Accounting Elected in the Alternative

UPL NA Inc v AgraCity Crop & Nutrition Ltd 2022 FC 1422 Aylen J

2,346,021 / flucarbazone sodium herbicide / EVEREST / SIERRA / HIMALAYA

I am finally starting to catch up on some of the cases I missed during my blogging break, but the end of term is busy and my blogging will continue to be erratic until late May.

In this decision, released last November, Aylen J found Arysta’s 021 patent to be valid in the face of obviousness and anticipation attacks. (The headline plaintiff, UPL, is a related company.) Infringement by AgraCity was conceded [3], [82]. Aylen J awarded $227k on an accounting of AgraCity’s profits. Relatively little infringing product was sold because an interim injunction had been granted soon after AgraCity had launched: see 2019 FC 530, blogged here and here. The decision turned largely on the facts, but there is an interesting point on the limits of inducement. The trial was not bifurcated, and, unusually, AgraCity was permitted to elect an accounting if its damages award did not meet a certain threshold. This seems to be inconsistent with the rule set out in AlliedSignal (1995), 61 CPR (3d) 417 (FCA), but the point does not appear to have been contested.

The 021 patent relates to a selective herbicide, namely flucarbazone sodium, and its use in weed control. Herbicides may be total herbicides, which kill all plants, or selective herbicides, which kill weeds with minimal injury to crops [118].

The key prior art was US Patent 5534486 and the corresponding Canadian Patent 2,064,636; like the 021 patent, both were originally granted to Bayer [30], [39], and the 486/636 and 021 patents had several overlapping inventors. There was not much difference between the 486 and 636 patents, and Aylen J focused her analysis on the 486 patent [157].

The 486 patent claimed a large genus of compounds and set out 327 preparation examples [33]. Eleven compounds were specifically claimed, including Claim 10 to flucarbazone and its salts [38]. Claim 10 was simply to the compound as such, not to any use. The 486 patent also disclosed that the claimed compounds are herbicides, but it was ambiguous as to whether they were total or selective herbicides [161], [182]. The 486 patent disclosed that some compounds had been tested and found to be effective herbicides, but there were few details: “No specific test results were included. For the tests that were conducted, the 486 Patent does not disclose which weeds were tested or which crops were tested, nor was flucarbazone or flucarbazone sodium included among the compounds that were tested” [182]; and see similarly [34]–[37].

Claim 1 of the 021 patent is to a selective-herbicidal composition, comprising an effective amount of flucarbazone sodium [57]. So, the point of novelty of Claim 1 over Claim 10 of the 486 patent was the identification of flucarbazone as being specifically a selective herbicide. Claim 10 of the 021 patent was to a method of controlling a variety of grassy weeds, including wild oats, in a cereal crop, such as wheat [57]. The point of novelty over Claim 10 of the 486 patent was the identification of flucarbazone as being a selective herbicide for the control of wild oats in crops of wheat [178].

The thrust of the obviousness attack was that in light of the disclosure in the 486 patent that flucarbazone was a herbicide, it would have been obvious to test it to see if it was a selective herbicide. The obvious-to-try argument failed on the facts. In large part this was because Aylen J found that the evidence did not disclose any reason that a skilled person would pick flucarbazone sodium out of the 327 specifically disclosed compounds for further testing as a selective herbicide: the fact that it was specifically claimed was not enough [190]–[192]. Moreover, at the relevant time, “sulfonylurea herbicides [which includes flucarbazone] were not generally known for the control of grassy weeds. Rather, they were known for controlling broadleaf weeds and demonstrating little activity on grassy weeds” [193]. Thus, the CGK would have steered the Skilled Person away from selecting flucarbazone sodium as the candidate compound for further testing [193]. This goes more directly to Claim 10 than to Claim 1, but as I understand it, the skilled person would have been interested in developing selective herbicides for commercially important grassy weeds, such as wild oats, and the fact that flucarbazone was unlikely to be good for that purpose made it unlikely that it would be selected as a candidate compound for further investigation.

This was a key determination. It might have been routine to determine if flucarbazone was a selective herbicide starting with flucarbazone itself as the candidate compound, but once it was determined that the proper field of candidates was all 327 disclosed compounds, the finding on the facts that it would have required prolonged and arduous effort to identify flucarbazone in particular as a selective herbicide, followed [203]–[209]. The same conclusion would have followed even if it could be said that the skilled person would have started with just the eleven claimed compounds [203].

It would be interesting to know specifics about the test data that underpinned the 486. I get the feeling that the drafters of the 486 patent may have been careful not to disclose the specifics of the testing, precisely in order to allow a follow-on patent to be filed on the most promising compounds. That would raise an interesting question as to whether the 486 was insufficient for not making full disclosure, and how that might be proven.

The findings relating to obviousness were fatal to the anticipation attack [224]. A broad disclosure does not anticipate a subsequent more specific claim [220], and in this case there was nothing in the prior art patents providing the requisite “clear and unmistakeable direction” that flucarbazone sodium was a selective herbicide for the control of wild oats in wheat [219], [224].

Inducement

AgraCity is a distributor of generic crop protection products, including a generic flucarbazone sodium herbicide which it sold under the name HIMALAYA. The flucarbazone sold by AgraCity was manufactured abroad by a third party and imported into Canada by AgraCity [243]. AgraCity conceded infringement and inducement [3], [83].

There was, however, an interesting issue regarding the liability of NewAgco. Pursuant to the Pest Control Products Act, companies seeking to market and sell herbicides in Canada must register the proposed herbicide with the Health Canada’s Pest Management Regulatory Agency and obtain approval of the herbicide’s proposed label, which outlines who can use the herbicide and under what circumstances it can be used [11]. NewAgco held the registration for HIMALAYA with the PMRA and its name appears on the end-use label [243]. Other than that, it appears that NewAgco has nothing to do with the manufacture, importation, or sale of HIMALAYA [240]–[246]. Aylen J held that that was not sufficient for NewAgco to be liable for inducement [246].

Remedies

Turning to remedies, Arysta sought damages only if the award would hit a specified target, defined by “displaced sales”:

[254] The Plaintiffs seek damages in the form of lost profits due to the Defendants’ sales of HIMALAYA on the basis that 90% of HIMALAYA sales displaced sales of EVEREST 3.0 AG or SIERRA 3.0 AG. In the alternative, if the Court finds that the evidence does not support a 90% capture rate, then the Plaintiffs elect a disgorgement of the Defendants’ profits on 100% of the HIMALAYA sales.

That is, Arysta sought damages, but only if they could establish on the facts that at least 90% of the sales of the infringing product by AgraCity would have been made by Arysta. This affects the quantum, as Arysta would be entitled to lost profit damages on displaced sales, but only reasonable royalty damages on other infringing sales.

Permitting Arysta to seek an accounting in the alternative in this manner appears to be contrary to AlliedSignal (1995), 61 CPR (3d) 417 (FCA) 444:

While courts of law have, for some time, given the successful party a right to elect one or the other of these two recourses, it seems clear from recent experience that the choice between the two remedies cannot be left entirely to the successful plaintiff. Moreover, it certainly cannot depend on whichever amount would turn out, on inquiry, to be more profitable. An accounting of profits is an equitable remedy which ought to be allowed by the Court in the exercise of its equitable jurisdiction when the circumstances so warrant.

The point does not appear to have been contested, so permitting Arysta to elect an accounting in the alternative is not strictly inconsistent with AlliedSignal as a matter of law. It does, however, illustrate the point that it had become routine to allow the patentee to elect an accounting, almost as a matter of right. This practice will be tested in cases involving patent assertion entities, such as Rovi Guides v BCE 2022 FC 1388, discussed here. Further, in my article on Nova v Dow 2022 SCC 43, forthcoming in the IPJ, I argue that the new approach to an accounting set out in Nova v Dow implies that the courts should take a more restrictive approach to allowing the plaintiff to elect an accounting, to ensure that it is awarded only when necessary in light of the deterrence rationale for an accounting emphasized by Rowe J.

On the facts, Arysta could not establish a 90% capture rate, and so was permitted to elect an accounting.