What Does “Or” Mean?

Eli Lilly Canada Inc v Teva Canada Limited 2022 FC 1398 St-Louis J

2,226,784 / tadalafil / CIALIS / NOC

This decision raises an important point as to the meaning of the word “or” in a claim, which I will address in this post. It also raises a variety of issues relating to validity, which I’ll address in my next post. For some reason, the decision is not available on the FC website, so I have linked to a version made available by Smart & Biggar.

The facts are quite straightforward. The 784 patent relates to the use of tadalafil for the treatment of ED. Claim 2, which is representative for present purposes, is to a pharmaceutical composition for the treatment of ED, comprising “[tadalafil] or a physiologically acceptable salt or solvate thereof.” All asserted claims include the phrase “or a physiologically acceptable salt.”

St-Louis J found on the facts that it is not possible to make a physiologically acceptable salt of tadalafil [118]. Tadalafil does not have any ionisable functional groups and consequently it is very difficult to make a salt form [103]. It may be possible to make some salts, but only under extreme conditions that would result in the degradation of tadalafil such that the resultant salt would not be sufficiently pure and stable to be considered physiologically acceptable [118]. As a result, St-Louis J held the 784 patent to be invalid for overbreadth [120] and insufficiency [149]; I’ll discuss the invalidity holdings in my next post.

But what about the “or”? Even though tadalafil salts could not be made, there was no suggestion that tadalfil itself could not be made. If the patentee had eliminated the word “or” by doubling the number of claims, with one set directed to the salt forms, and separate parallel claims to tadalafil itself without the phrase “or a physiologically acceptable salt,” it seems clear that the claims to tadalafil would have been valid. In ordinary English, the word “or” is usually used to link alternatives, so one might think that drafting one claim with “or” should have the same effect as drafting two separate alternative claims.

It seems that Lilly did raise this argument, but too late [78]–[79]. St-Louis J nonetheless went on to briefly address the merits of the argument (citations omitted, original emphasis):

[80] In any event, even assuming that Lilly’s argument is properly before the Court, I find Lilly has not met its burden to demonstrate that the element is non-essential. Claim elements are presumed to be essential and a party alleging otherwise bears the onus of establishing non-essentiality. Also, and given my conclusion on [Lilly’s expert’s] credibility and reliability, the opinion he stated at paragraph 150 of his affidavit alone is insufficient to convince me that the formulation “or a physiologically acceptable salt” means such a salt could or could not be present, and that this element is non-essential. Conversely, [the Defendant’s expert] has found it to be necessary. Since Lilly has not met its burden to establish it is non-essential, I find the “physiologically acceptable salt” to be an essential element of the Asserted Claims.

This strikes me as a strange way of framing the issue. As I see it, the issue isn’t whether the phrase “physiologically acceptable salt” is essential, it is about the meaning of the word “or.” Lilly is not asking the court to read “physiologically acceptable salt” out of the claim, which is normally what happens with an non-essential element. It seems to me that what Lilly really wants is for the court to read “or” to mean “or.” Given that the issue was framed in terms of essentiality, I can't fault St-Louis J's analysis, but, in my view, this obscures the real issue. 

The other point that bothers me is St-Louis J’s reliance on expert evidence as to the meaning of the word “or”. The specification and claims must be construed as they would be understood by a skilled person, but at the same time, “claims construction is a matter of law for the judge”: see eg Whirlpool 2000 SCC 67 [61]. What this means is that expert witnesses must educate the judge as to the meaning of technical terms, but it is for the judge, armed with that knowledge, to decide on how the claim should be construed. The US Supreme Court put it this way in Teva v Sandoz 574 US 318 (2015) 332, quoting Markman  Markman 517 US 370 (1996) 388:

Where technical terms are used, or where the qualities of substances ... or any similar data necessary to the comprehension of the language of the patent are unknown to the judge, the testimony of witnesses may be received upon these subjects, and any other means of information be employed. But in the actual interpretation of the patent the court proceeds upon its own responsibility, as an arbiter of the law, giving to the patent its true and final character and force.

In this case, expert evidence was needed to educate the court as to what is meant by the technical term “physiologically acceptable salt,” but once the judge is armed with that knowledge, the interpretation of the interpretation of the ordinary English word “or” is a matter for the court, and expert evidence on this point is not necessary.

This claim drafting style is very common. If this result stands, it will have a major impact on drafting practice, as patent drafters will have to consider avoiding the word “or” in favour of separate claims, which will be problematic in light of the new excess claim fees. In the meantime, it will create uncertainty. In my view, it would have been much preferable if St-Louis J had rejected the argument on the basis that it had been raised too late, without going on to address it on the merits.

Second Prong of Corlac Does Not Require “But For” Causation

Teva Canada Limited v Janssen Inc 2023 FCA 68 Stratas; Gleason; Woods JJA varg Janssen Inc v Teva Canada Ltd 2020 FC 593 Manson J

2,655,335 / paliperidone palmitate / INVEGA SUSTENNA / NOC action /

FC Infringement / FC Inducement

This decision represents a significant and welcome clarification of the law of inducement. It will be the new leading case on the second prong of the Corlac test, making it clear in order to establish inducement is it enough to show that the product was sold along with instructions to use it in an infringing manner. A couple of points regarding the construction of use and Swiss-type claims are also clarified.

The 335 patent relates to a dosing regimen for long acting injectable paliperidone palmitate formulations for treatment of schizophrenia. It has three sets of claims. Claims 1 to 16 are “product” claims that relate to prefilled syringes containing paliperidone palmitate adapted for administration in accordance with the claimed dosing regimens [15]. Claims 17 to 32 are “use” claims directed towards use of a dosage form according to the same regimen [16], and Claims 33–48 are Swiss-type claims to the use of paliperidone “for the preparation [or manufacture] of a medicament” [17] according to the same regimen. All claims were asserted.

In the judgment under appeal, Manson J found the asserted claims to be not obvious and valid. He also found that Teva would directly infringe the product and Swiss-type claims, but not the use claims. However, he found that Teva would not induce infringement of any of the claims [2]. Teva appealed on obviousness and direct infringement, and Janssen cross-appealed the finding of no inducement. Teva’s appeal on obviousness was dismissed for reasons specific to the case: [56]–[67].

Claim Construction

Product claim “for” use

Claim 1, which is representative of the product claims, is to prefilled syringes adapted “for administration” according to the dosage regimen [FC 124]. As discussed here, at first instance Teva had argued that it did not directly infringe the product claims because it did not actually prescribe or administer medications [FC 234]. Manson J rejected this argument on the basis that it is enough that “the capable, approved and intended use” for the Teva product incorporates the essential elements [FC 252]. The FCA affirmed, saying

[77] In the context of product claims like those in claims 1 to 16 of the 335 Patent (i.e., claims to a pharmaceutical preparation for use in the treatment of a condition), evidence that a generic company proposes to make or sell its product for the patented use (even if it is only one use among others) is enough to establish direct infringement in an action brought under section 6 of the PMNOC Regulations

In effect, a claim to a product “for” a use covers a product adapted and intended for that use, and not just the product when actually so used. The clarification is welcome. The FCA cited AB Hassle 2001 FCT 1264 [6], [33], [35–36] 2002 FCA 421 and Lilly v Apotex 2019 FC 884 [24–33] (discussed here). Both do stand for that proposition, but AB Hassle found that the product was not intended for the patented purpose, and Lilly v Apotex only concerned a motion allowing Lilly to amend its pleadings, so this seems to be the first time we have the point confirmed at the FCA level.

Swiss-type claim

In Novartis 2013 FC 985, Hughes J held, in effect, that a Swiss claim should be construed as a use claim, even though a Swiss claim is a product claim on its face: see here. At trial in this case, Teva urged Manson J to adopt the same position: [FC 159]. Relying on Hospira 2018 FC 259 [152–153], [268–323] affd 2020 FCA 30 [16–18], Manson J held that Swiss-type claims should be interpreted as being infringed if the medicament “is adapted for” administration according to the claimed dosing regimen [FC 163]. (So, the use claims and the Swiss claims both encompass products adapted for the infringing use.) The FCA affirmed:

[78] Similarly, in the context of Swiss-type product claims like those in claims 33 to 48 of the 335 Patent (i.e., claims to the use of a drug for the preparation of a medicament for use in treatment of a condition), evidence that a generic company proposes to make or sell its product for the patented use (even if it is only one use among others) is enough to establish direct infringement in an action brought under section 6 of the PMNOC Regulations

While the point was already established by Hospira, this is helpful in succinctly summarizing the law. It is also helpful in reaffirming the law, which can now be considered settled.

Inducement

The most important aspect of the decision relates to infringement by inducement, and in particular the second prong of the test for inducement set out in Corlac 2011 FCA 228, which requires that the act of direct infringement was influenced by the alleged inducer. The second prong was determinative at first instance; Manson J found that Janssen had established the first of Corlac factor, namely direct infringement, but not the second, that the acts of direct infringement would be influenced by the alleged inducer [48]. (He did not go on to consider the third factor, the knowledge requirement.)

The FCA reversed Manson J on the second prong, after a thorough review of the caselaw which greatly clarified the nature of the “influence” requirement. It is also significant that this was a decision by the Court, rather than by a single judge with concurrences, as is more usual. The decision is evidently intended to settle this point.

The second step of the Corlac test requires that [46]

the completion of the act(s) of infringement were influenced by the acts of the alleged inducer to the point that, without the influence, direct infringement would not take place.

On its face this seems to articulate a “but for” test, such that inducement is only established if the direct infringement would not have occurred but for the influence of the indirect party. Accordingly, Manson J explicitly characterized Corlac as requiring “but for” causation [FC 263], as have other cases, such as Bayer 2015 FC 797 [31] and Janssen 2019 FC 1355 [234] (both cited by Manson J). However, in my paper “Is 'But For' Causation Necessary to Establish Inducement?” (available on SSRN), I argued that the jurisprudence is not as clear on the standard for influence as this articulation of the test suggests. There are very few cases which actually apply a “but for” standard. The strongest case supporting a strict “but for” requirement is Slater Steel (1968), 55 CPR 61, 87, which stated that the influence must be the “sine qua non” of the infringement, and even that case is problematic authority, for a variety of reasons addressed in my paper. (And see also Nycomed 2011 FC 1441 affd 2012 FCA 195.) On the other hand, there are other cases, such as Novopharm 2006 FC 1411 affd 2007 FCA 251 and Genpharm 2003 FC 1443 affd 2004 FCA 413, that support a weaker “encouragement” standard.

As discussed here, Manson J acknowledged this apparent split in the caselaw [FC 259–64]. He explained it as a split is between the “earlier cases” [FC 264], and the “more recent cases” [FC 262], saying the earlier cases only required “some nexus” to the generic company [FC 261], while “in more recent cases,” the Court has “scrupulously” applied the Corlac test, “with particular focus on the second prong” [FC 262]. The implication is that Corlac changed the law, or at least the existing standard has been applied more stringently since Corlac. In particular, Manson J stated expressly that “[t]he ‘but for’ influence required in the second prong of the Corlac test requires a higher threshold for establishing inducement than was applied in the earlier cases” [FC 264].

The FCA reversed (all bold is my emphasis):

[82] We agree with Janssen that the Federal Court erred in law in holding that the decision of this Court in Corlac changed the law by incorporating a higher degree of causality at the second step of the analysis for inducing infringement. This error led the Federal Court to incorrectly apply an unduly onerous requirement at the second prong of the analysis for inducement and to incorrectly focus only on the skill and judgement of prescribing physicians to the exclusion of the role played by Teva in inducing infringement of the use claims in suit.

This statement by the FCA is clearly referring to Manson J’s remark at [FC 264], stating that “but for” was a higher standard for causation than had previously been required.

As discussed here, due to redactions in Manson J’s decision, it was not clear to me whether the “but for” element was crucial to his holding, but whether or not it was crucial to the outcome, it is clear that he applied a “but for” standard for causation. The FCA in the above paragraph described this standard as “unduly onerous.” Further, this statement is clearly referring to Manson J’s remark at [FC 264], in which he stated that “but for” was a higher standard than had previously been required. So, while the point might have been made more explicitly, putting these together, this implies that the influence exerted by the inducer need not be the “but for” cause of the direct infringement.

In the course of a thorough review of the caselaw, the FCA also specifically approved two cases articulating an “encouragement” standard. The FCA at [97] quoted with approval Novopharm 2006 FC 1411 [40], [42] affd 2007 FCA 251, in which von Finckenstein found inducement on the basis of a Product Monograph which “would be an encouragement” to infringe. The FCA [98] also quoted a passage from the same decision in which the application judge found the PM would “have the effect of inducing or encouraging” physicians to prescribe for the patented indications. The FCA at [95]–[96] also approved Genpharm 2003 FC 1443 affd 2004 FCA 413, in which “Justice Layden-Stevenson concluded that references (some of them subtle) to the patented use of omeprazole in Genpharm’s PM was sufficient to establish that Genpharm would infringe AB Hassle’s patent if Genpharm’s drug were allowed onto the market” [95] (my emphasis). These references reinforce the view that the FCA is endorsing an “encouragement” standard rather than a “but for” standard at the second prong. Conversely, in discussing Slater Steel, the FCA made no mention of the “sina qua non” passage, but quoted only passages referring to a more ambiguous “induced or procured” test [86].

The FCA also quoted with approval from Hospira 2018 FC 259 [326]–[327], [332]–[333], in which Phelan J held that “Infringement by inducement may be established by inferences reasonably drawn from the contents of the product monograph,” so that the second prong can be established when “the product monograph amounts to instructions or directions for infringement” [333]. In my article, I had suggested that this and other similar cases established a presumption that the physician would follow the directions in the PM, leaving open the possibility that this presumption could be rebutted by evidence showing eg that physicians never read the PM. That is, I took these cases to be saying that inducement “may” be established by showing that the PM instructs infringement, not that it necessarily “would” be established by such a showing. However, the FCA did not make any reference to a presumption, which is noteworthy in itself, as it suggests that these cases are not to be understood as turning on a presumption; the implication is that the instructions to infringe will in themselves establish infringement without the aid of a presumption. The FCA also pointed out that in Windsurfing (1985) 8 CPR(3d) 241 (FCA), the FCA had affirmed a finding of inducement when the inducer had sold a kit accompanied by instructions to assemble the components into a patented product, saying “I think it beyond dispute that the only inference to be drawn from the voluminous evidence in this case is that the respondent knew and intended that the ultimate purchaser would utilize the sailboard parts for the assembly of a usable sailboard which, upon assembly, would infringe the appellant’s patent” [85]. This also implies that strict but for causation is not required; it is enough that the inducer knew and intended the direct infringement.

In light of all this, the FCA reversed Manson J on the basis that he had made an error law at the second step of the Corlac test. The FCA stated:

[110] In the case of a generic drug, inclusion as one of the recommended uses within the PM for the drug of the alleged infringing use, among others, has been found to be sufficient to constitute the requisite encouragement to satisfy the second prong of the test for inducement in Hospira, AB Hassle, and Novopharm. In such circumstances, the infringing use is one of the bases for approval of the generic drug by Health Canada and one of the uses recommended to physicians. . .

This expressly states that all that is required is “encouragement.”

[112] Here, the Federal Court found that the capable, approved and intended use for the Teva product incorporated all the dosing and administration elements of the product claims, including the use of the continuous maintenance doses claimed in the 335 Patent. This finding inevitably leads to the conclusion that Teva would induce infringement of the use claims. Had the Federal Court properly understood and applied the test for induced infringement, no other conclusion was possible.

The reference to the approved use in [112] and [110] evidently reflects the PM. This is an explicit statement that if the PM instructs infringement, the second prong of the Corlac test is established.

The FCA did not explicitly state that “but for” causation is not required at the second prong, and indeed the Court repeated the Corlac test in very similar terms [109]. Nor did the Court expressly adopt an alternative “encouragement” test. Nonetheless, taken as a whole, it is now clear that in order to establish inducement, it is not necessary to establish that the influencer is or would be the “but for” cause of the direct infringement. It is now clear that the sale of a product accompanied by instructions to use the product in an infringing manner will be sufficient to establish the requisite influence. (Indeed, that is ultimately what happened on remand in Corlac itself: Corlac 2012 FC 76 [16]–[17].) This does not turn on any rebuttable presumption that the end-users will read the instructions and use the product accordingly, as no such presumption was mentioned by the FCA.

This will not affect the outcome in most cases; in the past, a party who sold a product accompanied by instructions to infringe would almost invariably be found to have caused the direct infringement. But the clarification should simplify the litigation. In the past we have seen a number of cases debating whether direct infringers, such as physicians and pharmacists, actually read the PM: see Abbott v Novopharm 2006 FC 1411 [40]; Solvay 2008 FC 308 [192]; Aventis 2006 FC 861 [44]; Allergan 2011 FC 1316 [161]. Presumably such evidence is now irrelevant.

I would also say that the FCA in this case truly did clarify the law. Manson J was not off on some frolic of his own; the view that “but for” causation was required at the second prong had a clear basis in Corlac, and was no doubt the most widespread reading of that decision. On the other hand, this is not a case in which the FCA reversed itself in the guise of clarification. The statement in Corlac was not necessary to the result, and was in tension with the holding and results in other cases, creating a real ambiguity in the law, which has now been resolved.

Finally, I will repeat a point I made in my article, which is that there is a separate question of causation with respect to damages. If infringement by inducement is established, the court may, and almost invariably will, grant injunctive relief. But in order to establish damages, it is necessary for the patentee to prove it suffered losses caused by the infringement, and “but for” causation must be established at that stage. (If an accounting is sought, “Nova v Dow” causation must be established.) In other words, encouragement to infringe is enough to get an injunction, but not enough to get damages.

Nova v Dow: What Role for “But For” Causation in Identifying the NIO?

Nova Chemicals Corp v Dow Chemical Co 2022 SCC 43 Rowe J: Wagner CJ, Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ concurring; Côté J dissenting affg Nova Chemicals Corporation v Dow Chemical Company 2020 FCA 141 Stratas JA: Near, Woods JJA affg Dow Chemical Co v Nova Chemicals Corp 2017 FC 350, 2017 FC 637 Fothergill J

2,160,705 / film-grade polymers / ELITE SURPASS

The Intuition / The Legal Background / Causation as a Matter of Fact / The Concession

In Nova v Dow, Rowe J held that when an accounting is granted, the infringer must disgorge all profits caused by the invention. While the argument turned on whether “but for” causation was the applicable causation concept, Rowe J never addressed this question; he did not explain what it means for profits to be “caused” by the invention, except to say that causation is a matter of fact. In my last post, I noted that Rowe J implicitly rejected the position that the differential profits rule from Schmeiser reflected the direct application of “but for” causation; it is necessary to apply the three-step test which Rowe J set out in Nova v Dow in which causation is addressed at Step 2. However, Rowe J did not address the nature of the causation requirement at that step. This post considers what role, if any, there is for the application of “but for” causation at Step 2 of the three-step test.

Step 2 requires the court to “[d]etermine whether there is a non-infringing option [NIO] that can help isolate the profits causally attributable to the invention” [15]. In my last post, I noted that we cannot infer anything about the causation concept from the holding on the facts, as it turned entirely on a concession made by Nova at trial.

It is nonetheless clear that “but for” causation is not the exclusive causation concept in identifying the NIO. Rowe J expressly rejected Nova’s submission that “an infringer’s ‘best non-infringing option’ is synonymous with the infringer’s ‘most profitable’ alternative option” [41]. Rowe J also endorsed the use of conventional canola as the appropriate non-infringing option in Rivett, while emphasizing that conventional canola was in fact unavailable to the infringer: [64]. Rowe J also rejected a hypothetical proposed by the intervener CGPA Canadian Generic Pharmaceutical Association which clearly applied “but for” causation: [41]. Further, the structure of the three-step test implicitly rejects “but for” causation as the sole causation concept, because Step 2 asks “whether” there is an NIO that can help isolate the profits causally attributable to the invention; if “but for” causation were the causation concept being used, then there is always a non-infringing option, namely what the infringer would in fact have done but for the infringement.

This makes it clear that the NIO is not determined solely by finding what the infringer would in fact have done but for the infringement. However, none of the foregoing excludes the possibility that “but for” causation might be helpful in identifying the NIO in some circumstances. Other aspects of the decision imply that “but for” causation may indeed play a role in identifying the NIO at Step 2. As discussed here, Rowe J suggested that even on the facts in Nova v Dow, commodity grade plastic might have been an appropriate comparator if Nova had not made its concession to the contrary at trial [72]. This is consistent with his definition of the NIO as any product that “helps” identify the profits caused by the invention [58]. Further, Rowe J also relied on “but for” causation in holding that springboard profits are recoverable [81]. This shows that “but for” causation is not entirely excluded from the accounting analysis.

Putting all this together, it is clear that the causation concept at issue at Step 2 is not “but for” causation as such; that is, the NIO is not to be identified simply by asking what the infringer would have done but for the infringement. At the same time, “but for” causation is not entirely irrelevant either; what would have happened but for the infringement might be used at Step 2 if the trial judge finds it helpful in identifying the profits causally attributable to the invention.

For example, suppose there is a case in which documentary evidence is introduced showing that the infringer had narrowed down its expansion plans to two options, Option A, which involved novel technology (which turned out to be infringing) and Option B, which is within the tried and tested technical capability and expertise of the company, but which is otherwise unrelated to Option A. A PowerPoint presentation from the meeting at which the decision was made is introduced into evidence. It shows that the infringer’s expected profit is $30m under Option A and $20m under Option B; and that even Option B is more profitable than another other course of action. A summary slide says:

Choice narrowed to Option A or Option B.

In favour of Option A

The value to us of the novel technology is $10m.

In favour of Option B

Tried and tested technology

If Option A turned out to be infringing, it seems reasonably clear that it would be open to a trial judge, applying Nova v Dow, to find this evidence helpful in assessing the value of Option A to the infringer. Certainly that would be true if Option B was similar to Option A, either technically or from a consumer market perspective (as discussed in more detail in the forthcoming paper), but Rowe J’s reference to the “pail and crate” market implies that it would also be open to the court to find such evidence helpful even if Option B is very different from Option A.

Of course, I have constructed this to be a particularly compelling example where “but for” causation seems helpful in establishing the value of the non-infringing option; but that is enough to establish the principle.

So, I would suggest that evidence as to what the infringer would have done but for the infringement should normally be admissible and relevant as one factor in determining what constitutes the NIO, even though it will not be determinative. I will consider other potentially relevant factors in my full article, which is forthcoming in the IPJ, and in subsequent posts.

Nova v Dow: The Concession

Nova Chemicals Corp v Dow Chemical Co 2022 SCC 43 Rowe J: Wagner CJ, Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ concurring; Côté J dissenting affg Nova Chemicals Corporation v Dow Chemical Company 2020 FCA 141 Stratas JA: Near, Woods JJA affg Dow Chemical Co v Nova Chemicals Corp 2017 FC 350, 2017 FC 637 Fothergill J

2,160,705 / film-grade polymers / ELITE SURPASS

The Intuition / The Legal Background / Causation as a Matter of Fact

In Nova v Dow, Rowe J held that when an accounting of profits is granted, the infringer will be required to disgorge all profits caused by the invention. He set out a three-step test to “conceptualize” an accounting of profits. The principles of causation are applied at the Step 2, which requires the court to “[d]etermine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer’s profits not causally attributable to the invention — i.e., differential profits.” [15]. In my last post on Nova v Dow I explained how Rowe J avoided addressing the causation concept by characterizing the central issue of causation as being a matter of fact. We should nonetheless expect the lower courts to scrutinize the decision closely for guidance as to the nature of the causation requirement before giving free reign to their own common sense and intuition in selecting an “non-infringing option” [NOI]. Accordingly, the next few posts, starting with this one, will examine the decision to see what more can be learned about the causation concept from the facts and examples approved by Rowe J.

Unfortunately, the holding on the facts in this case is not particularly informative because it turned in large part on a concession made by Nova at trial. Nova argued that had it not infringed it would have made approximately $300m in profits on commodity grade “pail and crate” plastic, which, on the “but for” causation approach to an accounting, should therefore be deducted from its actual profits to arrive at the amount to be disgorged. The main question on appeal was whether that deduction should be permitted [2]. There was no finding at trial that Nova would in fact have made such profits, though there were findings that made it plausible: it was undisputed that Nova enjoyed a substantial cost advantage in the production of ethylene, and the trial judge found that if Nova had not made the infringing products, it would have made and sold pail and crate plastic: Nova v Dow FC [137], [158]. The trial judge, affirmed by the Court of Appeal, had refused to allow the deduction. That the Supreme Court affirmed without sending the matter back for a determination of the quantum would normally allow us to infer that the deduction was not permitted as a matter of law.

Matters are not so simple in this case. As noted in a previous post, Dow had characterized the post-Schmeiser FCA cases as restricting the use of the differential profits to cases in which the infringer’s alternative was a “true market substitute[] for the patented invention.” What I didn’t mention in that post is that Nova agreed that the “non-infringing alternative” referred to in the Court of Appeal’s elaboration of the differential profit approach was restricted to a true market substitute: Nova Factum FM010 [26]. Consequently, Nova had conceded at trial that there “there were no ‘direct non-infringing alternatives’ available for the purpose of applying the ‘differential profits’ approach”; in particular, Nova agreed that commodity grade plastic was not a “non-infringing alternative”: see Nova v Dow FC [146]. Because of this concession, Rowe J held that the differential profits approach did not apply: [70]–[73].

However, Nova also argued that the “non-infringing alternative” used in the FCA caselaw was different from the “non-infringing option” referred to in Schmeiser, and that the differential profit approach as set out in Schmeiser itself was directly based on “but for” causation. Nova therefore argued that “but for” causation should be used directly to determine the quantum to be disgorged: see Nova Factum [27], [37], [56], [59], [100]–[103]. While Rowe J held that the differential profit approach did not apply, he did not directly address Nova’s alternative argument that “but for” causation should be applied even if the differential profit approach could not be applied; however, since he affirmed rather than sending the matter back for a determination of whether Nova would in fact have made such profits in the pail and create market, the direct implication is that this argument was rejected.

Thus, Rowe J held, at least implicitly, that “but for” causation cannot be used directly to assess the quantum to be disgorged in an accounting; it is necessary to apply the three-step differential profit test which Rowe J set out, with causation to be addressed at Step 2. However, Rowe J did not explicitly reject the application of “but for” causation at Step 2, as his holding that any profits from the commodity grade could not be deducted at Step 2 turned entirely on Nova’s concession. My next post considers what role, if any, there is for the application of “but for” causation as part of the three-step test, in particular, at Step 2.

Costs and Settlement Proposals

Pharmascience Inc v Teva Canada Innovation 2022 FCA 207 Monaghan JA: Gleason, Mactavish JJA

2,702,437 / 2,760,802 / glatiramer acetate / Copaxone / Glatect / NOC /

I don’t usually blog on procedural issues, but this decision on an appeal from a costs award affirms a simple point: “settlement proposals or offers that do not meet the conditions of Rule 420 may be considered under Rule 400 in making a costs award” [18].

Nova v Dow: Causation as a Matter of Fact

Nova Chemicals Corp v Dow Chemical Co 2022 SCC 43 Rowe J: Wagner CJ, Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ concurring; Côté J dissenting affg Nova Chemicals Corporation v Dow Chemical Company 2020 FCA 141 Stratas JA: Near, Woods JJA affg Dow Chemical Co v Nova Chemicals Corp 2017 FC 350, 2017 FC 637 Fothergill J

2,160,705 / film-grade polymers / ELITE SURPASS

The Intuition / The Legal Background

In Nova v Dow the SCC addressed the method of calculating an accounting of profits in the patent context. This is the third in a series of posts summarizing my case comment on Nova v Dow, which is forthcoming in the IPJ. In Schmeiser 2004 SCC 34 [102] the SCC held that the preferred method for calculating an accounting of profits is the “differential profit” approach, in which “[a] comparison is to be made between the defendant’s profit attributable to the invention and his profit had he used the best non-infringing option.” The question that developed in the subsequent FCA decisions is whether the non-infringing option—or the non-infringing alternative, as the FCA usually called it—represents what the infringer would have done had it not infringed, in which case the differential profits approach simply reflects “but for” causation; or whether there is something special about the non-infringing option, and if so, what that something special might be.

As discussed here, the FCA caselaw was at least consistent with the “but for” approach until the FCA decision in Nova v Dow, in which Stratas JA, writing for the majority, rejected the “but for” approach to an accounting. On appeal to the SCC, Rowe J, for the majority, affirmed Stratas JA’s decision, though without specifically approving his reasoning.

Rowe J at [15] set out a three-step test to “conceptualize” an accounting of profits:

Step 1: Calculate the actual profits earned by selling the infringing product — i.e., revenue minus (full or differential) costs.

Step 2: Determine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer’s profits not causally attributable to the invention — i.e., differential profits. It is at this step that judges should apply the principles of causation. . . .

Step 3: If there is a non-infringing option, subtract the profits the infringer could have made had it used the non-infringing option from its actual profits, to determine the amount to be disgorged.

Rowe J noted that the principal issue on appeal was Step 2 [16]. There are two key issues at Step 2: (1) the nature of the causation requirement; and (2) the nature of the non-infringing option—for convenience, the “NIO.”

The nature of the causation concept is central, as it allows us to determine what constitutes an appropriate NIO. Rowe J repeatedly affirmed the centrality of the causation concept. He stated that it is a “fundamental principle” that the infringer must disgorge all profits causally attributable to the invention, and only those profits [4], [48]. Rowe J repeated the need for a causal connection more than two dozen times. The causation requirement is crucial because infringers must be deterred, but not punished: [44–45]. If too little is disgorged, an accounting will not serve its deterrence function; if too much is disgorged, it will have a chilling effect on innovation [4]. The right balance is struck by requiring the infringer to disgorge all profits causally attributable to the invention, but no more.

The most prominent legal causation concept is “but for” causation. (The other well known causation concept is material contribution: no one has ever suggested that it is appropriate in this context.) Stratas JA expressly rejected “but for” causation [40], [76], as did the respondent Dow in its submissions to the SCC: FM020 50, 54, 55. Côté J, dissenting, expressly endorsed “but for” causation (paras 91, 138, 146, 162, 171, 183, 185), as did both interveners, the CGPA FM030 [12–13], [18], [22], [28]; Bell FM040 [2], [17–26], and the appellant, Nova, which put “but for” causation at the heart of its argument: FM010 [52–56], [59]. The applicability of “but for” causation was therefore at the heart of the appeal.

Remarkably—indeed, astonishingly—Rowe J never directly addressed the causation concept. He did not explicitly affirm or reject “but for” causation; rather, as Côté J pointed out at [184], he simply avoided referring to it. Nor did he specify any alternative causation concept. This means that some very basic questions are left unanswered. What is the causation concept in identifying the NIO? What is the causation concept if there is no NIO? What role is there, if any, for “but for” causation in either context? What is the causation concept if it is not “but for” causation?

These questions will be addressed in subsequent posts. This post addresses a preliminary question: if “but for” causation was so central to the appeal, how was it possible for Rowe J to avoid talking about it?

The answer is that he characterized causation as being a matter of fact, quoting Lovastatin Damages 2015 FCA 171, in turn quoting Snell v Farrell [1990] 2 SCR 311, 328:

[15] Causation “need not be determined by scientific precision: it is ‘essentially a practical question of fact which can best be answered by ordinary common sense.’”

With due respect, the notion that the causation concept is purely a matter of fact is quite untenable. The SCC has a whole series of cases in which the central question of law was as to the correct causation concept, including decisions which overruled the trial judge on a question of law for having applied the wrong causation concept: see Clements v Clements 2012 SCC 32 [5], [11] (overruling the trial judge); Resurfice v Hanke 2007 SCC 7 [19], [21], [22]; Blackwater v Plint 2005 SCC 58 [78]; Athey v Leonati [1996] 3 SCR 458 [12] (holding the trial judge had applied the wrong causation concept, but it had not affected the outcome); Snell v Farrell, [1990] 2 SCR 311, 319–20. In none of these cases has it ever been suggested that the causation concept itself is purely a matter of fact. Indeed, the cases cited by Rowe J as authority in the passage quoted above, the Court of Appeal decision in Lovastatin Damages [45] and the SCC decision in Snell v Farrell, 319–20, both explicitly adopt “but for” causation.

Of course, it may be difficult to apply the causation concept on the facts of a particular case: as the FCA explained in Lovastatin Damages [45]:

The legal test for establishing causation is the “but for” test. A plaintiff must show on a balance of probabilities that “but for” the defendant’s wrongful conduct, the plaintiff would not have suffered loss. This is a “factual inquiry” to be established on the evidence. The “but for” test for causation is to be applied in a “robust common sense fashion”

As this paragraph makes clear, it is the application of the causation concept to the facts that is a matter of common sense, not the causation concept itself. As I discuss in the case comment, the various cases that led to this “common sense” approach to causation, generally involved difficulties in drawing causal inferences on the facts: eg the question in Snell was whether the plaintiff’s optic nerve atrophy was caused by negligent eye surgery several months prior.

So, it is entirely true that the application of the law to the facts is not subject to strict rules and requires common sense. This does not imply that there is no legal causation concept; as Côté J noted at [193], causation “is, and must be, a question of mixed fact and law.” In holding that causation is a question of fact to be addressed with common sense, Rowe J conflated the legal test with its application to the facts. The failure to engage with the causation concept resulted in an implicit rejection of “but for” causation, without anything principled to replace it with. That is a point for future posts.