TRUVADA Patent Invalidated by Conference Call With Investors Outside of Grace Period

Gilead Sciences, Inc v Apotex, Inc 2016 FC 856 Brown J
            2,512,475 / TRUVADA

In this chapter of the continuing TRUVADA saga, Brown J held Gilead’s 475 patent invalid as being anticipated, or in the alternative, obvious, on the basis of a disclosure made by Gilead executives in the course of a conference call with investors. The filing date was 13 January, 2004, and the conference call, which was public [67], took place more than one year before, on 2 December, 2002, and so outside the one year grace period for disclosure by the inventor set out in s 28.2(1)(a) and s 28.3(a). The argument for anticipation or obviousness based on the conference call was very strong, and the main tactic of Gilead’s counsel was to try to keep the conference call transcript out of evidence by instructing the Gilead witnesses not to produce the conference call transcript, in violation of Rule 94(1), and without seeking the relief of Rule 94(2) [60], [61]. Brown J held that in the circumstances hearsay evidence of the conference call transcript introduced by Apotex was admissible as being both necessary and reliable [60]. The holding on anticipation [97] and obviousness [120-21] followed directly. Apotex also argued lack of utility, but Brown J construed the promise of the patent modestly [139], and found that the promised utility was soundly predicted [143].

As a minor point, Brown J found that the conference call, which was public [67], would have been known to a person skilled in the art [103], but I don’t see a specific holding by Brown J that it was part of the state of the art, in the sense of being common general knowledge or prior art which would be discovered in a reasonably diligent search directed to the problem at hand. As noted here, there is an issue as to whether the art that can be used in an obviousness attack includes only the state of the art, so defined, or all prior art. This would potentially have been an important point had the decision rested primarily on obviousness, but given that anticipation was the primary basis for Brown J’s holding of invalidity, nothing turned on it.

When Does a Submission for an NOC Trigger S 5 of the NOC Regulations?

Teva Canada Limited v Pfizer Canada Inc 2016 FCA 248 Dawson JA: Webb, Rennie JJA rev’g 2014 FC 1243 Gleason J
            2,409,059 / exemestane / AROMASIN
            2,261,630 / infliximab / REMICADE / INFLECTRA

Section 3.4.1 of the most recent (2012) Guidance Document: Patented Medicines (Notice of Compliance) Regulations, states that when a generic manufacturer of a drug that already holds an NOC licenses a second generic to sell “the identical drug,” the second / licensee generic need only file an administrative drug submission which does not trigger s 5 of the NOC Regulations. This reversed the prior policy, under which the second generic’s submission was considered to trigger s 5. The change in policy resulted from the Minister of Health’s interpretation of the term “submission” in s 5(1) of the NOC Regulations, and not from any change in the regulations themselves. In this decision, the FCA held that the Minister’s interpretation of the Regulations was owed deference, and that the new interpretation was reasonable, reversing Gleason J on both points. This means that a patentee cannot decide whether to respond to an NOA in light of the threat it perceives from the particular generic; instead, a patentee must respond to every NOA it receives, or take the risk that the generic in question will subsequently license. With that said, according to the Guidance Document, the submission by the second generic will only be considered administrative if the drug is “identical.” In the cases under appeal, the second generic certified that its product would be manufactured in the same location with identical specifications and procedures. That is, as I understand it, the first generic, which had received the NOC, was manufacturing the drug for sale by the second generic. The FCA decision suggested that when a drug is manufactured by the second generic in circumstances that give rise to a “to a new or different basis for asserting that a particular product is infringing” [89], the submission should not be considered administrative. I would imagine that manufacturing by the second generic in a different facility might by considered sufficiently different, even if under licence by the first generic, but the Guidance Document is not explicit on this issue. And regardless of this suggestion by the FCA, the Minister’s interpretation on this point would be reviewed on a deferential standard.

Is Recourse to the Disclosure Impermissible When the Words of the Claim Are Plain and Unambiguous?

Cascade Corporation v. Kinshofer GmbH 2016 FC 1117 Southcott J
            2,587,065 / I-LOCK and X-LOCK quick coupler

This infringement action ultimately turned entirely on claim construction. A key issue in claim construction was whether recourse to the disclosure was permissible; in the course of coming to opposite conclusions, the defendant’s expert started with the disclosure and relied extensively on it in construing the claims, while the patentee’s expert largely ignored the disclsoure. Southcott J began his discussion of claim construction by quoting the principle that recourse to the disclosure is “unnecessary where the words are plain and unambiguous”. As discussed below, Southcott J evidently took this as saying that recourse to the disclosure in claim construction is permissible only when the claims are ambiguous. In my view, that proposition is clearly wrong. Since Southcott J found the claims to be ambiguous, and hence recourse to the disclosure was permissible, the error made no difference to the result. Nonetheless, because Southcott J’s view was based on FCA authority, the point warrants some discussion.

Uncontested Change of Inventorship

Qualcomm Incorporated v. Canada (Commissioner of Patents) 2016 FC 1092 Southcott J
            2,630,594

This decision concerned an uncontested application by Qualcomm pursuant to s 52 of the Act to correct the name of the inventor on the 594 patent by adding the true inventor and deleting two incorrectly named inventors. In a previous Qualcomm decision, 2016 FC 499 (blogged here), Simpson J held that the affidavits that would be required to amend the inventorship for a pending application under s 31 are not strictly required under s 52. Qualcomm nonetheless provided affidavits, out of an abundance of caution [13], [14].

Qualcomm also sought to have certain documents recorded against the 594 patent, including a copy of replacements sheets for the PCT Declarations of Entitlement [1]. Southcott J declined to grant that relief, but without actually holding that the FC does not have the jurisdiction to grant such relief under s 52. Qualcomm did not urge the point very strongly, acknowledging that it would have other means have filing the replacement documents. Accordingly, in the absence of case law holding that s 52 authorized the FC to order the recording of documents, Southcott J declined to grant the relief, without any express holding as to whether he had the necessary authority to do so [16]-[17].

“How Is That a Proxy for the Value Associated with the Use of the Invention?”

Arctic Cat Inc v Bombardier Recreational Products Inc 2016 FC 1047 Roy J
            2,322,738

Complex products embody hundreds or thousands of patented components, all of which contribute a small amount to the overall value of the product. When one of those patents is infringed, how are damages to be assessed? That is problem is central to much of the high-profile litigation taking place internationally in the ICT sector concerning standard-essential patents (SEPs) subject to a commitment to license on fair, reasonable and non-discriminatory (FRAND) terms. Essentially the same problem was also raised, albeit in obiter, in Arctic Cat v BRP. As noted in Friday’s post, Roy J held that Arctic Cat’s 738 patent was not infringed. While it was therefore strictly unnecessary to consider damages, the case had not been bifurcated (“This is a case where bifurcation should have been more carefully assessed [349]), and Roy J went on to make a number of observations on the damages issue, though without arriving at any final figure. His discussion is of considerable interest as Canadian law has relatively few cases assessing damages for infringement when the invention is a minor part of a complex product.

The patentee sought damages in the form of a reasonable royalty for the use of the invention [352] and experts for both parties advanced a variety of methods for assessing those royalties. Ultimately Roy J concluded that most of the proposed methods were wholly unreliable, though one was inadequate as presented, but, with adjustment, could serve as a starting point [413]. Roy J’s criticisms of the various methodologies all turned on one fundamental point: “the Court must strive to compensate the claimed invention solely with respect to damages that can be attributed to the invention” [353]:

Where the invention is but one individual component of a multi-component product, the damages in the form of royalties must be in order to compensate the infringement of that individual component of the multi-component product that is captured by the invention. In effect, the royalty recognizes that the sales by the infringer are an illegal transaction which requires to be compensated. However, it is only the infringement that requires compensation.

The problem is that the invention is a method of tuning a two-stroke engine, in particular a snowmobile engine, for optimal performance by setting the ignition timing according to the exhaust temperature (see Friday’s post). How is the value of that invention to be separated from the value of all the other components of a snowmobile, or even of a snowmobile engine [354]? I will argue below that the method that found favour with Roy J is just as susceptible to this critique as those he rejected.

You Can’t Have the Claim Construction Cake, and Eat the Validity Cake Too

Arctic Cat Inc v Bombardier Recreational Products Inc 2016 FC 1047 Roy J
            2,322,738

In Arctic Cat v BRP Roy J held that Arctic Cat’s 738 patent was not infringed by BRP’s snowmobile engines. This holding turned primarily on the construction of the claims. Roy J also held that if he was wrong as to the proper claim construction, so that BRP’s engines did infringe, then the claims at issue were invalid for obviousness. The analysis raised no new issues of law, but it does illustrate the interaction between claim construction, validity, and infringement. The patentee was trying to argue for a broad construction for infringement and a narrow construction for validity, which made it difficult to mount a consistent argument on either point.

Is Trivial and Incidental Domestic Use of a Patented Intermediate Infringing?

Bayer Inc v Fresenius Kabi Canada Ltd 2016 FC 581 Brown J motion for reconsideration dismissed 2016 FC 970
            2,192,418 / moxifloxacin hydrochloride for injection / AVELOX IV / NOC

In Bayer v Fresenius Brown J granted Bayer’s application for an order of prohibition on the basis that the NOA was insufficient, even though the application would otherwise have been dismissed on the basis that Bayer had not established infringement [7]. Brown J held that the transient and insignificant use of the claimed invention in making Fresenius product which was then imported, was not an infringement. On this point he was on firm legal ground. But the implications of this legal rule, in light of the SCC decision in Monsanto 2004 SCC 34, has implications that go beyond the context of importation. It suggests that trivial and incidental use of a patented intermediate is not infringing, even if the use is entirely domestic.

[Update: On re-reading the decision, I believe I had previously misread a key passage from Brown J's decision. I am adding this note, and the explanatory footnote ** below, but it is my policy not to amend my posts to correct errors. When I'm wrong, I'm wrong.]

The Status of Intellectual Property Licences in Insolvency Proceedings

Today's post is a guest post by Professor Anthony Duggan, the Hon. Frank H. Iacobucci Chair in Capital Markets Regulation at the University of Toronto Faculty of Law.

THE STATUS OF INTELLECTUAL PROPERTY LICENCES IN INSOLVENCY PROCEEDINGS

1.      Introduction

If an intellectual property owner grants a licence and subsequently becomes insolvent, can the insolvency administrator disclaim the licence? Or, alternatively, can the insolvency administrator sell the intellectual property free and clear of the licence? Norman Siebrasse and I explored these questions in depth in a report we wrote for Industry Canada in 2013 and in an article, based on the report, which was published in the Annual Review of Insolvency Law in 2014.[1] The questions recently came up for consideration in Golden Opportunities Fund Inc. v. Phenomenome Discoveries Inc.,[2] where the court overlooked nearly all the key points.

2.      The disclaimer of intellectual property licences

Section 65.11 of the Bankruptcy and Insolvency Act[3] provides for the disclaimer of contracts in BIA proposal proceedings. Section 32 of the Companies’ Creditors Arrangement Act[4] is a parallel provision which applies in CCAA proceedings. BIA, s.65.11(7) and CCAA, s.32(6) apply to intellectual property licence agreements where the debtor is the licensor and they provide that disclaimer of the agreement does not affect the licensee’s right to use the intellectual property during the term of the agreement, provided the licensee continues to perform its obligations under the agreement. These provisions are loosely based on s.365(n) of the United States Bankruptcy Code.[5] Their immediate purpose is to protect the licensee’s reliance interest, but the larger objective is to preserve the licensing system as a means of sharing and exploiting intellectual property rights.

Inexplicably, there are no corresponding provisions for bankruptcy proceedings or receiverships. The GOFI case involved a receivership and the court held that the above provisions were inapplicable.[6] The court went on to hold that, in the absence of any relevant statutory provisions and subject to any relevant provisions in the receivership order, a receiver is not bound by the debtor’s contracts and is free to disclaim them.[7] This is subject to the exception that “a receiver cannot disclaim a contract that has granted a property right”.[8] However, in  the GOFI  case the court, following Royal Bank of Canada v. Body Blue Inc.,[9] held that a licence “does not confer any interest or property in the thing being licensed” and so the licensee’s rights are purely contractual.[10] The implication is that if the receiver in the present case had sought to disclaim the licence agreement, the court would have upheld its right to do so and it would further have ruled that the disclaimer precluded the licensee from continuing to use the intellectual property.[11]

But this is wrong as a matter of both law and policy. It is a mistake to think of the issue in terms of property rights. Disclaimer of a contract in insolvency proceedings is a breach of contract, not rescission. The essence of a licence agreement is that the licensor promises not to sue the licensee for infringement, provided the licensee observes the terms of the licence. Outside insolvency, if the licensor sued the licensee for infringement even though the licensee was in compliance with all its obligations under the licence agreement, the licensor would be in breach of its primary obligation under the licence agreement and the court would disallow the action. In principle, the position should be the same in insolvency proceedings. In other words, disclaimer of a licence should not prevent the licensee from continuing to use the intellectual property; if the insolvency administrator sues the licensee for infringement, the court should disallow the action, just as it would have done outside insolvency.[12] Furthermore, as indicated above, there are strong policy reasons for not allowing disclaimer. These policy reasons apply regardless of the form the insolvency proceedings happen to take. The court in the GOFI  case overlooked these points and the case is open to criticism on this score. But more importantly, perhaps, this aspect of the decision serves to underscore the unforgivably patchwork nature of Canada’s insolvency laws. The rules governing disclaimer of contracts should be the same across the board both in the interests of consistency and to discourage forum shopping (picking and choosing between insolvency regimes to take advantage of discrepancies between the regimes).

3.      Asset sales and licensee’s rights

As it happens, the receiver in the GOFI  case did not seek to disclaim the licence agreement. Instead, it applied to the court for approval to sell the intellectual property (a patent) free and clear of the licence. BIA, s.65.13 governs asset sales in BIA commercial proposal proceedings and CCAA, s.36 is a parallel provision applicable in CCAA proceedings. There is no corresponding provision for receiverships, but the courts have developed a similar set of criteria for approving asset sales in a receivership, including a requirement that, in deciding whether to approve a sale, the court should take account of third party interests.[13] In the GOFI  case, the court held that even though the licensee had no proprietary interest in the patent, it did have a contractual right (presumably in the form of a damages claim) which it was entitled to pursue against the sale proceeds.[14] The court framed the question in terms of whether it would be unfair to permit this right to be extinguished and on the facts of the case, it concluded that this question should be answered in the negative. Specifically, the court found that the licensor and licensee companies were both, in effect, alter egos of the same human actor (Dr Goodenowe) and that Goodenowe had years previously bargained away the licensee’s rights.

This conclusion seems plausible as far as it goes, but it must be stressed that it turns on the particular facts of the case. Furthermore, even if the facts had been different and the court had found in the licensee’s  favour, on the court’s own reasoning this would have served only to keep alive the licensee’s  claim for damages and the claim, being a provable one, would be poor compensation for loss of the licence.   In this connection, the policy considerations are the same as in the context of disclaimers:  an order approving the sale free and clear of the licence would be detrimental to the licensee’s reliance interest and, if the licence is central to the licensee’s business, it might trigger the licensee’s own insolvency. Furthermore, the risk that the licence may be defeasible in the licensor’s insolvency proceedings could have a significantly chilling effect on intellectual property licensing activity at large. In this respect, too, the  GOFI  case points to the incoherence of the Canadian insolvency laws: it makes no sense to enact provisions aimed at giving effect to these policies in the disclaimer context, but to leave the licensee exposed to the very same risk in the context of asset sales.

In the GOFI  case,  the court overlooks the possible application of the registration and priority rules in the Patent Act.[15] At least until recent amendments, the Patent Act clearly required exclusive licences to be registered[16] and it further provided that that an “assignment” was void against a subsequent assignee unless registered.[17] It was unclear  (1) whether “assignment” included an exclusive licence;  (2) if so, whether the provision meant that the holder of a registered licence had priority over a subsequent purchaser of the patent; and (3) if not, what the governing priority rule might be.[18] The disputed agreement in the GOFI  case was a non-exclusive licence and, as such, it was clearly not registrable. But it is still not clear how the priorities should be determined.  Poolman v. Eiffel Productions [19] suggests that the federal intellectual property registration provisions do not establish priority regimes and that priorities between competing interests in intellectual property are subject to provincial law, not federal law. 

On the other hand, the correctness of Poolman has been doubted. For example Professor Vaver argues that the federal statutes do determine priorities, at least as between registrable interests, and that there is no room for the application of provincial laws.[20] But Vaver’s reading of the provisions leaves open the question of how to determine the priorities where one or more of the competing interests is an unregistrable interest.[21]  Perhaps the answer is that, at least in the case of a non-exclusive licence,  the licensee has no proprietary claim and so no question of priorities arises.  In any event, to the extent that federal laws apply to determine priorities between competing interests in intellectual property, they should be equally relevant inside and outside insolvency proceedings. This means that, in considering third party interests when deciding whether to approve an asset sale in insolvency proceedings, the court should not confine itself  to asking whether the asset sale is “fair” to the third party; it should also ask whether and, if so, how, the federal intellectual property laws might apply. 

In the broader scheme of things, there is a strong case for reforming the intellectual property laws to establish a modern and comprehensive system for the registration of intellectual property interests and a coherent set of priority rules, along the lines of the provincial Personal Property Security Acts.  If the government were to grasp that nettle, the new priority provisions would clearly be front and centre in any asset sale proceedings involving intellectual property.

Anthony Duggan,

Hon. Frank H. Iacobucci Chair,

Faculty of Law,

University of Toronto

---

[1] Anthony Duggan and Norman Siebrasse,  The Treatment of Intellectual Property Rights in Insolvency : Report to Industry Canada (September, 2013); “The Protection of Intellectual Property Licences in Insolvency: Lessons from the Nortel  Case [2014]  Annual Review of Insolvency Law  19.

[2] 2016 SKQB 306 (the “GOFI  case”).

[3] RSC 1985, c.B-3 (“BIA”).

[4] RSC 1985, c.C-36 (“CCAA”).

[5] 11USC s.365 (n) (2012)

[6] At [21].

[7] At [23], quoting from an unreported judgment of Meschishnick J. in the same proceedings (July 19, 2016) at paras 8-10 which, in turn, cites Bennett on Receiverships  (Toronto: Carswell, 1999) at 341.

[8] Ibid.

[9] (2008) 42 CBR (5^th) 125, 2008 CanLII 19227 (Ont. SCJ).

[10] At [18].

[11] As it happens, the receiver did not seek to disclaim the licence agreement, but instead applied for approval to sell the intellectual property free and clear of the licence (see further below).

[12] Duggan and Siebrasse [ARIL],  supra note 1 at 33.

[13] See Toronto-Dominion Bank v. 101142701 Saskatchewan Ltd  2012 SKQB 289, quoted in the GOFI  case at [27].

[14] At [25].

[15] RSC 1985, c.P-4.

[16] Section 50(2), now replaced by s.49(3).

[17] Section 51, now replaced by s.49(4), replacing “assignment” with “transfer”.

[18] Duggan and Siebrasse [ARIL],  supra  note 1 at 38-46.

[19] (1991) 35 CPR (3d) 384 (Fed.TD).  Poolman  was a copyright case, but its reasoning seems equally applicable in the patents context.

[20] David Vaver, Copyright Law (Toronto: Irwin Law, 2000) at 248.

[21] Duggan and Siebrasse at 45.