Court denies data protection: first test of new Food and Drug regulations

An article by Alison Lester

The Federal Court determined that EBIXA was not entitled to data protection because it received marketing approval in 2004 and refused to prevent two generic companies from comparing products to EBIXA for the purpose of obtaining regulatory approval.

On December 16, 2008, Justice Lemieux dismissed proceedings brought by Lundbeck Canada Inc. against ratiopharm Inc. and Cobalt Pharmaceuticals Inc (2008 FC 1379).

Both ratiopharm and Cobalt are seeking regulatory approval (i.e., receipt of a Notice of Compliance, or NOC) of memantine hydrochloride products. In their regulatory submissions, both ratiopharm and Cobalt compared their memantine hydrochloride products to EBIXA, which is currently marketed in Canada by Lundbeck Canada Inc. pursuant to a NOC with conditions obtained in 2004.

Lundbeck argued that because its NOC is subject by Health Canada to certain conditions, EBIXA cannot be used as a reference product in any generic regulatory submission. Furthermore, Lundbeck argued that EBIXA should be entitled to data protection once the conditions are removed from its NOC.

The court rejected Lundbeck’s argument, holding that there is no difference between a NOC and a NOC with conditions because under the Food and Drugs Act Lundbeck cannot market its product at all without a NOC. The court concluded that the NOC with conditions is a term coined for administrative convenience and has no legal effect. Accordingly, EBIXA is an appropriate reference product for generic submissions.

The court went on to reject Lundbeck’s attempt to secure data protection for EBIXA, finding that the old data protection regime continues to apply to a product that obtained a NOC before June 17, 2006, regardless of any conditions placed on the NOC.

The court also based its decision on two technical grounds. Firstly, that a brand company has no standing to challenge the regulatory review of a generic company’s product or the Minister’s application of the data protection provisions during the course of that review.

Secondly, the court determined that the Minister’s decision to accept ratiopharm and Cobalt’s regulatory submissions for review was an interlocutory decision and therefore not subject to judicial review.


Alison Lester
Gilbert’s LLP

Accounting of Profits CIPR Article...

Just cleaning up my office, and I don't think I ever posted about this article coming out...

Accounting of Profits in Intellectual Property Cases in Canada (2007)
Norman Siebrasse, Alexander Stack, and the Cole & Partners IP Litigation Support Group
(2008) Vol 24 No. 1 Canadian Intellectual Property Review, pp 83-136

We (members of Cole & Partners and I) first published an article on this topic in 2001. New with this version is the addition of Norman Siebrasse as an author, which brought another dimension and perspective to the article.

This is an update - and the law has arguably moved quite a bit since 2001, particularly in light of the Supreme Court of Canada decision in Schmeiser. The remedy portion of the Schmeiser decision arguably (and I personally think quite probably) points out that the proper measure of an accounting of profits is the difference between

"the defendant's profit attributable to the invention and his profit had he used the best non-infringing option"

and not

"expenditures made to produce and sell the infringing articles and the receipts therefrom".

Since the accounting of profits (and not damages - sorry, that's a pet peeve of mine ;) ) is traditionally the main monetary remedy for patent infringement in Canada, the remedy section of the Schmeiser decision may end up being of greater long term importance than all that fussing about genes, cells and canola ;).

An earlier version of this article is available on the Cole & Partners website .

Competition Bureau Report on the Generic Drug Industry

Grade: Incomplete ;)


As noted below, last Thursday (November 25), the Competition Bureau came out with “Benefiting from Generic Drug Competition in Canada: The Way Forward”. This was the second report in an ongoing advocacy effort by the Competition Bureau to encourage governments to adopt policies that will increase competition in the generic drug industry (see http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/h_02704e.html, which discusses the Bureau’s health industry efforts).

Inevitably, this sort of report always contains lots of grounds for criticism, and I have little doubt that criticisms will appear in print (and, of course, behind the scenes) in the near future. But when I read this report, one big comment leaps to mind. (and I think its a whale*)

This report ignores the role of generic drug companies in making drugs “generic” in the first place. As a result, it risks recommending measures that might decrease the cost of generic drugs but increase the cost of pharmaceuticals to Canadians overall. It also misses the opportunity to investigate which measures might best decrease the cost of generic drugs to consumers while maintaining the pipeline of drugs moving to a generic, multisource market.

“Brand name” drugs are drugs protected by patents held by the producing company. As with patents in all industries, some patents issued in the pharmaceutical industry are invalid (i.e. never should have been issued in the first place) or issued with claims that are too broad. In most industries, a company that sees a competitor with patents that it thinks are invalid or too broad may choose to simply launch its product and see if the competitor wishes to risk its (weak?) patent position in a lawsuit.

The pharmaceutical industry is different. Under the PM (NOC)** regulations, a generic company that wants to bring a product to the marketplace that is nominally protected by a patent must notify the patent owning brand name company. Under the regulations, the brand company can then begin a proceeding for a non-binding determination of whether the generic company’s products would infringe the patent – and obtain an automatic 24 month injunction forbidding Health Canada from giving permission to the generic company to market a generic version of the drug. Meanwhile, if the generic loses the non-binding, summary proceeding (a proceeding with only limited evidence and argument), Health Canada is permanently forbidden to allow the generic product on the market until the final expiry of the patent. On the other hand, if the brand name company loses, it still can get a second kick at the can by suing the generic for patent infringement.

In other words, pharmaceutical patents by government regulation pose greater barriers to entry than patents in other industries. Generic companies must surmount these hurdles before bringing their less expensive medicines to the public.

And this costs money.

The PM(NOC) system rests, as a matter of policy, on generic drug companies with the capability and interest in supporting patent challenges. This may be looked at in two ways: are the Canadian markets for generic drugs profitable enough to justify a generic company spending money to challenge patents via the PM(NOC) process?; and do the generic drug companies interested in the Canadian market have enough reliable profits to fund the risky endeavour of challenging questionable patents?

In other words, reducing the profitability of generic drug companies that supply the Canadian market – for example, in the pursuit of lower prices for the paying public – comes at a cost of reducing challenges to pharmaceutical patents in the future. Given the high expense of pharmaceutical drugs, and a typical drop of some 80% in costs for a medicine after it becomes generic, the costs to consumers of delaying the move of even a few drugs to a generic status via patent challenges – i.e. maintaining higher prices for presently-patented drugs - could easily outweigh the benefits of lower generic drug prices. For example, one year of Lipitor freed of patent protection and supplied at generic rather than brand name prices would be word hundreds of millions of dollars alone. Recall that generic drugs are already off-patent, and thus relatively inexpensive.

This is a key trade-off in health policy in respect of pharmaceutical pricing. The generic and patented drug markets are directly connected in Canada, and their effects on consumer welfare cannot be coherently analyzed in isolation.

However, there is no mention of this trade-off in the latest Competition Bureau report – and scarce mention in the previous report in 2007. The latest report seems to assume that drugs become generic following patent expiry, and simply goes on to discuss how competition may be improved in the already-generic drug market.

This lack of attention is particularly worrisome, since the Competition Bureau report finds that competition among generic drug companies is already fierce – suggesting that policy changes that further squeeze the profitability of generic drug companies may have a meaningful and negative impact on these companies’ ability to fund future patent challenges.

Undoubtedly, this is a difficult trade-off, and really needs to be addressed through empirical investigation. Of course, this is easier said than done – for example, the European Competition Commission report on the pharmaceutical industry in Europe*** is admirably empirical, but obviously a huge undertaking (the results are not directly applicable in Canada, since Europe does not have a PM(NOC)-style linkage system).

However, the Competition Bureau is presumably motivated by consumer welfare – and when making policy analyses and recommendations in an industry, it should at least raise the more obvious routes through which the industry being studied affects consumer welfare, even if only to clearly state that its recommendations are limited by a lack of empirical knowledge on a particular point.

The absence of discussion on this point in the Competition Bureau’s report is unfortunate, as there is no necessary conflict between the goals of lowering generic drug prices for consumers and maintaining the incentives and ability of generic drug makers to challenge pharmaceutical patents. There are many players involved in the generic drug market other than generic drug manufacturers, and the Competition Bureau report itself has several suggestions to lower the cost of generic drugs to the public that would not meaningfully affect the profitability of generic drug companies.

Even if one considers measures aimed specifically at achieving lower drug prices from the generic drug companies, such measures could be designed to maintain an incentive for generic drug companies to challenge patents. For example, one could temporarily allow the first generic to successfully challenge a patent to temporarily be the only generic in the market – say, for six months, as is done under equivalent legislation in the United States. Similarly, provinces could implement progressively more aggressive pricing strategies over time starting from a successful PM(NOC) challenge, thus maintaining some reward for challenging patents.

Personally, I hope to see issues like this highlighted in the next Competition Bureau study.



* In keeping with my recent focus on harpooning whales, not minnows ;)
**Patented Medicines (Notice of Compliance)
*** http://ec.europa.eu/comm/competition/sectors/pharmaceuticals/inquiry/index.html

I have published an article on the Ontario tendering situation in the latest issue of the Food and Drug Law Institute's Update magazine.

I will post a link to the actual article here if I can figure out how to do so ;).

Canada’s Competition Bureau Prescribes Policy Solutions for Generic Drug Sector

.
From the desk of Nathaniel Lipkus... ;)

On November 25, 2008, the Canadian Competition Bureau released the second phase of its generic drug sector study, entitled “Benefiting from Generic Drug Competition in Canada: The Way Forward”. The report comes just thirteen months after the Bureau released its initial report, which had found that strong competition exists among generic drug manufacturers, but that in many cases this competition is not passed on to public or private drug plan payers, or to direct consumers.

Bureau Commissioner Sheridan Scott released the report at an Economic Club of Toronto luncheon on November 25. In her remarks, Commissioner Scott stated that the new report provides a “timely prescription for change”, offering several possible ways for achieving savings in both the public and private sectors. She emphasized the importance of swift action, in light of the $800 million in potential savings available to public and private drug plans, which she said would climb significantly over the next three years as blockbuster drugs released in the mid-1990s go off-patent.

The report separately analyses possible policy solutions for Canada’s public and private drug purchasers. Public payer recommendations include alternative mechanisms for listing generic drugs on provincial formularies and revealing the true net prices paid to manufacturers by retailers. The Competition Bureau emphasizes the importance of coordination among provinces in adopting any policy solution. Private sector recommendations draw heavily on the experience of pharmacy benefit managers (PBMs) in the United States, which have been successful in sharing in the savings from increased generic drug utilization.

The Competition Bureau’s report can be found on the Bureau’s website at http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/vwapj/GenDrugStudy-Report-081125-fin-e.pdf/$FILE/GenDrugStudy-Report-081125-fin-e.pdf.

Nathaniel Lipkus
Gilbert's LLP

New this morning: SCC decision approving selection patents, plus tests for anticipation and obviousness

Today was a hectic day at work. Not only have we just come off the madness of the three-day summer student recruitment period (meaning no one has done any legal work the last three days), but the Supreme Court of Canada released the highly-anticipated decision in Apotex v. Sanofi-Sythelabo. This case was closely watched because Apotex challenged the basic validity of all selection patents as a matter of law. Perhaps unsurprisingly, the Supreme Court affirmed selection patents in principle. However, the Court also went on to establish general tests for anticipation and obviousness that will apply to all Canadian patents.

In response, we quickly created and fired off a newsletter to our clients quickly outlining the case, and promising a more in-depth analysis to come. Here is the quick analysis.

This morning, the Supreme Court of Canada released a decision addressing the doctrine of selection patents and the tests for anticipation and
obviousness.

Selection patents are of considerable importance in Canadian patent law, particularly in the area of pharmaceuticals. This is the first decision of the Supreme Court to directly approve of selection patents. The Court’s statements on anticipation and obviousness also extend to all patents, selection or not.

Our preliminary analysis is that while Apotex lost this particular case, the Supreme Court has not given a green light to every selection patent. The validity of Canadian selection patents will very much depend on whether the claims are something special and inventive above the known prior art.

Apotex Inc. v. Sanofi-Synthelabo Canada Inc., 2008 SCC 61

Procedural History:

Sanofi-Synthelabo Canada Inc. is the owner of Ca-nadian Patent No. 1,336,777 (the “777 Patent”). Sanofi had previously obtained Canadian Patent No. 1,194,875 (the “875 Patent” or the “genus patent’) which covered a large class of compounds useful in the treatment of coronary artery, peripheral vascular and cerebral vascular diseases. The 777 Patent covered a subclass of compounds that were previously disclosed in the 875 Patent, including clopidogrel bisulfate, a particular compound with properties superior to the compounds generally disclosed in the 875 Patent. Sanofi commenced NOC proceedings against Apotex, who wished to launch their own clopidogrel bisulfate product, and Sanofi won at the FC and FCA level on the basis that Apotex’ product would infringe Sanofi’s 777 patent. Apotex appealed to the SCC on the basis that this selection patent was invalid on the grounds of anticipation, obviousness and double patenting.

The Decision:

Justice Rothstein, writing for a unanimous court, dismissed Apotex’ appeal on all grounds.

The Court accepted selection patents in principle. Rothstein J. cited the UK In re I.G. Farbenindustrie case to find that a selection of compounds from those described in general terms and claimed in a fist or genus patent may be claimed in a second patent if:

1. There is a substantial advantage to be se-cured or disadvantage to be avoided by the use of the selected members;

2. The whole of the selected members (subject to “a few exceptions here and there”) possess the advantage in question; and

3. The selection must be in respect of a quality of a special character peculiar to the selected group. If further research revealed a small number of unselected compounds possessing the same advantage, that would not invalidate the selection patent. However, if research showed that a larger number of unselected compounds possessed the same advantage, the quality of the compound claimed in the selection patent would not be of a special character.

The Court emphasized that selection patents still must meet the standards of anticipation and obviousness.

Anticipation:

In order to determine whether a patent has been anticipated, a two-step approach should be taken. First, did the prior art disclose subject matter which, if performed, would necessarily (without trial and error) infringe the patent? Second, the person skilled in the art (PSITA) must be enabled by the prior art to perform the invention without undue bur-den. A question at the enablement stage is how much trial and error or experimentation is permitted.

In the case of selection patents, the Court interpreted the disclosure test as whether the first patent dis-closed the special advantages of the invention covered in the second patent. In the case at hand, the Court found that the 777 patent was not anticipated because the 875 Patent did not disclose the special advantages of clopidogrel bisulfate disclosed in the 777 Patent.

Obviousness:

The obviousness test adopted by the SCC followed a four-step approach derived from the UK case of Windsurfing International Inc. v. Tabur Marine (Great Britain) Ltd.

• First, the PSITA and his / her relevant general knowledge is determined.

• Second, the inventive concept of the claim in question is determined.

• Third, differences between the “state of the art” and the inventive concept of the claim must be identified.

• Fourth, the court decides whether the differences are obvious or would have required any degree of inventiveness.

The fourth step is done without any consideration of the alleged invention as claimed.

In the analysis of inventiveness, the court adopted an “obvious to try” approach in which routine experimentation does not make the patent inventive. Rather, some testing is explicitly permitted without rendering the invention non-obvious. The analysis requires looking at four factors:

(a) is it self-evident that what is being tried ought to work, and is the number of predictable solutions finite?

(b) how much effort is required to achieve the invention?

(c) is there a motive provided to find the solution the patent addresses?

(d) perhaps considering the evidence of the actual course of conduct (a long and expensive or short and inexpensive effort?) which resulted in the making of the invention.

However, Rothstein J. cautioned against over-application of the “obvious to try” test, writing that it is “not a panacea for alleged infringers.” Notably, the test is not a simple conclusion that if X is obvious to try, then X is obvious. Even if X is obvious to try, X may still be non-obvious if it succeeds only after difficult or expensive experimentation.

In this case, the Court found that the invention was not self-evident from the prior art, and most importantly that Sanofi had spent “millions of dollars and several years developing [the racemate] up to the point of preliminary human clinic trials” before the discovery that the invention of the 777 Patent was superior to other compounds disclosed in the 875 Patent. Therefore, the 777 Patent is not obvious.

Double patenting:

The Court found that there is no inherent conflict be-tween the doctrines of double patenting and selection patents. The SCC acknowledged that evergreening is problematic, but left that concern to be addressed through the tests for anticipation, obviousness and double patenting. The Court stated that there is a valid general concern about double patenting, but selection patents can play an impor-tant role in encouraging improvements over the original genus patent.

We will be completing a more fulsome analysis of the case in the coming days. In the meantime, please feel free to contact us.

Emily Kettel (Student-at-law)
Alexander Stack
Sara Zborovski

Gilbert's LLP

Federal Court of Canada awards damages to generic company

The first decision to substantially address section 8 of the Patented Medicine (Notice of Compliance) Regulations

The Federal Court of Canada issues its first decision on a regulatory provision allowing a generic to claim damages from a brand company for being improperly kept off the market.

In Canada, the Patent Act is linked to the drug ap-proval system by the Patented Medicine (Notice of Compliance) Regulations (the “Regulations”) which allow a brand company to prevent marketing ap-proval of generic drug product for up to two years pending the resolution of patent disputes.

The Regulations contain a provision, section 8, which grants a right of action to a generic company whose drug product has been wrongly kept off the market on the basis of a proceeding commenced by a brand company pursuant to the Regulations.

Section 8 has existed since 1993 but this is the first substantive decision that the Federal Court has is-sued in respect of it.

In the case, Apotex sought damages from Merck for improperly preventing it from obtaining marketing approval for its alendronate product.

Merck argued, among other things, that section 8 was unconstitutional and beyond the court’s jurisdic-tion, since it does not technically deal with patent issues. The court found against Merck, holding that the Regulations must be considered as a whole, and that section 8, which acts as a disincentive for seek-ing what is in effect an interlocutory injunction, is part of the balance of the Regulations. Accordingly, sec-tion 8 is valid federal legislation properly enabled by the Patent Act, and within the jurisdiction of the Fed-eral Court to enforce.

With respect to the remedy afforded Apotex, the Court held that a generic company is only entitled to claim damages or its own lost profits, as opposed to disgorgement of the brand company’s profits, as Apotex had claimed. All matters related to quantifi-cation of Apotex’s damages will be determined in a later trial.

We anticipate that the decision will be appealed.

Alison Lester
Gilbert's LLP

Pharma challenges PMPRB authority over rebates on patented drugs

I have been neglecting my posts on here! I'll update today with three posts. Here's the first.

Canada’s branded pharmaceutical trade association, Rx&D, and 17 companies have launched an application to challenge the authority of Canada’s Patented Medicines Prices Review Board (“PMPRB”) to require brands to report rebates and discounts to the Federal government.

Canada’s Patent Act vests the PMPRB with the authority to limit a patented drug’s price where it finds the drug’s prevailing market price to be excessive. The Act permits the PMPRB to require companies selling patented drugs to report the selling prices of their drugs to the PMPRB, for the purposes of administering the excessive pricing provisions.

On August 18, 2008, the PMPRB posted a Stakeholder Communiqué requiring companies to provide mandatory reports of all reductions off the manufacturer’s list price for drugs, where a Canadian patent covers an invention pertaining to the drug. Reductions to be reported under the Communiqué include rebates (including rebates/payments to third parties), discounts, free goods, free services, gifts, and other benefits of a like nature. The reporting requirements are set to be implemented in January 2009.

On September 17, 2008, Rx&D brought an application in the Federal Court of Canada seeking judicial review of these new reporting requirements. In its Notice of Application, Rx&D has taken the position that the Patent Act and its regulations do not require reporting of any price reductions paid to anyone except at the ex-factory level (i.e. between the manufacturer and its direct buyer, normally a wholesaler). This interpretation would exclude any indirect buyers, most notably intermediary distributors and wholesalers, pharmacies, and provincial drug program purchasers. The brands argue that any additional reporting requirement, beyond transactions at the ex factory level, is outside the jurisdiction of the PMPRB under the Patent Act and the Federal government under the Canadian constitution.

Rx&D seeks an order from the Court prohibiting the PMPRB from requiring reporting of any benefits granted by sellers of patented drugs to “third parties”, by its Communiqué or otherwise. Interestingly, this relief, if granted, would make it more likely that patented pharmaceutical companies would be found to be pricing their drugs excessively. Any rebate, discount, or equivalent payment reported to PMPRB would lower the average price calculated for the purposes of an excessive pricing calculation. More reported discounts would lead to lower prices, and lower prices are less likely to warrant excessive pricing orders. On the face of it then, the reporting requirements appear beneficial to patentee drug companies.

However, there are various reasons why brands may wish to keep their price reductions secret. Motivations likely vary from company to company, but it is easy to imagine that any supply chain participant not currently receiving a benefit being granted to a similarly-situated competitor (e.g., a provincial government purchaser not receiving the same discount as a private purchaser) may aggressively demand benefits not otherwise thought available. Alternatively, upstream participants in the supply chain, such as wholesalers or regional distributors, may try to capture rebates found to be widespread downstream at the pharmacy level. On the face of the Communiqué, it is unclear to what extent information collected by PMPRB would be accessible to these interested parties.

As an example of the policy implications of PMPRB’s reporting requirements, consider their interaction with Canadian provinces’ latest efforts to reduce the cost of publicly-funded drugs. In the past year, several brands have entered secret agreements to provide substantial rebates off their list prices to provinces in exchange for exclusive supply of their drugs to the provinces’ public drug programs, in situations where generics had successfully entered the national market but patent protection persisted. These payments may become more critical to retaining market share if provinces adopt tendering programs which require companies to offer rebates and/or discounts to compete. Transparency of these payments would thwart provinces’ intent to keep the payments secret.

Time will tell whether Rx&D and its member companies are successful in their judicial review application. In the meantime, companies selling patented drugs will be thinking twice before offering piecemeal deals to Canadian consumers, for fear of PMPRB’s new reporting requirements.

Nathaniel Lipkus
Gilbert's LLP

Inducing Patent Infringement by Specifying Interchangeability

Here's an article By Salim Dharssi, a summer student at the firm I work at. I like the idea of getting students (and lawyers!) writing, so I'm really pleased Salim put in the effort to do this. The article is about inducing patent infringement, covering a recent case that centered around the defendant providing an interchangeability list to customers for a component of a patented combination.


INCREASED CHANCE OF BEING FOUND LIABLE FOR INDUCING PATENT INFRINGEMENT FOR MANUFACTURERS OF COMPONENTS

Manufacturers should be aware that the Canadian Federal Court of Appeal recently found that, by simply specifying interchangeability with a component of a patent, a manufacturer may be liable for inducing patent infringement.

In MacLennan v. Produits Gilbert Inc. (2008 FCA 35), the Court of Appeal held that the defendant manufacturer induced end-user forestry operators to infringe the plaintiff’s combination patent. On its price listing, the defendant manufacturer had indicated the product identification numbers for components of the plaintiff’s patented product, thereby specifying interchangeability with the plaintiff’s components. This decision arguably broadened the scope for finding liability for inducing patent infringement because evidence of interchangeability alone was apparently sufficient and because this was the first case where inducing infringement was found where the end-users were commercial consumers and not public consumers. It is unclear the extent to which the court considered the relationship between the defendant manufacturer and the forestry operators when making its decision.


What is the issue?

In Canada, the sale of a component of a combination patent (a patent granted for an invention that unites existing, non-patentable components in a novel way), even if that component cannot be used for anything other than infringing the invention, is not sufficient to establish indirect infringement. Known as “contributory infringement” in the United States and the United Kingdom, this cause of action does not exist in Canada. However, a different cause of action, “induced infringement”, exists in Canada which comprises of the following elements:

1. There must be an act of infringement by the direct infringer;

2. This act must be influenced by the seller to the point where, without this influence, infringement by the buyer would not otherwise take place; and

3. The influence must be knowingly exercised by the seller.

Unfortunately, Canadian courts often use both terms, “induced infringement” and “contributory infringement”, when referring to this cause of action.

Why doesn’t the patentee sue the direct infringer instead of the inducing infringer? If the direct infringer is a good customer of the patentee, it will not want to sue its own customer. Alternatively, it may be impractical for the patentee to sue direct infringers when they may be individual members of the public and could number in the thousands or tens of thousands.

A key issue in cases of induced infringement is the evidence necessary to decide whether a defendant manufacturer had sufficiently induced an end-user to directly infringe. In MacLennan v. Produits Gilbert Inc., the court found the defendant liable for inducing infringement based on arguably less evidence than was relied on in previous cases.


MacLennan v. Produits Gilbert Inc.

In MacLennan v. Produits Gilbert Inc., the Federal Court of Appeal reversed the trial judge’s findings and decided that the defendant was liable for inducing infringement.

In MacLennan, the plaintiff owned a combination patent for an invention used in circular saws for feller heads in the forest industry. The invention consists of a combination of two pieces: a repositionable saw tooth and a detachable tooth holder. This combination attaches to the periphery of a circular saw disc. Since forestry operators cut trees as close as possible to the ground to avoid loss and maximize harvest, this patented combination is advantageous in rocky and snowy terrain because the saw disc remains undamaged when it comes into contact with rocks: only the teeth and teeth holders shear from the disc. Replacing the teeth and holder is less expensive than replacing the disc which would otherwise have been damaged.

The defendant manufactured one of the components of the combination patent, the repositionable saw tooth, and sold it through distributors to end-user forestry operators. The Court of Appeal found that the end-users did in fact directly infringe the patent because they used the defendant’s saw tooth and combined it with the plaintiff’s tooth holder to create the patented invention. After finding direct infringement, the Court of Appeal considered the other two elements necessary to establish induced infringement by the defendant: influence and knowledge.

The defendant had distributed a price list that identified the part number of the plaintiff’s manufactured patent component corresponding to the defendant’s manufactured component, thereby specifying interchangeability. The end-users created the patented combination and directly infringed the patent by purchasing the defendant’s saw tooth and assembling it with the plaintiff’s detachable tooth holder. The Court of Appeal found that, by having the patented part number included in their price list, the respondent knowingly influenced the buyer to the point where, without this influence, infringement by the end-user would not have otherwise taken place.

Specifying interchangeability on its price list was the only evidence explicitly relied on by the Court of Appeal to support its finding that the defendant was inducing infringement. Additional evidence, such as advertisements promoting interchangeability used by the defendant, was provided at trial but was not cited by the Court of Appeal.

Extension of prior case law?

In the past, Canadian courts have required more evidence than explicitly cited in MacLennan to demonstrate that an alleged infringer sufficiently induced an end-user to infringe a patent. In particular, courts have considered whether the alleged inducing infringer was in fact in a position of control or power, sufficient enough to induce the direct infringer to infringe the patent.

For example, in Slater Steel Industries Ltd. v. R. Payer Co. Ltd. et al. (1968) , the Exchequer Court made a finding that the alleged inducing infringer could not have induced a large power company to directly infringe the patent, because the latter was “a giant” compared to the former.

In Windsurfing International Inc. v. Bic Sports Inc. , the Federal Court of Appeal made a finding that the end-users – individual members of the public - who were directly infringing were influenced to the point of being induced. As noted by François Grenier in his 1987 article “Contributory and/or Induced Patent Infringement” , the Court of Appeal in Windsurfing likely came to their conclusion because: the purchasers were innocent consumers, unknowingly infringing a patent; the vendor provided an instruction sheet directing the consumer to assemble the parts into the infringing whole; and all the parts of the combination patent were supplied by the alleged inducing infringer.

Before MacLennan, Canadian courts explicitly considered the control, power and relationship between an alleged inducing infringer and the directly infringing end-users. A small entity would not be able to induce a sophisticated entity; however, a sophisticated entity would be able to induce a small entity. This leaves many questions unexplained. What happens when the relationship between the entities is not so clear-cut? Furthermore, can a large, sophisticated entity ever be induced?

The Federal Court of Appeal in MacLennan cited the issue of control, power and the relationship between the parties, but did not explicitly consider and analyze the power, size and relationship between the defendant and the forestry operators, in contrast to previous case-law such as Slater Steel and Windsurfing. Also, in the previous judgments in this case there were no considerations given to the relationship between the defendant and forestry operators. Was the defendant on equal footing with the end-users, or was one more sophisticated and powerful than the other? Generally forestry operators are relatively small operators who run one or two machines so it is conceivable that the court had considered the relationship between the parties and found that inducement was feasible, but the judgments and facts contained therein provide no insight on the matter.

How does the Federal Court of Appeal’s decision in MacLennan impact future litigants involved in cases where induced infringement is alleged? All litigants should still no doubt address the issue of control, power and relationship between the parties when dealing with induced infringement. However, the court may place less weight on these factors unless one entity is clearly large and sophisticated and the other is clearly small and powerless.

More pragmatically, MacLennan was an extension of previous case-law because the court found induced infringement on a new, smaller set of facts: the direct infringers were not individual members of the public and the alleged inducing infringers specified interchangeability on their price lists with components of a combination patent.

Conclusion

The Federal Court of Appeal’s decision in MacLennan arguably extended the law of inducing infringement and may will result in some uncertainty as to the extent to which the relationship between a manufacturer and end-users is considered. Either way, it is clearly a possibility that manufacturers of components which comprise part of a combination patent will be held liable for inducing infringement by simply specifying interchangeability on product lists.

What if interchangeability was conveyed orally and not on paper? Do companies have knowledge of direct infringement sufficient to find induced infringement if they receive a legal opinion stating that the end-users are not directly infringing? Can a large, sophisticated end-user ever be induced by a company of any size? How should liability be apportioned between directly infringing end-users and inducing manufacturers? Canadian manufacturers and their counsel must await clarification from the courts in future decisions before these questions can be answered.

Salim Dharssi
Summer Student
Gilbert’s LLP

I... am a Doctor!

No, not that sort of doctor ;)


(For those of you not in the loop - I passed my defence for my doctorate (an S.J.D.) today!)

Ontario Formulary Moves Towards Tendering

Here's a topic that occupied a bit of my time earlier this month. (Then, I went on holiday, and left my colleagues holding the bag ;) ) Its a bit out of date and a bit rough, but still gets the main points across...

ONTARIO FORMULARY MOVES TOWARDS TENDERING

The Ontario government recently announced a new tendering program for the listing of generic pharmaceutical products as benefits on the Ontario Drug Benefit (“ODB”) formulary. This program promises to radically change the way multi-source drugs are sold in the $7.6 billion Ontario pharmaceutical market.

A move towards tendering on the ODB formulary is a critical public policy issue, connecting the cost of pharmaceuticals to the public, the cost of administering the ODB programs to the Ontario government, Federal patent and pharmaceutical policy, revenue streams for pharmacies, and the future structure and health of the generic pharmaceutical industry. The resolution of these questions will have significant long-term results, and will also reflect the Ontario government’s ability to generate and implement good public policy. This presents strong challenges – both immediate and long term – for the generic pharmaceutical industry, and may also have a significant long-term impact on the brand-name industry in Canada.

The Ontario Drug Market

To market pharmaceuticals in Canada, a company must first obtain a Notice of Compliance (NOC) from the Canadian federal government. In Ontario, the next step for generic drugs is to be listed as interchangeable and a benefit on the provincial drug plan formulary. Interchangeability, which controls which drugs may be interchangeably dispensed by a pharmacist when filling a prescription, is not affected by the new tendering program.

A listing as a benefit means that the Ontario government will pay for the product for patients who are covered by the ODB scheme, generally based on age and financial status. A key issue is the amount the Ontario government is willing to pay for a given product, the “list price”, which is negotiated up-front. Generally, as long as a generic product was able to ensure supply and meet Ontario’s cost expectations (generally 50% of the reference “brand” price), it would be listed on the formulary.

A listing as a benefit on the formulary is the key to both the public (covered by the ODB scheme) and private markets in Ontario. Most pharmacies stock only two versions of a drug, the brand name and one generic, to minimize the pharmacy’s operating costs. Generally, a manufacturer’s product that is not listed as a benefit is not likely to be purchased by pharmacies, who instead will purchase a product that can be sold to their ODB customers as well as their non-ODB customers. Once listed as a benefit, generic pharmaceutical manufacturers compete for pharmacy shelf-space by offering the pharmacies professional allowances - after-sale rebates that are limited to 20% for ODB sales and unlimited as a percentage of sales in the private sector market.

There is a two-tier pricing system in Ontario under which private sector payers pay more for generic and brand-name pharmaceuticals than the price listed on the ODB formulary. In the case of brand-name drugs, the ODB Executive Officer may negotiate secret rebates from brand-name drug makers for patented products. The tendering scheme extends this to the generic drug sector.

The New Tendering Scheme

Under the new scheme, companies will bid for listing as a benefit on the ODB formulary. The two best bids will be listed as benefits for a two-year term (with a possible one-year extension), while all other companies will be de-listed from the ODB formulary. Companies will compete not on list price (which will remain at 50% of the brand price for all bidding companies), but primarily on a confidential volume-based discount to be rebated to the Ontario government, along with other objective and subjective factors. The amount of the secret rebates will not be disclosed by the government, and any disclosure by the winning companies will result in the forfeiture of the listing. This is expected to widen the spread between the prices paid by the government and private payers for multi-source products.

As a pilot project, four drugs - gabapentin, enalapril, ranitidine, and metformin - will be put up for tender on August 1.

Effect on Generic Industry

This scheme, if implemented widely, will disrupt the business models for firms in the generic pharmaceutical industry that sell in the Ontario market, which represents 39 percent of the Canadian market. Instead of predictable access to the formulary, companies will be engaged in a feast or famine competition for the market. In addition, it may be anticipated that even for the winning companies, profit margins on products will be small as generic companies are squeezed between rebate demands by both the Ontario government (to get on the formulary) and pharmacies (to be stocked). Some Ontario-focused generic companies (Ontario is home to one of the largest concentrations of generic drug manufacturers) may be driven out of business, or less dramatically the industry may consolidate through mergers or acquisitions into larger companies that can better manage the uncertainty associated with multiple tendering competitions.

Effect on Pharmaceutical Patents and Brand Name Companies

The immediate effect of this change on brand name companies will be small. Brand name companies are unlikely to compete directly in the tendering process, as a win would reduce the reference “brand” price, the maximum price at which the brand name is allowed to sell in Ontario, to the “list” price specified in their bid, a maximum of 50% of the original brand price. Brand-name drug companies are particularly sensitive to list price reductions as they can put pressure on their prices in other markets, such as the large and lucrative U.S. market. However, brand companies may compete via authorized generics, a company licensed by the brand company to produce the product under whatever patent protection the brand company may possess. Brand companies may also compete in situations where they are already openly selling their products for lower prices in other jurisdictions, as may happen in Ontario with ranitidine.

The more important effect of the tendering scheme from the point of view of brand name companies may be to extend and strengthen their effective Canadian patent rights. The primary mechanism in Canada to genericize brand name pharmaceuticals and lower their cost is the federal Patented Medicines (Notice of Compliance) or “PM(NOC)” regulations. These regulations, which are similar to the Hatch-Waxman system in the United States, prevent the federal Ministry of Health from issuing NOCs to generic companies as long as there are relevant patents listed on the Patent Register. Listed patents may include patents that expire many years after the expiry of the initial drug patent. However, the regulations also allow generic companies to challenge the patents listed on the Patent Register as either invalid or non-infringed by the generic’s planned production and sales, and thus obtain an early NOC. As a result, Canada is an active site for pharmaceutical patent litigation.

Ontario is 39% of the total Canadian market. If tendering is widely used in Ontario, including for products that are newly genericized, the incentive for generic companies to invest in costly patent challenges under the PM(NOC) regulations will be correspondingly reduced. If generic challenges to brand name pharmaceutical patents decline, brand-name companies may well realize many extra years of monopoly-level sales and profits.

Challenges for the Generic Industry and Ontario

The government announcement has generated particular opposition from pharmacists and the generic pharmaceutical industry. The generic industry must confront the longer-term policy drivers that underpin the Ontario government’s actions. Faced with rising health-care costs, the Ontario government is turning to tendering as a means to lower its spending on generic drugs through the ODB program – and tendering may well lower government spending in the short run. To be persuasive, the industry must present alternatives that address the need for lower spending on health care and longer-term considerations. One approach is to emphasize the long-term benefits of a healthy generic industry with active pharmaceutical patent litigation to Ontario government spending, through the accelerated genericization of pharmaceutical products and through the competition flowing from a large number of generic competitors. This may be persuasive, given that the ODB spent $2.6 billion in 2007 on brand-name pharmaceuticals versus $785 million on generic products, although generic products represented more than half of the actual claims. However, the Ontario government is likely to have significant political difficulties with the size of rebates flowing to pharmacists.

As a final complication, this policy announcement and implementation is proceeding at an unusual pace, with the tendering policy first announced to the industry on July 4, 2008 with no previous consultation, written comments to be received by July 11, and the first call for bids to have taken place on July 25. The only written description of the program provided to stakeholders is a power point presentation and a question and answer document. Furthermore, it appears that the policy has taken various Ontario cabinet ministers by surprise. After industry submissions and meetings with government officials, the date of the first call for bids was pushed back by a week to August 1, 2008. However, it is unclear whether the previously announced schedule – a closing date of August 22 and a decision to be announced on September 12 - will be likewise delayed.

This is perhaps an inevitable result of the design of the relevant institutions for developing drug policy in Ontario, which grants significant power and discretion to one official (the “Executive Officer”), who perceives their mandate as solely to lower the immediate costs of administering the ODB program to the exclusion of any other considerations, including increased costs because of later generic market entry and with little formal oversight by other bureaucrats or elected officials. A combination of power with an exclusionary focus on only one of many public interest objectives is likely to generate poor public policy.

It is also unclear, if the pilot is successful, how widely the tendering system may be used. It has been suggested that the system may be widely implemented; however, in the wake of complaints from industry it has also been suggested by government sources that tendering may be limited to only about a dozen products. In any case, even a limited tendering scheme in the present may turn into a widespread tendering scheme in the future.

Tendering on the ODB formulary is a critical public policy issue. It directly affects the cost of administering the ODB programs to the Ontario government, Federal patent and pharmaceutical policy, revenue streams for pharmacies, the cost of pharmaceuticals to the public, and the future structure and health of the generic drug industry. The resolution of these questions will have very significant long-term results.

Alexander Stack

Gilbert’s LLP

First Appeal from Re-examination Proceedings in Canada

Here's an article I recently submitted to lexology (www.lexology.com). One of the interesting things about Canadian intellectual property law is that, compared with the United States, you get a lot more cases that are the first or one of a few to address an issue. In this case, re-examination.

Canada: First Appeal from Re-examination Procedure

The Federal Court of Canada recently handed down a decision in the first-ever appeal from the re-examination procedure introduced into the Patent Act in 1987. Genencor International, Inc. v. Commissioner of Patents and Attorney General of Canada 2008 FC 608 sets a number of important precedents, including determining the role of the initiator of the re-examination and the standard of review, and highlights difficulties with the present re-examination system. The trial judge also made a surprising ruling that it is not necessary for patent examiners to interpret claims by the same methodology as courts, raising the specter of many future complications. We can refine our views on the strategic use of re-examination proceedings in light of this decision.

The Re-examination Procedure

Re-examination provides a relatively inexpensive, summary procedure to have the Patent Office reconsider the claims of an issued patent. Any person may request re-examination by filing a request with written prior art (patents, patent applications or printed publications). Within three months, a Re-examination Board of at least three persons, two of whom must be Patent Office employees, determines whether the prior art presents a substantially new question of patentability of any of the claims in the issued patent compared to the proceedings during the initial prosecution. If the Board finds that the prior art does not raise a substantially new question of patentability, the process ends with no right of appeal on the part of the initiator of the re-examination. If a new question of patentability is found, the Board then has 12 months in which to cancel, accept or amend the claims in the issued patent. The patentee makes submissions during this period, typically making arguments in support of its issued claims, and if desirable submitting amended claims for consideration. The final decision of the Board may be appealed to the Federal Court, as was done in this case.

No Role for the Initiator of the Re-examination

The Genencor proceedings reinforce the limited role of the initiator of the re-examination beyond the initial request. In this case, the re-examination was initiated by Novozymes A/S, who alleged that the Genencor patent was anticipated by prior art that was not considered in the initial examination. The Re-examination Board agreed, and cancelled all of the claims of the Genencor patent.

When Genencor appealed to the Federal Court, Novozymes sought standing as a party. The Federal Court of Appeal affirmed that the initiator has no role after persuading the Board that a re-examination is warranted. Subsequent written submissions by Novozymes were not considered or even read by the Board, and on appeal Novozymes was refused standing as either a party or intervenor. This decision confirms that re-examination is an ex parte proceeding, and that the initiator of the re-examination has only a minor influence on its outcome.

Canada has a liberal patent impeachment process, with wide standing to commence an action to have a patent declared invalid by the court, with rights to discovery and to give expert oral evidence. The exclusion of the initiator of the re-examination from the subsequent process may be justified by noting that if the initiator is dissatisfied with the results of a re-examination, an impeachment action is always available. Indeed, the judicial reasons in the Genencor hearings reveal a concern that the re-examination proceedings not be turned into a second patent impeachment process.

Standard of Review

Gibson J. found that the appropriate standard of review of the Board’s decision is “reasonableness”, or that the decision of the Board should not be interfered with in the absence of “palpable and overriding error”.

In contrast, in typical infringement or impeachment actions, no deference is given to the decisions of the patent examiner. However, in a typical patent action, the parties have placed evidence before the court which was not before the examiner, making the question of deference moot. This raises unanswered questions regarding the standard of review of patent examiners’ decisions in impeachment and infringement actions if no new evidence or arguments are placed before the court, and plays into the strategic use of re-examination procedures, as discussed below.

It may seem odd that the patentee lost its patent without the opportunity to be heard before a court on a standard of correctness, with expert witnesses and an authoritative judicial construction of the claims. However, it should not be forgotten that the patentee was the beneficiary of ex parte hearings before the Board and Court, with no written or oral evidence or arguments presented by parties adverse in interest. As might be expected, this situation is generally perceived to be favourable to the patentee, and this is the first of 47 re-examination decisions under the post-1987 Patent Act to be appealed by a patentee.

Difficulties with the Re-examination System

As emphasized by Gibson J., the re-examination procedure set up by Parliament presents difficulties. Primarily, there was no party to contest the patentee, Genencor, on the substantive merits of the Board decision. As discussed above, the initiator of the re-examination, Novozymes, was denied party or even intervener status.

The Commissioner of Patents declined to participate, citing non-intellectual property case-law holding that it is inappropriate for federal agencies to defend their decisions during appeal proceedings. This left the Attorney General of Canada to be necessarily added as a party under the Federal Court Act, but the Attorney General declined to address the merits of the Board decision, arguing only that the procedures provided by the Patent Act and the principles of natural justice were followed by the Board.

As a result, the proceedings before the Federal Court were ex parte on the merits, which while consistent with the statutory scheme of the Patent Act, placed the trial judge in an uncomfortable position. To some extent, the trial judge’s discomfort was relieved by his finding that the review was on a reasonableness rather than a correctness standard. However, if on appeal the correct standard for review is found to be correctness, Gibson J. described his position as “untenable” on substantive issues.

The Different Roles of Courts and Examiners?

Surprisingly, Gibson J. analyzed the approach patent examiners may take to claim construction and concluded that certain Supreme Court jurisprudence applied to trial and appellate courts, but not to examiners. He quoted Binnie J. of the Supreme Court of Canada, who wrote in the 2000 Whirlpool case that a simple dictionary approach to construing claims must be rejected in favour of a reading of the specification to put claim terms in context. Gibson J. then specifically rejected the applicability of this ruling to patent examiners during the examination of patents, whether as part of a re-examination or during normal patent prosecution. Gibson J. returned to this point a second time in his decision, writing that “[C]ounsel for Genencor is urging that the Court place on the Board a burden mandated for courts by the forgoing quotation from Whirlpool, which is entirely inappropriate to their experience, to their accustomed role and the role that is contemplated for them by the re-examination provisions of the Patent Act.”

It is unclear from reading the decision why Gibson J. felt it was necessary to address this issue in this manner, as the record from the Re-examination Board reveals resort by the Board to the specification of the Genencor patent in construing the claims.

Fundamentally, this ruling suggests that a patent claim may be office-valid, but court-invalid, and vice-versa. The results are pernicious. For example, in an appeal from re-examination – the situation in the Genencor case - it may be that the claims are invalid under the claim construction allowed in the patent office, but valid under the claim construction required of the courts. However, since the only question on appeal is on whether the Board properly performed its duties, the patentee has no route to re-issue the claims or get them before a court for a judicial consideration: if the patent was properly rejected under the claim construction standards that apply to patent examiners, that is the end of the matter. Assuming the Genencor case is appealed, this specific finding is most likely to be overturned.

Discussion

From a strategic point of view, the re-examination procedure has typically been disfavoured by counsel to potential patent defendants, largely viewed as providing an opportunity for patentees to strengthen their claims in an ex parte process rather than as a simplified procedure to knock out invalid claims. The Genencor hearings reinforce these views, given the rejection of Novozymes’ attempts to influence either the Re-examination Board or the appeal to the Courts. However, it should be noted that if the Genencor decision stands, patentees will find it difficult to overturn unfavourable decisions by the Re-examination Board, suggesting that in limited situations a re-examination reference may be a fruitful move by a potential patent defendant.

For patent holders, this case and recent Canadian jurisprudence on the standard of review of administrative decisions suggests viewing re-examination more favourably. Possibly, where the facts and arguments on claim validity made before a patent examiner are identical to the facts and arguments before the court, the court is legally obliged to review the examiner’s decisions on a reasonableness rather than a correctness standard. If that is the case, it may be advantageous for a patentee anticipating a particular validity attack to submit the argument to a Re-examination Board and argue the matter in an ex parte proceeding rather than risk an impeachment action with full participation by an opponent. However, the application of recent case-law on the standard of review in the patent context is largely unexplored, and this particular advantage of the re-examination process may be illusory.

Finally, one implication of the Genencor position that patent claims may be construed differently by examiners and courts is that the initiator of re-examination may be entitled to two “kicks at the can”. Potential patent defendants can submit an argument to a Re-examination Board, and if it is accepted, under Genencor the patentee is faced with difficulty in overturning the Board’s decision. If the argument is not accepted by the Board, the potential defendant can argue the validity before the courts by noting that the Board’s method of claim construction is not the same as the Court’s. In other words, the initiator of the re-examination gets to attack the patent on the basis of two different claim constructions. However, as noted above, the position that examiners and courts vary in their approaches to claim construction is the aspect of the Genencor decision most vulnerable to appeal.

It is unknown at this time whether the Genencor decision will be appealed to the Federal Court of Appeal. If it is, several interesting issues may well be raised. The adoption of a standard of review of reasonableness rather than correctness depends in part on the identification of patent examiners as being highly skilled in relation to their mandates and as persons skilled in the art, which may be questioned or at least should be further explored. As noted by Gibson J., the very structure of the re-examination process raises questions of whether a review on the standard of correctness is tenable. Finally, the finding that patent examiners can take a different approach to claim interpretation than the courts is of fundamental importance to the patent system, and hopefully will be subject to appellate approval or revision.

Alexander Stack

Gilbert’s LLP

Welcome to my blog!

My name is Alex Stack, and I am an associate with Gilbert’s LLP in Toronto with an unnatural interest in patent law and things associated with it: innovation policy, competition law, trade law, other intellectual property. Recently, I’ve been doing a lot of work in the pharmaceutical industry, but I’ve also done a fair bit in mechanical and software patents ( I lived through the .com bubble!). I mainly do litigation, opinion work and government relations, although in the past I’ve been primarily a solicitor (including patent and trade-mark prosecution).

I am mainly starting this blog as an outlet for my short occasional writings, thoughts or babbling on patent law or whatever else interests me (football, anyone?). I’ve set myself a goal of posting at least once a month, and we’ll see how things go. Hopefully, I’ll be able to convince some other people to join me on here, but I’m going to keep it simple for now.

I’m new to this, so please bear with me as I figure this blogging thing out!