Blacklock’s Must Pay $65,000 for Litigation that “should never have been commenced let alone carried to trial”

http://www.clipartkid.com/lump-of-coal-cliparts/

In an unusually trenchant costs award, Justice Barnes of the Federal Court has ruled that Blacklock’s must pay the taxpayers of Canada an “all-inclusive amount of $65,000 plus interest….” This follows decisively upon Blacklock’s clear loss in the first case of what I have called a “litany of litigation” of 11 lawsuits against the Government of Canada and/or its agencies, not to mention several other cases against other parties in the Federal and Ontario courts.

The Court accepted that the Government was entitled to costs based on the mid-level of Column III and double the otherwise payable costs from the date of its early settlement offer of $2,000, which was “...more than double the cost of individual subscriptions for each of the Department of Finance officials who received and read the subject articles over which Blacklock's claimed copyright protection.”

The Court observed that:

[7] …I also reject the Plaintiff's argument that this case raised "strong public interest considerations". Rather, this case was about the Plaintiff's attempt to recover disproportionate damages without any apparent consideration to the legal merits of the claim or to the costs that it imposed on the taxpayers of Canada.

[8] Any reporter with the barest understanding of copyright law could not have reasonably concluded that the Department's limited use of the subject news articles represented a copyright infringement. Indeed, the fair dealing protection afforded by section 29 of the Copyright Act, RSC, 1985, c C-42, is so obviously applicable to the acknowledged facts of this case that the litigation should never have been commenced let alone carried to trial.

(highlight added)

The Court went on to say that:

[9] I am also troubled by Plaintiff's attempt to claim an excessive amount of damages beginning with its demand for compensation completely divorced from the Department's limited use of the two articles. In no circumstances would Blacklock's losses have exceeded the cost of individual subscriptions by the six officials who read the articles; yet Blacklock's demanded a license fee equivalent to its bulk subscription rate of over $17,000.00. This practice appears to be consistent with Blacklock's usual approach which is to hunt down, by Access to Information requests, alleged infringers and then demand compensation based on an unwarranted and self-serving assertion of indiscriminate and wide-spread infringement. The record discloses that in several instances government departments acquiesced for business reasons and paid the full amounts demanded. In this instance the Department appropriately took a hard line and succeeded in its defence.

(highlight added)

Canadian Courts are increasingly using costs award to send messages that may encourage meritorious litigation or discourage the type of litigation that "should never have been commenced let alone carried to trial.”

While the Ontario courts tend to award amounts closer to actual costs, the Federal Court is headed in that direction – for better or worse. As long as the judges have discretion and use it wisely, the Federal Court mechanism for costs can generally mete out justice fairly.

In this case, the Court moderated the amount claimed by the Government, which was “$115,702.30, based on 70% of the actual value of professional hours expended in the defence of the claim and including disbursements of $7,020.98.”

Costs awards are usually very hard to appeal successfully – especially one such as this where Justice Barnes has provided ample reasoning and a detailed calculation in Annex “A”.  It will be interesting to see how Blacklock’s clear, convincing and un-appealed loss in its first Federal Court case together with this notable costs award will affect the remainder of Blacklock’s “litany of litigation”. Indeed, it will be interesting to see whether Blacklock’s proceeds at all in view of these recent substantive and costs rulings.

It is difficult, given the time of year and the circumstances, not to think about a “lump of coal” – indeed 65,000 of them.  However, the Federal Court – while refraining to date from ruling on copyright misuse or abuse – is clearly sending a strong message to Blacklock’s.

HPK

Deadline for Blacklock's Appeal from Justice Barnes' Judgment Comes and Goes

https://www.blacklocks.ca/

The much watched deadline date of December 12, 2016 has come and gone. This was the deadline for Blacklock's to file a Notice of Appeal of the Decision dated November 10, 2016 from Justice Barnes, of which I noted at time:

The Attorney General of Canada has achieved a clear victory against Blacklock’s Reporter in the latter’s attempt to collect damages of $17,209.10 based upon its supposed institutional subscription rate because a few public servants in the Department of Finance received, read and distributed two Blacklock’s articles about a file they were closely involved in that had been sent to them by a Blacklock’s subscriber.

Here’s the judgment from Justice Robert Barnes – which is unequivocally favourable in terms of fair dealing and even pushes the envelope further by emphasizing that what went on here  was based upon a “legitimate business reason” on the part of the subscriber/sender to the material and a “legitimate business purpose (i.e. to consider whether the stories required a response or correction)” on the part of the Department.

That decision contianed the following among several notable paragrpahs:

 45]           Blacklock’s maintains that this case challenges the viability of its business model including its right to protect news copy behind a subscription-based paywall. The suggestion that Blacklock’s business cannot survive in the face of the minor and discrete use that took place here is essentially an admission that the market places little value on Blacklock’s work-product. All subscription-based news agencies suffer from work-product leakage. But to customers who value easy, timely and unfettered access to news that may not be readily available from other sources, the price of a subscription is worth paying. It also goes without saying that whatever business model Blacklock’s employs it is always subject to the fair dealing rights of third parties. To put it another way, Blacklock’s is not entitled to special treatment because its financial interests may be adversely affected by the fair use of its material. Nothing in these reasons should however be taken as an endorsement of arguably blameworthy conduct in the form of unlawful technological breaches of a paywall, misuse of passwords or the widespread exploitation of copyrighted material to obtain a commercial or business advantage.

 (highlight added)

It is will be interesting to see what effect this latest development, namely Blacklock's failure to file a timely Notice of Appeal, has on the other ten (10) Blacklock's cases pending against the Government of Canada and its agencies.  

HPK

Google v. Equustek in the SCC - Webcast Live December 6, 2016 at 9:30 AM ET

This very interesting and extraordinarily important case will be heard tomorrow in the Supreme Court of Canada. Here's the Court's Summary:

36602

Google Inc. v. EquustekSolutions Inc., et al.

(British Columbia) (Civil) (By Leave)

Keywords

Administrative law - Interlocutory orders, Injunctions, Private international law, Extraterritoriality, Communications law, Internet, Intellectual property, Industrial design.

Summary

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

Administrative law — Interlocutory orders — Injunctions — Private international law — Extraterritoriality — Communications law — Internet — Intellectual property — Industrial design — Interim injunction issued against non-party to litigation — Google prohibited from displaying impugned websites in Internet search results — Under what circumstances may a court order a search engine to block search results, having regard to the interest in access to information and freedom of expression, and what limits (either geographic or temporal) must be imposed on those orders? — Do Canadian courts have the authority to block search results outside of Canada’s borders? — Under what circumstances, if any, is a litigant entitled to an interlocutory injunction against a non-party that is not alleged to have done anything wrong?

The plaintiffs sued their former distributors for unlawful appropriation of trade secrets, alleging that the distributors designed and sold counterfeit versions of their products. The plaintiffs obtained injunctions against the distributors, prohibiting them from carrying on any business online. When this proved ineffective, the plaintiffs sought a court order against Google, to prohibit it from displaying search results that included the distributors’ websites.

The Supreme Court of British Columbia granted a worldwide injunction against Google, finding that it had territorial competence over Google and that it possessed an inherent jurisdiction to maintain the rule of law and protect its processes, which in appropriate circumstances may include an injunction against non-parties. In this case, the balance of convenience favoured granting an injunction. The Court of Appeal agreed that the court held jurisdiction over Google with respect to the injunction application. It also concluded that it was permissible to seek interim relief against a non-party. The power to grant injunctions is presumptively unlimited, and injunctions aimed at maintaining order need not be directed solely at the parties involved in litigation. In this case, an injunction with worldwide effect was justified.

(highlight added)

The webcast should be available live here at 9:30 AM ET.

Here are the factums on appeal.

HPK

Date modified:

Blacklock's Sues the Government of Canada - Again

Blacklock's has sued the Government of Canada once again - this time with respect to alleged breach of the Copyright Act and alleged breach of contract by Environment and Climate Change Canada.

Here, without specific comment, is the latest Statement of Claim in Simplified Action #T-20142-16.

This is now the 11th case in what I have called the "litany of litigation" against the Government of Canada and some of its agencies.  Except for the case referred to below that Blacklock's resoundingly lost, the other nine cases were stayed until 45 days after the judgement below.

It will be recalled that Blacklock's lost it first Federal Court case to go to trial in a judgment issued on November 10, 2016 which included the following language:

[45]           Blacklock’s maintains that this case challenges the viability of its business model including its right to protect news copy behind a subscription-based paywall. The suggestion that Blacklock’s business cannot survive in the face of the minor and discrete use that took place here is essentially an admission that the market places little value on Blacklock’s work-product. All subscription-based news agencies suffer from work-product leakage. But to customers who value easy, timely and unfettered access to news that may not be readily available from other sources, the price of a subscription is worth paying. It also goes without saying that whatever business model Blacklock’s employs it is always subject to the fair dealing rights of third parties. To put it another way, Blacklock’s is not entitled to special treatment because its financial interests may be adversely affected by the fair use of its material. Nothing in these reasons should however be taken as an endorsement of arguably blameworthy conduct in the form of unlawful technological breaches of a paywall, misuse of passwords or the widespread exploitation of copyrighted material to obtain a commercial or business advantage.

(highlight added)

We shall know on or before December 12, 2016 whether Blacklock's intends to appeal the above ruling.

HK

Senate Committee Calls for “thorough, in-depth examination of the Copyright Board of Canada’s mandate, practices and resources.”

The Senate’s Banking, Trade and Commerce Committee (“BANC”) has just released, on time as promised, its eagerly anticipated report entitled “Copyright Board: A Rationale for Urgent Review”.

With highlight added, here is the bottom line:

From the Executive Summary:

Many witnesses agreed that a review of the Board – either overall or in specific areas – should be

undertaken during the forthcoming statutory review of the Act. Consequently, the committee

strongly recommends that the mandate, practices and resources of the Copyright Board of Canada be the subject of in-depth study during the forthcoming statutory review of the Copyright Act by a committee of the Senate or of the House of Commons or of both.

From the Recommendation:

RECOMMENDATION

The Copyright Board of Canada plays a pivotal role in Canada’s cultural sector. Yet, from what the committee heard, the Board is dated, dysfunctional and in dire need of reform. Whether the reasons are statutory, structural or otherwise, the Board did not – or could not – provide the committee with solutions to the problems that were identified by witnesses. The concerns outlined in this report require further investigation and timely action.

The next statutory review of the Copyright Act will take place in 2017, as stipulated in the legislation. That same legislation also requires the review to be conducted by a committee of the Senate, of the House of Commons or of both. The committee therefore recommends that:

The forthcoming, five-year statutory review of the Copyright Act should include a

thorough, in-depth examination of the Copyright Board of Canada’s mandate,

practices and resources.

More to follow…

HPK

Outlines of Oral Arguments in Access Copyright Judicial Review of Copyright Board K-12 Decision

The oral augments were heard on November 22, 2016 before Justices Nadon, Dawson and Gauthier of the Federal Court of Appeal.

Here are the outlines of oral arguments filed with the Court:

• Access Copyright
• CMEC 

HPK

Blacklock's - The Costs Submissions

https://www.blacklocks.ca/

Here are the costs submissions in the recent Blacklock's  decision of November10, 2016 that I wrote about earlier.

This is from Blacklock's which lost the case and was ordered to pay costs. Blacklock's  suggests $5,000.

This is from the Attorney General of Canada ("AGC"), which won and is entitled to costs. It has invoked Rule 420, which provides for double costs under certain conditions where a settlement offer was made and turned down.  The AGC is asking for "$115,702.30, representing 70% of its actual costs plus disbursements, or in the alternative at the high end of column IV of the Tariff: $84,584.98."

I shall report on the Court's ruling when available.

HPK

PS - update December 5, 2016:

Blacklock's was permitted to file additional material re costs. Here it is.

Judicial Review of Access Copyright K-12 Tariff to be Heard November 22, 2016 in Ottawa

The Federal Court of Appeal (“FCA”) judicial review (“JR”) hearing of the Copyright Board’s Access Copyright (“AC”) K-12 tariff will take place next Tuesday, November 22, 2016 at 9:30 AM at the 10^th floor, 90 Sparks St., Ottawa. The hearing is scheduled for four hours. The panel will consist of Justices Nadon, Dawson and Gauthier. Here is Access Copyright’s factum. Here is the respondent CMEC’s factum.

I wrote at length on March 15, 2016 about the Board’s K-12 decision and what might happen. The consumables aspect makes it a surprisingly expensive tariff, as I pointed out at the time. The tariff as it stands is worth almost $10 million per year, if the school boards actually regard it as mandatory and actually pay it. AC is clearly trying to increase this amount through the JR. But even that amount is enough oxygen to keep AC in business indefinitely. However, the CMEC school boards did not file a JR application with respect to “consumables”, which account for most of the cost of the tariff. It appears that CMEC will not be dealing with the issue of whether the tariff is “mandatory” in this forum. I do not know whether CMEC intends to treat whatever the final version of the tariff may be as “mandatory”.

If CMEC’s school boards can find a less expensive and more efficient way of clearing their copyright needs than by paying the AC tariff, they now have an extremely powerful argument as why the tariff can be treated as non-mandatory. The Supreme Court of Canada “SCC”) last year accepted the argument I made on behalf of Prof. Ariel Katz and the McGill research institute run at the time by Prof. David Lametti (as he then was) in the in the CBC v. SODRAC  and ruled as follows in the words of Justice Rothstein:

(112) I conclude that the statutory licensing scheme does not contemplate that licences fixed by the Board pursuant to s. 70.2 should have a mandatory binding effect against users.
…
(113) I find that licences fixed by the Board do not have mandatory binding force over a user; the Board has the statutory authority to fix the terms of licences pursuant to s. 70.2, but a user retains the ability to decide whether to become a licensee and operate pursuant to that licence, or to decline.

However, there is denial on the part of some copyright counsel who argue that the SCC ruling does not apply outside the so-called and misnamed “arbitration” regime of the Board. Such an argument is counterintuitive. If anything, the argument that tariffs, such as the K-12 tariff, imposed on objectors outside of the “arbitration” regime (and countless others not even represented) at the Board are not mandatory is even stronger.  As I said in my earlier blog about this:

So, it would appear that,  if a party to a so-called “arbitration” – which really wasn’t an “arbitration” in any normal or legal sense of the word – can treat the Board’s ruling as non-mandatory, then a fortiori, parties who are not involved in the “arbitration” mechanism and who are supposedly affected by the “general regime” and who may make a single copy of a single work in the limited repertoire of a  collective in circumstances that may amount to technical infringement  should not suddenly be liable for many millions of dollars for that one copy. For a university, that liability could amount to millions of dollars retroactively for several years – a possibility of which the SCC was clearly aware, if you read our factum and watch the hearing or read the transcript. That’s simply a ridiculous possibility – but it’s what some collectives and their lawyers, lobbyists or spokespersons want users and their often overly risk averse advisors to believe is still possible. Which brings me to the present and the future.

With respect to the “mandatory” issue, we await the decision of the Federal Court in Phase I the Access Copyright v. York University case, where closing arguments took place June 22 – 24, 2016. At issue in Phase I is mainly whether the interim tariff imposed by the Copyright Board on December 23, 2010 is “mandatory” and whether York’s fair dealing guidelines, which are very similar to those involved in next week’s hearing, fall within Canadian copyright law.

We also await a decision from the FCA in the judicial review of the Access Copyright Provincial Government tariff, which also involves fair dealing and which was heard on June 20, 2016.

And speaking of pending FCA decisions, we await the decision from the FCA in the Re:Sound Tariff 8 “Pandora” case that was heard in February 2016. This delay is unusual for the FCA, which usually renders decisions in less than six months. Here are my comments on the Board decision. This was the Board decision that prompted the shameful and disgraceful campaign by Music Canada to lobby the Board’s new Chairman. This decision may not have much to do with the present fair dealing proceedings, but it will be interesting to see what the FCA has to say about the Board’s procedures.

Last but not least, we await a decision from the Copyright Board on Access Copyright’s Post-Secondary tariff, in which the hearing concluded last January. Hopefully, we will not need to wait the usual 2+ post-hearing years that the Copyright Board takes to issue a decision on a tariff that has long been proceeding effectively unopposed and by default. There is one student who technically remains on the record, but his involvement does not make this an “opposed” tariff. Such a decision will then presumably be retroactive by 7 or 8 years. The proposed tariff was filed in 2010.

Obviously, nobody knows when, whether and how all of these decisions will come out and how they will or will not fit with each other.

What we do know is that there will be a concerted and well-funded effort to push back on the SCC’s fair dealing jurisprudence and the 2012 legislation in the course of the 2017 review.  This would be unfortunate, since Parliament and the Supreme Court have given Canada a fair dealing framework that is probably the best in the world. It is the most balanced, most clear and most consistent with the very purpose of copyright and Canada’s aspiration for innovation. Even the Copyright Board is finally “getting it” on fair dealing, after some apparent reluctance to accept the rulings from the SCC. Canada’s fair dealing regime is no more permissive than the law of “fair use” in the USA, and incorporates several specific exceptions that provide some additional comfort and certainty when the overall categories found in section 29 may not clearly be applicable.

HPK

Blacklock’s Fails in Copyright Litigation Against the Government of Canada – Fair Dealing is Upheld and Even Extended

https://www.blacklocks.ca/ 

The Attorney General of Canada has achieved a clear victory against Blacklock’s Reporter in the latter’s attempt to collect damages of $17,209.10 based upon its supposed institutional subscription rate because a few public servants in the Department of Finance received, read and distributed two Blacklock’s articles about a file they were closely involved in that had been sent to them by a Blacklock’s subscriber.

Here’s the judgment from Justice Robert Barnes – which is unequivocally favourable in terms of fair dealing and even pushes the envelope further by emphasizing that what went on here  was based upon a “legitimate business reason” on the part of the subscriber/sender to the material and a “legitimate business purpose (i.e. to consider whether the stories required a response or correction)” on the part of the Department.

The judgment clearly rejects the essence of Blacklock’s argument, which was tantamount to asserting that copyright includes the exclusive right to “read” copyrighted material. The judgment does not deal directly with copyright misuse or abuse, though it does note certain “troubling” aspects of Blacklock’s business model and mentions the allegation that this “litigation constitutes a form of copyright abuse by a copyright troll.”

[22] To resolve this matter I need only decide whether the conduct Blacklock's impugns is protected under the fair dealing provisions of the Act and, in particular, section 29. Although there are certainly some troubling aspects to Blacklock's business practices it is unnecessary to resolve the Attorney General's allegation that this litigation constitutes a form of copyright abuse by a copyright troll.

(highlight and underline added)

Here are other takeaway quotations from the judgment, which was promptly and decisively delivered by the very experienced Justice Barnes in less than two months from the end of the hearing:

[36] In finding the scope of use of the articles to be fair I have considered the following factors, all of which favour the Defendant’s position:

(a) The articles were legally and appropriately obtained by Ms. Marsden who was a paid subscriber to Blacklock’s. Blacklock’s website was not hacked or accessed by illicit means. In the result, the articles were no longer behind Blacklock’s paywall when the Department obtained them.

 (b) Ms. Marsden sent the articles to Mr. Halley for a legitimate business reason (i.e., to protect her business reputation and to manage her working relationship with the Department);

(c) The Department received the articles unsolicited and used them (i.e., read them) for a legitimate business purpose (i.e., to consider whether the stories required a response or correction);

(d) The articles were circulated among only six Department officials all of whom had a reason to see them;

(e) No commercial advantage was sought or obtained by the Department’s use of the articles nor were they republished in any form;

(f) The two articles represented only a small fraction of the protected news copy on Blacklock’s website and one of them was shortly-after publically exposed on Blacklock’s website;

(g) The articles contained information obtained from the Department in response to Mr. Korski’s queries. As a source, the Department had a direct and immediate interest in their content. Indeed, a finding of copyright infringement against a news source for the simple act of reading the resulting copy is likely to have a chilling effect on the ability of the press to gather information. Such a result cannot be in the public interest;

(h) Mr. Halley and Ms. Rubec had a reasonable basis for their concern that the articles misrepresented some of the information they had conveyed to Mr. Korski and that a correction might be warranted. The involvement of their colleagues in a possible follow-up was, in the circumstances, reasonable;

(i) Neither Ms. Marsden nor the Department were aware of, or agreed to, Blacklock’s Terms and Conditions. In any event and as noted below, those provisions did not unambiguously prohibit the circulation of Blacklock’s copy for personal or non-commercial purposes. If Ms. Marsden, as a subscriber, had the right to use and distribute the articles for a non-commercial purpose, those who received the articles lawfully could reasonably expect to enjoy the same privilege;

(j) What occurred here was no more than the simple act of reading by persons with an immediate interest in the material. The act of reading, by itself, is an exercise that will almost always constitute fair dealing even when it is carried out solely for personal enlightenment or entertainment; and

(k) While the public interest is served by the vigilance of the press, copyright should not be a device that serves to protect the press from accountability for its errors and omissions. The Department had a legitimate interest in reading the articles with a view to holding Blacklock’s to account for its questionable reporting.

 (highlight and underline added)

As to Blacklock’s business model, Justice Barnes explicitly stated that Blacklock’s own argument “is essentially an admission that the market places little value on Blacklock's work-product” and a clear confirmation that, whatever the business model, “it is always subject to the fair dealing rights of third parties”:

[45] Blacklock’s maintains that this case challenges the viability of its business model including its right to protect news copy behind a subscription-based paywall. The suggestion that Blacklock’s business cannot survive in the face of the minor and discrete use that took place here is essentially an admission that the market places little value on Blacklock’s work-product. All subscription-based news agencies suffer from work-product leakage. But to customers who value easy, timely and unfettered access to news that may not be readily available from other sources, the price of a subscription is worth paying. It also goes without saying that whatever business model Blacklock’s employs it is always subject to the fair dealing rights of third parties. To put it another way, Blacklock’s is not entitled to special treatment because its financial interests may be adversely affected by the fair use of its material. Nothing in these reasons should however be taken as an endorsement of arguably blameworthy conduct in the form of unlawful technological breaches of a paywall, misuse of passwords or the widespread exploitation of copyrighted material to obtain a commercial or business advantage.

 (highlight and underline added)

The judgment does not deal directly with TPMs – technical protection measures - or circumvention, despite Blacklock’s efforts. The issue was not pleaded and the Court refused to hear evidence or argument directed to that issue as such.

The Government gets costs, and there is a comment from the Court that “offers to settle may have been exchanged”, which may mean that the Government will be entitled to get “double costs” for some or all of this litigation, depending on the timing and content of any offers.  We shall see and report in due course.

All in all this is a very clear victory for the Attorney General of Canada and for the cause of fair dealing in Canada. A business model “is always subject to the fair dealing rights of third parties.”

Because a fair dealing analysis is essentially based on fact-finding, and because the fact-finding here was extensive and careful, it is would seem that a successful appeal would be an unlikely possibility. I will update in the event that a Notice of Appeal is filed, which would be due on December 12, 2016. It remains to be seen what effect this judgment will have on the many other outstanding Blacklock’s lawsuits against the Government of Canada, some of its agencies and others.

The Government was represented by Alex Kaufman and Orlagh O’Kelly from the Department of Justice. Blacklock’s was represented by Yavar Hameed.

HPK

Blacklocks's Judgment Will Be Issued Thursday, November 10, 2016

Justice Barnes will deliver his judgment in the Blacklock's litigation that I've written about before on Thursday, November 10, 2016. Here's the docket.

In the meantime, and by way of interesting contrast to Blacklock's business model, it's worth noting that the New York Times is currently providing three days of completely free access to its website from November 7-9, 2016 so that interested readers can read all about the US election. This is a very smart business decision and surely not simple altruism. Low cost access to high quality content is a great business model. It isn't limited to the New York Times or The Economist or the other giants. It works too for Ottawa's Hill Times which offers lots of free content, and where one can buy a whole single current issue online for $5.00. Here's the Blacklock's Reporter website.

There will be lots more to say on or shortly after Thursday about  this closely watched case, the hearing of which concluded on September 19, 2016 - less than two months ago.

HK

Astrazeneca, Eli Lilly, the Supreme Court of Canada, NAFTA & a Rogue Elephant - Tomorrow Promises to be an Interesting Day

(images from Wikimedia Commons)

Tomorrow will be an eventful and very interesting day – especially for Canadian IP and trade lawyers,  a wide variety of other lawyers, as well as Canadian diplomats, politicians and bureaucrats.

On Tuesday, November 8, 2016, Election Day in the USA, the Supreme Court of Canada (“SCC”) will hear a patent case between AstraZeneca Canada Inc., et al. v. Apotex Inc., et al.  This involves the issue of “whether a promised utility doctrine properly exists”, in the words of the SCC’s summary of the case, which is not “official” and “are placed on the Court file and website for information purposes only”. Here is the full SCC summary:

Intellectual property – Patents – Medicines – Utility – Validity of patent for drug used in treatment of gastric acid conditions challenged in infringement and impeachment action – Whether “promise” in patent of improved pharmacokinetic and metabolic properties for improved therapeutic profile demonstrated or soundly predicted at time patent filed – What is the correct applicable standard for patent utility in Canada? – Whether a promised utility doctrine properly exists.

The applicants, (collectively, “AstraZeneca”) owned the Canadian ‘653 patent for the compound, esomeprazole, a proton pump inhibitor used in the reduction of gastric acid, reflux esophagitis and related conditions. It was sold under the name Nexium, and was a very successful drug for AstraZeneca. The respondents (collectively, “Apotex”) applied to the Minister of Health to obtain a Notice of Compliance which would allow it to sell its generic version of the drug. In response, AstraZeneca brought a prohibition application under the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 to prevent Apotex from entering the market until after the expiry of the ‘653 patent. In 2010, that application was dismissed and Apotex received its Notice of Compliance and commenced sales of its generic esomeprazole. AstraZeneca brought an action against Apotex for patent infringement. Apotex counter-claimed to impeach the ‘653 patent on several grounds.

It looks like this issue will now finally actually be considered on the merits by the SCC. However, there is an unusual history as to how it got here. Almost exactly two years ago, on November 3, 2014, Apotex and Sanofi settled a case scheduled to be heard by the SCC literally the next morning. The Justices were, so to speak, all dressed up, prepared and ready to go. They and the interveners may not have been too pleased. Here is what I wrote at the time:

In a very unusual development in a case that promised to be very interesting and important both domestically and internationally, Apotex has filed a notice of discontinuance literally on the day before and figuratively on the steps into the Court in its appeal against Sanofi in the Supreme Court of Canada that was to have been heard earlier today in Apotex et al v. Sanofi et al.  The notice states that “The Appellants wholly discontinues this Appeal on a without costs basis on consent.” This language suggests that some kind of settlement agreement – presumably very confidential – must have been concluded.

…

In today’s discontinued case, the “promise doctrine” and “utility” are also very much are the heart of the Eli Lilly NAFTA Chapter 11 investor/state challenge, although today’s case and the NAFTA case are not directly linked. However, whatever the Court might have ruled in today’s discontinued case might well have been of some considerable interest in the NAFTA case that we will hear much about in the future as it unfolds.

Even that was not the first time the SCC had heard about the “promise doctrine”.  In 2013, a panel of the Court led by now retired Justice Rothstein held an extraordinary rare oral hearing on whether Eli Lilly should be allowed leave to appeal on this issue. On May 16, 2013, the Court declined the leave application, as usual without reasons. Here is the webcast of the hearing.

At tomorrow’s hearing there will a rogue elephant lurking nearby and possibly even in in the room that I expect will remain almost completely silent and will likely be carefully ignored. However, it may well be on everyone’s mind – perhaps even that of the Justices. It is perfunctorily alluded to in the material.  This is the Eli Lilly NAFTA challenge, which has been brought under the ultra-controversial Investor State Dispute Settlement (“ISDS”) provisions of NAFTA. ISDS, of course, is one of the reasons, if not the main reason, for the CETA and BREXIT crises and the controversy over the TPP. Deadlines for treaty signature sharpen the mind. The timing of tomorrow’s hearing is somehow ironic – since the NAFTA and proposed TPP have become major issues in the USA election campaign, which has been otherwise largely devoid of substantial issues and mostly about personalities.

There are many things about ISDS generally and this case in particular that are very controversial. However, the most controversial aspect of this by far is the fact that Eli Lilly has refused to accept the SCC’s denial of its leave application as the end of this matter. It has, in effect, attempted to go over the head of the SCC. The SCC, after giving Eli Lilly the almost unheard of privilege of a lengthy oral leave hearing, declined to hear their appeal. For any Canadian litigant, that would have been the end of the road. Not, however, for Eli Lilly, a foreign investor, which had applied for leave to appeal on November 8, 2012 and filed its Notice of Intent Notice of Intent to Submit a Claim to Arbitration Under NAFTA Chapter Eleven on June 13, 2013, having been turned down for leave to appeal by the SCC less than a month earlier. Canadians do not get to bypass or, in effect, appeal from decisions of Canadian courts. Their only recourse is to the SCC. And when the SCC says it’s over, then it’s over. The only recourse then, which is not judicial or arbitral, and which is exceedingly rare is that Parliament may decide to change the law following a judicial decision that it finds unacceptable. Even then, Parliament is bound by Canada’s constitution, which is exceedingly difficult to change. Of course, a government can invoke the “notwithstanding clause” – but this is bordering on the “nuclear option” in today’s Canada.

Eli Lilly, at least, had exhausted its recourse in Canada in this instance. That is not the case in many other NAFTA ISDS disputes.

Only now are more and more people beginning to understand why ISDS is so controversial. It not only arguably ousts the jurisdiction of Canadian superior courts. It arguably discriminates on the basis of nationality by providing greater rights and remedies to foreigners than are provided to Canadians.  This, and much more, may get challenged by Paul Hellyer, P.C. in a recently launched lawsuit in which he is being represented by Rocco Galati, who succeeded in a controversial challenge to the appointment of the Honourable Marc Nadon to the SCC. The recent decision by the UK High Court regarding Brexit may well be cited in Canada with respect to limits on the royal prerogative and other issues.

Many experts do not believe that Eli Lilly should or will win the NAFTA challenge on the merits. It is difficult to believe that a finding of patent invalidity by one of the best judicial systems in the world with an extraordinary oral hearing for leave to appeal to Canada’s highest court could lead to the conclusion that Canada, in Eli Lilly’s words:

“Wrongfully Expropriated Claimant’s Patent Rights In Zyprexa and Strattera”

or

“Failed to Accord Fair and Equitable Treatment to Claimant’s Investments in Violation of NAFTA Article 1105”

However, Eli Lilly has paid out a lot of money to get expert reports and make arguments that suggest otherwise and Canada has chosen to defend on the merits, rather than attempting to end this case at the outset on jurisdictional grounds.  To no doubt oversimplify, the main issue is whether a ruling by the Canadian courts that a patent is invalid is an “expropriation”. That, of course, is arguably an absurd suggestion. Patents are regularly invalidated by courts everywhere. That is not “expropriation”. This is how the system works. The patent has not been seized or taken by the government without compensation.

Sometimes – and I do not for a moment suggest that this is the case here – the courts get things wrong. The wrong decision is not always corrected on appeal, for any number of reasons. A country’s highest court cannot hear every case brought to it – and rarely do any top courts engage simply in “error correction” as such.  Unless there is evidence of corruption or other serious denial of natural justice in the judicial system - which is clearly not the case here or ever likely to be the case in Canada - ISDS should never be allowed to be used to bypass or, in effect, override Canada’s judicial system. If Canada’s statute is offside with its treaty obligations, there is a state/state remedy procedure in the WTO.  However, that has not been sought in this case.

Also, more another day on why the Government of Canada did not seek at the earliest possible stage to have this case dismissed on what would seem to be arguably clear jurisdictional grounds – instead of spending about $6,000,000 that we know about in fees, disbursements and costs. However, the real and even more serious risk is that there could be a ruling by the arbitrators for damages of $500 million + costs that, even worse still, might unravel Canadian patent law and contradict our courts – including our highest court. Even if Canada wins on the merits, there is also a real risk that there could be many more of these challenges that threaten sovereignty and the rule of law - unless there is a very clear jurisdictional ruling in Canada’s favour. Litigants such as Eli Lilly, Phillip Morris and others with deep pockets have little to lose and much to gain if they can instill some regulatory chill and even buy time in appropriate cases. I may have more to say about ISDS and Canada in the future.

In the meantime, don’t take my word for what is problematic about ISDS. Here is what the Chief Justice of Australia, RS French, had to say about ISDS on July 9, 2014 – and bear in mind that sitting Chief Justices in common law countries are invariably very constrained in their comments on public policy issues:

A rule of law issue

The topic of investor-state dispute settlement has a regional significance for Australia because of the number of BITs and FTAs it has entered into or is negotiating with countries in the Asia Pacific. However, the significance of ISDS arbitral processes is global. They have general implications for national sovereignty, democratic governance and the rule of law within domestic legal systems. Their long-term consequences for national judiciaries cannot be stated with confidence. They attract vigorous and articulate proponents and detractors, but their merits and demerits are not easy to assess. Moreover, those merits and demerits may vary according to the circumstances in which ISDS is applied and the scope and limitations of particular ISDS provisions.

(emphasis added)

The possibility of diverging findings on the same issue now looms very large. We do not know when the NAFTA arbitrators will rule. While they work on their conclusion, they are each being paid at the rate of USD $3,000 per diem. One would think that, if the arbitrators were inclined to dismiss on straight jurisdictional grounds, which Canada eventually got around at the end to forcefully arguing, that they would have so ruled by now or will do so rather soon. The hearing concluded in early June of 2016. Our SCC usually rules within six months of a hearing – so one can expect a ruling from the SCC likely no later than April of 2017.

It will be a potentially huge problem if the NAFTA arbitrators and the SCC disagree on substantive patent law. It will be awkward enough if, as seems inevitable, one rules before the other. Would the NAFTA arbitrators pay any attention to the SCC, or vice versa? A disagreement on the merits would likely have profound implications for international trade, diplomacy, the rule of law and national sovereignty. However, I have probably said more than enough about all this for now….

Tomorrow’s webcast – assuming it is not delayed due to a “sealing order” should be available here.

HPK

Senate Banking, Trade and Commerce Committee Hearings on Copyright Board Conclude November 3, 2016

The Senate Banking, Trade and Commerce Committee held four hours of hearings about the Copyright Board today and yesterday. The schedule and links to the archived video – already available – are here. My contribution begins the 12:12:40 mark of the second day and in the Q&A that follows. My conclusion in my oral presentation was that “the solution is very simple”. We need:

·        Less resources.

·        More regulation including deadlines – like every other efficient court or tribunal anywhere.

·        Less excuses.

My written brief can be seen here. The gist of my submission is that we need less resources, more regulations (which need not await 2017) and eventually some “machinery” changes, which would require legislation and could be dealt with in the 2017 context. I offered very specific suggestions for the subject matter of the regulations and nature of the machinery changes, which are summarized at page 2 of my brief, which will eventually be posted by the Senate in both official languages, along with material from others.

There was general agreement that things take much too long at the Board. The Board and several witnesses proposed more resources as a solution, although there was no specific indication as to how this would help.

In a rare if not unique occurrence, Graham Henderson of Music Canada and I both suggested that less resources might actually help to get the job done faster. When he and I agree on something, it is notable and probably means that we are right.

The transcripts will be posted soon in due course. More comment possibly to follow in due course and certainly after the Report. The Senate BANC Committee has said that it will “submit its final report no later than Wednesday, November 30, 2016, and that the committee retain all powers necessary to publicize its findings until 180 days after the tabling of the final report.”

HPK