Monday, February 13, 2017

Canada's Federal Court of Appeal Reaffirms Relevance of Noninfringing Alternatives

The decision is Apotex Inc. v. ADIR, 2017 FCA 23 (Feb. 2, 2017).  Norman Siebrasse, who brought the case to my attention, has two more comprehensive write-ups on Sufficient Description, here and here.  The basic story is that in 2008 the district court found Apotex liable for the infringing manufacture and sale of perindropil tablets covered by Canadian Patent No. 1,341,196 (a finding later affirmed on appeal); and in 2016 it awarded an accounting (disgorgement) of the defendant's profits earned attributable to (1) sales in the domestic Canadian market and (2) sales to Apotex's U.K. and Australian affiliates for distribution in the U.K. and Australia.  Apotex didn't dispute that there were no noninfringing alternatives available for supply in the Canadian market, and thus that it was liable for all of the profit derived from domestic sales of the drug.  But it argued that there were noninfringing alternatives available for the export market--namely, that it could have arranged to have perindropil manufactured by companies in countries other than Canada in which the drug is not patented or the patent has been invalidated, and then distributed to the U.K. and Australian affiliates.  In 2015, the Federal Court (trial court) held, however, that the existence of such noninfringing alternatives was legally irrelevant--distinguishing the Canadian Supreme Court's decision in Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, on its facts--and that in any event the evidence did not show that Apotex could have arranged for the supply of noninfringing perindropil to the export market.  

On the legal issue, the Federal Court of Appeals reversed, reading Schmeiser (correctly, in my view) as standing for the proposition that noninfringing alternatives are indeed relevant.  In this regard, the court noted the Supreme Court's extensive discussion in Schmeiser of Professor Siebrasse's article A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms (2003) 20 C.I.P.R. 79, which argues in favor of the relevance of noninfringing alternatives.  (I'm happy to say that the appellate court also cited my book as persuasive authority that this rule makes sense as an economic proposition.)  Canadian therefore appears to be consistent with the long-standing U.S. recognition of the relevance of noninfringing alternatives, and at odds with the British approach as evidenced in cases such as United Horse-Shoe and Celanese.  On the facts, the court remands the case for the trial court to consider whether certain foreign companies could have supplied sufficient quantities of noninfringing perindropil to Apotex affiliates in the U.K. and Australian markets.  The court rejects Apotex's argument, however, that some of the profits it earned on foreign sales were for indemnity and legal services provided to its affiliates and not attributable to the drug itself.

It's an interesting question whether, in the U.S., the patent owner would be entitled to damages relating to products supplied to a foreign market under these circumstances, assuming there were no noninfringing alternative.  Probably not, I'd think; see, e.g, some of my previous blog posts and the sources cited therein, here, here, and here.  Would the availability of the disgorgement remedy, which U.S. patent law doesn't make available other than for design patent infringement, make a difference?

Finally, for another recent Canadian case addressing the topic of noninfringing alterantives (finding that there weren't any during the period in question), see Professor Siebrasse's February 3 blog post on Frac Shack Inc. v. AFD Petroleum Ltd.

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