Canada: Intellectual Property Litigation: Recent Developments Of Importance

Canadian Trade-Mark and Copyright Litigation

There have been a number of recent judicial decisions of interest in this area, which we highlight below.

Copyright Pentalogy

The Supreme Court of Canada issued decisions in five copyright cases in July 2012. The copyright bar was buzzing with excitement over the concentration of attention the Supreme Court was giving copyright law.

Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC34

This case dealt with the collection of royalties for musical works when these works were part of video games and, specifically, whether a separate tariff was applicable for the right to "communicate" musical works on behalf of copyright owners in this context.

The Court stated that the royalties for the reproduction of any musical works that are incorporated into video games are negotiated before the games are packaged for public sale. The question in this appeal was whether the rights are revived when the work is sold over the Internet instead of through a bricks-and-mortar store.

The Copyright Board concluded that video games containing a musical work were subject to a new fee when sold over the Internet, a decision that was upheld on appeal to the Federal Court of Appeal.

Adivided Supreme Court (5-4) overturned this decision and allowed the appeal, basing its decision on a principle of "technological neutrality", which requires the Copyright Act to apply equally between traditional and technologically advanced forms of the same media. The majority determined that musical works are not "communicated" by telecommunication when they are downloaded.

In a strongly worded dissent, Justice Rothstein stated that "technological neutra-lity is not a statutory requirement capable of overriding the language of the Act and barring the application of the different protected rights provided by Parliament."

Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC35

The Copyright Board determined that downloads and streams over the Internet came within the scope of the exclusive right of copyright holders to communicate to the public by telecommunication, and hence are subject to a tariff. Given the finding in the companion case, Entertainment Software Association, that downloading is not "communication", this left the question of whether "streaming" was a communication to the public. The focus on the analysis was whether streaming was "to the public".

Ultimately, the Court determined that "[a]lthough they occur between the online music provider and the individual consumer in a point-to-point fashion, the transmissions of musical works in this case, where they constitute 'communications', can be nothing other than communications 'to the public'". The Court cited with approval a portion from Professor Vaver's text:

Society of Composers, Authors and Music Publishers of Canada v. Bell Canada, 2012 SCC36

This case dealt with whether a royalty was applicable for music previews when commercial online music stores allowed 30-90 second excerpts of music works that can be listed to be consumers prior to purchasing the work. In the Board's view, the use of previews was not an infringement of copyright since it was "fair dealing" for the purpose of research, and, accordingly, no royalties were owed. This decision was upheld by the Federal Court of Appeal. The Supreme Court agreed and dismissed the appeal.

The test for fair dealing was previously articulated by the Supreme Court as a two-part test:

The first is to determine whether the dealing is for the purpose of either "research" or "private study". The second step assesses whether the dealing is "fair". The onus is on the person invoking "fair dealing" to satisfy both aspects of the test. The Court previously set six fairness factors for guidance: the purpose, character, and amount of the dealing; the existence of any alternatives to the dealing; the nature of the work; and the effect of the dealing on the work.

The court considered the American defense of "fair use", which did not involve a two-part test. The Supreme Court further cautioned against "the automatic portability of American copyright concepts into the Canadian arena, given the "fundamental differences" in the respective legislative schemes.

The Supreme Court agreed with the Board that the purpose of the "research" was to be considered from the user perspective, and that previews were for the purpose of conducting research to identify which music to purchase. This was found to satisfy the first part of the test.

The court conducted its analysis with respect to the six factors and determined that previews were fair, and thus the online service providers do not infringe copyright, and therefore no royalties were owed.

Alberta (Education) v. Canadian Copyright Licensing Agency (Access Copyright), 2012 SCC37

This case dealt with whether it would be copyright infringement for a teacher to copy extracts from texts and other works for use by students. This case hinged on whether such activities were saved by the fair dealing exception. The Supreme Court was divided (5-4) in finding that such activities were indeed fair.

The Court considered prior case law and determined that "copiers cannot camouflage their own distinct purpose by purporting to conflate it with the research or study purposes of the ultimate user".

The dissent focused on the reasonableness of the Board's decision, and even though a portion of the Board's analysis was agreed to be unreasonable, the dissenting opinion determined that the entirety of the Board's decision was not unreasonable because of this one finding.

Re: Sound v. Motion Picture Theatre Associations of Canada, 2012 SCC38

The appellants sought to impose a tariff for the use of sound recordings embodied in a movie through theatres exhibiting movies and in programs broadcast by commercial over-the-air, pay, specialty and other television services.

This case turned on statutory interpretation, and specifically the Board, the Federal Court of Appeal, and the Supreme Court all agreed that s. 2 of the Act specifically excluded from the definition of "sound recording" any "soundtrack of a cinematographic work where it accompanies the cinematographic work".

As such, the request for a tariff was properly refused.

Trade-marks

Sound Marks are now Registrable in Canada

After 20 years and a trip to the Federal Court, Metro-Goldwyn-Mayer Lion Corp.'s application to register its lion roar as a trade-mark finally matured to registration. The mark had been held up because of a requirement under the Trade-marks Act that requires a trade-mark application to contain a drawing of the mark.

The Canadian Intellectual Property Office has newly issued a practice Notice stating that it would now accept applications for the registration of sound marks.

According to the practice direction, the application for the registration of a trade-mark consisting of a sound should:

a. state that the application is for the registration of a sound mark;

b. contain a drawing that graphically represents the sound;

c. contain a description of the sound; and

d. contain an electronic recording of the sound.

As for MGM's lion roar, this is how the trade-mark is described:

TRADE-MARK DESCRIPTION:

The trade-mark is a sound mark consisting of a lion roaring. An electronic recording of the sound has been placed on file.

The the following is the drawing that graphically represents the sound: IMAGE

Federal Court of Appeal Reverses Trial Judge's Decision in Rooftop Case

The Federal Court of Appeal heard a complex appeal from the trial judge's decision over the ability of Philip Morris International Inc. (PMI) to sell a "no name" cigarette in Canada. The background to this case is that PMIdoes not own the MARLBOROtrade-mark in Canada. The Marlboro brand of cigarettes is currently sold in Canada by Imperial Tobacco Canada Limited (ITL), a subsidiary of British American Tobacco PLC(BAT).

In 2006, PMIintroduced a product without a name on it in Canada. This "no-name" product is referred to by PMIas "Rooftop". This new product shared a number of characteristics with PMI's Marlboro-brand cigarette packaging:

a. the "rooftop" geometric design;

b. the predominant colors of red, gold or silver, and white;

c. the Philip Morris crest with the initials PM;

d. The words "filter cigarettes" displayed in a white, oval bubble in the colored background above the "rooftop"; and

e. the red and gold-or-silver line along the bottom.

They were sold in packages having the rooftop design, the primary and dominant elements of which are protected as registered Canadian trade-marks owned by PMI. Canadian tobacco products are sold in a "dark market", that is, the product is hidden from view, and consumers must ask for the products by name.

Litigation ensued, with PMIas plaintiff seeking a declaration that its use of the ROOFTOPdesign trade-marks does not infringe the defendants' MARLBOROtrade-mark. After a trial, which lasted several months, the Court issued its decision (2010 FC1099) and concluded, inter alia, that:

ITLappealed, and the Federal Court of Appeal issued in June 2012. The Federal Court of Appeal reversed the finding on infringement. The Federal Court of Appeal held that although PMI's individual trade-marks were valid, the analysis for infringement by way of a likelihood of confusion should have been conducted as between the totality of the Rooftop package (constituting a single trade-mark) and the MARLBOROregistration.

Although the Federal Court of Appeal agreed with the trial judge that there was no similarity in appearance and sound, it disagreed on the conclusions as to the ideas suggested by the marks. The trial judge concluded that the idea of a mark had to be inherent to the mark itself (e.g., a design of a penguin giving rise to the idea of a penguin). The Federal Court of Appeal disagreed, stating that any idea conveyed by a mark falls within the analysis. Using the trial judge's finding that a number of consumers call the PMIproduct "Marlboro", and considering that the products were sold in a dark market, the Federal Court of Appeal held that there were two products by the same name in the market and therefore there must be confusion as to source.

The Federal Court of Appeal held the individual Rooftop registrations were valid and not confusing. However, it overturned the trial judge on whether the Rooftop registrations provided a full defense to infringement. The Federal Court of Appeal held that the defense was not open to PMIbecause the registrations were but one element of the package in totality and that it was the totality that was confusing, not simply use of the individual marks essentially as registered.

PMI has sought leave to the Supreme Court of Canada.

Canadian Patent Litigation Update

In the patent section of this article, we address two evolving principles in Canadian patent law. First, the role of patent claims, as compared with the disclosure, has been recently challenged as Canada's Federal Courts seek to elevate the importance placed on a patent's disclosure through a revised notion of the "promise of the patent". Second, the limit of generic pharmaceutical company entitlement to damages is under review as Canadian courts start to develop a body of jurisprudence dealing with damages claims under the Patented Medicines (Notice of Compliance) Regulations.

I. Promises, Promises — Amplifying the Patent's Disclosure

In Canada, the role of a patent's disclosure is in a state of flux. Over the last few years, Canadian patents have become vulnerable to the growing demands placed on the sufficiency of a patent's disclosure. In some cases, the Federal Court has required that the disclosure include data to "prove" the fact of the invention rather than simply teach what the invention is and how it works. In other cases, the Court has limited the scope of the invention to the disclosed preferred embodiment notwithstanding objectively broader claims.

Prior to 2005, patents in Canada were seldom invalidated due to an alleged inadequate patent disclosure. Since then, and in particular in the last three years, disclosure-related allegations of invalidity have become commonplace, and have found considerable success. Atouchstone for the recent reverence placed on the disclosure is the notion of the "promise of the patent". While the notion is not new, it was not previously employed as a threshold for utility. Moreover, promised utility was traditionally considered in the context of the patent's claims. In contrast, the recent incarnation of the "promise of the patent" is seen through the lens of the patent disclosure and has become the threshold issue for analyzing the utility of Canadian patents.

The phrase "promise of the patent" found dramatic acceptance in the last six years. The phrase was mentioned in only seven cases over four decades from 1961 to 2005. Since that time, however, the phrase has been used over 30 decisions by the Federal Courts. The majority of those cases were handed down in the last three years.

Under the mantra of "promise of the patent", the Courts have ventured beyond explicit promises to dissect the specification and elevate statements of benefit or advantage to become promises of utility. Each "promise" has become a battleground to test the validity of a patent.

For example, an analysis of the "promise of the patent" was at the forefront of the Federal Court of Appeal's decision in Apotex v. Pfizer, 2011 FCA236 (latanoprost). In that case, the FCAconstrued the "promise" of the patent to be rooted in the chronic nature of the disease treated by the invention. The Court found that the promised utility, namely chronic treatment, was not demonstrated or soundly predicted. As such, the patent was invalidated. In contrast, in an earlier decision involving the same patent, a differently-constituted FCApanel construed the claims without regard to the "promised" chronic nature of the disease and found utility to have been demonstrated. That panel upheld the validity of the same patent.

The Federal Court has even shown a recent willingness to go beyond the specification when construing the "promise of the patent". This is striking in that it has long been held in Canada that there is no "file wrapper estoppel"; the claims must be construed without regard to extraneous evidence. However, the Federal Court has recently considered the scientific context of the invention (Astra Zeneca v. Mylan, 2011 FC1023) and the nature of the disease (Apotex v. Pfizer, 2011 FCA236) in an effort to understand the promise of the patent.

It is possible that the elevation of laudatory statements to become threshold promises has reached its zenith. In Mylan v. Canada, 2012 FCA109, the Federal Court of Appeal focused on whether an "object of the invention" should be treated as a "promise of the patent" and, as such, be subject to all its requirements for utility. The patent's disclosure stated that it was an object of the invention to provide a compound with fewer side-effects. The Federal Court of Appeal interpreted this to be a forward looking aim of the invention and not a promise of the patent. Disclosure requirements were correspondingly diminished.

Promises and Sound Prediction

Aconcern that is particularly pressing for the pharmaceutical industry is the uncertainty over the degree of disclosure required to establish sound prediction. In Canada, as in most jurisdictions, a valid patent must be new, inventive, and useful. Utility in Canada is established by demonstration, or by sound prediction of utility if utility has not been demonstrated. Sound prediction has been held to require disclosure of the prediction (Apotex v. Wellcome Foundation, 2002 SCC77). In the pharmaceutical context, this requirement can be onerous.

For example, in Eli Lilly v. Teva, 2011 FCA220, the Federal Court of Appeal focused on the level of disclosure required for sound prediction. The lower court found that the patent at issue "promised" long-term effectiveness but that this result could not be extrapolated from a seven-week, randomized, double-blind, placebo-controlled crossover study of adults. The Court found that utility could therefore not be demonstrated.

Turning to whether utility could be soundly predicted, the lower court noted that an "additional disclosure obligation arises" in sound prediction, which obligation "is met by disclosing in the patent both the factual data on which the prediction is based and the line of reasoning followed to enable the prediction to be made". The Court found that, because no reference to the findings of the study was set out in the patent, the patent failed for want of disclosure of any sound prediction.

In its ruling, the lower court dismissed Lilly's arguments that the patent was "being assessed against the backdrop of a more rigorous disclosure obligation than may have been apparent at the time of its filing" and the lack of a public policy or statutory purpose for imposing a heightened disclosure obligation in sound prediction cases. Nevertheless, the decision was confirmed and upheld by the Federal Court of Appeal.

Although sound prediction was, until now, a validity attack leveled typically at pharmaceutical patents, the recent decision in Bell Helicopter v. Eurocopter, 2012 FCA152, demonstrated that mechanical patents are no longer immune. In Bell Helicopter, 15 of 16 claims to a helicopter landing gear were invalidated based on a lack of sound prediction. In this case, the Court construed the patent to promise the advantage of significantly reducing drawbacks of prior designs, such as high gear weight, ground resonance, and load factors. The Court held that, "if the patent states that a useful result has in fact been achieved, then that statement is accepted for what it says, subject to challenge in litigation".

The Court in Bell Helicopter found that 15 claims claimed embodiments whereby a particular component was offset "backward" in relation to the front ground contact point. The disclosure, on the other hand, specified that the component was "frontward" in orientation. The Court found that this backwards orientation was not soundly predicted in view the promise of the patent as interpreted from the disclosure.

II. Section 8 Damages — Setting the Limits

The PM(NOC) Regulations came into force in 1993. However, it is only recently that the Federal Court has begun to grapple with the calculation of damages claims pursuant to section 8 of the Regulations. Section 8 provides that a generic shall be entitled to any loss suffered if a prohibition application against it is withdrawn, discontinued, or dismissed. Not surprisingly, generics have been testing the limits what may be claimed under "any loss suffered".

Afirst generic strategy to increase claimed losses, as employed in Merck v. Apotex, 2009 FCA187, was to seek damages beyond the statutorily prescribed period by seeking its lost future profits. The Federal Court of Appeal, overturning the trial judge on this point, rejected this claim and limited damages to losses suffered, as opposed to caused, during the statutory period. The FCArecently confirmed this in Teva v. Sanofi-Aventis, 2011 FCA149.

Asecond primary strategy employed by generics to increase their claims has been to seek disgorgement of innovator profits. In Merck, the Federal Court of Appeal held that the Regulations limit generics to claiming only their own lost profits. It is notable that at the time the case was commenced, subsection 8(4) stated that "the court may make such order for relief by way of damages or profits as the circumstances require in respect of any loss referred to in subsection (1)". [emphasis added]

To resolve any confusion over the use of the term "profits", the 2006 amendments to the PM(NOC) Regulations expressly removed the reference to "profits" in section 8. This amendment was specifically intended to exclude disgorgement of the first person's profits as a remedy under section 8. The Regulatory Impact Analysis Statement (RIAS), which accompanied this amendment, explained the change as follows:

By 2012, it was "settled law that s.8 does not entitle a second person to disgorgement of a first person's profits" (Sanofi-Aventis v. Teva, 2012 FC552).

However, the clash over access to innovator profits has been revisited through a different juridical mechanism by adding equitable claims for unjust enrichment, allegedly beyond the Regulations, but on the same set of facts. While the Court in Apotex v. Servier, 2009 FC319, found that a claim for unjust enrichment framed in the same terms as the damages claim was improper, that did not deter generics from making such claims. In Eli Lilly v. Apotex, 2009 FC693, the Court held that it lacked jurisdiction to hear equitable causes of action such as unjust enrichment, and that the Federal Courts Act does not confer jurisdiction where the conduct of a party, not a patent, is at issue.

This suggested lack of jurisdiction was challenged by certain generics who relied on the Federal Court's jurisdiction to grant equitable relief to support such claims. The Federal Court of Appeal, in Apotex v. Eli Lilly, 2011 FCA358, accepted that it may have such jurisdiction, but nevertheless dismissed the generic Apotex's claim:

While the federal courts have spoken definitively on the issue of innovator profits, that is not the end of the story. Generic manufacturers are now bringing unjust enrichment claims to the provincial courts. The recent decisions in Apotex v. Abbott, 2010 ONSC6909 (leave to appeal refused, 2011 ONSC3988), were the first in these courts to consider this issue. Apotex had claimed damages pursuant to section 8 of the Regulations in the Federal Court. However, it discontinued the action there and commenced a virtually identical action in the Ontario Superior Court of Justice, adding a claim for unjust enrichment.

Amotion brought to strike the claim was dismissed on the basis that it was not plain and obvious that the Regulations are a complete code ousting common law causes of action or remedies. The motions judge also held that the Regulations were not a "disposition of law" constituting a juristic reason for the innovators' enrichment because innovators were not "required" by law to invoke the Regulations. This decision has not decided that claims for unjust enrichment in cases for generic damages are proper; it has merely delayed deciding the issue.

Reprinted with permission from The 2013 Lexpert®/American Lawyer Guide to the Leading 500 Lawyers in Canada © Thomson Reuters Canada Limited.

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