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Patents - Implied Licence. Pharmascience Inc. v. Janssen Inc.
In Pharmascience Inc. v. Janssen Inc. (Fed CA, 2023) the Federal Court of Appeal considered the patent law of 'implied license':IV. Analysis
[13] Central to Pharmascience’s argument that the Federal Court erred in failing to recognize the extent of the implied license in this case is the decision of the Supreme Court of Canada in Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, 161 DLR (4th) 1 (Eli Lilly). That case involved a compulsory licence that was granted to Novopharm to manufacture and import bulk nizatidine. Novopharm entered into a supply agreement with Apotex whereby the former would provide the latter with nizatidine to be formulated into capsules. The dispute concerned whether the licensed nizatidine that Apotex acquired from Novopharm included an implied licence to manufacture capsules from the bulk nizatidine.
[14] In addressing this point, the Supreme Court of Canada at paragraph 99 adopted the following text from the Federal Court of Appeal decision in that case:If a patentee makes a patented article, he has, in addition to his monopoly, the ownership of that article. And the ownership of a thing involves, as everybody knows, “the right to possess and use the thing, the right to its produce and accession, and the right to destroy, encumber or alienate it”.... If the patentee sells the patented article that he made, he transfers the ownership of that article to the purchaser. This means that, henceforth, the patentee no longer has any right with respect to the article which now belongs to the purchaser who, as the new owner, has the exclusive right to possess, use, enjoy, destroy or alienate it. It follows that, by selling the patented article that he made, the patentee impliedly renounces, with respect to that article, to [sic] his exclusive right under the patent of using and selling the invention. After the sale, therefore, the purchaser may do what he likes with the patented article without fear of infringing his vendor’s patent.
The same principles obviously apply when a patented article is sold by a licensee who, under his licence, is authorized to sell without restrictions. It follows that, if Apotex were to purchase bulk Nizatidine manufactured or imported by Novopharm under its licence, Apotex could, without infringing Lilly’s patents, make capsules from that substance or use it in any other possible way. [SCC’s emphasis.] [15] The Supreme Court of Canada went on as follows:100 Perhaps the principles underlying this well-founded statement of the law merit some brief elaboration at this stage. As I have already noted in connection with the distinction between a sublicence and an ordinary agreement of purchase and sale of a patented or licensed article, the sale of a patented article is presumed to give the purchaser the right “to use or sell or deal with the goods as the purchaser pleases”: see Badische Anilin und Soda Fabrik v. Isler, [[1906] 1 Ch. 605], at p. 610. Unless otherwise stipulated in the licence to sell a patented article, the licensee is thus able to pass to purchasers the right to use or resell the article without fear of infringing the patent. Further, any limitation imposed upon a licensee which is intended to affect the rights of subsequent purchasers must be clearly and unambiguously expressed; restrictive conditions imposed by a patentee on a purchaser or licensee do not run with the goods unless they are brought to the attention of the purchaser at the time of their acquisition: see National Phonograph Co. of Australia, Ltd. v. Menck, [1911] A.C. 336 (P.C.).
101 Therefore, it is clear that, in the absence of express conditions to the contrary, a purchaser of a licensed article is entitled to deal with the article as he sees fit, so long as such dealings do not infringe the rights conferred by the patent. On this score, Eli Lilly alleges that the reformulation of nizatidine would in this case exceed the scope of the rights obtained by the purchaser because it would constitute not simply the resale of the material purchased, but rather, the creation of a new article in violation of Eli Lilly’s patent. However, I can find no basis, either in the evidence or in the case law cited by Eli Lilly, for this submission. In my view, the reformulation of nizatidine into final-dosage form does not have the effect of creating a new article. Rather, it is more akin to repackaging the substance into a commercially usable form, which I do not view as violating any rights under the patents. [16] So it is clear that the sale of a patented article without restriction includes the right to use that article as the purchaser pleases. This much is not in dispute. This principle is well supported by prior jurisprudence: Thomas v. Hunt (1864), 17 C.B.N.S. 183, 144 E.R. 74 at 76; Betts v. Willmott (1871), L.R. 6 Ch. App. 239, 19 W.R. 369 at 245; Badische Anilin und Soda Fabrik v. Isler (1906), 1 Ch. 605, 75 L.J. Ch. 411 at 610, aff’d [1906] 2 Ch. 443, 23 R.P.C. 633 (C.A.); Hatton v. Copeland-Chatterson Co. (1906), 1906 CanLII 90 (SCC), 37 S.C.R. 651 at 653; Gillette v. Rea, [1910] O.J. No. 587, 15 O.W.R. 345 at para. 2; National Phonograph Company of Australia Ld. v. Menck, [1911] A.C. 336, 28 R.P.C. 229 at 234, 238, 246, 248 (U.K.P.C.); Signalisation de Montréal Inc. v. Services de Béton Universels Ltée, 1992 CanLII 2427 (FCA), [1993] 1 F.C. 341, [1992] F.C.J. No. 1151 at paras. 17, 20 (C.A.). The principle is also supported by jurisprudence subsequent to Eli Lilly: Apotex Inc. v. Merck & Co., 2002 FCA 210, [2002] F.C.J. No. 811 at para. 39; Distrimedic Inc. v. Dispill Inc., 2013 FC 1043, [2013] F.C.J. No. 1093 at para. 226 (Distrimedic); Angelcare Canada Inc. v. Munchkin, Inc., 2022 FC 507, [2022] F.C.J. No. 480 at para. 276 (Angelcare).
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[17] Janssen argues that this principle does not apply in this case. It notes that the article it would sell in the scenario before this Court (the 75 mg-eq. dose) is not itself a patented article, but merely a component of a patented invention that includes several different doses. Janssen argues that the jurisprudence concerning implied license is limited to the patented article itself, and therefore the purchase from Janssen of only the 75 mg-eq. dose would not carry with it an implied license to combine that dose with other doses obtained from Pharmascience to practise the patent invention.
[18] Pharmascience disputes the distinction based on whether the article sold is the whole patented article or merely one component. It refers to Slater Steel Industries Ltd. v. R. Payer Co. Ltd., (1968) 55 C.P.R. 61, 38 Fox Pat. C. 139 (Ex. Ct.) (Slater Steel), which concerned a patent on a helically shaped rod wound around an electric power transmission line. The claims concerned the combination of the rod and the transmission line. The Exchequer Court noted that the patentee and its Canadian licensee in that case “make use of the patents, not by manufacturing the combination that is the subject of the patents, but by manufacturing the preformed armour rods and selling them to power companies who use the rods to create such combination by applying them to their transmission lines.” The Court went on to observe that, “[n]o licence has been granted under the patents to any person in Canada to create the combination covered by the patents except the implied licence flowing from the sale of the preformed armour rods” (see page 65).
[19] The Exchequer Court concluded that the defendant, who supplied a competing rod, had not infringed because it had not directly infringed by making the patented combination, and had not induced its customer to do so. Nevertheless, Pharmascience urges this Court to conclude from the words at the end of the sentence quoted at the end of the previous paragraph (“except the implied licence flowing from the sale of the preformed armour rods”) that the sale of one component of a patented combination includes an implicit license to use the combination.
[20] I am not prepared to draw such a general conclusion from this statement by the Exchequer Court more than 50 years ago in obiter dicta. In my view, the context of the transaction is relevant. In the context of Slater Steel, it appears to have been implicit that the purchaser from the patentee of a pre-formed rod as described in the patent in suit was entitled to use that rod on the patented combination. It does not appear that the purchaser was expected also to source its transmission lines from the patentee. Any implied license would be restricted to making the combination with rods made or sold by the patentee. In the absence of any pleading or evidence otherwise, the Court declined to find that an implied license existed. The Exchequer Court discussed this issue at page 86 of the decision.
[21] However, the same does not necessarily apply in the present case. There appears to be no reason to conclude that either Janssen or its customers (a prescribing physician or a patient) would have understood that the purchase of paliperidone palmitate in a single dose from Janssen would include an implied licence to use the entire dosing regimen of the product in combination with other doses obtained from unlicensed sources, to practise the invention of the 335 Patent. It is difficult to accept that there could be such an implied licence in circumstances where neither the supposed licensor nor the supposed licensee would have understood such a licence to exist.
[22] Pharmascience also cites the Federal Court’s decision in Distrimedic. In the relevant portion of that case, Distrimedic was accused of inducing infringement of patent claims to a pill-sorting device and a device for opening a set of pill containers with a knife. There was no evidence that Distrimedic had sold any such device, but Distrimedic had sold pill containers to pharmacists who had obtained such devices from the patentee. It appears that the allegation was that those pharmacists used the patentee’s devices with Distrimedic’s pill containers, and were induced to do so by Distrimedic. Among the reasons cited by the Federal Court for dismissing this argument was that the patentee “must be presumed to have acquired an implicit right to use [the devices] without restriction” (see paragraph 226 of its reasons).
[23] In my view, this decision can be of little assistance to Pharmascience because the pill-sorting device and device for opening a set of pill containers were the subject of distinct claims that were not interdependent. Hence, the purchase of these items from the patentee was the purchase of the patented article, and not a mere component thereof. This decision does not support the principle that sale of a mere component of a patented invention includes an implied license to use the patented invention without restriction, as Pharmascience urges. . McCain Foods Limited v. J.R. Simplot Company
In McCain Foods Limited v. J.R. Simplot Company (Fed CA, 2021) the Federal Court of Appeal considered the patent issue of 'implicit license':[29] In support of its position that the defence is not supported by the law on implied licenses, McCain cites the Supreme Court of Canada decision in Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, 80 C.P.R. (3d) 321 (Eli Lilly). Eli Lilly explains at paragraphs 99 to 100 that, when a patentee (or its licensee) sells a patented article without specific restriction, it effectively also grants an implied license to the purchaser to use the article as contemplated in the patent, and to pass that license on to subsequent purchasers.
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