Federal Court finds foreign, non-exclusive licensee entitled to damages

Federal Court finds foreign, non-exclusive licensee entitled to damages

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Janssen Inc v Teva Canada Limited, 2016 FC 593

A non-exclusive, foreign licensee of a patent who does not necessarily even exercise that right in Canada will still be found to have standing for patent infringement damages if that right can be traced back to the patentee.

In this decision, the Federal Court (“FC”) awarded Janssen Inc. (“Janssen Canada”) and Janssen Pharmaceuticals, Inc. (“Janssen US,” and collectively, “Janssen”) almost $19 million in total damages [153] for Teva Canada Limited’s (“Teva”) infringement of Canadian Patent No. 1,304,080 (“the ‘080 Patent”). The FC extensively reviewed the jurisprudence on standing and found that Janssen US was entitled to damages, even though it had never exercised its patent licence in Canada. [150]

Background

Until its expiry, the ‘080 Patent, entitled “Optically Active Pyridobenzoxazine Derivatives and Intermediates Thereof,” was owned by Daiichi Sankyo Company (“Daiichi”), a Japanese entity, [5] and covered the drug levofloxacin. [8] It was licensed to Janssen who marketed levofloxacin as LEVAQUIN. [11]

Issues

The FC identified four issues that needed to be addressed in the proceedings:

  1. Does Janssen US have standing to claim damages as a result of Teva’s infringement of the ‘080 Patent?
  2. What is the quantum of damages suffered by each of Janssen Canada and Janssen US?
  3. How is the pre-judgment interest, if any, awarded to Janssen US to be calculated?
  4. Should Janssen Canada have taken steps to mitigate its damages and, if so, when and to what extent? [25]

Of these issues, the first three were proposed by Janssen, and the fourth by Teva who agreed with the three proposed by Janssen. [25]

Standing

The first issue that needed to be addressed was whether Janssen US had standing to make a claim for damages. The claim by Janssen US for damages rested on section 55(1) of the Patent Act, which states that a “person who infringes a patent is liable to the patentee and to all persons claiming under the patentee for all damage sustained by the patentee or by any such person, after the grant of the patent, by reason of the infringement.” [28] The FC then considered the UK Patents Act 1977 [29] and a great deal of Canadian jurisprudence on standing for claims of damages, [30-42] before distilling its findings to the following four points:

  • The person must be one who, as a user, an assignee, a licensee or lessee has a title or a right that can be traced back to the patentee [Signalisation de Montréal Inc v Services de Béton Universels Ltée, 1992 CanLII 2427 (FCA)];
  • It does not matter whether a licensee is exclusive or non-exclusive [Armstrong Cork Ltd Canada v Domco Industries Ltd, 1982 CanLII 185 (SCC)];
  • The licence must be proved but it need not exist in writing [Jay-Lor International Inc v Penta Farms Systems Ltd, 2007 FC 358]; and
  • The claim must be one in respect of a use in Canada and not elsewhere in the corporate chain [Les Laboratories Servier v Apotex Inc, 2008 FC 825]. [43]

Teva argued that Janssen US could not be a person “claiming under” the patentee because there was no evidence that Janssen US had “used” the patented invention in Canada. [60] Janssen rebutted that it was unnecessary to show that Janssen US “used” the invention in Canada whether by having title to the drug in Canada or otherwise. Janssen argued that it was sufficient for Janssen US to show it was part of the chain whereby the title flowed through the licence from Daiichi all the way to Janssen US and Janssen Canada. [60] The FC found Janssen’s argument consistent with the law in Canada and that it was immaterial whether Janssen US had title, even momentarily, to the drug in Canada. [61] The FC concluded this segment of the analysis by finding that Janssen US was a person “claiming under” Daiichi for the purposes of having standing to claim damages for infringement. [68]

Quantum of Damages

The FC said that the quantification of damages is the exercise of a sound imagination and the practice of a broad axe. [69] The FC went on to extensively review the evidence presented by both parties, including the facts, assumption, positions, and the actual and “but for” marketplaces. [72-105] The relevant comparator market was found to be the respiratory fluoroquinolone class. [105] It was concluded that Janssen’s presentation of the evidence was what best represented what would have happened in the “but for” world scenario. [106] In assessing the damage period, the FC accepted that the period could extend beyond the expiration of the patent, [110] specifically that the losses due to prescription sales would terminate about two months after the expiration and the losses due to hospital sales would terminate about one year after the expiry. [112] The FC elaborated on the losses due to hospital sales by allowing a claim for losses caused by the patentee lowering its prices to compete. [116-118]

Pre-Judgment Interest

The FC referred to its previous judgement where it had awarded Janssen Canada and Daiichi pre-judgment interest, not compounded, at the average established bank rate. [133] That judgment was found to be equally binding on Janssen Canada and Janssen US, with the possibility that the Federal Court of Appeal might be able to clarify the situation in the appeal of Eli Lilly and Company v Apotex Inc, 2014 FC 1254. [138]

Mitigation

In this analysis, the FC began by stating that it is clear in “Canadian law that a party seeking to recover damages in a lawsuit bears the duty of taking all reasonable steps to mitigate those damages.” [139] Citing Southcott v Toronto Catholic School Board, 2012 SCC 51, the FC also clarified that where the plaintiff is alleged to have failed to mitigate, the burden is on the defendant to prove that the plaintiff failed to make reasonable efforts to mitigate and that the mitigation was possible. [140] Two evidentiary matters arise out of this: (1) to determine what was actually done, and (2) to determine whether something more or different ought to have been done. [141] The evidence revealed that Janssen was unable to raise its prices because it was bound by an existing 3-year contract, [143, 144] and that it was not able to revise marketing plans due to organizational constraints. [145] Teva provided no evidence as to what ought to have been done, only assertions, [146] leaving the FC unable to conclude that the steps taken by Janssen were insufficient to mitigate its damages. [147]

Conclusions

The FC determined that Janssen US had standing as a person “claiming under” Daiichi, the patentee of the ‘080 Patent, to make claims for damages. [150] Janssen Canada and Janssen US were awarded $5,498,270.00 and $13,342,949.00 in damages, inclusive of pre-judgment interest, respectively. [153]

Commentary

The main takeaway from this decision is the FC’s holding that a foreign, non-exclusive licensee, who had never even exercised their patent right in Canada, was still entitled to damages resulting from infringement of the patent. As the FC noted, this is in line with Canadian law under section 55(1) of the Patent Act, however it may open the gates for non-resident licensees of patents to bring actions in Canada, even if they may have nothing to do with the Canadian market. It is also important to note that Teva has filed a Notice of Appeal, so it may be too early to tell whether this principle will stand. Other decisions such as Apotex Inc v Eli Lilly and Co, 2004 FCA 358 and Actavis Pharma Company v Alcon Canada Inc et al, 2016 ONSC 7151, where Canadian courts have struggled with who a first person is under section 4(1) of the Patented Medicines (Notice of Compliance) Regulations also indicate that Canadian patent law is becoming increasingly complex and international.