2018 Year in Review: Litigation
February 7, 2019
By Andrew McIntosh, Amrita V. Singh and Anastassia Trifonova
2018 saw many developments in the practice of Canadian intellectual property litigation. Notably, there were small but significant amendments to the Patent Act, including modification to the long-standing prohibition against using a patent’s file wrapper to construe its claim(s). 2018 also marked the first full year of jurisprudence with respect to the amended Patented Medicines (Notice of Compliance) Regulations (“PM(NOC) Regulations”), which came into force in late 2017, and protective orders surviving to protect another day.
Below, we highlight some of 2018’s key judicial decisions, and legislative changes affecting intellectual property litigation in Canada.
Introducing File Wrapper Estoppel
Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures, received Royal Assent on December 13, 2018. This Act introduces numerous changes to Canadian intellectual property legislation. Of note to litigation practice, it amends the Patent Act to introduce file wrapper estoppel into Canadian law. Previously, all extrinsic evidence, including statements made by the patentee to the Patent Office during patent prosecution, was inadmissible in litigation for the purposes of construing the patent’s claims. Pursuant to the amendment, written communications made by the patentee during prosecution of the patent application will be admissible in litigation to rebut any representation made by a patentee as to claim construction. The amendment addresses a comment that at least one Canadian judge had made that the exclusion of a patent’s file wrapper to construe the patent’s claims was outdated given that the file wrapper is readily available online.
Expansion of Prior User Rights
Bill C-86 also expanded prior user rights under the Patent Act. If a person, prior to a patent claim’s claim date, commits an act that would otherwise have constituted infringement of that claim, or made “serious and effective preparations” to commit such an act, then it is not an infringement of that claim for the person to commit the same act on or after the claim date. The person must have acted in good faith, and the exemption does not apply if the person was able to commit the act or make the preparations only because they obtained knowledge of the subject matter directly or indirectly from the patent applicant, and knew that the applicant was the source of the knowledge. The amended provision will also allow the transfer of prior user rights if the prior use is carried out by a business.
Update on the Amended PM(NOC) Regulations
In 2017, the PM(NOC) Regulations were amended significantly.  Among other things, proceedings under the PM(NOC) Regulations now finally determine issues of patent infringement and validity, subject to appeal. Parties can no longer re-litigate infringement or validity of the same patents, regardless of the outcome of the PM(NOC) proceeding. In 2018, 37 actions were commenced under the new PM(NOC) regime, down approximately 25% from 2017, in which a total of 48 proceedings were commenced (44 under the old Regulations and four actions under the new regime).
In Genentech, Inc et al v Amgen Canada Inc, the Court considered new section 6.08 of the PM(NOC) Regulations for the first time. This section is similar to former section 6(5)(b), and permits the Court to dismiss an action under the PM(NOC) Regulations if it is “redundant, scandalous, frivolous or vexatious” or “otherwise an abuse of process”. In dismissing Amgen’s motion under section 6.08, the Court noted that the language of section 6.08 is essentially the same as former section 6(5)(b) of the PM(NOC) Regulations, and the jurisprudence under that section remains relevant. However, the Court commented that in theory it should be easier for a plaintiff to resist a section 6.08 motion, because the plaintiff is now entitled to discovery of the defendant, which it was not under the former PM(NOC) Regulations. Importantly, the Court observed that the consequences of granting a motion under section 6.08 are more significant than under former section 6(5)(b). If the court strikes a claim under section 6.08, section 6.01 precludes the plaintiff from subsequently commencing an action for infringement (which was open to it under the former PM(NOC) Regulations). Therefore, the Court should exercise heightened caution in striking claims under section 6.08, and grant such motions only in the clearest of cases.
The Court also considered the circumstances under which it would give leave to determine a PM(NOC) action (or a within issue) by way of summary judgment or trial. In Hoffmann-La Roche Limited et al v Pfizer Canada Inc, Pfizer brought a motion for summary judgment or summary trial, dismissing the infringement action insofar as it related to Pfizer’s “skinny label” submission for its Herceptin biosimilar. Pfizer required leave from the Court to bring the motion pursuant to Rule 213 of the Federal Courts Rules, as the trial was already set down for hearing (the time and place for trial is fixed at an early stage in actions brought under the PM(NOC) Regulations).
The Court denied leave after considering: (1) whether there would be a significant savings of costs, time and efficiencies by permitting the motion to proceed; (2) whether any of the parties would be prejudiced by permitting the motion to proceed; (3) the level of cooperation that the moving party exhibited in the proceeding; and (4) whether the moving party brought the motion in a timely manner. Here, the Court held that there would be no significant savings even if Pfizer were successful on the motion (as a parallel action involving the full label submission would remain), the summary proceeding would require expert evidence, and the parties had not demonstrated cooperation to date. The Court observed that PM(NOC) actions already proceed on an “expedited timetable and, absent extraordinary circumstances, the action cannot be held in abeyance pending the determination of the motion for summary judgment or summary trial”.
Pharma Litigation: A trend from small molecule drugs to biologics
The last few years have seen an increase in biologics litigation - drugs that contain an active medical ingredient derived from (a) living organism(s). Biosimilars are drugs, made by different companies, considered equivalent to already approved biologics such that they are approved on an abbreviated basis. In 2018, the Federal Court rendered the long-awaited decision in Hospira Healthcare Corporation v Kennedy Trust for Rheumatology Research, relating to the biologic drug infliximab. Hospira commenced the action for a declaration of patent invalidity, and Kennedy counterclaimed for patent infringement. The Court upheld the validity of the patent relating to infliximab, holding that Hospira’s biosimilar, Inflectra, infringed the Kennedy patent. This was the first patent infringement action involving a biosimilar to be decided in Canada. Hospira did not appeal. The parties are currently engaged in a reference to determine the quantum of damages owed by Hospira to Kennedy.
As our firm previously noted, there are a number of litigation matters relating to biosimilars in progress, including infringement/impeachment actions and applications under the former PM(NOC) Regulations. Approximately a quarter of PM(NOC) actions commenced in 2018 under the Regulations involved a biologic.
Protective Orders receive new life
Two Federal Court decisions, dismissing motions for protective orders had put into question whether the Federal Court would continue to issue protective orders absent unusual circumstances. The decisions held that absent exceptional circumstances, the implied undertaking, and if necessary a supplemental private “protective” agreement, should in most circumstances suffice to protect litigants’ confidentiality concerns. To the relief of litigants who prefer the protection of a Court order, the latter of the two decisions was overturned on appeal.
In Seedlings Life Science, a prothonotary initially dismissed Pfizer’s motion for a protective order to safeguard the confidentiality of information shared by the parties (but not filed with the Court) during the litigation. She held that the implied undertaking rule exists to protect the confidentiality of documents and information disclosed in the pre-trial discovery process, and to ensure that such information will not be used by the disclosee for any purpose other than the litigation. Any breach of the implied undertaking rule is subject to sanctions by the Court, and accordingly a protective order was unnecessary. If the parties desired more rigorous provisions to protect confidentiality, they could enter into a private agreement. The prothonotary held that the Sierra Club test applies only to confidentiality orders (where information is filed with the Court). Pfizer had not met its burden to demonstrate the need for the protective order and the order would not offer any great advantage above the protections of the implied undertaking rule.
Pfizer appealed the decision to a judge of the Federal Court, arguing that the prothonotary erred in law by creating a new test for the issuance of protective orders. The Federal Court judge agreed, and allowed Pfizer’s appeal, granting the requested protective order. The judge clarified that the test in Sierra Club applies to both confidentiality orders and protective orders. In substituting the prothonotary’s decision with his own, the judge found the proposed protective order met the test and issued it. Although the decision appears to have clarified the test for protective orders, it remains questionable whether the Court’s prothonotaries will resume granting protective orders on consent alone.
A deal is a deal – Enforcement of Settlement Agreements
The Federal Court reminded litigants of the importance in being objectively clear in settlement negotiations – otherwise they may find themselves having settled the litigation informally and unexpectedly. In Maoz Betser-Zilevitch v Nexen Inc et al, Betser-Zilevitch commenced a patent infringement action against Nexen. After Nexen filed its defence and counterclaim, the parties engaged in settlement discussions, reaching an agreement in principle “subject to formalization, review and execution by the parties of a formal settlement agreement.” Subsequently, the parties were unable to agree on the terms of a formal agreement, and Betser-Zilevitch took the position that there was no settlement. Nexen moved to enforce the settlement in the Federal Court.
In finding that the parties had indeed settled, the Court quoted from the Federal Court of Appeal’s decision in Apotex Inc v Allergan, Inc that “a settlement agreement may be reached quickly without formality and, from a subjective standpoint, sometimes unexpectedly”. Applying the Allergan decision, the Court found that an honest, sensible business person, when objectively considering the parties’ conduct, would reasonably conclude that the parties intended be bound by the offer and acceptance. The Court also considered the subsequent conduct of the parties and specifically noted that when Betser-Zilevitch wrote to the Court advising of the action’s status, he did not equivocate when stating that the parties had settled the matter.
The Court then reviewed the negotiation history to determine the essential terms to the agreement. To the extent a term was not essential to the agreement, it should be implied if the honest business person would reasonably have agreed to include it. The Court declined to include implied terms in the draft order, noting that “[t]he Federal Court of Appeal expressed concerns with adding implied terms into a draft order thereby elevating what would normally be contractual terms, into provisions of a Court order with attendant liability to civil contempt proceedings for non-compliance”.
SCC weighs in on the Notice-and-Notice regime and Norwich orders
The SCC released its decision in Rogers Communications Inc v Voltage Pictures, LLC, which provided important clarification on copyright enforcement and the obligations of Internet Service Providers (“ISPs”). The Court held that ISPs are entitled to their reasonable costs when complying with Norwich-type orders, to the extent they must take steps beyond those required under the notice and notice regime of the Copyright Act. In that case, several film production companies (collectively “Voltage”) alleged copyright infringement by unknown internet subscribers who illegally shared Voltage’s films using file sharing websites. Voltage identified IP addresses associated with the file sharers and sued the unknown users for copyright infringement, and proposed to start a reverse class action against the alleged infringers.
To do so, it sought the identity of the representative Rogers customer defendant. Initially, Voltage sought disclosure without fees or disbursements payable to Rogers pursuant to the Copyright Act notice and notice regime. The notice and notice regime requires ISPs, upon receiving notice from a copyright owner that their subscriber at a certain IP address had infringed the owner’s copyright, to forward that notice to the IP address subscriber. The regime prohibits ISPs from charging a fee for complying with their obligations.
The SCC held that while the costs arising from ISPs’ obligations under the notice and notice regime are not recoverable, the notice and notice regime was not intended to embody a comprehensive framework by which online infringement could be eliminated. Thus, if a copyright owner wants to sue a person alleged to have infringed copyright online, she must proceed outside the notice and notice regime and obtain a Norwich-type order to compel the ISP to disclose that person’s identity; “[t]he statutory notice and notice regime has not displaced this requirement, but operates in tandem with it.” When ISPs have to provide personal information for customers pursuant to a Norwich-type order, the copyright holder must reasonably compensate ISPs for those efforts.
Issue Estoppel or not? The effect of a subsequent decision on a previously decided case
The Federal Court of Appeal ("FCA") in Eli Lilly Canada Inc v Teva Canada Ltd, and the Ontario Court of Appeal (“ONCA”) in Apotex v Schering Corp, reached different conclusions regarding issue estoppel on very similar fact patterns. Each decision related to the effect of the SCC’s decision in AstraZeneca Canada Inc v Apotex Inc on an action for damages based on the plaintiff’s drug being held off the market due to the defendant bringing an application under the PM(NOC) Regulations. The Federal Court had dismissed applications brought by Lilly (relating to the drug olanzapine) and Schering (relating to the drug ramipril) under the PM(NOC) Regulations, finding Teva’s and Apotex’s allegations, respectively, that the patents in issue were invalid under the so-called “promise of the patent” doctrine, were justified. The Federal Court subsequently also found Schering’s patent for ramipril invalid after a full trial. Teva commenced an action in the Federal Court for damages under section 8 of the PM(NOC) Regulations. Apotex (which had earlier brought a successful action for damages under section 8 of the PM(NOC) Regulations) brought an additional action in the Ontario Superior Court to recover damages under the Ontario, or alternatively, the U.K., Statute of Monopolies.
While these matters were ongoing, the SCC released the AstraZeneca decision, which held that the promise of the patent doctrine was not good law. Each of Lilly (on appeal from a final decision) and Schering (on appeal from a motion to amend its statement of defence) argued that Teva and Apotex, respectively, were not entitled to damages because the basis on which the applications were dismissed was not good law pursuant to AstraZeneca.
In the Lilly case, the Federal Court judge had awarded Teva approximately $70 million in damages under section 8 of the PM(NOC) Regulations. The SCC released the AstraZeneca decision after judgment, while the appeal was pending. The FCA dismissed Lilly’s appeal, and in doing so, rejected Lilly’s argument that Teva did not suffer any compensable loss, given that Lilly’s prohibition application was dismissed only on the basis of the promise doctrine, which the SCC held to be bad law in AstraZeneca. Lilly had argued that it would be unfair, and contrary to the ends of justice, to require it to pay $70 million in damages when its patent would “not now be found, and should not have been found, to be invalid”.
The FCA held that the doctrine of issue estoppel barred Lilly’s defence: “[a]s noted above, there is no presumptive right to relitigate an issue on account of a change in the law... I conclude, therefore, that issue estoppel applies, and that it bars Lilly from succeeding in its attempt to use AstraZeneca to eliminate its liability for section 8 damages”.
In contrast, the ONCA drew a different conclusion. Following the AstraZeneca decision, the defendants Schering and Sanofi-Aventis moved for leave to amend their statement of defence in Apotex’s section 8 action to plead that Apotex was not entitled to damages because the decision invalidating their patent was fundamentally flawed. The motion judge denied the amendments because the proposed pleading could not succeed due to the patent being finally declared invalid. The doctrine of issue estoppel precluded the defendants from re-litigating the validity of the patent, and there was no change in the law that would warrant the Court exercising its discretion not to apply the doctrine. The judge also found that the “Invalidity Decision” remained valid and binding, and could not be the subject of a collateral attack in another proceeding.
The ONCA held that the motion judge erred by equating a “change in the law” to a change in a statutory provision. In doing so, he adopted an overly narrow view of what constitutes a change in the law for the purpose of determining whether the court has discretion not to apply issue estoppel. The ONCA overturned the motion judge’s decision, and exercised its discretion not to apply the issue estoppel doctrine to deny the amendment. The Court reasoned that in this case, it would be fundamentally unfair to preclude Schering from arguing that a central element to Apotex’s case – namely the decision invalidating the patent – was “suspect”. The defendants ought to be able to raise defences to the proof of that element. It distinguished this case from the FCA Lilly decision, noting that “different courts will exercise that discretion differently in different cases. That is the very nature of a discretion.” The Court also noted that the “damages being claimed were roughly estimated, during the course of the hearing, at between $1 billion and $3 billion. The costs of re-litigating the validity of the patent pale in comparison to the amounts sought.”
On January 7, 2019, Apotex filed an application for leave to appeal this decision to the SCC.
Extraterritorial claim under the Trade-marks Act?
The Federal Court granted a plaintiff leave to plead infringement of its Canadian trademark registration in respect of goods that were not made, and never possessed or physically present in Canada. In Bauer Hockey Ltd v Sport Maska Inc (CCM Hockey), Bauer sought to amend its statement of claim to add a cause of action under section 20(1)(b) of the Trade-marks Act that “the Defendant’s act of ‘causing to be manufactured’ ice skates bearing a design confusingly similar to the Plaintiff’s Design Trademark” infringed its trademark rights. The only allegation of activities that occurred in Canada was that CCM had designed and directed the manufacture (which occurred outside of Canada) from within Canada. While the Court expressed doubt about the plaintiff’s probability of success, given it would grant extraterritorial protection for use of Canadian registered trademarks in association with goods never present in Canada, it allowed the proposed amendment (subject to further amendment stipulating the basis for its damages claim).
Damages – Still no non-infringing alternatives, and damages on non-infringing products
The Federal Court continued to affirm the potential relevance of non-infringing alternatives when calculating damages in a patent infringement action, but it has yet to find circumstances where the principle is actually applicable. Most recently, in Apotex Inc v Eli Lilly and Company et al, Apotex argued that a third version of the drug cefaclor that it sold, which was made by a process that did not infringe the patents in issue, was a non-infringing alternative to the previous two versions of the drug it sold that were manufactured by an infringing process. The Federal Court of Appeal disagreed. It held that in order to prove that the product was a real alternative, Apotex had the burden of proving the process did not infringe other patents not in issue in the case. Apotex failed to do so. The Court of Appeal also found that there was insufficient evidence for the Federal Court to conclude that the third version of the drug would have been economically viable, and the Federal Court had not erred in finding that Apotex would not have sold the third version of the drug without having sold the two infringing versions.
Not only did the Federal Court of Appeal uphold the Federal Court’s finding that Apotex’s non-infringing version of cefaclor was not a non-infringing alternative, it also upheld the Federal Court’s finding that Apotex had to pay damages on its sales of the non-infringing version, which accounted for approximately 45% of all its sales. It concluded that the Federal Court did not make any error in finding that, but for its sales of the infringing version of cefaclor, Apotex would not have sold quantities of the non-infringing version as well.
In Grenke et al v DNOW Canada ULC, the Court assessed damages for infringement of a patent relating to oil production equipment. In calculating damages, the Court held that the parties’ relative market share was an appropriate method of determining damages, and did not require the plaintiffs to provide evidence for specific lost sales. Applying this approach, the Court awarded approximately $4 million in damages for direct lost profits. The Court also awarded damages for sales of non-infringing convoyed sales. The defendant commonly sold a number of products with the infringing product. The Court held that the plaintiffs were entitled to compensation for the defendant’s sales of such collateral items; otherwise they were not being put in the position in which they would have been but-for the infringement (resulting in less than perfect compensation). The Court rejected the argument that for a product to be “convoyed” it must have no purpose other than to function with the infringing product, and that it is not a convoyed product if it can be sold separately or for a different purpose.
Costs and lump sum awards
The Federal Court continued its trend of awarding lump sum costs, and departing from the Tariff in the Federal Courts Rules. In Hospira Healthcare Corporation v Kennedy Institute of Rheumatology, the Court observed that “[t]here is a public interest served by lump sum awards based on the indemnity principle, particularly in cases like these. Such awards show the real cost of initiating litigation – which Hospira/Celltrion did. Such awards also show the consequences of bringing multiple proceedings, failing to behave reasonably and efficiently in the conduct of the litigation – that there are real consequences to the various steps available in the litigation process.” The Court considered the conduct of the parties and found that Hospira/Celltrion’s conduct lengthened the proceeding and resulted in additional time, work and expense for the parties. The Court held this warranted an award of 50% of Kennedy/Janssen’s actual legal fees, plus disbursements, a total of nearly $3.5 million.
 Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 [“PM(NOC) Regulations”]
 See IPPractice.ca <URL: https://www.ippractice.ca/litigation-statistics/intellectual-property-proceedings-in-federal-court-for-2017/ and https://www.ippractice.ca/litigation-statistics/intellectual-property-proceedings-in-federal-court-for-2018/>
 SOR/98-106, Rule 213
 Ibid at para 24
 Ibid at para 25
 Ibid at para 68
 Ibid at para 36
 Ibid para 34
 RSC 1985, c T-13, s 20(1)(b) which states: “The right of the owner of a registered trade-mark to its exclusive use is deemed to be infringed by any person who is not entitled to its use under this Act and who manufactures, causes to be manufactured, possesses, imports, exports or attempts to export any goods in association with a confusing trade-mark or trade-name, for the purpose of their sale or distribution”
 Ibid at para 8
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