Siebrasse on the Canadian Supreme Court’s Nova v. Dow Decision

Readers may recall that, over a period of time from 2023 to early 2024, Professor Siebrasse published a ten-part series of posts on his Sufficient Description blog on the Canadian Supreme Court’s decision in Nova v. Dow, which addresses the use of the noninfringing alternatives concept in calculating an infringer’s profits.  (For links to the ten, see here.)  Professor Siebrasse also published a two-part article on the case, Nova v. Dow: Intuition or Principle in the Accounting of Profits Remedy, Part I, 35 IPJ 249 (2023) and Nova v. Dow: Intuition or Principle in the Accounting of Profits Remedy, Part II, 36 IPJ 81 (2023).  The articles are available on Westlaw.  Here is the common abstract:

An accounting of profits is an equitable remedy which, in patent law, requires the infringer to disgorge profits made through its use of the patented invention. It is broadly similar to gain-based remedies which are available in other areas of law, most prominently for equitable wrongs and unjust enrichment. An accounting is often sought by a successful patentee and is routinely granted when sought. In Nova v. Dow, the Supreme Court addressed the method of calculating an accounting of profits in the patent context. This article argues that at the doctrinal level, the approach set out by the Court fails to set out any coherent principle or test, and it will take decades for the uncertainty to be resolved. Nova v. Dow is equally problematic at a policy level, as it will result in excessive disgorgement that will have a chilling effect on investment in innovative sectors of the economy. The article argues that the best response to Nova v. Dow is for the lower courts to resile from the current practice of routinely granting an accounting. The article argues that the best response to Nova v. Dow is to legislatively abolish the accounting remedy. Alternatively, the courts should only grant an accounting against an infringer that wilfully declined to license the patent at issue.

Cotter and Shen on Destruction and Proportionality

My article with Professor Chung-Lun Shen, Destruction, Proportionality, and Sustainability: A Law-and-Economics Analysis, 32 Texas Intellectual Property Law Journal 111 (2024), has now been published.  It is available on Westlaw and SSRN, and should be available soon on TIPLJ’s website.  Here is the abstract:

This Paper undertakes a law-and-economics analysis of the remedy of destruction (and, subsidiarily, the related remedies of recall and removal) of products that infringe intellectual property (IP) rights. We begin with a brief survey of international, regional, and domestic law and practice, observing that (1) courts generally are believed to be more likely to order the destruction of copyright- and trademark-infringing goods than of patent-infringing goods, and (2) the frequency with which courts order the destruction of patent-infringing goods varies from one country to another. Our observations lead us to present two principal theses.

 

The first is that a comparative reluctance to order the destruction of patent-infringing goods, as opposed to copyright- or trademark-infringing goods, would be consistent with economic considerations. From an economic standpoint, destruction can be viewed both as a complement to injunctive relief and as a substitute (albeit an imperfect one) for ongoing monitoring of an infringer’s compliance with the terms of an injunction. The social benefits arising from substituting destruction for monitoring, however, are likely to be lower—on average, and perhaps subject to regional variation—for patent-infringing goods than for products that infringe other IP rights. In addition, although observers have long noted that the private and social costs of destruction provide a rationale for withholding that remedy when it would cause disproportionate harm to the defendant or third parties, these costs may be unusually high in patent cases—particularly that subset of cases in which the risk of patent holdup is substantial. In view of these factors, the social costs of ordering the destruction of patent-infringing goods are likely to outweigh the social benefits in a comparatively broader swath of cases.

In addition, I may as well note a paper I just came across in the preceding volume of TIPLJ, Deepa Sundararaman & Cleve B. Tyler, A Detailed Study of Court Decisions on Admissibility of Intellectual Property Damages Experts, 32 Tex. Intell. Prop. L.J. 45 (2023).  Here is a link to the paper, and here is the abstract:

Damages experts’ opinions in intellectual property litigation are routinely challenged for failing to reach standards set forth in the Supreme Court’s 1993 Daubert decision. Our study is the first of its kind, in performing a systematic and in-depth review of court decisions, including an analysis of the substantive reasons for challenge. We studied more than 400 Daubert orders covering nearly 1,300 decisions over a six-year period from 2015 through 2020.

 

Patent cases make up a significant majority of our dataset. Overall, we find an exclusion rate of 24%. While plaintiff experts are challenged more frequently than defendant experts, their exclusion rates are not significantly different. However, the type of analysis challenged appears to matter—in particular, lost profits analyses are excluded at lower rates than other types of analyses, and experts described as offering legal opinions are excluded at higher rates. Exclusion rates vary by district, with the Northern District of California (NDCA) having higher exclusion rates and the Eastern District of Texas (EDTX) having lower exclusion rates than the rest of the country. We study the impact of the Supreme Court’s Heartland decision on exclusion rates, which has reduced a plaintiff’s ability to engage in “venue shopping.” Overall, rates of exclusion in EDTX and Delaware declined following the decision, with a moderate increase in exclusion rates in NDCA.

 

Finally, we find substantial disparities in exclusion rates among judges. Among the top ten judges ranked by number of decisions, five have relatively “low” exclusion rates of less than 15% and four have relatively “high” exclusion rates greater than 30%. Variations such as these, along with differences by jurisdiction, raise questions about courts’ consistency in application of the Daubert standard—questions that are left for future researchers and policymakers to address.

Montefusco and Crespo on Spanish Eli Lilly v. Teva Decision

A post I published a few months ago titled Recent Patent Damages Decision of the Madrid Court of Appeal began as follows:

A few weeks back Adrián Crespo published a short post on the Kluwer Patent Blog titled Patent case: Judgment no. 18/2023 of Madrid Court of Appeals (Section32) of 23 June 2023, Spain.  The author writes that, as a result of the decision, “generic companies wishing to launch at risk” should be aware that “the first mover(s) will be held liable for triggering regulatory price reduction and thus for the damages arising from the price gap between the innovator and the generic, even if other third parties have launched at a later point in time.”  The post references a longer summary of the decision on Kluwer IP Law, to which I do not have access, but I was able to obtain a copy of the decision itself and will note a few things about it below.  (Here is a link to the decision in the original Spanish, and here is a link to a machine translation.)

More recently, Mr. Crespo and Josep Montefusco have published an article titled Madrid Court of Appeal Rules in Landmark Damages Case, 46 EIPR 65 (2024).  The abstract reads:

In a recent judgment, the Madrid Court of Appeal (Section 32) has ruled in the landmark raloxifene patent infringement case. The decision dealt inter alia with the allocation of liability among patent infringers for triggering regulatory price reduction. This comment considers the main implications of this precedent, which are likely to shape future damages claims in Spain (an important market for pharmaceutical products which, moreover, is not part of the Agreement on a Unified Patent Court).

The article provides a detailed analysis of the facts and the principal holdings.  It concludes, first, that one of the decision’s important holdings is that “patentees and/or their licensees may claim damages for losses suffered by their subsidiaries” (p.69).  (By way of comparison, I would note that U.S. law on this point is not altogether clear; for brief discussion and citations, see my post dated Oct. 26, 2016, noting Mark Lemley’s critique of Federal Circuit case law that generally precludes a patentee from recovering losses suffered by its exclusive licensee, and district court cases considering the “inexorable flow” doctrine, under which a parent may under some circumstances recover for losses suffered by a subsidiary.  In a somewhat related vein, see also my post dated Nov. 20, 2023, discussing some recent French and Canadian cases addressing  standing to sue of licensees and related companies. )  Second, the article notes the significance of the court’s holding that the first generic in the market can be liable for a subsequent price reduction even if other entrants follow, and considers its implications and possible nuances.

From Around the Blogs

1.  On Sufficient Description, Norman Siebrasse has (I think) completed his insightful multipart series on Nova v. Dow, the Canadian Supreme Court decision addressing the noninfringing alternative concept in the context of an accounting of the infringer’s profit.  The installments are available  here, here, here, here, here, here, here, here, here, and here.  He also published a post last week titled What Is the Evidentiary Threshold for Denying a Permanent Injunction on Public Interest Grounds?, discussing the Federal Court’s recent decision denying AbbVie an injunction against JAMP’s marketing of a generic version of a patented drug (previously noted here).  And, while I’m at it, I may as well noted a post he published in November that I overlooked at the time, titled The UK Approach to Electing an Accounting, in which he takes issue with a strand of U.K. case law that allows the patentee to opt for an accounting of profits if the quantum will be higher than an award of actual damages.  As Professor Siebrasse argues, awarding a supracompensatory remedy should be permitted only if there is some rational policy reason for doing so, e.g., the need to deter a type of infringement that otherwise might go undetected.   And yet another post I overlooked at the time is this one from September, titled What Causation Concept Is to Be Used in Allocating Fixed Costs?, which uses both Nova v. Dow and a recent Federal Court of Appeal case (GreenBlue Urban North America Inc. v. DeepRoot Green Infrastructure, LLC, 2023 FCA 184), to illustrate the difficulties in determining the appropriate way to deduct fixed costs, if such a deduction is required, when trying to calculate the infringer’s profit.

2. On the Kluwer Patent Blog, Chloe Dickson published a post titled Philip Morris v Nicoventures—e-cigarettes light up the doctrine of equivalents and Arrow declarations.  An Arrow declaration is a type of discretionary remedy, whereby the claimant seeks a declaration that a product the claimant has launched or is planning to launch lacks or would have lacked novelty or inventive step as of a particular date (and therefore, by implication, cannot infringe the opposing party’s pending patent(s)).  In the decision at issue, Justice Hacon sets out the following principles that are relevant for granting such a declaration:

 

(1) The court has a broad and flexible discretion to grant Arrow declaratory relief, Mexichem at [13].

 

(2) The circumstances in which an Arrow declaration will be justified are likely to be uncommon, Fujifilm at [95].

 

(3) The discretion should be exercised only where the declaration will serve a useful purpose, which requires critical examination by the court, Glaxo at [25]; Mexichem at [13].

 

(4) The requirement of a useful purpose will not be fulfilled solely because the respondent has pending patent applications and the applicant would like to know whether it will infringe any patents which may be granted pursuant to those applications, Fujifilm at [93] and [94(iv)) and (v)]; Glaxo at [25].

 

(5) The usual course envisaged by the statute is that the applicant should wait and see what, if any, patents are granted and where necessary use the remedy of revocation, Fujifilm at [93].

 

(6) Where it appears that the statutory remedy of revocation is being frustrated by shielding the subject-matter from scrutiny by the national court, this may be a reason for the court to intervene with a declaration, Fujifilm at [93].

 

(7) The court must guard against the application being used as a disguised attack on the validity of a granted patent, Fujifilm at [81]-[82] and [98(ii)].

 

(8) A declaration may be sought in relation to one or more features of a product or process, as opposed to a product or process in its entirety, Mexichem at [18]-[20].

 

(9) Where a declaration is sought in respect of only one feature or some features of a product or process, the level of generality of the proposed declaration may be relevant to whether it serves a useful purpose, Mexichem at [18].

 

(10) The court may take into account the possibility that a declaration is likely to be useful solely in arguments on obviousness in which it is deployed in an illegitimate step-by-step analysis of obviousness, although it may be difficult to know that this is likely to arise, Mexichem [22]-[25].

 

(11) The features in respect of which the declaration is sought must be defined with sufficient clarity, Glaxo at [30].

 

(12) Equally, the useful purpose said to justify the declaration must be clearly identified, Mexichem at [13]. . . .

 

(13) Subject always to the qualifications referred to in (7), (11) and (12) above, an Arrow declaration is likely to serve a useful purpose if the applicant can show that (a) the respondent's portfolio of patent applications and/or patents creates real doubt, likely to continue for a significant period, as to whether technical subject-matter which the applicant wishes to exploit can lawfully be used, (b) the applicant's reasonable intention to exploit that subject-matter would be of significant commercial advantage to it and (c) the declaration sought would, if granted, eliminate or significantly reduce the delay.

 

In this context "significant" means cumulatively sufficient to warrant the intervention of the court.

 

(14) The court will more readily find that there is a useful purpose where the respondent's behaviour has been consistent with an intent to prolong the doubt (paras. 190, 198).

 On the facts, the court declines to exercise its discretion to grant the declaration.

3. Of relevance to remedies but also broader issues of subject matter jurisdiction and procedure is an article by Ruixue Ran, Thomas Garten, and Justin Wang on Law360, titled A Comparison of Patent Dispute Resolution in US and China.

Canadian Court Denies Permanent Injunction in Biosimilar Case

The case is AbbVie Corp. v. JAMP Pharma Corp., 2023 FC 1520, decision by Madam Justice McVeigh.  (Thanks to Professor Norman Siebrasse for calling this to my attention.)  The decision is very long (217 pages), and I will admit that I haven’t read all of it for purposes of writing this post, but as the judge puts it “the dispute relates to JAMP’s SIMLANDI product – a biosimilar of AbbVie’s HUMIRA” (para. 1).  The dispute involves three patents, the relevant claims of two of which are found to be invalid; the judge rejects the validity challenge to the third patent, and JAMP concedes infringement of that patent.  The relevant question for purposes of the subject matter of this blog is whether AbbVie is entitled to an injunction.  The court concludes it is not.

The relevant portions are found in paragraphs 628-643 (pp. 182-88).  To summarize, the court states that under Canadian law injunction relief is discretionary, but that “this discretionary power is usually granted unless there is an equitable reason not to” (para. 630).  The court notes JAMP’s argument that removing SIMLANDI from the market “would deprive patients of the only 80 mg/0.8 mL formulation available in Canada” (para. 634), and that two of its experts suggested that patients who had to switch to the AbbVie formulation in the event of a removal might suffer injection site pain or suffer other possible detriment (paras. 635-37).  Ultimately, the court concludes:

[642] This is one of those rare cases where I will not grant a permanent injunction given the public interest factor. Forcing SIMLANDI patients to switch to another biosimilar, given it is the only 80 mg/0.8 mL formulation in Canada, is not in the public interest. AbbVie can be compensated. Even though the risk is low to those patients, it is preferable to compensate AbbVie rather than take SIMLANDI off the market. JAMP does not need to deliver up its infringing product.

 

[643] As suggested it is possible that AbbVie can be compensated by a reasonable, running royalty on future sales of SIMLANDI for any loss. This rate should easily be determined given the licensing agreements it has with seven other biosimilar pharmaceutical companies. But I will not make this determination as it is left to be determined at the bifurcated trial if the parties do not reach an agreement before.

Canadian law therefore would appear similar to U.K. law in permitting a court to exercise its discretion to deny injunctive relief in the public interest, subject to payment of a royalty, outside the framework established in the statutory provisions on compulsory licensing.  In Germany, some of the courts thus far have suggested they would go the other way on this issue, though several commentators (including those I mentioned on the blog last week) believe that German law should follow the U.K. (and now Canadian) approach.    

Do Nonexclusive Licensees Have Standing to Sue for Patent Damages?

A couple of recent posts on other blogs has led me to consider a topic that Roger Blair and I addressed long ago in our paper The Elusive Logic of Standing Doctrine in Intellectual Property Law, 74 Tulane L. Rev. 1323 (2000).  In that paper, we noted that under U.S. law exclusive licensees have standing to sue for patent infringement (though normally the patentee must be a named party as well), whereas nonexclusive licensees do not.  Doctrinally, the limitation imposed on nonexclusive licensees stems from the fact that under U.S. law a nonexclusive license is merely a permission to use, and conveys no promise that the licensor will refrain from licensing others.  On this logic, there is no legal injury to the nonexclusive licensee when that entity is forced to compete with an infringer (though of course the patentee suffers a cognizable injury, if only from the loss of an opportunity to license the infringer).  On a policy basis, moreover, it may be unduly difficult to ascertain ex post the extent to which the infringer diverted sales that otherwise would have gone to the nonexclusive licensee (since, again, the licensor was free to license others, including the infringer, and may well have done so absent the infringement).  Awarding the nonexclusive licensee an unfettered right to sue also could put the patent at risk, if the nonexclusive licensee initiates litigation without the consent of the patent owner and/or other licensees, though I suppose the license contract itself could impose some limitations on the nonexclusive licensee’s ability to do this.  Where the patentee has granted an exclusive license, by contrast—meaning, in the simplest case, that the patentee has promised not to license anyone other than the exclusive licensee—the exclusive licensee can sue for its own lost profits, and the patentee can recover whatever additional royalty it would have obtained from the exclusive licensee on the latter’s lost sales.

What prompted me to consider these issues again was, as I noted above, two recent posts, one on JUVE Patent and one on Sufficient Description.  The JUVE Patent post, titled No damages for Lilly France in Pemetrexed dispute with Viatris, states that a recent decision by the Judicial Court Paris rejected Lilly France’s request for infringement damages, because Lilly France is merely a subsidiary of the Eli Lilly Group, and neither the patent holder itself nor a licensee; and the French I.P. Code limits standing to sue to patent holders and licensees.  The post does not link to the decision itself, though Law360's UK edition has a story and a link to an English-language translation of the decision.  According to the decision, Lilly France "expressly states that it is not a licensee of the patent," and article 615-2 of the French Intellectual Property Code requires that one be either an owner or a licensee to assert an action for infringement.  It does allow even a nonexclusive licensee to sue, however, if the license contract expressly permits this and it informs the patent owner first ("si le contrat de licence l'y autorise expressément, à condition, à peine d'irrecevabilité, d'informer au préalable le titulaire du brevet").  I have to admit, I'm not sure why Lilly France wouldn't be considered some sort of licensee, given that "it claims to manufacture pemetrexed disodium in France on behalf of the companies of the Eli Lilly group."  If any readers can enlighten me on this point, I would appreciate it.

Over in Canada, Norman Siebrasse published a recent post titled Can the Election Between Damages and an Accounting Be Made After Discovery?, discussing a Canadian case, Angelcare Canada Inc. v. Munchkin Inc., 2023 FC 1111, in which the court held that two plaintiff companies in addition to patentee plaintiff Angelcare (Edgewell and Playtex) may recover infringement damages, even though there were never any formal licenses in place.  The decision states that under § 55(1) of the Canadian Patent Act, a person “claiming under the patentee” can claim damages, and the trend in Canadian law (as discussed in the decision in great detail) has been to interpret this provision broadly.  "The law does not require a license, be it exclusive or nonexclusive; it does not require that it be in writing, yet in this case we have the proof of such unwritten license through a variety of instruments" (para. 124).  (As the post notes, the decision also permits the patentee to elect for an accounting or damages after discovery has been completed; and denies a request for punitive damages, citing authority for the proposition that willful and knowing infringement is, by itself, insufficient to sustain an award of punitive damages.)

For what it’s worth, as I noted in my book (p.294 n.25) the rules in Japan are somewhat complicated, though as in the U.S. nonexclusive licensees cannot sue.