While my reading of the decision does not really explain the court’s emphasis on intent, I can’t think of any other reading which does. The basic difficulty with a holding that an intentional infringer cannot raise the availability of an NIA is that, as the FCA explicitly recognized, the question at hand is one of causation [43], and intent is irrelevant to causation. If I smash a store window intentionally or accidentally, the damage I cause – the cost of replacing the window – is the same.

In some limited circumstances the intentional nature of the act might increase the harm done. The humiliation from an intentional public slap in the face might entail a real loss, even though the same physical act would be negligible if accidental. In such instances aggravated damages are appropriate to capture the intangible elements of the harm: see Cassell & Co Ltd v Broome (No 1) [1972] UKHL 3. But there is no suggestion in this case, either on the facts or in the FCA decision, that the infringement is linked to any kind of loss that would give rise to aggravated damages, and aggravated damages do not typically arise in patent litigation generally. And even if aggravated damages could somehow arise, I don’t see how there could be any link between the availability of the NIA and the quantum of the aggravated damages. So, an appeal to aggravated damages cannot justify a holding that an NIA should not be considered in assessing damages against an intentional infringer.

At first glance, punitive damages are more promising. Intent is certainly relevant to punitive damages, which are intended for punishment (or prevention), deterrence and retribution: Whiten 2002 SCC 18 [43], [53], Cinar 2013 SCC 73 [136]. Nonetheless, there are several problems with holding that an intentional infringer cannot rely on the NIA analysis in order to impose punitive damages.

First, as a general matter, punitive damages are not generally available for intentional patent infringers. Intentional infringement is common, particularly in pharmaceutical litigation, yet punitive damages are very seldom awarded. To award punitive damages routinely, but only in cases where the infringer could otherwise have competed with a non-infringing alternative, is unprincipled.

This leads to the second point. While intent is relevant to punitive damages, it is not the only factor that is considered. “Punitive damages are awarded against a defendant in exceptional cases for ‘malicious, oppressive and high-handed’ misconduct that "offends the court's sense of decency’. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour” Whiten [36]. Intentional infringement alone falls far short of this standard, particularly when, as in this case, the infringer believed the patent to be invalid. If, for example, a generic launches at risk in the face of an evergreening formulation patent that it believes is almost certainly invalid, surely it should not be subject to punitive damages if the 10% chance that the patent was valid is ultimately realized.

Finally, punitive damages must be reasonably proportionate to the harm caused: Whiten [94]. This means the harm caused must be determined before punitive damages can be assessed; if we don’t know what harm was caused, how can we ensure that the punitive damages are proportionate to that harm? Again, we come back to the point that the harm caused does not depend on whether the infringement was intentional. By the same token, even if punitive damages were generally appropriate for intentional infringers, there is no particular reason to believe that the appropriate quantum of punitive damages would be arrived at by excluding the NIA analysis. Recall that the NIA analysis is not a defence, but only a method of assessing damages. In this case the facts established that Apotex would have competed equally effectively with the NIA, but in general the NIA analysis might show that the infringer would have captured only a part of the market, or even none at all. So to exclude the NIA analysis as a means of levying punitive damages would mean that sometimes the punitive damages would be an enormous multiple of the harm caused – potentially hundreds or thousands of times the harm actually caused, in cases where competition with the NIA would have been very effective – to a very small fractional multiplier. Indeed, the less the harm, the greater the multiplier, which is exactly the opposite of what we would want from punitive damages that are proportionate to the harm caused.

Consequently, it would be entirely unsound to impose punitive damages by holding that an intentional infringer cannot appeal to the NIA.

Having ruled out punitive damages and aggravated damages, I can’t think of any other reason why intent would be relevant. While the reading I offered in my first post doesn’t really explain the FCA’s emphasis on intent, I can’t think of any other principled explanation for the court’s holding that gives intent a central role. So on the whole, I still think the is the best reading is the one I provided in my first post, but it is certainly possible that I have misunderstood the court’s point.

Finally, Mr. Stulberg remarked that:

The "but for" reconstruction cannot simply be based on the proposition that "had we only known the court would have found the patent valid"; otherwise, the actions of the defendant in the real world will be held against them (i.e. if the NIA was really such a good idea, why did you decide to roll the dice?)

As a general matter, I don’t see what’s wrong with basing the but-for reconstruction on the proposition that “had we only known the court would have found the patent valid,” this is what the infringer would have done. For example, a reasonable royalty is assessed on the assumption that the parties to the hypothetical negotiation knew the patent is valid, even though real licenses are presumably discounted to reflect the possibility of invalidity. More generally, my view is that damages assessment should take into account not just whether the patent is valid, but all knowledge known at the time of trial: see my article with Tom Cotter, A New Framework for Determining Reasonable Royalties in Patent Litigation (forthcoming Fla L Rev). As to why the defendant would have infringed, the answer is that it is often more profitable to infringe. In this case the infringing process was substantially cheaper than the NIA, though that differential profit would have been captured by Blue Treasure (the Chinese joint venture which manufactured most of the infringing product), rather than by Apotex. But that does not make the NIA analysis irrelevant. If the NIA indeed just as good, it is true that the infringer would normally not infringe intentionally, but in general the NIA will allow some partial degree of competition. This is there is a broad range of possibilities between an NIA that is a perfect substitute for the patented product and one that would not have captured any sales at all. It is well established that a patentee cannot recover lost profits for sales that would have been captured by third parties with non-infringing products, and typically such competitors will capture some but not all of the infringing sales: see Jay-Lor 2007 FC 358, [197], AlliedSignal (1998), 78 CPR(3d) 129, 139 (FCTD). The NIA analysis just says the same is true even if the non-infringing sales would have been made by the infringer.

I consulted for Apotex at both the FC and FCA level. The views expressed in this post are my own.

Vigamox Decision Affirmed on the Facts

Actavis Pharma Compagny v Alcon Canada Inc / moxifloxacin (NOC) 2015 FCA 192 Boivin JA: Dawson, Webb JJA aff’g 2014 FC 462 Phelan J

1,340,114 / moxifloxacin / VIGAMOX

Alcon Canada Inc. v. Actavis Pharma Company / moxifloxacin (NOC) 2015 FCA 191 Boivin JA: Dawson, Webb JJA aff’g 2014 FC 462 Phelan J
            2,342,211 / moxifloxacin / VIGAMOX

These companion cases concern separate appeals, involving different patents, from a single decision by Phelan J. In both cases the FCA affirmed, essentially on the basis that the appellants were really attempting to re-argue the case on the facts and asking the FCA to re-weigh the evidence, which is not the role of a Court of Appeal.

Phelan J’s decision respecting the 211 patent is blogged here, and his decision on the 114 patent is blogged here and here.

Latitude in Admitting Hearsay Evidence Contained Within Facially Reliable Scientific References

Takeda Canada Inc v Mylan Pharmaceuticals ULC / pantoprazole (NOC) 2015 FC 751 Barnes J
             2,341,031 / pantoprazole magnesium dihydrate / TECTA

In this NOC proceeding Takeda’s 031 patent claiming pantoprazole magnesium dihydrate was found to be not infringed and invalid for anticipation. Both aspects of the decision turned entirely on the facts. The most interesting aspect of the decision is Barnes J’s discussion of hearsay evidence in NOC proceedings, and in particular his statement that “some latitude should be extended to the reliance by expert witnesses upon hearsay contained within authenticated and facially reliable scientific references” [92].

Pantoprazole magnesium is a known gastric acid inhibitor, and the dihydrate form was the inventive concept of the 031 patent [3]. The relevant prior art was Example 10 of an international patent application [27]. As Barnes J noted, the test for anticipation is strict and requires that following the directions in Example 10 would “inevitably or necessarily” produce pantoprazole magnesium dihydrate. “If the evidence discloses on a balance of probabilities only that a dihydrate will sometimes be the result,” the attack based on anticipation will fail [39]. The only direct evidence was provided by Mylan’s expert, who testified that by following the directions in Example 10 he had produced pantoprazole magnesium dihydrate [40]. Takeda’s expert suggested that different choices might have produced a different result, but those concerns were all “theoretical” and Barnes J was not persuaded [48]. The fact that Takeda did not conduct any tests to determine whether Example 10 would produce the dihydrate form substantially undermined its case [49] (though of course, if Takeda had carried out such tests and they had all produced the dihydrate form, that would not have helped either).

Mylan argued its pantoprazole magnesium product did not infringe because it was the hemipentahydrate, not the dihydrate. The issue turned entirely on whether Mylan’s product was indeed the hemipentahydrate. Barnes J took into account the fact that Mylan’s ANDS submitted to the Minister of Health reports that its product was characterized by various testing methods and found to be a hemipentahydrate [15]. He held that the fact that the Mylan’s product specification allowed for a range of water content that encompassed both the dihydrate and hemipentahydrate, “says very little about what is actually produced” [60], and “it would take far stronger evidence than this to support an inference that Mylan’s disclosure about its product to the Minister was deceitful” [62]. Barnes J also considered evidence related to various tests used to characterize Mylan’s product, and he concluded that Takeda had not carried its burden of showing that Mylan’s product was the dihydrate, particularly in light of the imprecision of many of the tests [79]. [104]. Again, Takeda’s failure to carry out its own characterization tests weighed against it [103].

A significant piece of evidence relied upon by Mylan to characterize its product as a hemipentahydrate was the fact that the XRPD pattern obtained by Mylan for its product matches the XRPD pattern reported in US patent application 623 for a product characterized by the US 623 inventors as pantoprazole magnesium hemipentahydrate [88]. Takeda attempted to block the introduction of this evidence as hearsay [90]. Barnes J held it was indeed hearsay [90] and it did not fall clearly into one of the previously recognized exceptions to the hearsay rule [91]. Nonetheless, he considered it:

[91] In particular, there is no evidence before me to show that the admission of this evidence was justified on the basis of its necessity. That said, the opinions expressed by expert witnesses in patent litigation frequently rest on their acceptance of the accuracy of hearsay references concerning scientific issues or for the interpretation of prior art. In some cases, this is justified on the ground that experts in a particular field are permitted to rely on the accuracy of widely accepted and publicly reported data.

[92] Given the summary nature of NOC proceedings, I am of the view that some latitude should be extended to the reliance by expert witnesses upon hearsay contained within authenticated and facially reliable scientific references. The contents of US 623 were disclosed in Mylan’s NOA and its expert witnesses relied on the reported findings in support of their own analysis. Where such a reference contains sufficient information to allow the opposite party to replicate the work and assess the accuracy of the reported data, that party suffers no material prejudice by the admission of hearsay in support of an expert’s opinion. It was open to Takeda to run the same tests reported in US 623 and to fully characterize the resulting compounds. Despite the significance of this evidence, Takeda chose not to make that effort.