Federal Court opines on precedential value of prior PM(NOC) proceedings and scope of experimental use exception to public disclosure

Ryan Sheahan and Jessica Rutledge - 

The Federal Court’s decision in the consolidated proceedings of Bayer Inc. v Cobalt Pharmaceuticals Company  offers useful guidance as to the precedential value of proceedings under the Patented Medicines (Notice of Compliance) Regulations (PM(NOC)) in the context of subsequent infringement actions involving the same patent.  It also provides helpful direction in respect of the scope of the Canadian experimental use exception to anticipatory public disclosure.  

Background:  Patent at Issue

Both the PM(NOC) proceedings and the Federal Court infringement action concerned Bayer’s Canadian Patent No. 2,383,426 (the ‘426 Patent).  The ‘426 Patent relates to a pharmaceutical combination of ethinylestradiol and drospirenone for their use as a contraceptive.  Ethinylestradiol functions as an estrogen, and drospirenone as a progestogen, and both were known to inhibit ovulation when used in combination.  The ‘426 Patent contemplated a novel formulation using rapidly-dissolving drospirenone particles, which delivered unexpectedly consistent bioavailability.  This was unexpected because drospirenone was known to be inactive at an acidic pH of 1 when tested in a laboratory setting, and the normal pH range of the stomach is 1.0 to 3.0.  However, traditional coatings that would protect the drospirenone from the stomach environment released the drospirenone at variable rates, resulting in irregular effectiveness in different people.  Bayer tested a rapidly-dissolving particulate version of drospirenone in clinical trials with women, and discovered it was effective as a contraceptive in the ethinylestradiol combination, and did not degrade or require any coating.  Bayer patented this formulation of the contraceptive in the ‘426 Patent, with an effective Canadian filing date of August 31, 2000, and currently markets two products known as “Yaz” and “Yasmin”, which incorporate the patented invention, with different doses of ethinylestradiol .

Background:  Previous PM(NOC) Proceedings and New Infringement Action

In Canada, a generic drug manufacturer can seek approval to market (a “Notice of Compliance” or NOC) a generic version of a brand name drug by filing an Abbreviated New Drug Submission (ANDS) with Health Canada.   An ANDS cross-references the submissions for the approved brand name drug and includes bioequivalence studies and data to establish that the generic product is pharmaceutically equivalent.  Such bioequivalence studies generally cost less and take less time than the clinical trials required to be conducted to obtain the initial approval for the brand name drug.

The PM(NOC) allow brand name manufacturers to list one or more patents it may have that claim any aspect of the brand name drug (e.g. the medicinal ingredients, the dosage form, formulation, and/or uses) on Health Canada’s Patent Register.  Pursuant to the PM(NOC) Health Canada cannot approve a generic drug product until the expiry of the last listed patent, unless the generic manufacturer has served a notice of allegations on the brand manufacturer challenging the validity of one or more listed patents and/or alleging that the generic product does not infringe such patents.  The brand manufacturer has the option to bring an application to the Federal Court seeking an order to prohibit Health Canada from approving the generic drug product on the basis that the allegations of invalidity or non-infringement are not justified.  If the Court concludes that the allegations of invalidity or non-infringement are justified, Health Canada can approve the generic drug product.

Bayer listed its ‘426 Patent on the Patent Register against its Yaz tablets.  Both Apotex and Cobalt sought regulatory approval of their generic versions by comparison to the Yaz tablets and serving notices of allegations on Bayer with respect to the ‘426 Patent, in two PM(NOC) proceedings:

  • In December 2011, Cobalt sought approval for its proposed generic version of the Yaz tablet.  In seeking a Notice of Compliance, Cobalt alleged both that its drug did not infringe Bayer’s ‘426 Patent, and that the ‘426 Patent was invalid.  Bayer was successful in its application to prohibit the Minster of Health from issuing a Notice of Compliance in Bayer Inc v Cobalt Pharmaceuticals Company (Bayer v Cobalt), which was then upheld by the Federal Court of Appeal. [Cobalt Pharmaceuticals Company v Bayer Inc (Cobalt v Bayer)].
     
  • In July 2012, Apotex initiated similar proceedings for approval of its generic version of Yaz, claiming both non-infringement and invalidity of the ‘426 Patent.  On Bayer’s application to prevent Apotex’s Notice of Compliance, the Federal Court again upheld the validity of the ‘426 Patent, but found Bayer had not met its burden of proving that Apotex’s product fell within the scope of the ‘426 Patent’s claims (i.e., the allegations of non-infringement were found to be justified).  [Bayer Inc v Apotex Inc ] (Bayer v Apotex) Apotex subsequently obtained approval of its generic Yaz, and was able to bring the product to market.

Following these PM(NOC) proceedings, Bayer commenced three separate actions for infringement, one against Cobalt for the manufacture and sale of its Yasmin generic, and the other two against Apotex for the manufacture and sale of its Yaz and Yasmin generics, all of which were consolidated by the Federal Court.  Both Cobalt and Apotex denied the infringement allegations and, by counterclaim, alleged the ‘426 Patent’s claims were invalid for obviousness, anticipation, disclosure, overbreadth, insufficiency and lack of utility.  Bayer was successful in upholding the validity of the ‘426 Patent, and the Federal Court found infringement in all three cases. 

Federal Court Decision:  Precedential Value of the Prior PM(NOC) Proceedings

In coming to its decision in respect of the infringement claims and counterclaims for invalidity, the Federal Court provided a detailed analysis of the precedential value of prior PM(NOC) proceedings involving the same patent.  At the outset, the Court confirmed that the principles of stare decisis and comity apply where courts are exercising the same jurisdiction, for instance in PM(NOC) proceedings involving a patent previously considered in the PM(NOC) context.  However, courts considering a subsequent action for infringement are not exercising the same jurisdiction as courts that made findings in the PM(NOC) context.

The Federal Court noted that PM(NOC) proceedings are summary in nature, address different issues than trials, and use only affidavit evidence.  As such, they cannot result in a final determination of validity or infringement.  However, certain findings will be either prima facie binding, or potentially persuasive:

  • Questions of law:  pronouncements of higher courts on questions of law are binding on lower courts.  In the patent context, the construction of claims is treated as a question of law, and therefore the principle of stare decisis applies.  In this case, the Court found that the Federal Court of Appeal’s prior construction of the ‘426 Patent in Cobalt v Bayer was prima facie binding, but did note that the construction could be revisited if warranted by new evidence.  Claims construction includes the definition of the patent’s “inventive concept” and its “promise”.
  • Questions of fact or mixed fact and law: previous findings involving fact-based inquiries are potentially persuasive, but should be determined anew based on the evidence adduced at trial.  The Court confirmed that the determination of the person of ordinary skill in the art, as well as assessments of obviousness, ambiguity, overbreadth, utility and insufficiency were all questions of mixed fact and law. 

In this particular case, the Federal Court did not choose to depart from the Federal Court of Appeal’s construction of the claims.  Nor did it depart from any of the Federal Court of Appeal’s findings regarding the validity of the ‘426 Patent, in respect of the three grounds for invalidity (of the six argued at trial by the defendants) that were previously argued in the PM(NOC) proceedings.

As noted above, the Federal Court found infringement in all three of the joined cases.  In doing so, the Court agreed with the Federal Court of Appeal’s infringement analysis in the Cobalt v Bayer case, but the result differed from the Federal Court’s decision in the Bayer v Apotex case.  Essentially, the infringement claims turned on which expert evidence the Court accepted, in the context of a far more extensive inquiry at trial than was undertaken in the PM(NOC) context.

Federal Court Decision:  Regulatory Approval Trials Constitute Experimental Use

The case also provides useful analysis of the experimental use exception to anticipatory public disclosure.  Pursuant to s. 28.2 of the Patent Act, if a patentee discloses the subject matter of a patent to the public over a year before the patent’s filing date, to a degree that would enable the skilled person to practice the invention, the patent is invalid for anticipation. 

More than one year before the filing date, Bayer conducted clinical studies of oral contraceptives as indicated by the ‘426 Patent.  Apotex and Cobalt argued that these clinical studies constituted an enabling disclosure.  The Federal Court did not find these trials constituted an enabling disclosure, holding that reverse-engineering the tablets would have required inventive insight to discover the inventive concept.  In addition, the Court noted that even if the trials did constitute disclosure, the experimental use exception would apply.  Though not codified in the Patent Act, Canadian law has long held that there is no anticipatory disclosure where a prior use is experimental, and that an inventor may use any means of testing available to him or her that is reasonable and necessary, and done in good faith for the purposes of perfecting or testing the merits of an invention.

In this case, the Federal Court agreed with the application of the experimental use exception as applied in Bayer v Apotex,which noted the exception’s particular applicability in cases where public testing is a necessity.  In the case of oral contraceptives, clinical studies are necessary to prove a drug is safe and effective, and to gain government approval for sale, and both are compulsory steps for commercialization of the drug.  Apotex argued that the last round of clinical trials could not be experimental as they were undertaken for governmental approval and not to prove the drug was safe and effective.  However, the Federal Court found that such a purpose did not bring the trials outside the experimental use exception, as one of the purposes of regulatory approval is to confirm the safety and efficacy of a drug.

Next Steps

The issue of appropriate relief was bifurcated from the issues of validity and infringement.  On October 27, 2016 in Bayer Inc v Cobalt Pharmaceuticals Company,the Federal Court ordered that Bayer could was entitled to elect between an accounting of the profits of Apotex and Cobalt, or all the damages sustained by their infringement of the ‘426 Patent.  

Both Cobalt and Apotex have appealed the Federal Court’s decision.  

Federal Court of Appeal clarifies Industrial Design Act

Justine Whitehead and Gina Demczuk - 

In Zero Spill Systems (Int’l) Inc. v Heide (Zero Spill), the Federal Court of Appeal (FCA) has clarified that a functional feature of an industrial design may be protected under the Industrial Design Act.

The underlying action involved four plaintiffs, and concerned allegations of patent and industrial design infringement with respect to fluid containment apparatuses that were manufactured and distributed by the defendants (referred to collectively herein as “the Heide Defendants”) for use in oil field operations.  While many arguments with respect to patent infringement were raised at the Federal Court and FCA, this post will focus solely on the arguments with respect to the industrial designs. 

The Federal Court initially dismissed the action (see 2013 FC 616), and Zero Spill appealed all of the Federal Court’s findings.  In particular, the Federal Court held that the Heide Defendants had not infringed Canadian Industrial Design 86,793 (the ‘793 Design), by selling a line pipe tray known as a “CAPP tray”, which is designed to capture fluids that leak or are spilled during oil field operations. The Federal Court’s reasons revolved around paragraph 5.1(a) of the Industrial Design Act, which states that “[n]o protection afforded by this Act shall extend to features applied to a useful article that are dictated solely by a utilitarian function of the article”.

Although there were many similarities between the ‘793 Design and the CAPP tray, and despite the fact that the Heide Defendants had used Zero Spill’s product as a model for their own, the Federal Court found that Zero Spill had failed to prove infringement on a balance of probabilities.  In particular, the Federal Court noted that Zero Spill had not addressed the “legal distinction between design features that are visually appealing and those that are purely functional or utilitarian”.   The Federal Court’s reasons indicated that because many features of the ‘793 Design were in some way functional, these features were also unprotectable pursuant to paragraph 5.1(a) of the Industrial Design Act, notwithstanding that they might also appeal to the eye.  

Furthermore, the Federal Court found that Zero Spill had failed to lead evidence establishing that the CAPP tray had trenched on the visual features of the ‘793 Design. As the Federal Court held that the plaintiffs carried the burden of proving that the CAPP tray infringed the ‘793 Design, the Federal Court found that Zero Spill had failed to prove infringement on a balance of probabilities.

On appeal, Zero Spill argued that it had no burden under paragraph 5.1(a), and rather, the burden was on the Heide Defendants to show that the paragraph applied. Second, Zero Spill argued that paragraph 5.1(a) only excluded features that were dictated solely by their function, rather than all features which may have some coincident function.

In agreeing with Zero Spill’s arguments, the FCA stated that subsection 7(3) of the Industrial Design Act, creates a presumption of compliance with the entire Act.  Subsection 7(3) of the Industrial Design Act states that the certificate of registration for an industrial design is sufficient evidence, in the absence of proof to the contrary, “of the design, the originality of the design, of the name of the proprietor, of the person named as proprietor being proprietor, of the commencement and term of registration, and of compliance with [the Industrial Design Act]”.

In overturning the Federal Court, the FCA held that the effect of this subsection is to place the burden on the defendant in an infringement action to challenge the validity of the registration. One way to rebut the presumption would be to successfully invoke paragraph 5.1(a) of the Industrial Design Act.

As a result, the FCA held that the defendants were required to plead that certain features of the design were unprotectable because they were dictated solely by function. As the defendants had failed to do this, the Federal Court’s finding of non-infringement could not stand, and the issue of infringement was remitted back to the Federal Court for redetermination.

With respect to Zero Spill’s second submission, the FCA clarified the protection afforded under paragraph 5.1 (a) of the Industrial Design Act, and disagreed with the Federal Court’s finding that all functional features of an industrial design are unprotectable by virtue of paragraph 5.1(a), despite the fact that these features may also appeal to the eye.  In its reasons, the FCA found that this interpretation ran counter to the ordinary meaning of paragraph 5.1(a), and the purpose of the Industrial Design Act. As paragraph 5.1(a) states that “features … dictated solely by a utilitarian function” (emphasis added), are unprotectable, the FCA found that features could be both useful and visually appealing. In these circumstances, paragraph 5.1(a) could not apply.

Furthermore, the FCA noted that under subsection 64(2) of the Copyright Act, an article is exempt from copyright protection if there have been more than 50 copies made, and if the article is functional. In light of this, the FCA found that the Industrial Design Act would serve no purpose if it did not protect functional features. The FCA found that both the text of paragraph 5.1(a), and the underlying purpose of the Industrial Design Act confirmed that “functional features of designs may be protected under the Act. Only those features whose forms are dictated solely by function are not protected.”