Canadian patent law:
2020 year in review

23 minute read
14 January 2021

There were various developments in Canadian patent law in 2020. This article summarizes a number of notable court decisions on patent law and practice in Canada.

$644 Million Award for Patent Infringement Upheld on Appeal

In Nova Chemicals Corporation v. Dow Chemicals Company, 2020 FCA 141, the Federal Court of Appeal upheld an earlier judgment awarding Dow Chemical $644 million, the largest monetary award by a Canadian court in history for patent infringement. As discussed in greater detail in an earlier article, the $644 million comprised a reasonable royalty for infringement during the pre-grant publication period of the patent, an accounting of profits for the post-grant period, and an accounting of "springboard profits" for a period of 20 months following expiry of the patent.

In upholding the accounting of profits award in particular, the Court of Appeal confirmed that two rules apply in accounting of profits cases: (1) only actual profits, meaning actual revenues minus actual costs, are disgorged; and, (2) only profits that have resulted from the patent infringement are disgorged. These rules mean that "but for" hypothetical reasoning does not apply in the accounting of profits context; there must be a causal connection between the profits to be disgorged and the patent infringement. Thus, where a defendant is able to prove that some or all of its profits are attributable not to the patent at issue, but rather some other non-infringing aspect of the infringing product, then any award of profits will be reduced or denied accordingly. In connection with the Court's apportionment analysis, the Court may consider a non-infringing course of action that can effectively isolate the value of the patent, i.e., a "non-infringing baseline".

In addition, the Court of Appeal changed the generally-accepted approach to deduction of costs that had applied in preceding accounting of profits cases. Up until this decision, it was typically the case that infringers were only permitted to deduct their incremental costs related to production and/or sale of the infringing product; overhead or fixed costs typically could not be deducted. However, the Court of Appeal considered it unfair to an infringer to not be able to deduct fixed costs that went into producing an infringing product. As a result, the Court of Appeal stated that a "full costs" approach should be available to an infringer, though where an infringer produces multiple products (including non-infringing products), only the proportion of fixed costs attributable to producing the infringing product may be deducted.

Patent Litigation via Summary Judgment and Summary Trial

The Federal Court disposed of three cases via summary judgment or summary trial in 2020. These decisions build off of the 2019 decision of Canmar Foods v TA Foods; as noted in our 2019 year in review article, prior to Canmar Foods it was rare for patent actions to be disposed of in a summary manner. With four decisions in two years from three different judges, it is now clear that the Court takes a favourable view of the use of such mechanisms to deal with appropriate matters.

The first such case in 2020 was ViiV Healthcare v Gilead, 2020 FC 486 where the Court granted a motion for summary trial in a pharmaceutical patent infringement action. The Court held that the motion for summary trial was appropriate as it entailed only the construction (and resulting infringement analysis) of a single claim element. In effect, ViiV was akin to a Canadian Markman hearing.

The second case in 2020 was Gemak v Jempak, 2020 FC 644. Gemak also dealt with a preliminary construction issue, resolution of which in the defendant's favour resulted in summary judgment dismissing the action being granted.

Lastly, summary judgment in an impeachment action was granted on the basis of obviousness in Flatwork Technologies v Susan Brierley, 2020 FC 997.

Health Canada's Narrow Interpretation of the CSP Regulations were Twice Rejected and Remitted for Redetermination

In 2020, the Federal Court issued its first two decisions interpreting the Certificate of Supplementary Protection (CSP) Regulations, which came into force in September 2017. As previously reported here and here, the Court in both instances held that consistency with CETA is paramount when interpreting CSP regime provisions. In both cases, the Court held that the Minister improperly placed additional restrictions on patent eligibility for drug products comprising a combination of medicinal or active ingredients.

Glaxosmithkline Biologicals SA v Canada (Health), 2020 FC 397

The patent of which CSP eligibility was at issue contained claims to a formulation of a vaccine containing both the antigen and adjuvant in SHINGRIX®. The decision was a judicial review of the Minister 's refusal to grant a CSP based on its position that the combination of the antigen with the adjuvant did not fall within the definition of a "medicinal ingredient" under the CSP Regulations. Health Canada's decision was contingent on its classification of adjuvants as excipients, and thus non-medicinal.

Given that "medicinal ingredient" is undefined in Canadian legislation, the Federal Court looked to the language in CETA where a protected product is defined as "the active ingredient or combination of active ingredients" and held that biological activity was the intended measure for CSP protection in Canada. In this case, both antigen and adjuvant were biologically active and neither component alone triggers an immune response. Justice Barnes rejected Health Canada's approach to treat adjuvants as excipients and commented that the Minister adopted "administrative tunnel vision" and failed to consider and apply CETA in its reasoning.

Also notable is the Federal Court's observation that there is no Canadian legislation that precludes claims directed to a formulation from being eligible for CSP protection.

ViiV Healthcare ULC v Canada (Health), 2020 FC 756

ViiV also related to a review of the Minister of Health's refusal to grant a CSP. The patent at issue contained claims to the medicine dolutegravir, which is one of two medicinal ingredients in the combination HIV medication JULUCA®. The Minister's refusal to grant a CSP was based on its interpretation of the CSP Regulations to require that a patent must claim the combination of all of the medicinal ingredients in a combination product in order to be eligible for a CSP. This reading of the CSP Regulations would result in Canada's regime being narrower than CETA, which intends to provide protection for patents covering single medicinal ingredients whether used alone or as part of a combination product. The Court found the Minister's failure to consider whether the CSP provision could be read in harmony with CETA, rather than expressly limiting it, was fatal.

Justice Fuhrer stated that the CSP requirement is for a drug product to be "innovative and creative" rather than "new". The Court found the product at issue was not a minor variant of a pre-existing product and was in fact considered innovative by virtue of the issuance of the NOC.

Challenges to Proposed Legislative Amendments regarding Pricing of Pharmaceuticals

Amendments to the Patented Medicines Regulations that are scheduled to come into force on July 1, 2021 update the Patented Medicine Prices Review Board (PMPRB)'s regulatory framework. In an application for judicial review, the Federal Court was called upon to consider the validity of three aspects of the amended legislation: (1) section 3(4), the "New Price Calculation", which expanded a patentee's reporting requirements; (2) section 4, the "New Mandatory Factors", which added new factors to be considered in determining whether the price of a patented medicine is "excessive" under subsection 85(1) of the Patent Act; and (3) section 6, which modifies the basket of comparator countries. A similar challenge was likewise brought in the Quebec Superior Court.

Both the Federal Court (2020 FC 725) and the Quebec Superior Court struck the New Price Calculation provision as being ultra vires the Patent Act. Sections 4 and 6 were found valid. The Federal Court's decision in respect of all three issues has been appealed.

Federal Court Rejects CIPO's Problem-Solution Approach to Claim Construction

In Yves Choueifaty v. Attorney General of Canada, 2020 FC 837, Justice Zinn rejected the Canadian Intellectual Property Office's approach to construing claims of pending applications based on a problem-solution approach on the basis that such approach is inconsistent with Supreme Court of Canada jurisprudence requiring a purposive claim construction.

As reported in more detail in this earlier article, the patent application at issue related to a computer-implemented method for providing an anti-benchmark portfolio. Both the examiner and the Patent Appeal Board rejected the application on the basis that the claims were directed at non-patentable subject matter. In particular, the Patent Appeal Board had held that the applicant was trying to solve a "financial portfolio engineering and investing problem" by providing an anti-benchmark portfolio, and that such solution was "directed to a scheme or rules involving mere calculations", thus making it a non-patentable abstract algorithm.

On appeal to the Federal Court, Justice Zinn overturned the Patent Appeal Board's rejection of the application. In particular, the Court stated that claim construction during prosecution must be done purposively in accordance with Supreme Court of Canada jurisprudence. This includes taking into account an inventor's intent as expressed in his/her application when determining a claim's essential elements and eligibility, as opposed to only considering what element(s) may be required to solve a particular problem.

Ground Conceded During Prosecution Cannot be Recaptured at Trial

In an infringement action involving two prominent skate manufacturers, Bauer Hockey Ltd v Sport Maska Inc (CCM Hockey), 2020 FC 624, the Court rejected Bauer's expansive interpretation of its asserted claims on the grounds that it was incompatible with the patent's prosecution history and was not grounded in the claims or disclosure of the patent. Justice Grammond found the claims asserted by Bauer to be obvious and not infringed.

Notably, the Court explained that section 53.1 of the Patent Act is directed at the situation where a patentee attempts to construe a claim in a manner to recapture ground conceded during prosecution of the patent application in order to avoid prior art. In this case, in response to the Patent Office's objection to certain claims as being obvious, Bauer amended an independent claim by adding further limitations. At trial, Bauer's proposed construction was, in the Court's view, an attempt to reclaim ground conceded when the limitations were added during prosecution and to retroactively expand the scope of the claims.

"Licensee" Does not Fall under the Definition of "Patentee" under Section 53.1

In Allergan Inc v Sandoz Canada Inc, 2020 FC 1189, an exclusive Canadian licensee brought an action for patent infringement against a generic manufacturer. The infringement allegation was unsuccessful notwithstanding the fact that the patent was upheld as non-obvious. Within the claim construction analysis, a significant issue arose in respect of the Patent Act's new prosecution history section (s. 53.1), namely, whether construction arguments made in litigation by a licensee are limited by representations made by a patentee during prosecution.

The Federal Court found the plain and ordinary meaning of the language in the provision and a contextual reading of the Act and relevant case law to support the view that the word "patentee" does not include a licensee. Thus, unless a patentee makes a representation in respect of claims construction during a proceeding, section 53.1 is not invoked, thereby rendering prosecution history evidence inadmissible.

In coming to this conclusion, the Chief Justice considered legislative history and the fact that the Intellectual Property Institute of Canada (IPIC) had made a recommendation, which was ultimately not accepted, to change the provision's wording of "the patentee" to "the patentee or a person claiming under the patentee".

Federal Courts Have Jurisdiction to Adjudicate Patent Ownership Disputes

It has long been a practice in Canada that while patent infringement and validity disputes are almost always litigated in the Federal Court, disputes over title to or ownership of patents are litigated in provincial courts. This is because the Federal Court was seen as a court of statutory jurisdiction that lacked the general jurisdiction that provincial courts had to adjudicate contractual disputes.

However, the Federal Court of Appeal in Salt Canada Inc. v. Baker, 2020 FCA 127 changed this approach and expressly held that the Federal Court has been given the express jurisdiction to make orders sought involving the title to patents in relation to the Federal Court's role in superintending the Patent Office. The Court of Appeal stated that the fact that agreements and other commercial instruments need to be construed and interpreted as part of the exercise of jurisdiction does not eliminate that jurisdiction; interpreting agreements and other commercial instruments is not the exclusive preserve of provincial superior courts. Given that the Federal Court is empowered under section 52 of the Patent Act to order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged, the Federal Court remains free to carry out that task "even if that involves interpreting agreements and other instruments."

Since and as a result of this decision, there has already been at least one other case where the Federal Court has weighed in on and decided a patent ownership dispute.

"No Validity Challenge" Contractual Provisions Are Enforceable

In Loops L.L.C. v. Maxill Inc., 2020 ONSC 5438, the Ontario Divisional Court allowed an appeal from a lower Court decision and concluded that a "no validity challenge" provision in a settlement was enforceable.

Patent settlement and license agreements sometimes include provisions requiring a defendant or licensee to not challenge the validity of a patent at issue on a going forward basis. Previously, the lower Court had held that such a provision was contrary to public policy and therefore unenforceable. In particular, the lower Court held that such a provision prevented access to a potentially valid legal position that had potential to affect the public at large.

On appeal, the Divisional Court disagreed and held that while there may be limits to the power to contract where the general public is harmed (e.g., a price-fixing agreement between competitors in relation to a generally-required good or service), agreeing in a contract to preclude the subsequent use of a defence that is otherwise available simply because it will result in personal gain or protection of one party is not one. In this case, there was no evidence presented by the accused infringer of any "price" such that no assessment of whether it was "too high" could be conducted. Thus, any threat to public trust or confidence in the administration of justice could not be determined in this case.

Ultimately, the patentee was granted an interim and interlocutory injunction prohibiting the accused infringer from challenging the validity of the patentee's US patent either directly or indirectly.

Federal Court Cautions Against Threatening C&D Letters and Grants a Pre-Litigation Injunction Against the Patentee

In the context of patent infringement allegations, the Federal Court held in Fluid Energy Group Ltd v Exaltexx Inc, 2020 FC 81 that subsection 7(a) of the Trademarks Act is available to support granting an injunction in the appropriate case to enjoin a patentee from issuing cease and desist (C&D) letters. Justice McHaffie found this to be the appropriate case.

On a motion brought by the defendant, the Court granted the injunction prohibiting the patentee from sending more C&D letters to the defendant's third-party suppliers alleging that those suppliers are infringing its patent and threatening to sue. There was sufficient evidence to raise a serious issue with respect to each of the elements of a claim under subsection 7(a). Evidence supporting irreparable harm to the defendant included the fact that it was a small business in a small market, the small number of suppliers available, the importance of the product in issue to its business, and the difficulty in quantifying the nature of harm. Given that the plaintiff did not file evidence of any potential harm to its own business interests, the balance of convenience favoured granting the injunction.

On the other hand, the injunction did not extend to enjoining the patentee from alleging infringement by the defendant nor from communicating with the defendant's customers. The Court held that the defendant failed to establish a serious question to be tried in respect of the falsity of plaintiff's allegations that the defendant itself is infringing.

Federal Court of Appeal Issues Wide Ranging Decision in Hospira

The Federal Court of Appeal was called upon to comment on various aspects of validity and infringement in Hospira Healthcare v Kennedy Trust, 2020 FCA 30. The patent at issue claimed the adjunctive use of methotrexate and infliximab for the treatment of rheumatoid arthritis and other autoimmune diseases. At trial, the patentee succeeded on all issues, including infringement, anticipation, obviousness, method of medical treatment, overbreadth, inutility, and double patenting. Notable aspects of the wide-ranging appeal include:

  • In considering infringement via inducement, the Court clarified that the third prong of the test (that the acts influencing direct infringement be knowingly exercised) relates to "knowledge that the influence is being exercised, rather than knowledge that the resulting activity will be an infringement."
  • It was again noted that the propriety and application of the method of medical treatment prohibition should be considered in detail given its prima facie deficiencies; and
  • The issues of obviousness and anticipation were remitted to the Federal Court for reconsideration. In respect of obviousness, the Court held that it was improper to exclude publications from the state of the art that would not have been located on a reasonably diligent search.

Leave to appeal to the Supreme Court was denied in December.

Federal Court of Appeal Clarifies the "No Joinder" Provision of the PM(NOC) Regulations

The circumstances under which proceedings under the PM(NOC) Regulations involving the same patent(s) but different parties can be joined was clarified by the Federal Court of Appeal in Apotex v Bayer, 2020 FCA 86.

The Court took a narrow reading of the statute that restricts the circumstances under which proceedings can be joined. The Court held that the raison d'ĂȘtre of the joinder provision in the PM(NOC) Regulations (section 6.02) "is to promote the expediency of one action, and one action only"; it was said that efficiencies and cost savings across multiple parties in multiple proceedings have no bearing on section 6.02.

This decision overturned the previous practice of looking at the various actions holistically in considering which approach would lead to the just, most expeditious and least expensive determination of the issues across the proceedings on their merits.

Federal Court of Appeal reiterates legal principles governing the NIA defence

In Apotex Inc v ADIR, 2020 FCA 60, the Court of Appeal upheld the Federal Court's redetermination of the profits issue ruling that while Apotex had established the "could have" component of the non-infringing alternative (NIA) defence, it did not establish that it would have adopted the non-infringing perindopril in this case.

The Federal Court of Appeal reaffirmed the four-part Lovastatin test and that the test was not intended to be exhaustive. In addition, the Court further provided that these four questions of fact do not exist in discrete silos and some overlap will be inevitable.

Apotex's appeal focused on the "would have" component. The Court of Appeal did not find any errors of law or errors of fact, especially after the Federal Court had the benefit of two sets of written and oral arguments and evidence from all of the witnesses on the issue of profits. The Court also specifically stated that a defendant's subjective preference and "real world' decisions are relevant to the "would have" component of the analysis.

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