Merck & Co Inc. v. Apotex Inc.

Merck & Co Inc. v. Apotex Inc.
Court (s) Database
Federal Court Decisions
Date
2010-12-22
Neutral citation
2010 FC 1265
File numbers
T-1272-97
Notes
Digest
Decision Content
Federal Court
Cour fédérale
Date: 20101222
Docket: T-1272-97
Citation: 2010 FC 1265
BETWEEN:
MERCK & CO. INC. and
MERCK FROSST CANADA LTD.
Plaintiffs/
Defendants by Counterclaim
and
APOTEX INC. and
APOTEX FERMENTATION INC.
Defendants/
Plaintiffs by Counterclaim
PUBLIC REASONS FOR JUDGMENT
(Confidential Reasons for Judgment issued on December 9, 2010)
SNIDER J.
I. Introduction
A. Overview
[1] The subject of this litigation is the drug lovastatin, sold in Canada under the trade name MEVACOR since 1988 by Merck Frosst Canada Inc. (or its successor, Merck Frosst Canada
Ltd. (Merck Frosst), one of the Plaintiffs in this action). MEVACOR was the first commercialized “statin” sold in the Canadian market and is used for the treatment of elevated blood cholesterol. Until January 31, 2001, when the patent expired, MEVACOR was the subject of Canadian Patent No. 1,161,380 ('380 Patent) issued January 31, 1984 to Merck & Co., Inc. (Merck & Co.), the other Plaintiff in this action. Stated briefly, the '380 Patent is a product-by-process patent to lovastatin when made with a micro-organism known as Aspergillus terreus (also referred to as A. terreus). Merck Frosst sells MEVACOR in Canada under licence from Merck & Co. In these reasons, I will refer to Merck Frosst and Merck & Co., collectively, as “Merck” or the “Plaintiffs”.
[2] In March 1997, Apotex Inc., one of the Defendants in this action, began selling its brand of lovastatin tablets in Canada (Apo-lovastatin). The active pharmaceutical ingredient (API) that remains in dispute in this litigation was made either by Apotex Fermentation Inc. (AFI), the other Defendant in this action, in Winnipeg, Manitoba, or by Qingyuan Blue Treasure Pharmaceuticals Co. Ltd. (Blue Treasure), in China. In these reasons, I will refer to Apotex Inc. and AFI, collectively, as “Apotex” or the “Defendants”.
[3] Merck claims that the Defendants infringed the '380 Patent:
· through the use of infringing API that was made in China and shipped from Blue Treasure to AFI;
· through the “salting” of non-infringing lovastatin with infringing lovastatin;
· through the manufacturing of one batch of infringing API (batch CR0157) in Winnipeg by AFI; and
· with some other small amounts of infringing product made in Winnipeg by AFI.
[4] The Defendants claim that there has been no infringement of the '380 Patent and that, in any event, the '380 Patent is invalid. Further, they argue that Merck & Co. has no standing to bring this action, having assigned all of its interest in the '380 Patent to an affiliate, Merck and Company, Incorporated (MACI).
[5] The application leading to the '380 Patent was filed in Canada on June 11, 1980. According to s. 78.1-78.2 of the present Patent Act, R.S.C. 1985, c. P-4, as amended, patent applications filed before October 1, 1989, are to be dealt with under the provisions of the Patent Act as they read immediately before that date. Accordingly, references in these reasons to the Patent Act [referred to as the Patent Act or the Act], unless specifically noted otherwise, will be to the Act as it stood immediately prior to October 1, 1989.
B. Summary of issues and conclusions
[6] Very briefly, although there are a myriad of subsidiary issues, the key questions to be addressed in this proceeding are as follows:
1. Does Merck & Co. have standing to bring this action?
2. Have the Defendants infringed the '380 Patent?
3. Is the '380 Patent valid?
[7] As explained in these reasons, I have concluded that:
1. Merck & Co. has standing to bring this action;
2. The '380 Patent was infringed; and
3. The '380 Patent is valid.
[8] As a result, the claims of the Plaintiffs will be allowed, to the extent described below, and the counterclaims of the Defendants will be dismissed.
[9] Finally, by way of introduction, I note that this trial is subject to a bifurcation order dated November 14, 2003 (Bifurcation Order). Accordingly, the question of damages will be considered in a subsequent proceeding.
C. Background to this litigation
[10] For almost ten years after its introduction into the Canadian market, Merck enjoyed its patent for MEVACOR without challenge. In 1993, Apotex Inc. tried to enter the market with a generic version of lovastatin and, to that end, applied to the Minister of Health for a Notice of Compliance (NOC) pursuant to the relevant provisions of the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133, as amended by SOR/98-166 [PMNOC Regulations or the Regulations]. Apotex alleged that it would not infringe the '380 Patent, as it would not be using a process to produce lovastatin that would fall within the scope of the patent.
[11] As permitted by the Regulations, in April 1993, Merck filed an application with this Court to prohibit the Minister from issuing an NOC to Apotex Inc. A key feature of the PMNOC Regulations is the imposition of a statutory stay upon the filing of an application for prohibition until a determination can be made as to whether the “second person” – in this case, Apotex Inc. – was justified in its claims that its generic drug would not infringe any existing patents. Section 6(1) of the Regulations, as they were at that time, automatically prohibited the Minister from issuing an NOC to Apotex Inc. for up to 30 months.
[12] The statutory stay expired on December 1, 1996, without any hearing before the Court on the merits of the prohibition application. Merck Frosst Canada Inc. sought an extension of the stay. In an oral judgment dated March 26, 1997, Justice Rothstein (then a judge with the Federal Court, Trial Division) refused to extend the time period or to issue a prohibition order. An NOC was issued to Apotex Inc. on March 27, 1997.
[13] Following the issuance of the NOC and a series of Court challenges, two actions were commenced:
1. Merck commenced this action against Apotex Inc. and Apotex Fermentation Inc. (AFI) for patent infringement (Court File T-1272-97). The statement of claim was filed on June 12, 1997.
2. By statement of claim filed June 29, 2001, Apotex Inc. seeks compensation from Merck under s. 8 of the PMNOC Regulations (Court File No. T-1169-01).
[14] In 2001, Apotex Inc. commenced a third party claim against Biogal Pharmaceutical Works Ltd. (Biogal) in Court File No.T-1272-97. The subject matter of the third party claim was 300 kg of bulk lovastatin acquired by Apotex Inc. from Biogal pursuant to a Supply Agreement. In its third party claim, Apotex Inc. claimed that, in the event that the '380 Patent is held to be valid and infringed, Biogal was liable for any relief that may have been awarded against Apotex Inc. Biogal participated in the T‑1272-97 litigation until a settlement was reached among the parties to this litigation. By Court Order dated May 28, 2010, the Plaintiffs’ claims against Apotex Inc. and AFI in the Amended Fresh as Amended Statement of Claim and referenced in paragraphs 36 and 67-73 therein relating to lovastatin supplied by Biogal to Apotex Inc. were dismissed.
[15] Both actions were heard together in a trial that commenced on February 1, 2010. These Reasons deal only with the issues in Court File No. T-1272-97 – Merck’s claim of infringement and Apotex’s counterclaim of patent invalidity. Separate Reasons for Judgment and Judgment have been issued contemporaneously with these Reasons in Court File No. T-1169-01.
[16] During the 35-day evidentiary phase of this trial, many witnesses appeared, both as expert and fact witnesses. In Appendix A, I have set out a brief overview of the expert and fact witnesses who appeared during the trial and the areas to which they testified. For the expert witnesses, I have set out a very short description of their education and experience in the areas for which this Court found each of them to be qualified. More detailed references to the witnesses’ evidence and testimony are contained in the appropriate sections of these reasons.
II. Table of Contents
[17] To assist the reader, the following sets out a Table of Contents for these Reasons with paragraph numbers for each heading
I. Introduction ...................................................................................... 1 – 16
A. Overview .................................................................................. 1 - 5
B. Summary of issues and conclusions ......................................... 6 - 9
C. Background to this litigation ............................................... 10 - 16
II. Table of Contents ................................................................................... 17
III. Background...................................................................................... 18 - 39
A. The '380 Patent and Statins.................................................. 18 - 24
B. History of AFI/Blue Treasure Production............................. 25 - 39
IV. Standing............................................................................................ 40 - 56
V. Claims Construction ...................................................................... 57 - 130
A. Principles of Claims Construction ....................................... 57 - 62
B. The hypothetical skilled person............................................ 63 - 67
C. The Patent Specification....................................................... 68 - 81
D. The claims in issue................................................................ 82 - 87
E. The meaning of “a microfungus of genus
Aspergillus in Claim 1 .......................................................... 88 - 99
F. The meaning of “isolating the products”......................... 100 - 109
G. Inclusion of non-producing strains................................... 110 - 121
H. The promised use of the '380 Patent................................ 122 - 126
I. Summary on Claims Construction.................................... 127 - 130
VI. Infringement – Background......................................................... 131 - 188
A. Introduction...................................................................... 131 - 133
B. Burden............................................................................... 134 - 186
C. Summary of Merck’s case on infringement...................... 187 - 188
VII. Infringement – the Circumstantial Case .................................... 189 - 360
A. Blue Treasure “Salting”................................................... 189 - 208
B. Infringement by Blue Treasure from
March 1998 ...................................................................... 209 - 335
(1) Batch Records........................................................ 211 - 249
(2) P2000.................................................................... 250 - 259
(3) Fermentation Duration............................................ 260 - 270
(4) Increased Titres ..................................................... 271 - 294
(5) Motivation, Means and Opportunity........................ 295 - 320
(a) Motivation................................................ 296 - 310
(b) Means ....................................................... 311 - 316
(c) Opportunity............................................... 317 - 320
(6) Blue Treasure Conduct........................................... 321 - 335
C. Conclusion on Blue Treasure Circumstantial Evidence .. 336 - 342
D. AFI Batch CRO 157.......................................................... 343 - 360
VIII. Infringement – the DNA Evidence ............................................. 361 - 463
A. Introduction .................................................................. 361 - 369
B. Nexus between the samples tested and the allegedly
infringing lovastatin ....................................................... 370 - 377
C. Reproducibility of the testing in the
Davies lab .................................................................. 378 - 390
D. Failure of Dr. Davies to find C. fuckelii DNA in the
tablets from Batch CR0157.............................................. 391 - 395
E. DNA evidence and the Apotex Experts............................ 396 - 422
(1) What is Ancient DNA?........................................... 402 - 404
(2) Is DNA derived from a pharmaceutical product
degraded or fragmented?........................................ 405 - 410
(3) Can one compare how DNA derived from
a pharmaceutical product is fragmented to how
DNA from “ancient DNA” is degraded?................. 411 - 414
(4) Are the opinions of the Defendants’ experts
relevant to fragmented DNA .................................. 415 - 422
F. Contamination ................................................................. 423 - 444
(1) Dr. Davies............................................................. 425 – 430
(2) Dr. Taylor.............................................................. 431 - 439
(3) Dr. Gilbert.............................................................. 440 - 444
G. Other criticisms of Dr. Davies’s opinion ......................... 445 - 463
(1) Lack of knowledge................................................. 449 - 451
(2) Incomplete Report & Lack of
Disclosure.............................................................. 452 - 457
(3) Unexpected results ................................................ 458 - 463
IX. Infringement – Conclusion........................................................... 464 - 466
X. Validity ........................................................................................ 467 - 609
A. Introduction...................................................................... 467 - 468
B. Overbreadth...................................................................... 469 - 475
C. Utility ............................................................................... 476 - 532
(1) General Principles .................................................. 476 - 485
(2) The '380 Patent...................................................... 486 - 488
(3) Lack of Utility......................................................... 489 - 495
(4) Sound Prediction.................................................... 496 - 532
(a) The Factual Basis..................................... 498 - 511
(b) Line of Reasoning..................................... 512 - 519
(c) Disclosure ................................................ 520 - 532
D. First Inventorship/Missed Conflict................................... 533 - 609
(1) Introduction ........................................................... 533 - 534
(2) Legal Principles...................................................... 535 - 540
(3) Was there a missed conflict..................................... 541 - 558
(4) Did the Endo application disclose the invention
of the '380 Patent? ................................................. 559 - 562
(5) Red Yeast Rice/Anticipation................................... 563 - 609
(a) Principles of Anticipation......................... 563 - 569
(b) Background on Red Yeast Rice................. 570 - 571
(c) Legal Consequences of lovastatin in
Red Yeast Rice .......................................... 572 - 583
(d) Evidence of lovastatin in Red Yeast
Rice prior to the priority date .................. 584 - 598
(e) Disclosure of lovastatin in Red Yeast
Rice .......................................................... 599 - 609
XI. Conclusion.................................................................................... 610 - 642
A. Damages or Profits........................................................... 610 - 624
B. Exemptions from Liability................................................ 625 - 637
C. Conclusion ....................................................................... 638 - 642
Appendix A – List of Witnesses.............................................................. A1 – A11
Appendix B – Claims 1 to 8 and 13 to 15 of the
'380 Patent ........................................................................ B1 – B4
III. Background
A. The '380 Patent and Statins
[18] Lovastatin, as made by the process of the '380 Patent, is an example of a medicinally‑valuable drug that is produced by a process of fermentation. In very simple terms, the laboratory begins with a micro-organism - in this case, Aspergillus terreus – and, through increasingly larger fermentations carried out in very controlled settings, manufactures the API of interest.
[19] The '380 Patent relates to “hypocholesteremic products from the cultivation of a microfungus of the species Aspergillus.” Dr. Antonio Gotto provided very helpful background information on the role of “hypocholesteremic” medications, such as lovastatin, in the treatment of cardiovascular disease. In addition to being qualified because of his stature as a professor of medicine, Dr. Gotto’s experience as a treating physician during the 1970s and 1980s was directly relevant to the matters before me.
[20] Atherosclerosis is a type of cardiovascular disease that occurs when cholesterol and other substances build up in the walls of arterial blood vessels to form plaque. Over time, the build-up of plaque thickens and hardens the arterial walls restricting the flow of blood from the heart. Heart attacks and strokes may follow.
[21] The build-up of plaque is promoted by low density lipoproteins (referred to as LDL or “bad” cholesterol). According to Dr. Gotto, the relationship between reducing “bad” cholesterol and reducing the risk of cardiovascular disease has been known for over 20 years. Thus, a primary goal of medicine is to lower LDL cholesterol. The class of drugs known as “statins” are of great assistance in achieving this goal.
[22] In Dr. Gotto’s words (Gotto Expert Report, Exhibit 2, paras. 24, 38):
It was only with the discovery of statins – starting with lovastatin (MEVACOR®) in the late 1970s – that treatment of elevated cholesterol became much more effective.
. . .
The single most significant discovery to date for the treatment of cholesterol was the discovery of lovastatin in the late 1970s.
[23] Dr. Gotto described how statins work to lower cholesterol. Statins reduce the production of cholesterol by the liver. Specifically, statins block the liver enzyme known as HMG-CoA reductase (hydroxyl-methylglutaryl-coenzyme A reductase); hence, statins are known as HMG‑CoA reductase inhibitors. Dr. Gotto made the general comment that “statins changed medical practice” (Gotto Expert Report, Exhibit 2, para. 50). No one disagreed with this opinion.
[24] Lovastatin, as manufactured and sold by Merck (or its predecessors in interest) under the trade name MEVACOR, was the first commercially-available statin.
B. History of AFI/Blue Treasure Production
[25] An important part of the story for this litigation is how Apotex Inc. became interested in lovastatin and how Apotex Inc., AFI and the Blue Treasure Joint Venture became involved.
[26] Dr. Bernard Sherman is currently the Chairman and Chief Executive Officer of Apotex Inc., a company that he founded in 1973. During his oral testimony, Dr. Sherman described Apotex Inc. in the following terms:
It's a pharmaceutical manufacturer, the largest in Canada today. We produce primarily generic pharmaceutical products, but also some innovative products. We have huge dosage form manufacturing facilities. We are vertically integrated. We have chemical plants. We spend enormously on research and development, the largest in Canada, and we have divisions in many countries around the world and factories in many countries, including chemical plants.
[27] Apotex Inc. recognized the significance of the lovastatin market. Dr. Sherman described lovastatin, in 1993, as “one of the biggest selling drugs in the country at the time, close to $100 million a year”.
[28] Of particular relevance to this litigation, Dr. Sherman told the Court how his company’s version of lovastatin became entangled with a suddenly-changed regulatory regime in 1993. Until 1993, it was possible for a generic company to obtain a compulsory licence to allow it to produce a generic equivalent of a patented medicine. The original intent of Apotex Inc. was to obtain a compulsory licence to use Aspergillus terreus to make lovastatin. According to Dr. Sherman, in 1993, the licence regime and licences issued under it were cancelled. They were replaced with the PMNOC Regulations outlined by Dr. Sherman as follows:
In 1993, not only were the licences – the licence regime eliminated, including retroactive cancellation of some licences – one applicable to this case – but, in addition to that, a new regime was instituted, called the Patented Medicines (Notice of Compliance) Regulations, pursuant to which patentees or first persons, persons who had approval for the original brand, could list patents which they purported were relevant to a product; and, if they listed the patent, then a generic applicant, a second person, cannot get federal approval until the requirements of those regulations are satisfied, which means that the second person has to serve a notice of allegation in which it is alleged that the patent will not be infringed or is invalid. Then, within 45 days, if the patentee or first person institutes a prohibition application, which almost always happens, there is a delay in federal approval until that matter is resolved, which can take a very long time.
[29] A relationship of interest to this case is that of Apotex Inc. and AFI. In the mid-1980s, Apotex Inc. contracted with ABI Biotechnology Inc. (ABI) in Winnipeg to develop and manufacture certain fermented products. Ultimately, the assets of ABI were bought by Apotex Inc. and the company was renamed as AFI. Through AFI, Apotex Inc. gained the capacity to manufacture products using fermentation processes. AFI added to the vertical integration of the Apotex family of business entities.
[30] AFI was to be the source of the API lovastatin. As described in detail by Dr. Lasure, in her Expert Report (Exhibit 48), and by Dr. David Cox, during his testimony, the following steps were taken by AFI:
· AFI acquired Merck's deposited strains of Aspergillus terreus from the American Tissue Culture Collection (ATCC), including a strain designated ATCC 20542.
· ATCC 20542 was then mutated by UV mutagenesis twice to create a mutant strain of ATCC 20542.
· AFI designated the strain as BN-2-70 and the process for manufacturing lovastatin using this strain as AFI-1.
· Between 1991 and 1995, AFI developed a commercial scale fermentation process for making lovastatin using AFI-1 – that is, using Aspergillus terreus.
[31] In 1992, Dr. Sherman testified that, anticipating the intent of the government, Apotex began to look for a non-infringing process. Apotex “had to find a microbe that would produce lovastatin that was not Aspergillus terreus”. In her Expert Report, Dr. Lasure summarized the context and the results of this search:
· On June 25, 1988, the Journal of Antibiotics published an article entitled "The Synthesis of Compactin (ML-236B) and Monacolin K in fungi" written by Dr. Akira Endo et al. Dr. Endo reported on fungal strains capable of producing Monacolin K (known now to be lovastatin), including Phoma species M4452.
· In June 1992, a sample of Phoma Sp. M4452 was sent to AFI by Dr. Endo.
· For the next six months or so, AFI took steps in its laboratories to confirm and develop the production of lovastatin from the Endo sample. The process was initially referred to as Phoma #4; later designated as “AFI-4”.
· By May 1993, a sample of the AFI-4 product was confirmed to be Coniothyrium fuckelii (also referred to as C. fuckelli).
· Apotex Inc. filed a patent for the AFI-4 process – a process for making lovastatin using Coniothyrium fuckelii – that subsequently issued as United States Patent No. 5,409,820 on April 25, 1995.
[32] As described by a number of witnesses, including Dr. Cox and Ms. Lori Christofalos, AFI’s production of AFI-4 lovastatin and shipments to Apotex Inc. can be divided into three phases:
1. Phase 1 occurred between June 1996 and August 1997, during which all production was done solely at AFI facilities in Winnipeg. The finished API was shipped to Apotex Inc., beginning with the shipment of batch CR0157 on December 2, 1996.
2. In Phase 2, Blue Treasure (discussed below) manufactured approximately 70 batches of technical-grade lovastatin. The product was then shipped to AFI for processing into API and shipment to Apotex Inc. Phase 2 lasted from about mid‑1997 to January 1998.
3. Phase 3 consisted of approximately 294 batches of API-grade lovastatin manufactured entirely at Blue Treasure after March 1998.The product was sent to AFI, where “some testing” was carried out, and then shipped to Apotex Inc. This phase continued until October 1999, with the last shipment received at AFI on March 2, 2000.
[33] The joint venture company known as Qingyuan Blue Treasure Pharmaceuticals Co. Ltd. (Blue Treasure or Blue Treasure Joint Venture) is a critical component of this litigation. Dr. David Cox, President and Chief Executive Officer of AFI from September 1994 to September 1997, provided a clear and helpful background about this joint venture. Dr. Cox was on the Board of Directors of Blue Treasure during the same period.
[34] Blue Treasure was formed pursuant to a Joint Venture Contract dated January 25, 1994 among Qingyuan New North River Pharmaceutical Co. Ltd. (New North River), Zuhai Special Economic Zone Lizhu Pharmaceutical Group Co. Ltd., Sichuan Industrial Institute of Antibiotics, AFI and BIOTECS. AFI held a 42.5% share of the Blue Treasure Joint Venture. As set out in clause 4.01 of the Joint Venture Contract, the purpose of the Blue Treasure Joint Venture was as follows:
The purpose of the Joint Venture is to renovate and operate the Factory, to purchase or otherwise obtain all necessary raw materials and equipment required for the production of the Products, and to produce, market, distribute and sell Products at a profit to customers both in China and abroad.
[35] In 1994, New North River was already an operational pharmaceutical facility with capacity for carrying out fermentation processes. Under the Joint Venture Contract, New North River contributed a portion of its facilities located on its property to the Blue Treasure Joint Venture.
[36] As defined in the Joint Venture Contract, “Products” meant “the drug Lovastatin as Bulk Products and Finished Products”. Dr. Cox stated that the Blue Treasure Joint Venture “was set up to produce and distribute and sell Lovastatin in the Chinese domestic market”. AFI’s main contribution to the Blue Treasure Joint Venture was the organism that produced lovastatin. Dr. Sherman told the Court that the decision to move the production of lovastatin to Blue Treasure was made for the following reasons:
[Blue Treasure] had capacity there, and we wanted to move the production for Canada out of Winnipeg, both to bring costs down and to free up Winnipeg to go on for other things that would be needed later.
[37] In the spring of 1995, AFI transferred to Blue Treasure the information and knowledge it had developed to manufacture lovastatin made from Aspergillus terreus. Among the things transferred to Blue Treasure were: a document setting out the process for producing lovastatin from Aspergillus terreus, entitled "Scale-up Process to 15000L Fermenter"; and, 25 vials of strain BN-2-70 from seed bank A18-378, and 5 rice cultures from batch #CF0057 (shipped to Blue Treasure on May 15, 1995). Blue Treasure began producing lovastatin, using the AFI-1 process, in 1996.
[38] In about April 1997, AFI determined that it would transfer the AFI-4 technology to Blue Treasure together with a guarantee that AFI would purchase the lovastatin from Blue Treasure, provided that the lovastatin was all made by the AFI-4 process and that “the Blue Treasure facility be exclusively dedicated to AFI-4”. The terms of this arrangement were set out in a letter agreement dated April 16, 1997 between AFI and Blue Treasure. Dr. Cox described the impact of the AFI-4 transfer as “transformative in a positive way”. The transfer of AFI-4 to Blue Treasure was made with very explicit instructions that the lovastatin purchased by Apotex was to be produced exclusively with the AFI-4 Coniothyrium fuckelii strain, with no possibility of contamination from Aspergillus terreus (see, for example, letter dated September 12, 1997 from Mr. Fowler to Mr. Zhou). Problems quickly arose. These problems are discussed later in Section VII of these reasons.
[39] From 1997 to 1999, AFI imported lovastatin from Blue Treasure in accordance with the terms of the Blue Treasure Joint Venture. The lovastatin API was then sold to Apotex Inc.
IV. Standing
[40] The first issued raised by Apotex is the standing of Merck & Co. to bring this action.
[41] The authority of a party to claim damages for patent infringement is found in s. 55(1) of the Patent Act.
55.(1) Any person who infringes a patent is liable to the patentee and to all persons claiming under him for all damages sustained by the patentee or by any person, by reason of the infringement.
55.(1) Quiconque viole un brevet responsable, envers le breveté et envers toute personne se réclamant du breveté, des tous dommages-intérêts que cette violation a fait subir au breveté ou à cette autre personne.
[42] The term “patentee” is defined in s. 2 of the Patent Act to mean “the person for the time being entitled to the benefit of a patent”.
[43] The '380 Patent was granted to Merck & Co. In 1985, Merck & Co. entered into a License Agreement with Merck Frosst (the 1985 License Agreement), granting an non-exclusive licence to Merck Frosst. That Agreement was amended, effective January 1, 1989, to add the '380 Patent. Subsequently, as of January 1, 1992, Merck & Co. entered into an agreement (the MACI Agreement) with Merck and Company, Incorporated (MACI) pursuant to which Merck & Co., as Licensor, granted to MACI, as Licensee:
A permanent and exclusive royalty-free license for the Intellectual Property which Licensor owns or hereinafter acquires, but for any outstanding licenses for the Intellectual Property which already granted pursuant to the License Agreement, dated January 1, 1985, and amendments thereto between Merck & Co., Inc. and Merck Frosst Canada Inc.
[44] Apotex does not dispute Merck Frosst Canada Ltd.’s standing in this action, as the successor in interest to Merck Frosst Canada Inc. However, Apotex submits that Merck & Co. has no standing to bring this action, having assigned all of its interest in the '380 Patent to MACI pursuant to the MACI Agreement. Apotex asserts that, as of November 1992, MACI had the “full and unrestricted benefit of the ‘380 Patent”. Merck & Co. lost all benefit of the patent and, as a result, the right to damages under s. 55 (1) of the Patent Act. Apotex argues that, although the agreement is entitled “License Agreement”, a review of the words of the agreement demonstrates that the intent of the parties to the MACI Agreement was to convey the entire right, title and interest in the '380 Patent to MACI.
[45] Apotex submits that agreements which take the form of a licence, but nevertheless convey all of the substantive rights in a patent, have consistently been held to constitute an effective assignment or transfer of that patent. In support of this argument, Apotex relies on a line of jurisprudence of courts in the United States and the United Kingdom (Merck & Co., Inc. v. Francis R. Smith, 261 F.2d 162 at 164 (3rd Cir. 1958); Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 874 (Fed. Cir. 1991); Prima Tek II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1377-78 (Fed. Cir. 2000); Guyot v. Thompson [1894] R.P.C. 541 at 554 (C.A.)[Guyot]).
[46] I do not find the authorities relied on by Apotex to be of any assistance. Except in the case of Guyot, above, a decision of the High Court of Justice – Chancery Division, the Courts in those cases were considering the effect of agreements in the context of U.S. patent law. I do not see how they could guide this Court in determining the meaning of the terms of and, if necessary, the intent of the parties to the MACI Agreement. I did not have the benefit of an expert in U.S. law opining as to whether the MACI Agreement would constitute a transfer of all of the rights of the patent to MACI under applicable U.S. law. Moreover, the facts in Guyot, where an exclusive assignee was attempting to enforce the terms of an Indenture, are simply too remote from the question before me.
[47] Rather, I would look at this issue in the context of the Canadian law of contracts. As I understand the state of the Canadian law of contracts, the express language of the parties to a contract is the core of their contractual obligations. Where the words of a contract are clear and unambiguous, a court need not look beyond those clear words to determine its intent and effect.
[48] Apotex was unable to point me to a single Canadian case that supports its position. Nevertheless, I would agree that the title of the License Agreement would not be determinative if there is clear and persuasive evidence that Merck & Co. intended to convey all of its rights in the '380 Patent to MACI, retaining nothing to itself. Whether this is so or not will depend on an examination of the words of the MACI Agreement and the facts and circumstances surrounding the MACI Agreement.
[49] In this case, the express language of clause 2 of the MACI Agreement uses the word “license”. On its face, the MACI Agreement only grants a “license”. The Supreme Court of Canada in Domco Industries Ltd., v. Armstrong Cork Canada Ltd., [1982] 1 S.C.R. 907 at p.912, 66 C.P.R. (2d) 46, adopted the comments of Fry L.J. at p. 470, in Heap v. Hartley (1889), 42 Ch. D. 461:
An exclusive license is only a license in one sense; that is to say, the true nature of an exclusive license is this. It is leave to do a thing, and a contract not to give leave to anybody else to do the same thing. But it confers like any other license, no interest or property in the thing. [Emphasis added.]
[50] I also note the language of certain clauses in the MACI Agreement that refer to rights retained by Merck & Co. For example, clause 3 provides the Licensor with the rights to inspect the Licensee’s facilities. Under clause 5.2, the Licensee is to supply the Licensor with a detailed description of any disclosure of “licensed know-how” to any governmental authority. In my view, retention of rights such as these is inconsistent with an intention to transfer all rights under the patent.
[51] In support of its position, Apotex points to a recital to the MACI Agreement:
WHEREAS, the Licensor desires to grant the Licensee a permanent and exclusive license with respect to its remaining right, title and interest in and to the rights which it has acquired with respect to such intellectual property as a contribution to the capital of the Licensee. [Emphasis added.]
Apotex relies on the Supreme Court of Canada decision in Dukart v. Surrey (District), [1978] 2 S.C.R 1039 at p.1052-53, 86 D.L.R. (3d) 609 [Dukart cited to S.C.R] as support for its submission that, where the words of a recital manifest a clear intention, the Courts have inferred that the parties intended that these words be given effect.
[52] The case of Dukart does not assist Apotex. Dukart involved the grant of an “easement” and the question of the true intentions of the parties. In that case, the body of the agreement contained no language with respect to the extent of the rights granted under the agreement. The recital clause was used by the Supreme Court to provide the necessary meaning to the agreement.
[53] The case before me is different in that provisions in the body of the MACI Agreement speak to the intent of the agreement and the scope of the “transfer” from Merck & Co. to MACI. The use of a recital or preamble as an interpretative aid must always be approached with caution. As pointed out by Justice Abella (as she then was) in Lay v. Lay (2000), 47 O.R. (3d) 779, 184 D.L.R. (4th) 652 (Ont. C.A.) at paragraph 12, leave to appeal to SCC refused, [2000] S.C.C.A. No. 369 (QL), 264 N.R. 398 (note):
There is no doubt that an introduction or a preamble can provide interpretative assistance, but I see no basis for accepting the novel proposition that its terms can triumph over those in the body of the contract.
[54] In my view, the words of the MACI Agreement establish the creation of a licence and not a conveyance of all rights in the '380 Patent. The use of the word “remaining” in the recital does not “triumph over” the words of the agreement. This is sufficient to defeat the argument of Apotex.
[55] However, even if I accept that there may be ambiguity in the MACI Agreement, I am satisfied that the parties to the MACI Agreement did not intend to convey the entire right, title and interest in the '380 Patent. One indication of the intent of the parties to an agreement is the behaviour of the parties. If the MACI Agreement is not clear on its face, it is of assistance to examine the behaviour of the parties after the execution of the agreement. Was the behaviour of Merck & Co., from November 1992, consistent with a company who had given up its entire right, title, estate and interest in the '380 Patent? Clearly, the answer is “no”. If there had been such intent, why would Merck & Co. commence and pursue this litigation for 13 years in its own name? Further, why would Merck & Co. remain as the named patentee on the '380 Patent?
[56] I am satisfied that the MACI Agreement did not operate as a conveyance of the entire right, title and interest of Merck & Co. to MACI. Merck & Co. has standing to bring this action.
V. Claims Construction
A. Principles of Claims Construction
[57] The first step in a patent suit is to construe the claims, in accordance with principles that are well-established in the jurisprudence (see, for example, Whirlpool Corp. v. Camco Inc., 2000 SCC 67, [2000] 2 S.C.R. 1067 [Whirlpool]). This jurisprudence teaches that claims are to be interpreted in a purposive way in order "to achieve fairness and predictability and to define the limits of the monopoly" (Dimplex North America Ltd. v. CFM Corp., 2006 FC 586, 292 F.T.R. 38 at para. 49 [Dimplex], aff'd 2007 FCA 278, 60 C.P.R. (4th) 277).
[58] Construction of the claims is a matter for the Court to determine. The Court is called on to determine, on an objective basis, what a hypothetical skilled person would have understood the invention to mean (Whirlpool, above, at paras. 45, 53). Where a patent is of a highly technical nature, the person skilled in the art will be someone possessing a high degree of expert scientific knowledge in the particular field of art to which the patent relates (Aventis Pharma Inc. v. Apotex Inc., 2005 FC 1283, 278 F.T.R. 1 [Ramipril I (FC)]; Apotex Inc. v. Syntex Pharmaceuticals International Ltd et al (1999), 166 F.T.R. 161 at para. 38, [1999] F.C.J. No. 548 (QL)(F.C.T.D.).
[59] Where necessary, the whole of the patent, and not only the claims, should be interpreted (Eli Lilly Canada Inc. v. Apotex Inc., 2008 FC 142, 63 C.P.R. (4th) 406 at para. 25; Eli Lilly Canada Inc. v. Novopharm Ltd., 2007 FC 596, 58 C.P.R. (4th) 214 at para. 103). The Court should construe the claims in light of the description in the specification, assisted by experts as to the meaning of technical terms if such terms cannot be understood by the Court from reading the specification (Shire Biochem Inc. v. Canada (Minister of Health), 2008 FC 538, 328 F.T.R. 123 at para. 22 [Shire]; Whirlpool, above, at para. 45).
[60] It is also important to recognize that purposive construction should be directed at the points in dispute between the parties (Shire, above, at para. 22).
[61] Lastly, as the '380 Patent was iss