Premature commercialization claims in Canada

14 minute read
09 November 2021

Ontario Court certifies class action against Syngenta

Syngenta AG, a global entity headquartered in Switzerland, has been the subject of class action lawsuits in Canada and the United States in connection with its alleged premature commercialization of AgrisureTM Viptera and AgrisureTM Duracade. The AgrisureTM products are genetically modified corn seeds that include an insect-resistant genetic trait called "MIR 162," which is subject to patent protection in a number of countries, including Canada ("AgrisureTM"). The Ontario Courts recently certified a national class proceeding brought on behalf of various Canadian corn producers against Syngenta Canada Inc. ("Syngenta") based on similar allegations regarding premature commercialization.  While it remains to be seen whether this novel claim will be successful, the decision to certify the claim raises interesting questions about the autonomy of the Canadian intellectual property and regulatory systems and the potential for a growth in class actions based on premature commercialization in Canada. 



Background

By 2015, North America was the largest producer and exporter of corn in the world and China was a large and growing export market for North American corn. In the Syngenta class proceeding, the Plaintiff made arguments about the interconnected and mutually interdependent nature of the corn industry. In the context of this corn market, various approvals are required in Canada and other major foreign markets before genetically modified corn can be sold within those individual markets.  

In 2010, AgrisureTM was approved for use in North America by American and Canadian regulators. By that time, the approval process in China had been initiated by Syngenta but was anticipated to take several years to conclude. In 2011, Syngenta brought AgrisureTM to the market in North America. In November 2013, China rejected all corn from North America after it alleged it had identified corn exports that were commingled with AgrisureTM. The Plaintiff alleged that as a result, the North American market was hit with a surplus of corn, and the price of corn dropped.

A novel claim: Negligent premature commercialization in the Ontario courts

The Plaintiff alleged that Syngenta negligently commercialized AgrisureTM  when it knew or ought to have known that doing so could have the effect, through commingling, of impacting the North American corn supply. The Plaintiff further alleged that Syngenta knew or ought to have known that without required approvals for AgrisureTM in China, this commingling could lead to the closing of the export market and a corresponding drop in prices.[1] The Plaintiff seeks to recover losses from Syngenta on behalf of "all corn producers in Canada who priced their corn for sale after November 18, 2013."[2]  The central issue in this class action is whether, despite holding a valid Canadian patent covering the AgrisureTM products and despite those products having been approved for sale throughout North America by duly appointed regulatory bodies, Syngenta should have delayed commercialization of AgrisureTM in Canada until it had approval from Chinese regulators.

In 2018, the Ontario Superior Court of Justice ("OSCJ") heard Syngenta's application to dismiss the entire action. The OSCJ struck the entirety of the Plaintiff's claim including that of negligent premature commercialization on a test of whether it was "plain and obvious" the claims would fail. The OSCJ was concerned that the proposed cause of action against Syngenta would give rise to an indeterminate liability for an indeterminate but enormous class of entities, all of whom could be impacted by falling corn prices. Secondly, the Court was concerned that this cause of action would give foreign approvals precedent over domestic ones, suggesting that products could not be marketed domestically until foreign approvals were obtained:

…if the plaintiff's position prevailed, I agree with the defendants that the importance of foreign import approvals would be elevated to a level of precedence over domestic approvals. The question would arise whether any foreign importer of a Canadian product must approve imports before the product could be marketed domestically. The answer must surely be no. If only large foreign markets are relevant, one might ask how that would be determined and by what decision maker. The potential for arbitrariness is self-evident.[3]

On appeal, the Ontario Court of Appeal ("OCA") reinstated the premature commercialization claim but upheld the dismissal of all other causes of action. The OCA held that it was not "plain and obvious" that the claim had no reasonable prospect of success.[4] Importantly, the Court of Appeal noted that premature commercialization was a novel claim for pure economic loss, but that an analysis of whether the alleged loss was reasonably foreseeable by Syngenta and proximate to Syngenta's actions, should have been undertaken by the lower Court. The OCA also noted that the Plaintiff's allegations of an undertaking of stewardship given to the industry regarding commercialization, and the interconnectedness and interdependence of the corn market, could support a finding of reliance and foreseeability. This gave rise to the potential for a finding of proximity between Syngenta and Canadian corn producers.

Following the Plaintiff's successful appeal to the OCA, in May 2021 the OSCJ certified the class action against Syngenta based solely on the remaining allegation of premature commercialization.[5] It held that the Plaintiff had met the low bar of satisfying each of the five elements of Ontario's test for certification. While it remains to be seen whether the Plaintiff will be successful in proving this claim for premature commercialization, the novel nature of the claim was not a bar to certification. This certification leads to the possibility of a successful action in Canada based on this novel consideration of pure economic loss.

In substantiating the basis for a claim, the Plaintiff alleged that it relied on an undertaking by Syngenta not to commercialize AgrisureTM and to act in accordance with principles of good stewardship in an interconnected and interdependent market. As part of the test for certification, the Court expressly rejected Syngenta's position that the Plaintiff must prove it sustained damages. The Court held that the obligation at the certification stage was only to lead some evidence. In this case, copies of contracts showing that the price of corn declined were found to be sufficient. The Court recognized that there was a "lively debate" between the experts proffered about whether damages could be approached on a common, and on an aggregate, basis. The Court held that "[t]he fact that the defendants have led cogent and compelling evidence questioning the plaintiff's expert's conclusions is not relevant." Instead, it held that the Plaintiff needed only to demonstrate that a methodology for calculating loss on a class wide basis exists.

Premature commercialization class action in the United States

The certification of the class action against Syngenta in Canada came subsequent to a decision by the United States District Court for the District of Kansas ("USDC-DK"), certifying a class action against Syngenta AG based on premature commercialization. Unlike in Canada where the premature commercialization claim was identified by the Courts as novel, the USDC-DK had precedents for successful claims in premature commercialization including in the agricultural context. The USDC-DK found that Syngenta was aware of the risks to the import markets for US corn when introducing new genetic modifications without Chinese approval. The Court also found that Syngenta was motivated to begin commercialization in North America by the impending expiry of its patent for the genetic trait and therefore the loss of the exclusivity associated with that patent.

Very recently, Syngenta settled the class action claims certified in Kansas for $1.5 billion. This represents the largest agricultural settlement in US history.

Implications of premature commercialization claims

The Ontario certification decision highlights a crossroads between balancing the ability to capitalize on intellectual property through commercialization of patented technologies, and impacts of that commercialization on sales to foreign markets. While the OSCJ did not address the impact to Syngenta of delayed market entry in respect of its time-sensitive patent rights in the genetic traits for AgrisureTM, it may be that arguments about the sterilization of those Canadian issued intellectual property rights by the lack of foreign regulatory approval are raised in the class proceeding going forward.

The Supreme Court of Canada has recognized that "the patent system is based on a 'bargain', or quid pro quo: the inventor is granted exclusive rights in a new and useful invention for a limited time in exchange for disclosure of the invention so that society can benefit from this knowledge" (emphasis added).[6] The right and ability to obtain a time-limited monopoly encourages innovation and comes at the price of disclosure of the technology into the public domain. This is what the Canadian courts have called "The Patent Bargain." 

Consider now the situation surrounding these allegations of negligent premature commercialization. After a patentee has upheld their end of the 'bargain' and given full and complete disclosure of their invention to the public, their right to take advantage of a time-limited monopoly (i.e. their quid pro quo) could effectively be quashed by a foreign government's rejection of market approval of a product in a foreign jurisdiction. This has interesting policy considerations since patents are a legal right specific only to the country in which the patent is granted, but a foreign regulatory body could negatively impact a patentee's ability to commercialize their patented technology.

Challenging policy considerations arise in the context of premature commercialization claims including those raised by the OSCJ in the first instance that a premature commercialization claim, may, in effect, grant priority to foreign regulators over patents and regulatory approvals granted within Canada and delay sales of products otherwise approved in Canada as a result of a failure of the applicable European or Chinese regulatory bodies to grant the same approvals. This is particularly significant in the context of commercialization of patents given the generally extensive investment in their development and the limited timeframe granted for exclusive marketing.

Ultimately, in Canada the Courts found that the allegation in the Plaintiff's pleadings of Syngenta's premature commercialization of AgrisureTM disclosed a cause of action. At each level of the Ontario Courts, the Court was clear to note that standard for certification is not a high one and that they were not at this stage engaging in any significant consideration of the evidence. Therefore, it remains to be seen whether the Plaintiff has any chance of success against Syngenta in the class proceeding. Nonetheless, the certification of a claim based on this novel form of pure economic loss may potentially create a more clear precedent for premature commercialization claims in Canada.

Should you have any questions about this article or any other commercial litigation matter, you can contact the authors or a member of our Commercial Litigation Group.
 


[1] Darmar Farms Inc v Syngenta Canada Inc, 2019 ONCA 789 at para 20.

[2] Darmar Farms Inc v Syngenta Canada Inc. et al, 2021 ONSC 6411 at para 1.

[3] Darmar Farms Inc v Syngenta Canada Inc et al, 2018 ONSC 7129 at paras 86-88.

[4] Syngenta's application for leave to appeal to the Supreme Court of Canada was dismissed.

[5] The OSCJ dismissed actions based in negligent misrepresentation and under the Competition Act, RSC 1985, c C-34.

[6] Teva Canada Ltd. v. Pfizer Canada Inc., 2012 SCC 60 at para. 32.


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