Canadian patent law: 2018 year in review

There were various developments in Canadian patent law in 2018. Numerous decisions of the Federal Court of Appeal and Federal Court will have a notable impact on patent law in Canada going forward. In addition, both the Patent Act and the Patent Rules were the subject of significant amendments that will impact both prosecution and enforcement of patent rights in Canada for years to come.

Notable cases and decisions

Proper POSITA Definition Crucial for Claim Construction

In Bombardier Recreational Products Inc. v. Arctic Cat, Inc., 2018 FCA 172, the Federal Court of Appeal ("Court of Appeal") addressed, among other things, whether limiting a claim element to an example presented in the preferred embodiment section of the patent at issue was proper.

In concluding that it was not proper in this case to limit the construction of the claim element at issue to the preferred embodiment of the patent, the Court of Appeal confirmed that the only evidence that should be considered in construing the claims is the patent specification and the understanding of the person of ordinary skill in the art (POSITA) with respect to the claim element based on such person's relevant common knowledge. To this end, the Court of Appeal's decision emphasized the importance of an expert with experience in the relevant area of technology, and what the corresponding understanding of a POSITA vis-à-vis such technology area would have been with respect to the claim language at issue. This is particularly important given a patent disclosure is not expected to include a full review of the prior art or the common general knowledge, and the descriptions and drawings in a patent may in many cases be exemplary only.

Accordingly, the Court of Appeal allowed the patentee's appeal, and found that the trial judge had incorrectly found no infringement based on a claim interpretation that was limited to the preferred embodiment of the patent.

POSITA's Common General Knowledge Also Crucial for Obviousness

In AFD Petroleum Ltd. v. Frac Shack Inc., 2018 FCA 140, the Court of Appeal held that "the POSITA's common general knowledge … is a key component in the obviousness analysis". Based on concerns that the trial judge did not sufficiently consider the impact of the POSITA's knowledge in the relevant technology area, the Court of Appeal remitted the issue of obviousness to the trial judge for redetermination.

Upon redetermination in 2018 FC 1047, the trial judge found that the claims at issue were not obvious in view of his determination of who the POSITA would have been, and the extent of such person's knowledge. In addition, the trial judge provided clarification with respect to the test for obviousness in view of comments made by the Court of Appeal in Ciba Speciality Chemicals Water Treatments Limited v SNF Inc., 2017 FCA 225. In particular, the trial judge clarified that it is not the prior art at large that is relevant for determining obviousness. Rather, it is those elements of the prior art which the POSITA could find by conducting a reasonably diligent search that are relevant.

Infringers Cannot Rely on NIAs that are not Lawful or Economically Viable

The Court of Appeal commented on numerous issues relevant to damages in Apotex Inc. v. Eli Lilly and Company, 2018 FCA 217. In this appeal, Apotex sought to overturn the 2014 decision of the Federal Court that awarded Eli Lilly $31M in damages and $75M in prejudgment interest for Apotex's infringement of eight separate Lilly-owned patents pertaining to Lilly's CEFACLOR® product.

The Court of Appeal rejected Apotex's arguments that the $31M damages quantum should be reduced. In so doing, it found that a "legitimate" non-infringing alternative ("NIA") must be one that is lawful. In particular, the Court of Appeal held that Apotex could not rely on a purported NIA that would have infringed a patent other than the patents at issue in the proceeding.

The Court of Appeal also held that an infringer seeking to rely on a NIA must show that the NIA being relied upon was "objectively an economically viable substitute at the relevant time." In this case, Apotex cited a so-called "Lupin 2 process" as a purported NIA. However, Apotex did not prove that the Lupin 2 process was economically viable; to the contrary, it was "not an attractive substitute".

The Court of Appeal dismissed Apotex's appeal but for the matter of damages in the form of interest, which was remitted to the trial judge for reconsideration.

Shire Defends VYVANSE ® Patent in Partially Consolidated Action/PM(NOC) Regulations Application

In Apotex Inc. v. Shire LLC, 2018 FC 1106, the Federal Court held that the claims at issue of Shire's compound patent covering the active ingredient in its VYVANSE® ADHD medication were not invalid. The Federal Court also granted Shire an order prohibiting the Minister of Health from granting a NOC to Apotex for its proposed generic product. These two orders were necessitated as the evidence at trial pertained to both an application under the (old) PM(NOC) Regulations, brought in response to a Notice of Allegation served by Apotex, and an impeachment action, brought by Apotex five days after the commencement of the application. The two proceedings were partially consolidated by the Federal Court.

These proceedings reflect the importance of the 2017 AstraZeneca decision of the Supreme Court. Apotex's case initially hinged largely on allegations of inutility that were based on the promise doctrine. However, less than a week before the start of trial Apotex dropped its entire utility case and two of its four expert witnesses, leaving anticipation and obviousness as the primary issues at play. The Federal Court found in Shire's favour on these issues based on the facts before it.

Decisions that Consider on the Impact of AstraZeneca v. Apotex, 2017 SCC 36

1. Hospira v The Kennedy Trust et al, 2018 FC 259. This was a wide-ranging decision dealing with an "astonishing number and veritable panoply of patent law issues" pertaining to the validity and infringement of a patent claiming the adjunctive use of methotrexate and infliximab for the treatment of autoimmune diseases. One issue was the impact of AstraZeneca, with Hospira arguing that the promise doctrine was imported into the law of insufficiency and overbreadth. The Federal Court rejected this, stating that "certainly AstraZeneca does not do so and it would be inconsistent to discard that doctrine only to have it resurface under another principle without clear language [in the Supreme Court's decision] to do so."
2. Apotex Inc. v. Abbott Laboratories et al, 2018 ONSC 5199. In this decision, the Ontario Superior Court rejected Apotex's attempts to construe AstraZeneca as keeping the promise doctrine alive. In particular, Apotex sought to amend its promise-based utility pleadings by transplanting these allegations to the heads of overbreadth, insufficiency, and willful misrepresentation (s. 53(1)). The Ontario Superior Court canvassed the Federal Court jurisprudence that has considered AstraZeneca and found that "the zombies really are dead".
3. Apotex Inc. v. Schering Corporation, 2018 ONCA 890, and Eli Lilly Canada Inc. v. Teva Canada Limited, 2018 FCA 53. These are two at-odds decisions regarding the ability of an infringer to recover damages from a patentee whose patent was invalidated under the incorrect promise doctrine. In Eli Lilly, the Federal Court of Appeal rejected Lilly's argument that Teva should not be entitled to section 8 damages following Lilly's prohibition application pertaining to a patent covering Lilly's antipsychotic olanzapine. Lilly's prohibition application was dismissed solely based on the promise doctrine, and Lilly argued that AstraZeneca rendered the decision in the prohibition application untenable, submitting that the Court must take into account the change in circumstances as to the validity of the patent.

The Ontario Court of Appeal ("ONCA") in Schering came to a different conclusion. In Schering the ONCA heard similar arguments to those made in Eli Lilly in the context of a claim brought by Apotex for treble damages under the statute of monopolies following the Federal Court's declaration that Schering's patent covering its RAMIPRIL® product was invalid based on the promise doctrine. The ONCA allowed Schering to plead that the decision invalidating the RAMIPRIL® patent was based on wrong legal principles. In so doing, the ONCA considered the Eli Lilly decision, stating, inter alia, that it did not agree with the Federal Court of Appeal's concern that permitting a change in the law on a fundamental point to constitute a special circumstance that would weaken the objective of finality. Rather, the ONCA held that a "foundational change" such as was caused by AstraZeneca is "precisely the type of special circumstance where the principle of finality should yield to the justice of the case."

Teva's Section 8 Claim re VELCADE ® (bortezomib) Granted as Janssen's Patents Obvious/Not Infringed

In Teva Canada Limited v. Janssen Inc., 2018 FC 754, the Federal Court held that Janssen's compound and formulation patents covering VELCADE® were invalid as obvious, and that a patent covering the large-scale production of bortezomib was not-infringed. This proceeding originated as a section 8 action, following two 2015 decisions[1] under the PM(NOC) Regulations in which allegations of obviousness relating to the same compound and formulation patents were found justified.

There were some noteworthy aspects in the obviousness analysis provided by the Federal Court. With respect to the compound patent, the claimed compound was encompassed by a genus disclosure within the prior art. The evidence was that the POSITA would prefer a hydrophobic amino acid in a particular location on the peptide, limiting the options to fewer than 10. The evidence then was that the compound claimed (which included the phenylalanine amino acid) did not outperform the other possible hydrophobic amino acids, and obviousness was found in part on this basis. This was despite the apparent lack of explicit teaching in the prior art towards the phenylalanine amino acid specifically.

The Federal Court also considered and rejected arguments that the POSITA be considered on a claim-by-claim basis. The Federal Court held that the POSITA is to be assessed in the context of the patent as a whole, and further held that the POSITA's characteristics cannot be affected if only a subset of the claims of the patent are asserted.

Broad Scope of "Person Claiming Under the Patentee" Confirmed in Levofloxacin Damages Appeal

In Teva Canada Limited v. Janssen Inc., 2018 FCA 33, the Court of Appeal affirmed damage awards of $5.5M and $13M that had been granted to two Janssen entities by the Federal Court following Teva's infringement of a patent covering the compound levofloxacin (marketed as LEVAQUIN®).

The appeal decision was largely an affirmation of the Federal Court's factual findings. Of interest, Teva argued that the Federal Court erred in finding that Janssen US, who sold LEVAQUIN® tablets to Janssen Canada for sale in Canada, was not properly a person claiming under the patentee under subsection 55(1) of the Patent Act because it did not engage in what would otherwise amount to infringing conduct. This argument was rejected, with the Court of Appeal holding that the purpose of subsection 55(1) is to provide redress to all those who have a right tracing back to the patentee and who suffer damage as a result of an infringement, and that "a party need only establish that they enjoy rights under a patent in order to be a person claiming under the patentee."

Right to Elect between Damages or an Accounting rests with Patentee, not Infringer

In Apotex Inc. v. Bayer Inc., 2018 FCA 32, the Court of Appeal rejected an argument by Apotex that subsection 57(1) of the Patent Act allowed Apotex to elect to pay an accounting of its profits, rather than the damages of the patentee, following Apotex's infringement of Bayer's patent covering its YASMIN® and YAZ® products.

Subsection 57(1) of the Patent Act states that the Court, "on the application of the plaintiff or defendant", may order an accounting of profits. Additionally, subsection 55(1) of the Patent Act states that an infringer "is liable…for all damage sustained by the patentee…". Affirming the decision below, the Court of Appeal held that the right to elect between damages and an accounting of profits lies with the patentee, not the infringer (subject to the Court's discretion to refuse an accounting). The Court of Appeal held that "the Court cannot oblige the patentee to accept as a remedy an accounting of profits if it is not willing to do so."

Responsible Gambling System Patent Invalidated for Lacking Utility and Sufficiency

In Safe Gaming System v. Atlantic Lottery Corporation, 2018 FC 542, the plaintiff's patent related to "responsible gambling systems" (i.e., a system that provides alerts to a user of reaching or exceeding loss limits, time limits, changes in gambling behavior, etc.) was invalidated based on lack of utility and insufficient disclosure.

With respect to lack of utility, the Court found that the POSITA could monitor what a player did, but the POSITA would not know what is safe for a particular person (and what is safe for one person may not be safe for another). Therefore, because a POSITA at the time did not have the psychological tools to monitor and mitigate problem gambling, utility was not soundly predicted or demonstrated.

With respect to lack of sufficiency, the Court found that there may have been limited information generally regarding problem gambling at the relevant time. However, the Court also found that there was not enough information to enable the POSITA to have understood the patent.

The Court also found that even if the patent had been valid, the accused system did not infringe.

Approximately $8 Million Awarded in Damages for Infringement of Oil Industry Patent

In Grenke v. DNOW Canada ULC, 2018 FC 564, the Court determined the appropriate quantum of damages for patent infringement further to an earlier trial decision finding the patent in suit valid and infringed. The plaintiffs sought approximately $10 million in damages based on lost sales and a reasonable royalty, as the case may be. The range requested depended on what royalty rate the Court accepted. The Court ultimately awarded damages in the amount of $7.9 million comprising some damages for lost profits ($4.5 million based on relevant market share evidence) and other damages based on a reasonable royalty rate of 8% of sales.

While punitive damages were also sought, no punitive damages were awarded, as the Court concluded that the defendants' knowing infringement was not enough, and otherwise there was no high-handed or malicious conduct on the part of the defendants.

Interlocutory Injunction Granted in Patent Infringement Case

In Thermolec ltée c. Stelpro Design inc., 2018 QCCS 901, the Superior Court of Québec granted an interlocutory injunction in a patent infringement case. Such injunctions are rare in patent cases, as there is a requirement for a patentee to demonstrate irreparable harm, which has traditionally been difficult to demonstrate.

In this case, the Court did a detailed analysis of the merits, including expert evidence, and concluded there was likely infringement. In finding that there would be irreparable harm, the Court also identified lost goodwill and loss of distributors, and concluded it would be impossible to determine the extent of related harm. Because there was a serious issue (i.e., infringement) and a finding of irreparable harm, and because the product at issue was a more significant aspect of the plaintiff's business than of the defendant's business, the balance of convenience test was also met.

Railroad Inspection Patents Found Valid and Infringed

In Georgetown Rail Equipment Company v. Rail Radar Inc., 2018 FC 70, the Court found two patents related to railroad inspection technology valid and infringed.

At trial, obviousness and infringement were the main issues. The patents were found to be inventive, as neither the existence of the problems being addressed, nor the proposed solutions, were evident in the prior art. The defendant's arguments that the POSITA would have been incentivized to use the generally known inspection techniques in the railroad context were rejected. In addition, the defendant's arguments that all components of the claims were known, so the claims were obvious, was rejected, as inventiveness may be found in a combination.

Regarding infringement, the Court found that there were agreements that established commission of infringing acts in concert. The Court also found all essential elements of the asserted claims were present in the accused system.

Amendments to the Patent Act and the Patent Rules

Significant Amendments to the Canadian Patent Act

Bill C-86 became law on December 13, 2018, and introduced a number of significant changes to the Canadian Patent Act:

1. File Wrapper Estoppel: historically a US-based doctrine, and previously rejected by Canada's Supreme Court, new section 53.1 of the Patent Act makes prosecution history evidence admissible before the Court for the purposes of claim construction;
2. Standard Essential Patents (SEPs): new section 52.1 of the Patent Act makes licensing commitments made with respect to SEPs binding on subsequent patent owners. Yet to be provided are any regulations with respect to licensing commitments, including any regulations regarding what may or may not constitute and SEP or FRAND (fair, reasonable and non-discriminatory) licensing;
3. Broadening Experimental and Prior Use Defenses: new section 55.3 provides an exception to an act of infringement for the purpose of experimentation going beyond previous section 55.2. In addition, the prior use exception under previous section 56 has been broadened to include any acts that take place prior to the claim date such that they continue to be exempt from infringement on or after the claim date;
4. Written Demand Requirements: new section 76.2 requires any written demand (e.g., cease & desist letter) that relates to a patent to comply with prescribed requirements, however, at this stage, it is unclear what the requirements of written demands will be (the requirements remain to be addressed in regulations). Any person who receives a written demand may bring a proceeding in respect of the demand seeking various monetary and equitable remedies; and
5. College of Patent Agents: Bill C-86 confirmed the establishment of an administrative body responsible for the regulation of patent agents.

The above-noted changes were reported in more significant detail here.

Proposed Amendments to the Canadian Patent Rules

As reported in more detail here, the Canadian government recently published for public consultation an updated version of its proposed amendments to the Canadian Patent Rules. The changes are expected to take effect in late 2019. Some of the key amendments are as follows:

1. Responses to office actions to generally be due within four months as opposed to the current six months;
2. Requests for examination to be due within four years of Canadian filing date as opposed to the current five years;
3. Payment of final fee to be due within four months of a notice of allowance as opposed to the current six months;
4. Late PCT national entry into Canada to only be permissible where the applicant can satisfy the Patent Office that the failure to meet the 30-month deadline was unintentional;
5. Reinstatement of abandoned applications to no longer be as of right in certain circumstances. In those circumstances, a demonstration that the abandonment occurred despite the applicant's "due care" is required;
6. Third parties to not be liable for what would otherwise be infringing acts committed in good faith during the period an application or patent is abandoned/lapsed and the "due care" requirement for reinstatement applies;
7. Applicants to more easily be able to submit amendments after allowance; and
8. The grace period for an applicant's prior disclosures to be expanded to be based on the earlier of an applicant's earliest priority date and one year before the Canadian filing date.