Territoriality and Remedies for Transnational Infringement

AstraZeneca Canada Inc v Apotex Inc 2017 FC 726 Barnes J [Omeprazole Accounting]
            1,292,693 / omeprazole formulation / LOSEC

Omeprazole Accounting indirectly raises an interesting and difficult issue respecting the principle of territoriality as applied to monetary remedies in transnational litigation. As I understand the facts,* Apotex manufactured its omeprazole product in Canada and exported some of it for sale in the US. Litigation ensued in both jurisdictions, resulting in determinations that the manufacture in Canada infringed the ‘693 patent, and the sale in the US infringed US Patent 4,786,505 (the US equivalent of the ‘693 patent). In the US litigation, AstraZeneca was awarded reasonable royalty damages in the amount of $76m: AstraZeneca AB v Apotex Corp, 985 F Supp 2d 452 (2013). The question was how to allow for those US damages in assessing the Canadian accounting of Apotex’s profits from the US export sales.

It appears that (unsurprisingly) Apotex’ profits on the US sales exceeded the reasonable royalty damages payable under the US judgment. While the parties agreed that double recovery of the US damages was not allowed, AstraZeneca argued that Apotex should be required to disgorge all of the profits on the US sales, less the US damages. This was evidently on the logic that AstraZeneca had two separate causes of action, and should be allowed to recover on both, so long it is did not get double recovery for the same loss. Apotex, on the other hand, argued that it should not be required to disgorge any US export profits [243]-[235]. This argument was based on res judicata, and more specifically cause of action estoppel [241]: “by opting to claim a recovery in the United States AstraZeneca must now accept that award as full satisfaction of its entitlement from the infringement of the 693 Patent for Apotex’s sales into the United States” [240].

Barnes J rejected Apotex’s argument, saying “the causes of action in the two proceedings arose under different patents, involved distinct acts of infringement and were tried in jurisdictions where different substantive legal principles applied” [244]. He noted in particular that an accounting of profits is not available in the US, and that the temporal scope of the infringing acts is different, as the US patent expired in 2005, before the Canadian patent. “It cannot be the case that, by proceeding first in the United States, AstraZeneca should be taken to have abandoned its claim for ongoing Canadian infringement post-dating the expiry of the United States patent” [245]. I am not an expert on res judicata, but on my understanding of the law, Barnes J’s conclusion seems to me to be correct. Cause of action estoppel requires that the material facts giving rise to both actions are the same: Danyluk 2001 SCC 44, [54]. A key material fact in the US litigation is the sale of omeprazole in the US, which is not relevant to infringement by manufacture in Canada, while a key fact in the Canadian litigation was the manufacture in Canada, which is not relevant to infringement by sale in the US.

With res judicata disposed of, Barnes J’s holding follows from the principle that the infringer should account for the profits caused by the infringement. However, while there can be no recovery without causation, causation is not the only limit on recovery. The other potentially relevant limit is the principle of territoriality. Barnes J did not address this principle, presumably because it was not raised by the parties, but the US Federal Circuit has addressed territoriality in several cases, including Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348 (Fed.Cir.2013), Carnegie Mellon University v. Marvell Technology Group, Ltd. 807 F.3d 1283 (Fed Cir 2015), and WesternGeco LLC v. ION Geophysical Corp., 791 F.3d 1340 (Fed.Cir.2015). (See here and here for Professor Cotter’s remarks on these cases.)

The Benchmark Rate for Interest in an Accounting Is the Prime Rate or Slightly Higher, Compounded

AstraZeneca Canada Inc v Apotex Inc 2017 FC 726 Barnes J [Omeprazole Accounting]
            1,292,693 / omeprazole formulation / LOSEC

Barnes J’s decision on pre-judgement interest on the award of an accounting of profits is noteworthy for the statement that "the benchmark rate for profits-on-profits in cases like this one has consistently been set at the prime rate or slightly higher, compounded annually" [229]. Otherwise, it does not raise any new points of law, but it does provide a good illustration of the normal current approach. 

Generally, two question arise in respect of pre-judgment interest: the rate and compounding, or “profits on profits.” The issue of compound interest on prejudgment damages, as compared with an accounting, is complicated by the fact that s 36(4)(b) of the Federal Courts Act on its prohibits compound interest. Even though that provision refers to “an order for the payment of money,” which on its face also appears to refer to an award of an accounting, it has been interpreted as not applying to an award of profits: see eg Eli Lilly v Apotex /cefaclor, 2009 FC 991, [665]. It seems this is because historically courts of equity were much more open to the business reality of compound interest than were the common law (which originally did not award interest at all in tort cases): see Reading & Bates 58 CPR (3d) 359, 373-74; (FCA) Teledyne (1982), 68 CPR(2d) 204, 222-26 (FCTD) Addy J. Consequently, in an accounting “[c]ompounded interest is the presumptive approach” [223], Reading & Bates, 374, and it was awarded in this case.

So far as the rate goes, if it is possible to determine how the infringer put the specific profits to use, the compound interest will be based on the return to that particular investment. But often it is not possible to know precisely how the infringer put its profits to use. This case raised the common scenario in which the infringer “co-mingled the sales proceeds from all of its products and used those funds in the day-to-day operation of its business” [224]. In such a case the infringer “will be assumed to have made ‘the most beneficial use of them’. In that situation the Court will estimate the return based on relevant investment or borrowing proxies” [223].

Apotex proffered evidence of financial interactions with related companies to establish the appropriate rate of return. Barnes J rejected this as unreliable as being too easily manipulated [227]. Nor was other specific evidence helpful [225]. Consequently, Barnes J turned to the more general proxies. AstraZeneca had proposed prime plus two percent (compounded), while Apotex proposed the bank rate (not compounded) [220]. Barnes J took note of Gagné J’s observation in Perindropril FC 2015 FC 721 [147], that in a number of cases “Canadian courts have used the prime lending rate plus 1 or 2 % as proxy for a return on profits,” and he concluded that “the benchmark rate for profits-on-profits in cases like this one has consistently been set at the prime rate or slightly higher, compounded annually” [229]. However, “there is very little recent authority utilizing a rate as high as prime plus two percent.” Consequently, he awarded interest at the prime rate compounded annually [229].

Several years ago, in one of my blog posts on interest in the damages context, I noted that the Federal Court often specifies the bank rate, rather than the prime rate, citing a few cases to that effect. I also suggested that this was likely to be undercompensatory. There is some suggestion that the interest rate is treated differently between an accounting and damages: see 2008 FC 825 [512]-[513]. This is apparently on the view that profits-on-profits are inherent to the equitable determination of what the infringer has gained. But, as the SCC recognized in Bank of America 2002 SCC 43 [29], interest (and indeed, compound interest), is necessary to compensate the plaintiff for its loss, so I don’t really see the basis for the distinction. Perhaps there has been a shift to using the prime rate generally, though many of the cases cited by Gagné J were older, and some of the cases I cited held interest based on the bank rate was appropriate even before an election between an accounting and damages had been made: see 2006 FC 524 [240]. In any event, neither my sample, nor that of Gagné J purported to be statistically exhaustive. I’ll also note again Roy Epstein’s suggestion that the average actual short-term market interest rates paid on commercial and industrial loans might be used: Prejudgment Interest Rates in Patent Cases: Don't Compound an Error, 24(2) IPL Newsletter (2006).

Finally, it was acknowledged that a deduction for income tax would be warranted on the profits-on-profits assessment, but none was allowed because Apotex declined to produce its tax returns, and this meant that any adjustment would be too speculative [230]-[233].

No Section 8 Recovery for Being Kept out of a Market Which the Generic Had No Right to Enter

AstraZeneca Canada Inc v Apotex Inc 2017 FC 726 Barnes J [Omeprazole Accounting]
            1,292,693 / omeprazole formulation / LOSEC

Until recently amended, the NOC proceedings and infringement actions were separate, and a declaration of invalidity in an NOC proceeding did not have in rem effect. This raised the possibility that the generic might prevail in the NOC proceeding, and lose in the subsequent action. If the generic prevailed in the NOC proceeding, it would be entitled to damages under s 8 for having been kept out of the market by the statutory stay on the issuance of the NOC. But if it lost in the subsequent infringement action, this means the patent is and always was valid, and it seems wrong to award the generic damages for being kept out of a market which it had no right to enter.

Now that the NOC Regulations have been amended to turn the NOC proceedings into an action, this particular problem will no longer arise, but a closely related problem remains. What if the product is covered by two patents, and the generic wins the NOC proceeding/ action in respect of one patent, but loses in respect of the other? Again, the generic will be entitled to s 8 damages for being kept out of a market which it had no right to enter. That problem arose in this case. Both the 2,133,762 patent and the ‘693 patent were listed on the Patent Register against LOSEC. Apotex prevailed in NOC proceedings related to the 2,133,762 patent (2004 FC 313, holding infringement was not established), but then lost in respect of the ‘693 patent, which gave rise to the litigation in this case.

The problem had earlier been addressed in respect of this very patent in the s 8 proceedings arising from the ‘762 patent: 2012 FC 559 Hughes J (here) aff’d 2013 FCA 77 (here) motion for reconsideration dismissed, 2016 FCA 194. AstraZeneca raised the relevance of the then ongoing infringement action in respect of the ‘693 patent, asking for a stay of the s 8 proceedings pending the ‘693 action. Hughes J refused, saying the following [148], in a passage affirmed and quoted on appeal [6]:

A Court hearing the pending infringement action, if it concludes that the patent is valid and has been infringed by Apotex in making the omeprazole drug that is the subject of these proceedings, can at that time craft a remedy that is appropriate, having in mind any compensation awarded in these proceedings.

(See similarly 2011 FCA 364 (blogged here).) Since Barnes J is now that very “Court hearing the . . . infringement action,” Barnes J was on firm ground in concluding that:

[214] What I take from the above-noted statements and particularly those of the Federal Court of Appeal is that, as the section 8 reference Judge, I have the discretion to take into account the intervening infringement finding, among other relevant facts, and to craft an appropriate remedy.

The question then is how to properly exercise that discretion. The FCA had dropped some strong hints. In 2013 FCA 77 [7] the Court stated:

It will be for the judge trying the infringement action to ensure that overall, taking both proceedings together, a party is compensated for its provable loss, if any, on proper principles, no more and no less.

The FCA repeated this in denying the motion for reconsideration: 2016 FCA 194, [24]. Similarly, in the Lovastatin decision, 2011 FCA 364 (blogged here) the FCA held:

[37] [S]ubsection 8(5) confers a broad discretion on the court when assessing the amount of compensation that the second person must pay. It provides that the court “shall take into account all matters that it considers relevant to the assessment of the amount,” including any conduct by either party that contributed to the delay in the disposition of the first person’s application for prohibition. In my view, this provision enables the Court to determine in its discretion whether, and to what extent, a second person’s claim for compensation should be reduced, or eliminated.

On the facts of this case, Barnes J notes that :

[217] What I am left with is a situation where, in order to recover its “losses” from being barred from selling Apo-Omeprazole between January 3, 2002 to December 30, 2003 in the face of AstraZeneca’s 762 Patent, Apotex necessarily had to infringe AstraZeneca’s 693 Patent.

In other words, Apotex was seeking damages for having been kept out of a market that it had no right to enter. Unsurprisingly, Barnes J concluded that:

[219] It follows that Apotex is not entitled to recover under section 8 of the NOC Regulations because it suffered no loss by being kept out of the marketplace between January 3, 2002 and December 30, 2003.

I believe this is the first decision to directly so hold, but this conclusion was strongly foreshadowed in the prior decisions, and I don’t doubt that it will be upheld on appeal and followed in the future.

Does an NIA Need to Be Proven on the Balance of Probabilities

AstraZeneca Canada Inc v Apotex Inc 2017 FC 726 Barnes J [Omeprazole Accounting]
            1,292,693 / omeprazole formulation / LOSEC

Yesterday’s post provided an overview this decision, and dealt with the non-infringing alternatives developed for litigation. Apotex also proposed that it could have sourced non-infringing product from two third parties, Estevé and Kudco.

Kudco presents an important issue. Kudco held the US rights to a non-infringing omeprazole formulation under license from a French company. Kudco executives testified that they would have had the authority to supply product to Apotex for sale in Canada [174], and that they would have been willing to do so if a deal could be reached [177]. Nonetheless, Barnes J did not accept this as an available alternative, primarily because, on the facts, he held that it was more likely than not that a deal would not have been reached between the parties, because Kudco would have asked more than Dr. Sherman would have been willing to pay [191].¹ Barnes J therefore held (my emphasis):

[192] I am not, therefore, satisfied that Apotex is more likely than not to have entered into some form of licensing agreement with Kudco during the infringing period. If I am wrong about the standard of proof that applies such that the test in Athey v Leonati, [1996] 3 SCR 458, 140 DLR (4th) 235, is applicable, I would fix the possibility of reaching an agreement with Kudco to supply the Canadian market by the beginning of the infringing period at 15% and at a royalty rate of 35% on Apotex’s net sales.

In both Lovastatin [74] and Venlafaxine 2016 FCA 161 [56], the FCA held that the burden lies on the defendant to establish the factual relevance of a non-infringing alternative on the balance of probabilities. In both cases the FCA cited as authority Rainbow Caterers [1991] 3 SCR 3, 14, which does indeed say that. The problem, as I have discussed, is that Athey v Leonati [1996] 3 SCR 458, [27] says “Hypothetical events . . . need not be proven on a balance of probabilities. Instead, they are simply given weight according to their relative likelihood” (my emphasis). It is not clear to me whether these two holdings can be reconciled. Moreover, the point was thinly reasoned in Rainbow Caterers, and fully reasoned in Athey v Leonati, and the relative likelihood approach appears to be accepted and routinely applied in most other areas of law, eg personal injury.

Because Barnes J made a specific finding as to the relative likelihood of the hypothetical event for the Kudco NIA, and because Apotex failed in respect of all the other NIAs, if there is an appeal, this squarely raises the question of whether the FCA should revisit this question in light of the broader SCC jurisprudence. I am not criticizing the FCA for having followed Rainbow Caterers in the first place. It is SCC authority which does stand for that proposition on this point, and moreover, the point was conceded by Apotex in oral argument: Lovastatin [74]. But on fuller consideration, Rainbow Caterers may not be the best authority.

It seems the issue really only arises in respect of the Kudco NIA. On the relative likelihood approach, a hypothetical possibility “will be taken into consideration as long as it is a real and substantial possibility and not mere speculation”: Athey [27]. It is clear that the sourcing the product from Estevé would not meet this threshold. Barnes J held that the Estevé product was not an available NIA because Estevé had entered into an exclusive North American licence with Mylan, and Mylan would have had to waive its rights for Estevé to supply Apotex. On the facts. Barnes J held that “[t]he likelihood that Mylan would have waived its Canadian rights in favour of a significant competitor seems very remote” [169]. With respect to the post-infringement alternatives developed for litigation, Barnes J expressly applied on the balance of probabilities test, but my sense from his discussion is that those alternatives did not rise beyond speculation.

1 It is contrary to economic logic to suppose that the parties would have left money on the table by failing to make a deal, and Barnes J remarked that “Evidence in the form of an economic model would have been more persuasive than this kind of hypothetical anecdotalism" [192].

NIA Developed Solely for Litigation

AstraZeneca Canada Inc v Apotex Inc 2017 FC 726 Barnes J [Omeprazole Accounting]
            1,292,693 / omeprazole formulation / LOSEC

In the accounting of profits portion of this bifurcated trial,¹ the parties settled most issues, but required determination of four specific points. The first, discussed in this post, is whether Apotex had a non-infringing alternative available during the period of infringement. The decision raises two significant issues. One is whether an infringer must know at the time of the infringement that the NIA is non-infringing, for it to be considered available. More generally, this case is novel in that Apotex attempted to establish case an NIA “defence”² based solely on alternatives which had been developed only for the purposes of litigation [24], [92]. This contrasts with the leading cases to date, Lovastatin FCA 2015 FCA 171 and Perindopril FCA 2017 FCA 23. In Lovastatin (see here) the putative NIA had actually been developed and commercialized by Apotex prior to the infringement; in Perindopril (here) the issue involved export of infringing product made in Canada, and the NIA was that the product would have been exported to the same countries, and made by the same process in other jurisdictions where it was not patented. In the leading US decision, Grain Processing 185 F.3d 1341 (Fed. Cir. 1999), the alternative did not actually exist at the date of infringement, but was commercialized almost immediately after infringement was established. In this case, in contrast, the putative NIAs were seven alternative formulations which Apotex never commercialized and has no intention of ever commercializing [24]. They were developed solely for the purpose of arguing that they could and would have been commercialized in the but for world.

Apotex won on the law, but lost on the facts. Barnes J held that these types of alternatives could in principle be considered, but he found that Apotex failed to establish that the particular alternatives it developed would have been commercializable, or that they would have received regulatory approval. While this ultimately turned on the specific facts of the case, there is perhaps a broader lesson. The testing of the alternative formulations that was done in this case fell far short of what would be required for regulatory approval. The tests used to predict both bioequivalency and stability were appropriate for use in a formulation screening exercise, but this was far from enough to persuade Barnes J that the formulations would probably have been approved and commercially successful [139], [146]. This suggests that while post-infringement NIAs are acceptable in principle, it will be difficult for a generic to surmount the necessary evidentiary hurdles to establish the NIA on the facts. Apotex also failed to establish it would have sourced non-infringing product from a third party (which I will discuss tomorrow) [196]. On the whole, this decision should give comfort to patentees who were concerned that the acceptance of the NIA defence would open the floodgates to speculative defences.

On the law, AstraZeneca made three arguments of principle. First, relying on MacKay J’s decision in Wellcome v Apotex (TMP) (1998), 82 CPR (3d) 466, [32]-[33}, it argued that a valid NIA must be perceived or known by the infringer to be non-infringing at the point of the infringement [12]. [13]. To simplify slightly, in TMP the final product, TMP, could be made by two processes, both of which were patented by Wellcome. At trial, one of the process patents was held to be valid and infringed, but the other was held to be invalid. Apotex argued that it – or more precisely, its suppliers – could have used the process protected by the invalid patent. MacKay J rejected this argument, saying “there is really no evidence that at the time the product was acquired there was available product then known to be non-infringing” [33]. In part this was because the alternative patent was not then known to be invalid, and in part because Apotex did not know which process was used by its suppliers. On the whole, though the discussion is brief and somewhat cryptic, TMP does seem to me to support AstraZeneca’s argument. Barnes J distinguished TMP on the basis that MacKay J also considered whether Apotex “could have known” [14]. I don’t find this distinction entirely persuasive. MacKay J’s point, as I read it, is that not only did Apotex not actually know, it might not have been possible for it to know – this reinforces the importance of knowledge, rather than diminishing it. In any event, Barnes J did accept that knowledge is relevant, saying “[k]nowing whether or not a proposed NIA would infringe is, of course, a factor in determining whether the infringer ‘would have’ employed it in place of the infringing product” [14], though “this falls well short of making prior knowledge of non-infringement an absolute pre-requisite to the assertion of a NIA” [13]. Thus, Barnes J agreed with MacKay J that knowledge that the NIA is non-infringing is relevant, and the difference between them, if any, is whether it should be a complete bar.

But why should it be relevant at all? As Barnes J noted, it apparently follows from the “would have” branch of the test for availability, evidently on the notion that the infringer – eg Apotex in TMP – would not have known to insist that its suppliers use the non-infringing alternative because it did not know that it was non-infringing. But this seems dubious in principle, as this approach allows an invalid patent to shield behind a valid one. To go back to first principles, the reason alternatives are considered is that the return to a patentee should be commensurate with the value of the patented technology, which is equal to its value as compared with the best non-infringing alternative: Lovastatin FCA [56]. A technology may be innovative and patentable, yet not valuable, if the product is no better or cheaper than a mundane alternative. If the infringer must know that a patent is invalid before that technology can be used as an alternative, the patentee can improperly inflate the apparent value of the innovative technology by patenting obvious technologies that serve the same end, even though those patents are ultimately invalidated. This is a kind of remedial evergreening that is not addressed by the usual expedient of invalidating the offending patents. It will be interesting to see how the law continues to develop on this point.

AstraZeneca also argued that an NIA “must be ‘foreseeable’ to the infringer at the relevant time” [13], citing Lovastatin FCA [93]-[94]. Barnes J dismissed this as a “stray reference” [15], saying

If foreseeability meant that the infringer must have the asserted NIA in mind at the time of the infringement, it could potentially punish those who had no idea their product was infringing while rewarding those who had an appreciation of the risk and courted it, but nevertheless had a back-up, work-around solution available.

Barnes J’s observation strikes me as compelling.

Finally, citing Grain Processing 185 F 3d 1341 (Fed Cir 1999) and Micro-Chemical 318 F 3d 1119 (Fed Cir 2003), AstraZeneca argued that an NIA “requiring the infringer to ‘invent around the patented technology’ is not considered to be ‘available’ to the infringer” [16]. Barnes J rejected this, saying that cases stand only for the proposition that “[t]he time and effort of coming up with a non-infringing solution is certainly relevant to whether the infringer would have pursued it, but they are not absolute barriers to the defence” [16]. That conclusion strikes me as both a correct reading of those cases, and sound as a matter of principle.

In conclusion, Barnes J held that as a matter of law:

in the hypothetical, but for pharmaceutical world the infringer’s failure to produce a viable NIA formulation in the real world is not a threshold bar to the use of the NIA defence . [18]

The correct question is simply “Could the infringer have made the product had it attempted to do so at the relevant time and would the infringer have sold the product on some reasonable financial basis in substitution for the infringing product?” [18].

While the law was largely decided in Apotex’ favour, Barnes J pointed out that post-infringement development of an NIA may present serious problems of proof, which were manifest in this case [20].

One general point is that the Court should be wary of hindsight bias when assessing the availability of post-infringement development of an NIA [21], in the same way as the Court must be wary of hindsight bias was assessing an obviousness attack.

But this case did not turn on hindsight bias. It turned on more basic evidentiary problems:

[24] When a pharmaceutical NIA has been created and has obtained regulatory approval, one is not left to wonder whether it “could” have been available for use (assuming a capacity to obtain it in commercial amounts). In this case, however, Apotex’s self-created NIAs were made in non-commercial batches, without full stability, bioequivalency or clinical studies, and without obtaining the required regulatory approvals for commercial use.

Nontheless, Barnes J did not dismiss Apotex’ tests out of hand, but at the end of the day, the data presented by Apotex was flawed and speculative in many respects: “shortcuts like the ones employed by Apotex may be acceptable in the early stages of product selection, but they are entirely unacceptable in the context of proving the viability of a NIA for the purpose of this case” [143]. For much the same reasons, Apotex could not establish that its proposed alternatives would have received regulatory approval [144]-[152].

1 The liability portion is Apotex Inc v AstraZeneca Canada Inc 2017 FCA 9 var’g 2015 FC 322 as amended by 2015 FC 671: see FCA Claim Construction FCA Overbreadth FC Product Claim FC Foreign Issue Estoppel

2 I don’t like the term NIA “defence” because in most circumstances it does not serve as a complete defence, but only to reduce the quantum that would otherwise be awarded. Nonetheless, the term is convenient, and it seems to have become established, so I will use it, albeit with this caveat.

Companion Case to Pfizer v Apotex / ODV

Pfizer Canada Inc v Teva Canada Ltd 2017 FC 777 Brown J

2,436,668 / desvenlafaxine (ODV) / PRISTIQ / NOC

This is a companion case to Pfizer Canada Inc v Apotex Inc 2017 FC 774, blogged here on the obvious-to-try issue. The patent was the same, and the invention story is the same, and the discussion of the facts is largely verbatim repetition [4]. Unlike Apotex, Teva did not argue non-infringement, anticipation or double patenting, but instead restricted itself to obviousness and inutility challenges, which were also raised by Apotex [5]. The discussion of the law on those points is largely verbatim repetition, with a few differences between the decisions to address points made by one party but not the other. While I admit that I did not re-read the entire Teva decision, the differences do not appear to warrant a separate blog post on this case.

Pre-issuance Defects in Administrative Process Cannot Render a Patent Void

Apotex Inc v Pfizer Inc 2017 FCA 201 Gauthier JA: Stratas, Boivin JJA aff’g 2016 FC 136 Diner J
            1,339,132 / latanoprost / XALATAN

The precise issue in this case will probably never arise again, as it is “is the first and most likely the last case involving section 73 of the 1989 Act” [4]. Nonetheless, Gauthier JA’s decision for the Court sets out an important general principle that “pre-patent issuance defects in the administrative process for applying for a patent cannot be relied upon by an alleged infringer to render a patent void” [59]. The Court also suggested a principle of interpretation which may have even more far-reaching implications, to the effect that the courts should strive to interpret the Canadian Patent Act so as to achieve substantive consistency with the patent law of our trading partners.

The applicant that filed the application which matured into the ‘132 patent (Pharmacia Aktiebolag, Pfizer’s predecessor) was a large entity. It did not claim small entity status, and it paid large entity fees — except for the final fee, for which, for reasons which are unknown, it paid the small entity fee [8]. For reasons which are also unknown, the Patent Office accepted that fee, even though small entity status had not been claimed [9]. On subsequent inquiry by the patent agent, the Patent Office  acknowledged, erroneously, that large entity fees had been received [10]. Thus, the applicant was a large entity, and the proper large entity fee had never been paid [11].

On these facts, in the context of s 8 litigation, Apotex sought a motion for summary judgement that the 132 patent is invalid for failure to pay the proper application fee [12]. Diner J dismissed the motion, and Apotex appealed.

Apotex made a straightforward argument [49]. It relied on s 59, which provides that when defending an infringement action, a defendant “may plead […] any fact or default which by this Act or by law renders the patent void,” in combination with subsection 27(1) of the 1989 Act, which provided (my emphasis):

inventor […] may, on presentation to the Commissioner of a petition setting out the facts […] and on compliance with all other requirements of this Act, obtain a patent granting to him an exclusive property in the invention

27(2) The requirement to pay the fee is the in Act, so the applicant had not complied with all other requirements of the Act, and this, the argument went, renders the patent void. The wording of the current 27(1) is slightly different, but the same argument would arise, as it provides that the Commissioner shall issue a patent if “all other requirements for the issuance of a patent under this Act are met.”

Gauthier JA remarked that the “literal approach” advocated by Apotex was attractive, but she rejected it in light of the context and purpose [50]-[51]. The FCA held that it was bound by Fada Radio [1927] SCR 520, in which the SCC had held that an untrue statement in the application (that the invention had not been patented with the applicant’s knowledge in any country) would not invalidate a granted patent, which stands for this “essential concept”:

[57] pre-patent issuance defects in the administrative process for applying for a patent cannot be relied upon by an alleged infringer to render a patent void.

Similarly, the FCA cited its own prior caselaw for the principle that

[58] defects in the pre-patent issuance process that do not come within the ambit of provisions dealing expressly with the voidance of a patent, like section 53 of the 1989 Act, cannot be relied upon by an alleged infringer to render a patent void.

This is evidently a general principle, not tied to the 1989 version of 27(1).

Gauthier JA also referred to the absurdity of “enabling an alleged infringer to void a patent (here a successful pharmaceutical patent worth millions if not billions of dollars) say ten years later or even after its expiration, on the basis that the petitioner was a few pennies short” [72].

Therefore, “the law” referred to by s 59 is substantive patent law, not administrative law matters which might be raised on judicial review: [69], [70]. Gauthier JA noted that the Economic Action Plan Act, s 138, not yet in force, “makes it clear that non-payment of fees payable before the issuance of a patent will not invalidate the said patent” [3], but this played no part in her reasoning, so the interpretation stands even if this provision is never proclaimed in force.

This seems to me entirely sound as a purposive analysis of the Act. It also strikes me as consistent with the literal text of the Act. S 59 refers to any fact which renders the patent void, and nothing in 27(1), then or now, refers to validity; it refers to the conditions on which the Commissioner may (or, now, shall) issue a patent.

The Court’s final observation may have even more wide-ranging implications:

[77] Considering the importance of patents nowadays, and the importance given to intellectual property law in trade treaties, courts should obviously be careful before adopting an interpretation that would put Canada at odds with its trading partners. Thus, I am comforted by the fact that my purposive interpretation of the 1989 Act does not require the addition or the recognition of the new grounds of invalidity that Apotex’s view in respect of sections 27 and 59 would entail and that could be in direct conflict with those generally recognized in England, Europe and the United States.

This observation is entirely salutary. It is consistent with the observation of the House of Lords as to the importance of establishing a common approach in Europe (see e.g. HGS v Lilly [2011] UKSC 51, noting that the Bundesgerictshof is of the same view). Of course, in Europe the common basis of the EPC provides an additional rationale for harmonization, but Lord Neuberger [96]-[99] also remarked on the importance of more general harmonization in promoting the basic objective of the patent system, to provide an incentive to innovation.

The UKHL has adopted harmonization with the EPO has a principle of interpretation of the UK Act. The FCA in this decision has not gone so far. Gauthier JA simply “drew comfort” from the observation, and it did not play any direct part in her reasoning. Nonetheless, it opens the door to invoking the desirability of harmonization as an independent principle of interpretation of the Patent Act.

Is it "More or less Self-evident That What Is Being Tested Ought to Work"?

Pfizer Canada Inc v Apotex Inc 2017 FC 774 Brown J

2,436,668 / desvenlafaxine (ODV) / PRISTIQ / NOC

Bristol-Myers Squibb Canada Co v Apotex Inc 2017 FCA 190 [Dasatinib FCA] Gleason JA: Webb, Near JJA var’g 2017 FC 296 [Dasatinib FC] Manson J
            2,519,898 / dasatinib / SPRYCEL / NOC

Desvenlafaxine and Dasatinib both apply the “obvious to try” test – endorsed in Sanofi 2008 SCC 61, as “one factor to assist in the obviousness inquiry” [64] – but to opposite effect, with Brown J holding the claimed invention to be non-obvious, while Manson J, now affirmed by the FCA, holding the invention at issue to be obvious. In my view, both decisions applied the test correctly, given the facts as found. And indeed, the FC has almost always applied the test correctly in the years since Sanofi was decided. Perhaps it should not be surprising that the courts apply the law correctly. But I do find it surprising, because there is continuing doctrinal confusion as to the nature of the test, stemming ultimately from Sanofi itself. That confusion has surfaced before, and has now surfaced again in both these recent decisions.

In Sanofi, the SCC stated that:

[65] I am of the opinion that the “obvious to try” test will work only where it is very plain or, to use the words of Jacob L.J., more or less self-evident that what is being tested ought to work.

This lends itself to the interpretation that it must be self-evident, prior to any experimentation, that the claimed invention will solve the problem at hand. But that is difficult to reconcile with the Court’s observation that the obvious to try test is appropriate precisely in “areas of endeavour where advances are often won by experimentation” (Sanofi [68]), which implies that the test applies particularly when it is not self-evident, prior to any experimentation, that the claimed invention will solve the problem at hand.