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Five important cases from Canada

Michael Loney and Natalie Rahhal analyse five IP decisions issued in Canada, two from the Supreme Court and three from the Federal Court

Not always known for its blockbuster IP cases, Canada had a spate of important rulings in June and July. These included the scrapping of the controversial promise doctrine, the largest ever patent damages award by far, the keenly anticipated Access Copyright decision, the upholding of a ruling requiring Google to de-index results from its global search engine, and a trade mark dispute between two rum brands.

Supreme Court breaks promise doctrine

The Supreme Court of Canada on June 30 released its eagerly-awaited ruling in AstraZeneca Canada v Apotex, striking down the so-called "promise doctrine" and clarifying the requirement for patent utility. The doctrine required patent owners to establish arguable statements of utility in the patent disclosure or risk losing their patents.

"The Promise Doctrine is not the correct method of determining whether the utility requirement under s. 2 of the Patent Act is met," said the Court in the ruling, released on June 30. The Court said the doctrine is "unsound" and "not good law", adding: "It is an interpretation of the utility requirement that is incongruent with both the words and the scheme of the Patent Act."

The doctrine is "excessively onerous", the Court said, because it determines the standard of utility that is required of a patent by reference to the promises expressed in the patent and, where there are multiple expressed promises of utility, it requires that all be fulfilled for a patent to be valid. The Court laid out a two-step test to determine whether a patent discloses an invention with sufficient utility: "First, courts must identify the subject-matter of the invention as claimed in the patent. Second, courts must ask whether that subject-matter is useful – is it capable of a practical purpose (ie an actual result)?"

The case involved AstraZeneca's patent covering the compound esomeprazole in Nexium, a proton pump inhibitor drug that reduces gastric acid. The patent was found novel and unobvious at trial but invalid for lack of utility. The Supreme Court found AstraZeneca's patent was valid. The trial judge had found the claimed subject-matter of optically pure salts of the enantiomer of omeprazole to be useful as a proton pump inhibitor to reduce production of gastric acid. This was sufficient for the Supreme Court to find utility to make the subject-matter useful.

The decision was welcomed by Pharmaceutical Research and Manufacturers of America (PhRMA). "The 'promise' doctrine that enabled Canada to invalidate Astra Zeneca's patents had undermined Canada's stated goal of building an innovation economy," said Robert Zirkelbach, executive vice-president at PhRMA, in a statement. "With this decision Canada will rejoin the rest of the world in terms of how it defines patent utility." Zirkelbach said Canada has used this discriminatory policy in 29 court decisions that invalidated 26 patents on 22 medicines over the past decade, targeting only pharmaceutical companies.

But not all are happy with the end of the promise doctrine. Richard Gold, law professor at McGill University in Montreal, says: "Drugs patented in Canada may not be patented in the US because we have lower standards. That means we're paying more [for name brand drugs] and getting nothing." Gold worries that, without the promise doctrine, the Canadian market will be flooded with "junky" patents leaving innovators less freedom to operate and that even if a patent is granted in Canada it may not hold up to US scrutiny.

The emergence of the promise doctrine came with the Bristol-Myers Squibb Co v Apotex case in 2005. According to many practitioners, scholars and now the Canadian Supreme Court, the Canadian promise doctrine is unique and sets the bar too high. Other countries such as the UK and US have other measures that ensure a patent's utility is properly disclosed.

In 2013, Eli Lilly brought an arbitration suit against the Canadian government under the North American Trade Agreement (NAFTA), claiming that the promise doctrine violated the agreement. Eli Lilly argued that the invalidation of its patents under the promise doctrine qualified as a confiscation of the company's investments. The arbitration tribunal disagreed, ruling that the doctrine was not discriminatory nor was it in violation of Chapter 11 of the NAFTA agreement.

"In contrast, "the Supreme Court decided [AstraZeneca v Apotex] on a narrow legal basis. It did not talk about policy, but just an imminently debatable question of law," says Gold. The Court decided that a patent only needs to disclose some "scintilla" of utility (a word that received a lot of buzz in the decision's aftermath).

The Supreme Court's ruling on the promise doctrine could also affect the upcoming NAFTA negotiations. "We expected Canada to go in and say we can compromise on this rule a bit, perhaps it was too harsh, let's find a middle ground," says Gold. "They would've gotten something in return. The Supreme Court has basically robbed the federal government of being able to bargain about this."

Mark Schultz, a co-founder and co-director of George Mason University's Center for the Protection of Intellectual Property, says that this is the wrong way to look at the decision and IP rights as a whole. "If a country treats them as a bargaining chip, rather than a domestic economic development policy, they're really impoverishing themselves and depriving their own citizens of the protections they deserve," he says. Instead, he sees the Supreme Court's handling the question of the promise doctrine as "removing a sticking point" from the NAFTA and other future trade talks.

Record-setting damages

The Federal Court of Canada on July 5 awarded damages of C$645 million ($506 million) to Dow Chemical in its suit against Nova Chemicals. The calculation of the award stems from some of the peculiarities of Canadian patent law. It is based on a combination of three factors: a reasonable royalty for the pre-grant publication period of the patent; an accounting of profits for the post-grant period; and an accounting of "springboard profits" for a period of time following expiry of the patent.

The award more than triples the previous record awarded to Merck against Apotex. The Supreme Court of Canada last April upheld the Federal Court's July 2013 award in that case of C$119 million plus pre-judgment and post-judgment interest, which by some estimates put the total value at more than C$180 million.

The Dow award highlights the broad and flexible nature of monetary remedies available in Canada for patent infringement. These include pre-grant compensation of a reasonable royalty, post-grant damages or an accounting of an infringer's profits, and post-expiry springboard damages or springboard profits. Actual or constructive notice to an infringer is not required, with compensation remedies accruing automatically as of the date of patent application publication.

The Patent Act allows for the recovery of "reasonable compensation" for the period between the publication of a patent application and the actual grant of the patent, in addition to the period of infringing activity after the patent was granted. In this case, Dow's patent was issued in 2006, but Nova was still liable for reasonable compensation between 2004, when Dow's patent application was published, and 2006. The Court decided on a reasonable royalty rate of nearly 9%.

Plaintiffs in Canadian patent cases also have a unique strategic choice over whether they would like to recover profits they lost due to the infringing activity or to have the infringer disgorge the profits it made based on the infringing product. For Dow, the choice to pursue Nova's profits paid off.

Dow was asserting a patent for polyethylene materials used in wide range of packaging, such as food packaging, pallet wrapping and heavy duty bags such as are used for fertilizer. The infringement took place for a decade, between the 2004 publication of Dow's patent application and the 2014 expiry of the patent, so Dow had many years of profits to recover. In addition, Justice Simon Fothergill awarded "springboard" damages to Dow, allowing Dow to collect profits that Nova made on the infringing product even after the patent's expiration.

Like many large damages awarded in Canada, the infringing product here was also manufactured in Canada, which bumped up the recoverable damages another notch, as did the cost award of C$6.5 million, including nearly C$3 million in attorney's fees. Nova is appealing the decision.

Access Copyright's big win

The Federal Court of Canada on July 12 ruled in favour of The Canadian Copyright Licensing Agency (Access Copyright) in an action brought against York University. IP observers in Canada believe this important case is far from over, however.

In Access Copyright v York University, the Court determined that York University was required to pay the interim tariff established by the Copyright Board of Canada in 2010. The Court also ruled that York University's fair dealing guidelines were unlikely to result in actual fair dealings, and furthermore that the university had not adequately followed those guidelines.

Access Copyright is a collective that represents the creators and publishers of printed and digital works. York University and a number of institutions that formed the Association of Universities and Colleges of Canada (AUCC) had opposed the tariff, but withdrew its opposition and instead took the position that they were exempt from the proposed and interim tariffs, under expanded fair dealings protections, while the government considered the tariff.

Access Copyright hailed the ruling as "a big win for creators and publishers". University of Ottawa professor Michael Geist commented on his blog that "the immediate implications of the decision are significant: royalty payments to Access Copyright (that will likely be kept in escrow pending any appeals) and the prospect of other universities re-thinking their current copyright policies".

While the litigation and ruling was limited to a judgement of York University's particular uses and guidelines for copyrighted material, it will likely have an impact for other universities, particularly York's peers in the AUCC, forcing them to look carefully at their approaches to using copyright materials.

In his blog, Geist said the decision will also have an impact on the copyright review scheduled for later this year. He added, however, the decision means there will be little reason to revisit the inclusion of the "education" purpose in fair dealing as it had no discernible impact on the court's legal analysis." Geist noted that, while Access Copyright is celebrating the decision, it is not the end of a longer legal process. He said there are "very strong grounds for appeal" and the case is surely headed to the Federal Court of Appeal and possibly the Supreme Court of Canada.

Supreme Court upholds Google de-indexing decision

The Supreme Court of Canada on June 28 upheld a ruling by the British Columbia Court of Appeal that requires Google to de-index results from its global search engine.

The 7-2 Google v Equustek decision is the first time Canada's highest court has considered the power of Canadian courts to issue global injunctive relief against a no-party as a remedy for infringement on the internet.

The case involves technology company Equustek. Its former distributer Datalink re-labelled Equustek's products as its own, and also acquired Equustek's confidential information and trade secrets to make a competing product. Datalink left Canada but continued to sell infringing products on the internet. Equustek asked Google to remove infringing results from its search results, eventually seeking a worldwide interlocutory injunction directly against Google.

The Supreme Court said the issue in the case is whether Google can be ordered, pending a trial, to globally de-index Datalink's websites which, in breach of several court orders, is using those websites to unlawfully sell the intellectual property of another company. The court upheld the worldwide interlocutory injunction against Google.

"The decision to grant an interlocutory injunction is a discretionary one and entitled to a high degree of deference," said the court. "Interlocutory injunctions are equitable remedies that seek to ensure that the subject matter of the litigation will be preserved so that effective relief will be available when the case is ultimately heard on the merits. Their character as 'interlocutory' is not dependent on their duration pending trial. Ultimately, the question is whether granting the injunction is just and equitable in the circumstances of the case."

It continued: "The test for determining whether the court should exercise its discretion to grant an interlocutory injunction against Google has been met in this case: there is a serious issue to be tried; [Equustek] is suffering irreparable harm as a result of [Datalink]'s ongoing sale of its competing product through the Internet; and the balance of convenience is in favour of granting the order sought."

The case had 11 interveners. One of them, OpenMedia, is worried governments and commercial entities will see this ruling as justifying censorship requests. OpenMedia's interim communications and campaigns director David Christopher said the ruling was disappointing. "The internet is a global phenomenon, and there is great risk that governments and commercial entities will see this ruling as justifying censorship requests that could result in perfectly legal and legitimate content disappearing off the web because of a court order in the opposite corner of the globe. That would be a major setback to citizens' rights to access information and express ourselves freely," said Christopher. Other interveners expressing disappointment included the Canadian Civil Liberties Association and the Electronic Frontier Foundation.

Music Canada welcomed the decision, however. It and the International Federation of the Phonographic Industry acted as interveners supporting Equustek in the case. "Today's decision confirms that online service providers cannot turn a blind eye to illegal activity that they facilitate; on the contrary, they have an affirmative duty to take steps to prevent the Internet from becoming a black market," said Graham Henderson, president and CEO of Music Canada. "Today's decision provides a vital remedy to address illegal online activities and enforce the rights of creators."

Concerns are being raised about courts in other countries making similar rulings. University of Ottawa professor Geist said in a blog post that "the decision will ultimately grant Google more power, not less". "[W]hat happens if a Chinese court orders it to remove Taiwanese sites from the index?" Geist asked. "Or if an Iranian court orders it to remove gay and lesbian sites from the index? Since local content laws differ from country to country, there is a great likelihood of conflicts. That leaves two possible problematic outcomes: local courts deciding what others can access online or companies such as Google selectively deciding which rules they wish to follow."

The Supreme Court of Canada limited its reasoning to the need to address the harm being sustained by a Canadian company, the limited harm or burden to Google, and the ease with which potential conflicts could be addressed by adjusting the global takedown order. "In doing so, it invites more global takedowns without requiring those seeking takedowns to identify potential conflicts or assess the implications in other countries," said Geist.

Captain Morgan defeats liquor look-alike

On June 12, the Federal Court of Canada ruled for Captain Morgan over Admiral Nelson in a trade mark dispute between the two rum brands.

The 99-page Diageo Canada v Heaven Hill Distilleries decision found Heaven Hill liable for passing off Admiral Nelson's rum products as those of Diageo and for infringing and depreciating the goodwill attaching to Diageo's Captain Morgan character and label trade marks.

The Federal Court granted Diageo's request for a permanent injunction, demanding that Heaven Hill destroy all bottles or other merchandise bearing the Admiral Nelson's marks in Canada. The Court ordered Heaven Hill to pay Diageo the damages previously determined, as well as the interest and costs incurred by Diageo as a result of Heaven Hill's counterclaims, which the court dismissed.

The case highlights the importance of the survey. The Supreme Court of Canada in its Masterpiece v Alavida Lifestyles decision in 2011 made it clear that the use of expert testimony was not to be encouraged by courts. This underlined the importance of surveys in trade mark cases. Heaven Hills brought a motion to exclude Diageo's survey on technical grounds a month before the February trial, but was unsuccessful.

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