Intellectual Property Litigation: 2017 Year in Review

February 20, 2018
By Andrew McIntosh and Michael Burgess

There were a number of important updates to the practice of intellectual property litigation in 2017. Most notably, the Patent Act and the Patented Medicines (Notice of Compliance) Regulations were significantly amended to comply with Canada’s obligations under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). The amendments resulted in elimination of the longstanding summary application procedure under the PM(NOC) Regulations in favour of full trials, and introduced certificates of supplementary protection to provide extended protection for patented medicines.

In this article, we summarize our top picks of legal developments affecting intellectual property litigation before the Federal Court of Canada in 2017.

1. Updated PM(NOC) Regulations

In 2016 Canada signed the Canada-European Union Comprehensive Economic and Trade Agreement. This led to significant amendments to the Patent Act1 and the PM(NOC) Regulations,2 which came into force in 2017. The changes are many and complex, but two stand out as particularly significant:

  1. The Patent Act was amended to allow for the Minister of Health to issue Certificates of Supplementary Protection (CSP)3 for any “new Act” patent (any patent pertaining to a medicinal ingredient in a drug with a filing date on or after October 1, 1989). A CSP to extend the term of a monopoly over drugs covered by a patent4 for a period of up to two years.5
  2. The summary application procedure under the PM(NOC) Regulations to prohibit the Minister of Health from issuing marketing authorization to a second person (i.e. a generic) was replaced with a right of the first person (i.e. innovator/patentee) to commence a full action for a declaration of infringement of a patent or CSP listed on the register.6 The second person may counterclaim for a declaration that the patent or CSP is invalid.7

If a first person brings an action for infringement of a listed patent or CSP within 45 days of being served with a Notice of Allegation, then the Minister of Health is prohibited from issuing a Notice of Compliance until two years after the action is commenced.8 This deadline requires the parties to proceed diligently in order for the action to be heard promptly.

While the new procedure is more complex (being a full trial with discovery rather than a summary application based on affidavit evidence), it will eliminate the multiplicity of proceedings that plagued the industry under the old Regulations. Because the former procedure was summary in nature, determinations of infringement and validity were not final. As a result, the same parties often re-litigated the same patents as full infringement and validity trials regardless of the outcome of a PM(NOC) proceeding. Under the amended Regulations, the determination of patent infringement and validity issues are final, subject to appeal.

Also, under the former Regulations, the right of an innovator to appeal was often frustrated for mootness. If a prohibition application was dismissed, and the Minister of Health issued a Notice of Compliance to a generic, the Federal Court of Appeal would dismiss the innovator’s appeal as being moot (the prohibition order being sought could no longer be granted). The Court would also decline to exercise its discretion to hear the appeal nonetheless, because the proceeding did not finally determine the issues of infringement and validity, and it did not prejudice the innovator from bringing an action for patent infringement (thus leading to a multiplicity of proceedings). Under the amended Regulations, both parties will have equal rights of appeal.

2. Inducement to Induce Infringement

In Elbit v Selex,9 Prothonotary Tabib rejected an argument that inducement to induce is not a recognizable cause of action in Canadian patent law. The plaintiff alleged that Selex had induced (or would imminently induce) its customer, General Dynamics—the prime contractor upgrading Canada’s fleet of CP140 Aurora aircraft—to induce the Government of Canada into infringing Elbit’s patent by using infringing equipment installed on the aircraft by General Dynamics.

The Court reasoned that, since one who induces infringement is itself an infringer, that person may then be considered a direct infringer for the purposes of applying the test set out by the Federal Court of Appeal in Weatherford v Corlac.10 On a motion to strike, this was sufficient to maintain the pleading. Justice Martineau upheld the decision on appeal.11 The Court also refused to strike a claim for damages relating to sales of the impugned system outside of Canada, on the basis of an allegation that the alleged infringement would give the defendant leverage to make sales outside of Canada that it would not have made but for the infringement in Canada.

3. Interlocutory Injunctions and Irreparable Harm: Must Damages be Impossible to Quantify, or is Very Difficult Enough?

The tripartite test for interlocutory injunctions formulated by the Supreme Court in RJR – MacDonald12 continues to be an extremely high threshold in patent cases, with the majority of decisions turning on whether the applicant has established with clear and non-speculative evidence that it will, in the absence of an injunction, suffer irreparable harm.

In Tearlab v I-Med Pharma,13 the Federal Court of Appeal upheld a Federal Court decision refusing to grant an interlocutory injunction in a patent infringement case. The injunction was refused primarily because the patentee was unable to establish that it would suffer irreparable harm without the injunction. On appeal, the patentee focussed on its alleged vulnerability to unquantifiable damages to demonstrate irreparable harm. The court rejected this argument because the motions judge had not made a palpable and overriding error when concluding that damages could reasonably be quantified after trial.

Practically, following the Federal Court of Appeal’s decision in Tearlab, it remains nearly impossible to obtain an interlocutory injunction for patent infringement in Canada because the harms flowing from infringement are regarded as being economic in nature. As such, they can be compensated for by way of damages, and are not “irreparable”.

Tearlab is an interesting contrast to Sleep Country v Sears,14 which is discussed in Bereskin & Parr’s article Canadian Trademark Cases 2017: Our Top Picks. In Sleep Country, Justice Kane granted an interlocutory injunction restraining Sears from using the phrase THERE IS NO REASON TO BUY A MATTRESS ANYWHERE ELSE. (Sears had begun advertising with this phrase in 2016). Sears’ new slogan was found to be confusing with Sleep Country’s long running iconic slogan, WHY BUY A MATTRESS ANYWHERE ELSE.

On irreparable harm, the Court accepted Sleep Country’s argument that the damages caused by the infringing slogan cannot be measured in a reasonably accurate way. The Court found that the burden on the moving party to establish irreparable harm is not so high as to establish that it is impossible to quantify damages:

[O]vercoming all the obstacles only to reach a range for an estimate of the overall damages and guesses at the quantification of the harm attributable to the alleged infringing conduct (the "parsing out") and characterizing this as "not impossible" and, therefore, not irreparable harm, would make it almost impossible to obtain an injunction to protect a trade-mark pending the determination of the action. At some point, the obstacles amount to impossibility, as the evidence demonstrates is the case here.15

4. Limitation Periods

In Apotex v Astrazeneca (Omeprazole)16 the Federal Court of Appeal clarified that when determining whether a cause of action arises “in a province” under section 39(1) of the Federal Courts Act, consideration must be given to each individual transaction and whether it occurs in one province, or more than one. 

At issue in Omeprazole was an “old Act” patent, the application for which was filed in 1987. The version of the Patent Act governing the patent did not have a provision dealing with limitation periods,17 and the issue was whether the applicable limitation period was governed by provincial limitation periods or section 39(2) of the Federal Courts Act. Section 39 of the Federal Courts Act provides:

Prescription and limitation on proceedings

39 (1) Except as expressly provided by any other Act, the laws relating to prescription and the limitation of actions in force in a province between subject and subject apply to any proceedings in the Federal Court of Appeal or the Federal Court in respect of any cause of action arising in that province.

Prescription and limitation on proceedings in the Court, not in province

(2) A proceeding in the Federal Court of Appeal or the Federal Court in respect of a cause of action arising otherwise than in a province shall be taken within six years after the cause of action arose.18

Whether the provincial limitation period applies depends on whether the cause of action arises in a province or “otherwise than in a province”.

The Court of Appeal held that the trial judge erred in finding that the six-year limitation period in s. 39(2) applies to all infringing acts at issue, based on reading the words “‘a cause of action arising otherwise than in a province’ in subsection 39(2) as though they said ‘all causes of action, any of which arose otherwise than in a single province’”. Determining the appropriate limitation period requires considering each individual cause of action (i.e. each infringing transaction). For example, if some infringing sales are made solely in Ontario and others solely in Alberta, the Ontario limitation period will apply to those sales made in Ontario and the Alberta limitation period will apply to the Alberta sales. If other sales are not made solely in one province, then the six-year limitation period prescribed by the Federal Courts Act will apply.

The issue is further complicated when considering inducement. The Federal Court of Appeal noted that inducement is a distinct cause of action, stating:

…To the extent that the elements of inducing infringement require an infringing act by a third party, the cause of action can only be said to arise in a province if both of the inducement and the third party’s act of infringement occurred in the same province. In those cases, the provincial limitation period would apply. If the infringing act is a resale, then both the inducement and the resale would have to occur in the same province. In any other case, the six year limitation in subsection 39(2) would apply.19

Even further complications exist for use claims. Where a use claim is infringed, it is the ultimate use of the product that must occur within the province in order for the provincial limitation to apply.

Taken together, as in the case before the court in Omeprazole, where an infringer directly infringes and induces infringement of a product claim and induces infringement of a use claim, all elements of all three causes of action must occur within a single province in order for the provincial limitation period to apply. Otherwise, the six-year period under the Federal Courts Act applies.

This analysis will quickly become extraordinarily complex in all but the simplest of cases. The Court of Appeal commented on this:

This will be a very fact intensive inquiry which is no doubt one of the reasons Parliament chose to amend the [Patent Act] to provide for a uniform limitation period. Unfortunately, the Federal Court will have to undertake this onerous task.20

There are few “old Act” patents remaining in force, and so fortunately this limitation period issue should not frequently arise in the context of patent infringement. However, it will almost certainly complicate trade-mark infringement proceedings, as the Trade-Marks Act21 does not contain any limitations period. Reference will have to be had to section 39 of the Federal Courts Act and the provincial statutes to determine the limitation period for each infringing sale.

5. Consolidated Proceedings are One Proceeding

In the ongoing “perk” wars, Venngo separately appealed both the decision dismissing its trademark infringement claim and the cost decision that followed (the appeal is discussed in Bereskin & Parr’s Canadian Trademark Cases 2017: Our Top Picks article). Although the two appeals were consolidated, Venngo served and filed two memoranda of fact and law. Perkopolis sought to have the memoranda struck, arguing that by serving two memoranda, Venngo was circumventing the strict 30-page limit applicable in the Federal Court of Appeal. The Court agreed. In Venngo v Perkopolis,22 the Court struck the appellant’s memoranda and noted that “the effect of a consolidation of p
roceedings is that the proceedings are to be treated as if they are one for the purposes of applying the Rules.”23

6. Amend Pleadings Early, and Certainly Before any Election

Following the close of evidence, but before closing arguments, in the Omeprazole profits reference case, Apotex argued a motion to amend its pleading to add a new non-infringing alternative defence. The proposed amendment alleged that instead of infringing by manufacturing Apo-Omeprazole in Canada, Apotex could have manufactured the drug outside of Canadian territory and therefore outside the reach of Canadian patent protection.

Justice Barnes refused to allow the amendment.24 In his view, the motion to amend was brought far too late. To allow the amendment would prejudice AstraZeneca in ways that could not be compensated for by costs and may fundamentally alter the case.

AstraZeneca argued that the amendment would cause prejudice because it had made its election to seek to disgorge on the basis of Apotex’s pleading. If Apotex had pleaded the proposed defence prior to AstraZeneca’s election, AstraZeneca may have made a different election. Apotex argued that the Court should infer that the amendment would not prejudice AstraZeneca because AstraZeneca did not file evidence on the motion. The Court disagreed and placed much emphasis on AstraZeneca’s obvious reliance on the pleadings when electing to disgorge Apotex of its profits rather than recover its own damages:

To demand this type of evidence would almost inevitably put at risk AstraZeneca’s claim to solicitor-client privilege. It is inconceivable that AstraZeneca’s election of profits was not substantially informed by advice from its counsel about the merits of Apotex’s as-pleaded NIA defence and the relative amounts of potential recovery from claims to damages versus profits from Apotex’s United States sales. AstraZeneca should not be forced into the awkward position on this motion of justifying its position by putting its privileged communications at substantial risk.25

The Court also showed concern for the judicial resources that would be wasted by allowing such a late amendment. Given the scope of the amendment sought, the Court opined that much additional trial time would be needed for new evidence and much of the evidence already called may become irrelevant.

7. Informal Requests for Interlocutory Relief

In an August 25, 2017 Notice to the Profession, the Federal Court set out the circumstances under which parties may seek interlocutory relief without a formal motion record. Where parties seek a request for an extension or abridgment of time, leave to amend a pleading or the style of cause, bifurcation, consolidation, security for costs or other procedural relief, the parties may seek leave, by way of letter, to be relieved of the requirement for a formal motion record. To obtain such relief, the requesting letter must:

  1. confirm that all parties must either consent to the request, or not oppose it;
  2. set out all facts relevant to the request;
  3. provide the parties’ submissions relevant to the request;
  4. include a recital of the exact relief sought by the parties; and
  5. attach a draft order.

Despite this practise direction, the Court maintains the ability to request a formal motion record for any reason.

8. Protective Orders No More?

In Live Face on Web v Soldan,26 Prothonotary Tabib refused to issue a protective order that the parties sought on consent. In her decision, the Prothonotary signalled that the Court will now only grant such orders in highly unusual circumstances. This is a marked change from the prior procedure, where the Court routinely granted such orders on consent, without evidence, in intellectual property matters.

The Prothonotary gave many reasons for the change: the excessive burden such orders place on judicial resources; potential abusive filing of material under seal absent a confidentiality order; delays to proceedings while confidentiality orders are sought for materials that were inadvertently filed under seal without a confidentiality order (such as was the case in Teva v Janssen27); the ability of the parties to agree to the terms of a protective order without the Court’s intervention; and the implied undertaking.

The implied undertaking, as an undertaking given to the Court, is enforceable by way of contempt proceedings. Typically, undertakings given between parties are not enforceable by contempt proceedings unless communicated to the Court and enshrined in an order. Prothonotary Tabib noted, however, that parties are free to expand the breadth of the implied undertaking rule by providing further undertakings (for example, by undertaking not to disclose confidential information to certain individuals) and that these further undertakings are enforceable by the Court through its contempt process. In her view, this is a result of the Court’s inherent jurisdiction to control its process:

Undertakings that are strictly related to the procedural aspects of litigation and aim to assist in regulating the Court’s process, such as those restricting the number of persons who can have access to designated discovery information or requiring prior notice of an intention to file, are of the same kind as the implied undertaking rule. As such, they should not need to be expressly acknowledged by the Court in order to be amenable to enforcement by the Court as part of its inherent jurisdiction to control its process, including by contempt in appropriate cases.28

9. When is a Person a Second Person Under the PM(NOC) Regulations?

This was the question Justice Locke was asked to answer when deciding a motion to amend pleadings alleging section 8 damages in Teva v Janssen.29 Janssen sought to amend its pleading to allege that Teva was not a “second person” for the purposes of section 8 of the PM(NOC) Regulations and, as a result, was not entitled to compensation under the Regulations.

Justice Locke refused the amendment because the allegation had no reasonable prospect of success. Having taken advantage of the PM(NOC) Regulations to keep Teva off the market during the automatic two year stay instituted by section 6, Janssen was estopped from arguing that Teva was not a second person:

In my view, the analogy to an undertaking given to obtain an interlocutory injunction is helpful and decisive. Whether Janssen Inc. was not in a position when it commenced the prohibition proceedings against Teva to allege that Teva was not a “second person” does not alter the fact that Janssen Inc. chose to employ the [PM(NOC)] Regulations to benefit from keeping a potential competitor off the market, all while accepting the possibility of liability if it were unsuccessful. I see no distinction between the facts here and those in the jurisprudence sufficient to give rise to any reasonable prospect that the Second Person Allegation will be successful.30

The Court also rejected Janssen’s argument on the merits, finding that Teva was indeed a second person for the purposes of section 8.31

10. The Federal Court does not have Jurisdiction to “Approve” Litigation Funding Agreements

In Seedling v Pfizer,32 Prothonotary Tabib dismissed Seedling’s unprecedented motion for the Court’s approval of a litigation funding agreement. The Prothonotary reasoned that the agreement itself is not ancillary to the patent infringement dispute between Seedling and Pfizer and that the approval sought was not necessary for the Court to adjudicate the dispute. Accordingly, the Federal Court did not have jurisdiction to determine the matter.

The purpose of seeking to have the Court endorse the agreement was to foreclose Seedling from later avoiding enforcement of the litigation funder’s rights under the agreement on grounds that the agreement constituted maintenance or champerty. In Prothonotary Tabib’s view, such an issue is separate and distinct from the patent infringement issues before the Federal Court. As a result, to obtain the relief sought, the parties to the agreement would have to seek “approval” from a provincial court with inherent jurisdiction.33

The Court reasoned that the policy reasons behind prohibitions on champerty and maintenance are achieved by denying the maintainer the benefit of the champertous agreement. Where, as in this case, the original rights holder is the party pursuing its claim, the Court has no interest in how the litigation is funded. In instances where a bare cause of action is assigned and pursued in the courts by the assignee, however, the assignment will be of interest to the court in order to prevent the assignee from obtaining the benefit of a champertous agreement.

The Court was unpersuaded that it should seize itself of jurisdiction because the funding agreement was contingent upon the Court’s approval. Should the Court deny approval, Seedling may be denied access to justice. The Court noted: “That may be so, but only because Seedlings and Bentham [(the litigation funder)] have chosen to make their agreement contingent upon this Court’s approval. The Federal Court’s jurisdiction cannot be conferred by agreement between parties.”34

Approval of the agreement was also not necessary in order for Seedling to share discovery information with the litigation funder. Doing so would not offend the implied undertaking rule:35

The implied undertaking rule prohibits a party who obtains documents or information through discovery from using these documents and information for any purpose other than for the litigation in which the documents and information were provided. The rule does not operate to prevent disclosure to non-parties. Disclosure to non-parties, including experts, potential witnesses, consultants or others whose advice is relevant to the carriage of the litigation, or of litigation derived from and in the service of the original action, is permitted so long as it is not an “alien”, “collateral”, or “ulterior” purpose.36

11. The Corporate Veil is not Absolute

In ASICS,37 Chief Justice Crampton ordered the corporate veil lifted so that a default judgment against 9153-2267 Québec Inc. (“9153”) could be enforced against 9279-1292 Québec Inc. (“9279”).

In a December 2013 default judgment for trademark infringement, 9153 was enjoined from further infringing ASICS’ rights, was ordered to deliver up infringing materials to ASICS, and was ordered to pay damages and costs. Nearly three years later in August 2016, since the judgment had not been complied with, the Court issued a Writ of Seizure and Sale, which was executed at two store locations in Montreal where 9153 had been operating.

By the time of the writ, however, 9153 was no longer operating at those locations. In its place was 9279. ASICS reacted by bringing a motion for 9153, 9279 and their common directors to show cause why they should not be held in contempt. 9279 brought a separate motion to set aside the writ. At the show cause motion the Court decided that 9153 and the individual defendants had shown cause as to why they should not be held in contempt.38

Subsequently, in ASICS, the Chief Justice dismissed 9279’s motion to set the Writ aside and ordered nearly $40,000 in costs against 9279 and $20,000 in punitive damages.

9279 argued that it was the legitimate owner of the seized goods and that it became the legal occupant of the premises at which the writ was executed before the default judgment was issued. This led to the Court agreeing that 9279 was the owner of the seized goods; but the corporate veil was nonetheless lifted because 9279 was the alter ego of its principals, that the business had been transferred in bad faith from 9153 to 9279 for the dishonest and improper purpose of evading the default judgment (and potentially others), and that the business transfer had been masked to prevent ASICS and others from knowing about it. In the Chief Justice’s view, 9279 was a vehicle of wrongdoing and a failure to lift the corporate veil “would yield a result ‘flagrantly opposed to justice’”.39

The Court ordered 9279 to pay costs on a solicitor-client basis because 9279 engaged in the outrageous and reprehensible conduct of bringing a motion to set aside the writ even though its principals had transferred 9153’s business to 9279 to avoid the default judgment.40

The Court also ordered punitive damages because of “the serial and cavalier nature of 9153’s attempts to evade orders”.41

Finally, the Court took an opportunity to remind the profession that it is improper to threaten contempt proceedings, particularly in the context of settlement discussions.42

12. Nuisance appeals may attract increased costs

Lam v Chanel43 was the appellant’s second trip to the Federal Court of Appeal in relation to its sale of counterfeit goods that had attracted a $250,000 punitive damages award. The Court found the appeal to be without merit and that no substantive ground or challenge to the trial judge’s decision had been brought. The appellant was ordered to pay solicitor-client costs for the appeal, which Chanel characterized as a “nuisance appeal” designed to delay enforcement proceedings.

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