How to avoid the bitter taste of infringement litigation

How to avoid the bitter taste of infringement litigation
Philip Mendes da Costa, managing partner with Bereskin & Parr LLP.
The Saccharin doctrine — which does, in fact, deal with the well-known sugar substitute — is an old U.K. law dating back to 1900, however it has implications in today’s world and is often cited in drug manufacturing cases. And in Canada, the Supreme Court has expanded the interpretation of the original law to include product claims, not just process claims.
Basically, manufacturers importing components made abroad using a process patented in Canada could infringe upon a Canadian patent. However, the bounds of what could infringe make it difficult — and potentially expensive — for a manufacturer to assess its liability.

While the Saccharin doctrine is particularly applicable to pharmaceutical and high-tech firms, it can apply to any manufacturer — and in today’s world of outsourcing and offshoring, it’s perhaps more important than ever.

But many small and mid-size manufacturers don’t have in-house patent expertise, so what can in-house counsel do to ensure they don’t infringe upon a Canadian patent?

Why an old law is important today

About a century ago, a company outside the U.K. made saccharin and imported it into the U.K., and as part of the process they had to make an intermediate (a chloride). The final product brought into the U.K. was saccharin, not the intermediary. However, the court ruled this was still an infringement of a U.K. process; the result was the Saccharin doctrine.

In Canada, the Saccharin doctrine has been extended to cover product claims, not just process claims, says Philip Mendes da Costa, managing partner with Bereskin & Parr LLP. This can be problematic, he says, because as an importer, you might not know how the various components of your product were made.

An “intermediate” could infringe upon a Canadian patent to a process and be considered, by a court, to be depriving the inventor, even in part or indirectly, of the full enjoyment of the investment. What exactly is an intermediate? If someone takes A, B, and C, reacts them to create D, and then mixes D with E, F, and G to create a completely different product, D would be considered an intermediate.

In a landmark case involving Pfizer Canada Inc. and Warner-Lambert Co. against the Minister of Health in 2007, a drug was made in India using an intermediate and the final product was imported and sold in Canada. While the process wasn’t patented, the intermediate was, and the court ruled it was appropriate in this case to extend the Saccharin doctrine. “It leaves it open for another court to further extend it, so it’s a very relevant issue,” says Mendes da Costa.

“This is a problem for any manufacturer,” he says. “Most Canadian manufacturers to one degree or another are assemblers — nobody is fully integrated and makes everything.” An automobile manufacturer, for example, may need rubber for wiper blades, but doesn’t necessarily know how that rubber was made.

Typically manufacturers buy a number of components, assemble parts, and manufacture products. These components are often made offshore (in a laptop, for example, the components would include everything from circuit boards to display screens). A local manufacturer might work with several suppliers and innocently buy something that is protected by a patent.

This issue often comes up with pharmaceutical and high-tech companies. “In the high-tech field the propensity for litigation to occur is substantially higher [than many other manufacturing fields] because of the number of components that can go into one single device,” says Mendes da Costa.
The Saccharin doctrine is rooted in the principle that the patentee shouldn’t be deprived from the full benefit of a patent monopoly, even if it’s in some other jurisdiction or some other country, says Susan Beaubien, lawyer, patent agent, and trademark agent with Macera & Jarzyna LLP.

While the Patent Act doesn’t have a definition of infringement per se, it has traditionally been viewed as interference with monopoly, with the exclusive use to make, use, or sell. “What does it mean to use an invention?” says Beaubien, adding “use” is an ambiguous term.

The Monsanto case

Take the Monsanto case: During 2004 and 2005, Monsanto Co., a multinational agricultural biotech company, filed several lawsuits against farmers in Canada and the U.S. (for growing crops from a seed using a patented gene) on the grounds of patent infringement.

In May 2004, the Canadian Supreme Court ruled that by cultivating a plant containing the patented gene and composed of the patented cells without license, the patentee was deprived of the full enjoyment of the patent.

If there’s any commercial benefit to be gleaned from the possession of patent subject matter, the question comes down to whether the patentee is being deprived in some way, says Beaubien. The courts will look at the importance of the process: If it contains all or part of a patented product, particularly if you can identify it, there is a strong case for infringement.

If a company outsources the production or parts of their production, it needs to consider the implications of the Saccharin doctrine. While they may be free and clear in India or Italy, they may not be free and clear in Canada.

The Apotex case

Another high-profile case with implications for Canadian manufacturers is Eli Lilly and Co., which alleged infringement by Apotex Inc. of eight patents covering processes and intermediaries in the manufacture of the antibiotic cefaclor. The allegations were made over the sale of the drug in Canada, which was manufactured from bulk cefaclor purchased from third parties in India and Korea. In 2009, Apotex was found to have infringed upon at least one claim for eight patents.

The court’s affirmation of the Saccharin doctrine is significant to patentees particularly in the pharmaceutical industry, since generic bulk pharmaceuticals are often manufactured in foreign jurisdictions, says Colin Ingram, partner with Smart & Biggar/Fetherstonhaugh.

So the Saccharin doctrine, to a limited extent, reaches beyond Canadian borders. “It’s an important extension of Canadian patent law,” he says. “Apotex took a really hard run at the doctrine and said it’s ill-founded,” he added, but the courts “suggest it does apply.”

India, Korea, and China have a thriving manufacturing business with cheap labour and weak IP protection. It’s easy to set up manufacturing facilities in those countries and sell wares to companies such as Apotex, which then sell their products into other markets. “The takeaway is that you may very well be able to buy something somewhere and legally manufacture it because there aren’t patent rights existing there, but sales of the ultimate product in Canada may still be in violation of Canadian patent law because of the Saccharin doctrine and its application,” says Ingram.

What in-house can do

Whenever Canadian manufacturers purchase supplies offshore they could potentially run into a problem, and unfortunately, protection against patent infringement can be an expensive proposition. One of the challenges is how much searching should be done: There are hundreds of thousands of patents to sift through (and even more in the U.S.). There may already be industry knowledge as to what can and can’t be done, but there may be a need to confirm by patent search to avoid infringement. A freedom-to-operate search can be difficult, depending on the subject area, particularly if the product uses intermediaries that have changed forms and are now embedded in the product.

Typically when doing a patent search, you would develop patent search strategies around key players or chief competitors to assess what might already be out there in the market. This process might also involve inquiries with suppliers — sometimes these can be “delicate” inquiries, says Ingram, since they might not be interested in sharing their processes. However, this is important, especially if there has already been litigation with respect to those processes, or if there are known alternatives that could be used.

In-house counsel can keep costs under control by doing an initial selection of patents that could be an issue, but it can be a formidable project, says Mendes da Costa.
In a freedom-to-operate search, external counsel can give an opinion of what they think a court will make of a particular situation, but there’s no guarantee you won’t get sued. “In some cases litigation can be used as part of a strategy by a company to obtain or maintain its market position, so patent litigation can have strategic external business considerations besides the fact ‘we think you infringe.’ Just because we give an opinion on something doesn’t mean litigation won’t arise,” says Mendes da Costa.

“You want to do some degree of due diligence but you are still potentially at risk, unless you know everything a supplier is doing — but they may not want to tell you. You may or may not know how it’s been made,” says Beaubien.

However, while this process may be time-consuming and expensive, it’s become a necessary part of doing business. As Beaubien puts it: “Due diligence and freedom-to-operate searches are a lot less expensive than infringement litigation.”

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