Applying for an NOC Does Not Sustain an Action

Purdue Pharma v Collegium Pharmaceutical, Inc 2018 FC 199 O'Reilly J
            Oxycodone

Purdue Pharma began an infringement action against Collegium for infringement of Purdue’s patent related to oxycodone, on the basis that Collegium had taken various steps to obtain marketing approval in Canada in respect of its oxycodone product. The steps alleged included importing the drug for purposes of its NDS, filing an NDS, obtaining approval in the US, publicly expressing its intention to market the drug in Canada, and invoking the NOC Regulations by serving Purdue with an NOA [21].

Reversing Aalto J, O'Reilly J granted Collegium’s motion to strike. He held that these facts did not allege anything going beyond the regulatory use exemption in s 55.2. There is no requirement that the party seeking to strike on that basis tender evidence that the activity in question did not go beyond attempting to meet regulartory requirement: “Rather, a statement of claim will be deficient on its face if it merely alleges activity that falls within the statutory exemption in s 55.2" [20].

Nor will these facts support a quia timet action. The prospect of Collegium launching at risk after succeeding in the NOC proceeding is not in itself sufficient to satisfy the requirement of imminence, given that it might never actually obtain the NOC prior to expiry of the patent [26]-[28].

More generally, this decision implies that allegations which amount to saying that the defendant was attempting to meet Canadian regulatory requirements will not survive a motion to strike [28]. Note that Purdue has also instituted NOC proceedings, which are not affected [1]. Of course, this will all be moot with the new NOC Regs.

Switching Costs, Path Dependence, and Patent Holdup

While this blog focuses on case law, I also do more theoretical work, including a new paper, “Switching Costs, Path Dependence, and Patent Holdup,” co-authored with Tom Cotter and Erik Hovenkamp, which we have just posted on SSRN. Here’s the abstract:

Patent holdup occurs when a patent holder extracts higher royalties ex post (after the payor has committed to use of the patented technology) than it could have negotiated ex ante, where the difference is not explained by an increase in the technology’s value. To date, the literature principally has focused on—indeed, sometimes conflated—two potential sources of holdup: the sunk costs the user has incurred ex ante to adopt the technology, and the “switching costs” of adopting an alternative ex post. We demonstrate, however, that this literature tends either to over- or underestimate holdup risk, because holdup may arise even when sunk costs are zero, or be absent despite high ex post switching costs. More generally, we show that patent holdup is best understood as an opportunistic exploitation of path dependence, arising when prior commitment to a technology creates some dynamic distortion in the technology’s incremental value over alternatives.

FCA Affirms that Dead Application is Dead

University of Alberta v. Canada (Attorney General) 2018 FCA 36 Near JA: Webb, Laskin JJA aff’g 2017 FC 402 Russell J
            Application 2,804,560

S 37 of the Patent Rules provides that a patent application “must contain. . . a declaration that the applicant is the legal representative of the inventor.” The ‘560 application, filed by an agent on behalf of TEC Edmonton, had no such declaration. CIPO timely issued a requisition to TEC’s agent. TEC’s agent did not respond do that requisition or to a subsequent notice of abandonment, which stated that the application could be reinstated within a further 12 months pursuant to s 73(3). TEC then assigned the its right in the 560 Application to the University of Alberta, and a new agent was appointed, but the new agent did not respond to the original requisition or to the Notice of Abandonment. Two years after the requisition was issued, the 560 application was marked as dead, meaning that the time for reinstatement had passed. A year after that, the University of Alberta filed a petition effectively asking CIPO to reinstate the ‘560 Application. CIPO refused on the basis the 560 application was beyond the period of reinstatement. As discussed here, Russell J refused. The University appeal to the FCA, which, unsurprisingly, affirmed. The FCA did hold that Russell J had erred in holding that the appellants were seeking judicial review of the requisition, and consequently the FCA held that CIPO’s decision should be reviewed on the merits [15]. That did not help the applicant, because the FCA held, on a straightforward reading of the relevant provisions, that the application was deemed abandoned once the applicant failed to timely respond to the requisition [23], and CIPO has no discretion to reinstate a patent application once it is deemed abandoned and the period for reinstatement has passed [24].

Patentable Subject Matter when the Inventive Contribution is an Algorithm

Georgetown Rail Equipment Co v Rail Radar Inc 2018 FC 70 Fothergill J
             2,572,082 / 2,766,249

In Georgetown Rail v Rail Radar Fothergill J held that Georgetown’s 082 and 249 patents were valid and infringed by Tetra Tech EBA Inc. (Rail Radar Inc was the first named defendant, but it did not participate in the proceeding, its status is unknown, and Georgetown did not seek relief against it.) The decision, including the main validity attack, based on obviousness, turned entirely on the facts.

The patents related to an automated system and method for inspecting railroad track using a laser, camera, to collect information about the railroad track, plus a processor to analyze the information according to a specified algorithm [16], [31]. The individual components were known, and there was no suggestion of inventive ingenuity in adapting those components to implement the algorithm. Fothergill J accepted the patents were inventive “only in respect of their algorithms” [129]. This may be an interesting example when compared with CIPO’s approach to computer-implemented inventions.

Standing of Plaintiffs Carrying on Activity Outside of Canada

Teva Canada Ltd v Janssen Inc 2018 FCA 33 Dawson JA: Webb, Gleason JJA aff’g 2016 FC 593 Hughes J and 2016 FC 727
            1,304,080 / levofloxacin / LEVAQUIN

As discussed in Tuesday’s post, the FCA dismissed Teva’s appeal on a number of factual points that do not raise issues of general importance. But Teva v Janssen is a significant decision on standing. It raised a novel question as to whether a foreign party which has a licence from the Canadian patent owner, but which does not need the licence because it does not carry out any infringing activity in Canada, has standing as a person claiming under the patentee pursuant to s 55(1). The FCA, affirming Hughes J, held that the claimant does indeed have standing in this situation:

[126] I reject Teva’s submission that Janssen US was required to demonstrate that it engaged in conduct in Canada that would otherwise amount to infringement.

[127] A party need only establish that they enjoy rights under a patent in order to be a person claiming under the patentee.

In so doing, the FCA also affirmed and distinguished Servier 2008 FC 825 (aff’d without discussion on this point, 2009 FCA 222), in which Snider J held that the foreign parties did not have standing in similar circumstances. Between the two cases, this should provide good guidance as to when a licensee which does not carry on activity in Canada does or does not have standing. However, I must say that I do not find the FCAs explanation of Servier entirely persuasive, and I am inclined to think it is better to regard Servier as having been effectively overruled.

Levofloxacin Liability Decision Affirmed on the Facts

Teva Canada Ltd v Janssen Inc 2018 FCA 33 Dawson JA: Webb, Gleason JJA aff’g 2016 FC 593 Hughes J and 2016 FC 727
            1,304,080 / levofloxacin / LEVAQUIN

In Janssen-Ortho v Novopharm 2006 FC 1234 aff’d 2007 FCA 217, Hughes held that Janssen’s 080 patent was valid and infringed by Teva’s sale of its levofloxacin product [3]. In the damages phase, 2016 FC 593,Hughes J ordered Teva to pay damages to Janssen Canada in the amount of $5.5m, and to pay damages to Janssen US of just over $13m [4]: see here.

Teva appealed and the FCA has now affirmed. Hughes J’s decision turned almost entirely on the facts, with the exception of his holding that Janssen US had standing under s 51 as a person claiming under the patentee, which I will discuss in tomorrow’s post. Apart from the issue of standing, Teva’s appeal focused primarily on factual errors. Unsurprisingly, the FCA rejected all of Teva’s attacks on Hughes J’s factual findings. 

One point of principle raised by Teva was the complaint that the Lord Shaw’s admonition in Watson, Laidlaw & Co (1914), 31 RPC 104, 118 that compensation is accomplished “by the exercise of a sound imagination and the practice of the broad axe,” quoted with approval by Hughes J [69], is inconsistent with the FCA’s statement in Lovastatin FCA 2015 FCA 171, [43] that damages assessment must aim at "perfect compensation." The FCA explained that there is no inconsistency. The point of the Court’s observation in Lovastatin FCA is that damages must aim in principle for perfect compensation, so that lawful competition and the effect of a non-infringing alternative must be taken into account. Lord Shaw’s remark recognizes that in practice the goal of perfection is seldom achieved [34]-[36]. In assessing damages, a court must account for eg competition from a non-infringing alternative in the "but for" world, but it is not required to arrive at a number which perfectly reflects that hypothetical world; it is only required arrive at the best estimate on the evidence.

The FCA also reaffirmed that damages may be awarded for price suppression [78], and for losses sustained after expiry of the patent, so long as they were caused by the infringement [83]. Neither of these points is novel.

Teva also appealed Hughes J’s costs award of a lump sum of $1m, 2016 FC 727, on the basis that the award is excessive when compared to the amount an assessment officer would have awarded had the Janssen plaintiffs elected to have their costs assessed [153]. The FCA rejected this, noting that there is no requirement that a lump sum award correspond to the amount an assessment officer would assess [156].

The Infringer Cannot Elect an Accounting

Apotex Inc v Bayer Inc 2018 FCA 32 Nadon JA: Stratas, Woods JJA aff’g 2016 FC 1192 Fothergill J
            2,382,426 / ethinylestradiol & drospirenone / YAZ YASMIN

In Bayer Inc v Apotex Inc 2016 FC 1013 Fothergill J held that Apotex had infringed Bayer’s ‘426 patent: see here and here. Subsequently, Apotex argued that it, not Bayer, should be entitled to make the election between damages and an accounting of profits, and that Bayer should be confined to the (presumably lesser) remedy of an accounting. In 2016 FC 1192 Fothergill J rejected this argument: see here. (On the facts, he also held that Bayer was entitled to elect between damages and an accounting after discovery and inquiry.)

Apotex appealed the decision on remedy, reiterating the argument that, subject to the court’s discretion, the defendant can elect the remedy to which the respondents are entitled. The FCA has dismissed the appeal, affirming that the entitlement to elect (subject to the court’s discretion), rests with the patentee, not the infringer. The result is not very surprising, but the decision is noteworthy for providing an authoritative summary of the law relating to the right to an election, including a compelling historical analysis.

Section 55(1) of the Act provides that an infringer is liable to the patentee “for all damage sustained . . . by reason of the infringement.” On its face, this implies that the patentee is entitled to a damages, and so, by implication, cannot be denied that remedy on election of an accounting by the infringer. To counter this, Apotex appealed to s 57(1)(b), which provides that the court “on the application of the plaintiff or defendant,” may make an order “for and respecting inspection or account” (my emphasis). Apotex argued that 57(1) entitles the defendant to request an account, and this is not overridden by s 55(1), as there is no hierarchy between the provisions of the Act.

Nadon JA had a powerful answer to this proposition: yes, s 57(1)(b) does indeed entitle the defendant to make an application for an account — an interlocutory account [40], [66]. Nadon JA quoted the editorial comment to Vidi v. Smith (1854), 118 E.R. 1404 (QB), which noted that there were two classes of account, namely the accounting of profits ordered after a final decision, and interlocutory accounts which “are ordered by the consent of the defendant, and indeed on his application, as a condition for dissolving an interim injunction” [47, FCA emphasis]. That is, the defendant might apply to have an account ordered against itself in order to avoid being subject to an interlocutory injunction. Nadon J’s historical analysis showed that what is now 57(1) derived from early UK legislation which reflected this practice, while at the same time enabling the common law courts to grant equitable remedies, including a final account. He observed further that Canadian cases have also allowed the defendant to provide an interlocutory account in place of an injunction [51].

With that puzzle resolved, and having reviewed Benoit v Valmet-Dominion [1997] 3 FC 497 (FCA), the Court affirmed a number of propositions:

• An accounting was an equitable remedy historically available to a successful patentee, and the intention of what is now 57(1), and the UK legislation on which it is based, “was limited to providing to the common law courts the power to make certain orders that had previously only been available in the courts of equity” [62-64].

• 57(1) enables a defendant to request an interlocutory account for the purpose of dispensing with an interlocutory injunction [66].

• The election of a final accounting of profits “necessarily belongs to a patentee, subject to the Court’s discretion” [67].

• If the Court refuses an accounting “the patentee shall be entitled to its damages” [67].

• The Court “cannot oblige the patentee to accept as a remedy an accounting of profits if it is not willing to do so” [67].

This means that a successful patentee always has a right to damages unless waived by election, and that right cannot be abrogated by the infringing party or the Court [69], [71].

No new cases

No new substantive patent cases were released last week.

Note that I generally only blog on substantive patent / pharma cases. If you want to keep abreast of all new Canadian decisions, including procedural decisions and copyright and trade-mark cases, I recommend subscribing to the Daily Intellectual Property News service from Alan Macek's IPPractice.