Any Calculation Will Be Complex and Contentious

Philip Morris Products SA v Marlboro Canada Ltd 2015 FC 364 de Montigny J

This issue in this decision in the Philip Morris v Marlboro litigation is whether Marlboro Canada and Imperial Tobacco (ITL), which prevailed in a trademark action, should be entitled to elect an accounting of profits. It is relevant to the same question in the patent context, as de Montigny J relied on the patent case law on the same point [17] and he was clearly of the view that the applicable principles are the same in both contexts. The decision is noteworthy for its extensive review of the factors to be considered in deciding whether to allow a successful party to elect an accounting.

As I noted in a previous post, there is something of a split between cases suggesting that a patentee will normally be permitted to elect an accounting unless there is some reason why that remedy should be denied, and others indicating that an accounting will be denied unless the plaintiff can show some positive reason why it should be granted. That issue was directly raised in Philip Morris, as ITL argued that “the remedy is ordinarily awarded unless there are special circumstances,” whereas Philip Morris, the defendant on the trademark claim, argued that the Court must simply balance the equities and decide whether the remedy is appropriate in the circumstances [18]. de Montigny J held that an accounting is not a presumptive remedy and the trial judge has complete discretion [19], but on the whole, this decision falls into the first category (my emphasis):

[21] I shall therefore weigh the relevant factors in light of the equitable purposes of the remedy, bearing in mind that the Defendants have no right to an accounting of profits but that they should not be denied that option in the absence of any compelling reasons.

(While ITL was the successful party in the litigation, it was the defendant on the underlying action, and the plaintiff only by counterclaim, and so is referred to as the “Defendant” by de Montigny J, while Philip Morris is referred to as the “Plaintiff”.)

de Montigny J then reviewed a number of factors. This list is of course not exhaustive, but only reflects those raised by the parties. And, as de Montigny J noted, "none of the factors is controlling, in and of itself” [21].
 
(1) The claimant's conduct
The main point here is that “As for delay, it would dearly be inequitable to allow a plaintiff to recover profits made by a defendant while the plaintiff was aware of the infringement for some time and did nothing about it” [22]. This strikes me as sensible. Delay should not be encouraged, particularly when the defendant reasonably believes it is not infringing and so may be relying on the status quo. 

On the facts, there was no undue delay in this case, nor was there any allegation of unclean hands [22]-[23]. de Montigny J then held that "All these factors clearly militate in favour of an accounting of profits - and indeed the Plaintiffs do not contest any of these arguments [24]. It is interesting that the fact that there is no undue delay and no unclean hands militates in favour of an accounting, rather than being neutral. This reinforces the point that an accounting will be granted unless there is some reason not to do so.

(2) Complexity of an accounting of profits
The complexity of an accounting of profits is often raised as a factor militating against an accounting, and indeed is cited as the main reason why US law abolished the accounting remedy in patent cases. The key point made by de Montigny J on this issue is that “the calculation of damages is likely to be as complex as the accounting of profits” [31]. While is true that an accounting in this case would be difficult [27]-[29], “[j]ust as with accounting, the causation/apportionment issues will likely be contentious in the calculation of damages” [31]. Consequently,

[32] [A]ny calculation will be complex and contentious, whether in relation to assess the damages or in relation to the apportionment issue. For that reason, I am of the view that the complexity factor weighs neither for nor against the accounting of profits.

In my view this is an entirely sound point which is too often overlooked. The correct question is not whether an accounting is complex, but whether it is substantially more complex than the damages calculation would be. When the accounting remedy was rejected in US law, the principles used in assessing the defendant’s profits were not the same as those used in modern Canadian law. In Canadian law, the basic “but for” inquiry is conceptually the same in either case, particularly when lost profit damages are claimed. Depending on the particular facts, an accounting may be more complex than the damages assessment, but it may also be less complex or roughly equivalent, as in this case.

Another point made by de Montigny J is that the absolute complexity is not the main issue, but rather proportionality: “the Court is essentially concerned with the proportionality of the accounting remedy in view of the length or extent of the infringing activity and the likely benefit of the accounting exercise” [29].

(3) The infringer’s conduct
Here de Montigny J noted that the legal issue in question “was a genuinely novel legal issue, and not a case of blatant infringement” [35]. He contrasted this was Varco 2013 FC 750 (blogged here) in which the defendants “knew the patent infringement was blatant and the only defence would be patent invalidity” [35]. I am not persuaded by this distinction. Many granted patents turn out to be invalid, and I don’t see why it is more blameworthy to proceed in the face of uncertainty as to liability on the facts, as opposed to uncertainty as to liability as a matter of law. It is entirely legitimate to infringe a patent in order to test its validity, and a defendant who does so successfully is doing a public service, as the benefit of lower prices from having a bad patent held invalid redounds to society as a whole in the form of lower prices. Such infringement should not be discouraged by the threat of a more severe remedy. (This is not to say that an accounting should never be awarded in the case of patent infringement, but only that the distinction between uncertainty in the law and uncertainty on the facts does not strike me as a proper consideration in deciding whether to allow an accounting.)

(4) The claimant's damages
The defendant, Philip Morris, argued that “if the claimant could never have earned the profits or was in no way harmed by the infringement, accounting would be an undue windfall to the claimant” [36]. de Montigny J rejected this both for lack of authority, and because taking this factor into account would require a detailed assessment of disputed evidence [37]-[38]. This seems right to me: to take into account the plaintiff’s damages would require the court to undertake an assessment of damages as part of the analysis of whether to allow the plaintiff to elect an accounting. This is impractical.

(5) Actual confusion
This factor is specific to trademark litigation.

Thanks to Alan Macek's IPPractice for making this case available before it is posted on the FC website.

IP License can be used to create a PMSI

Contech Enterprises Ltd. v Vegherb, LLC, 2015 BCCA 99

While security interests in IP have been the topic of law reform projects, conferences and academic articles over the past decade or more, we do not have many of cases directly on point. The BCCA decision in Contech is a welcome development because it is, in my view, correct in both the reasoning and the result. In many ways it is a relatively easy case which does not directly deal with the most contentious issues, such as priority conflicts when one party registers under the PPSA and the other under the relevant federal IP Act, but it does establish a solid foundation on which to address those more difficult questions. I will not discuss it in more detail here, as Professor Tony Duggan and I are planning on writing a brief case comment for the IPJ.

Foreign Issue Estoppel in Theory and Practice

AstraZeneca Canada Inc v Apotex Inc / omeprazole 2015 FC 322 Barnes J
            1,292,693 / omeprazole formulation / LOSEC

An overview of this litigation is given in yesterday’s post. Parallel litigation US had taken place between the parties and AstraZeneca argued that principles of issue estoppel and abuse of process should apply to prevent relitigation of a number of findings of fact made by the US court in that previous litigation. There is an interesting issue of principle, discussed here, here and here, as to whether issue estoppel in Canadian patent litigation can be based on foreign findings of fact. The theory in favour of accepting foreign issue estoppel is the same as for domestic issue estoppel: it will save judicial resources and save the embarrassment of inconsistent decisions.

Barnes J recognized this theoretical argument, but he had a powerful rejoinder:

[379 [T]he practical problems of applying estoppel in a way that will actually protect judicial resources cannot be ignored. Those problems were quite apparent in this case.

[380] Given the discretionary nature of the application of foreign issue estoppel, AstraZeneca could not prudently assume the doctrine would be applied. It, therefore, independently led evidence on all of the above evidentiary points required to make its case. The practical effect of this was that no time was saved. In fact, by pleading estoppel, the trial was substantially lengthened. In response to AstraZeneca’s plea of estoppel, Apotex led fact evidence from two attorneys involved in the United States omeprazole proceedings, Martin Endres and Robert Silver. It also led opinion evidence from two legal experts, Judge Benson Legg (retired) and Mr. John Whealan. That evidence described the approach that the United States District Court took to the management of its multi-party infringement actions including the separation of the proceeding into waves. The purpose of this evidence was to attempt to explain the differences between United States and Canadian procedures and substantive patent law and to show that the two systems are sufficiently distinct that the application of estoppel would work an injustice on Apotex.

The theory is that foreign issue estoppel will reduce litigation costs; the practical reality, at least in this case, is that costs were increased to no benefit. Consequently,

[381] Considering the somewhat unusual process that was followed in the United States second wave proceedings involving Apotex, the practical disadvantages of applying issue estoppel to only a handful of findings made in that proceeding, and the fact that it is not necessary to rely upon the doctrine to fill a gap in the evidentiary record, I decline to apply the principle here.

Product Claim Not Limited to Process Contemplated by Patentee

AstraZeneca Canada Inc v Apotex Inc / omeprazole 2015 FC 322 Barnes J
            1,292,693 / omeprazole formulation / LOSEC

In this Omeprazole formulation decision, which turned primarily on the facts, Barnes J held AstraZeneca’s ‘693 patent to valid and infringed. While the decision does not break new legal ground, it does illustrate some points of interest with respect to claim drafting, claim construction and litigation strategy. Also, in the bigger picture, some are inclined to characterize any pharmaceutical patent other than that for the API per se, and in particular formulation and dosage form patents, as “evergreening” patents which should not be allowed. In this case it was established that formulation of omeprazole presented a difficult problem which had to be solved to produce a medically useful drug and consequently, after a detailed review of the facts - the decision was 177 pages long - the invention was held to be non-obvious [273]. This contrasts with other recent cases, discussed here and here, in which dosage and formulation patents were held to be obvious. The lesson is a simple one, but perhaps worth repeating: sometimes formulation patents are good and sometimes they are bad, and either way, they are carefully scrutinized by the courts.

Tadalafil Formulation Patent Obvious and Not Infringed on the Facts

Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC / Tadalafil Formulation (NOC) 2015 FC 178 de Montigny J
            2,379,948 / Tadalafil formulation / CIALIS

Tadalafil Formulation (NOC) concerns Lilly's ‘948 patent for a formulation of tadalafil with free drug particles of less than a specified size (40 microns in Claim 1) plus specified excipients [20]. de Montigny J found Mylan’s allegations of non-infringement and obviousness to be justified. 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” [92]. For the most part, the Court went with Mylan’s expert. The points of most general interest are an evidentiary point concerning provision of testing data in an NOC proceeding, and a point regarding the use of documents which are not cited in the NOA. There are also a couple of points that may be of interest in interpreting formulation claims.

Deferential Review of Factual Findings of the Re-examination Board

Newco Tank Corp v Canada (Attorney General)2015 FCA 47 Ryer J: Webb, Near JJA, aff’g 2014 FC 287 Mosley J
            2,421,384

In this re-examination the Board cancelled three of the claims of the ‘384 patent as being obvious. An appeal to the FC was dismissed on the facts, as discussed here. On appeal to the FCA, the patentee argued that the Board had erred in law by construing the “information presented as background knowledge in the patent itself” as being an admission of the common general knowledge [7]. In particular the patentee argued that the invention lay in the identification of the problem (inefficiency in heating of liquid storage tanks at well sites) and so it was an error to conclude that the problem itself was known merely because it was identified in the patent.

The FCA dismissed the appeal on the basis that the Board’s finding that the common general knowledge of the skilled person included the information presented as background knowledge in the patent itself was simply a factual finding [10], and so was properly reviewed by the FC on a deferential (reasonableness) standard [12]. I do not take this as a holding that any statements in the patent are indeed to be considered to be admissions as to the state of the common general knowledge; as I read it, the FCA was only saying that in this particular case it was reasonable for the Board to have concluded that the statements in question described the common general knowledge.

Is There a Requirement to Refer to Evidence of Demonstrated Utility in the Patent?

Les Laboratoires Servier v Apotex Inc / gliclazide (NOC) 2015 FC 108 Roy J
            2,629,670 / gliclazide / DIAMICRON MR

As noted yesterday, in Gliclazide Dosage Form Roy J dismissed Servier’s application for an order of prohibition primarily on the basis of non-infringement [147], though he went on to hold the patent to be obvious and lacking in utility. The findings of non-infringement and obviousness were legally straightforward, but in the utility analysis has an important novel development (as if the law of utility was not controversial enough as it is): Roy J held that the factual basis for demonstrated utility must be referred to in the patent.

Servier argued that the promised utility was demonstrated by two bioequivalence studies. However, neither of these studies was alluded to in the specification [213]. Roy J held that these studies cannot be considered in establishing demonstrated utility:

the tests Servier points to that are not referred to in the `670 Patent are not relevant for establishing demonstrated utility [216].

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 specification. Roy J did not hold that the factual basis for demonstrated utility must be disclosed, but he did hold that it must be referred to. That is, the distinction between sound prediction and demonstrated utility is whether the data itself must be set out in the patent, or whether it is sufficient to merely reference the relevant tests.