Judgments

Decision Information

Decision Content

A-579-04

2005 FCA 361

Apotex Inc. (Appellant) (Plaintiff by Counterclaim)

v.

Eli Lilly and Company and Eli Lilly Canada Inc. (Respondents) (Defendants by Counterclaim)

and

Shionogi & Co. Ltd. (Respondent) (Defendant by Counterclaim)

and

Commissioner of Competition (Intervener)

Indexed as: Eli Lilly and Co. v. Apotex Inc. (F.C.A.)

Federal Court of Appeal, Desjardins, Evans and Sharlow JJ.A.--Toronto, September 27; Ottawa, November 2, 2005.

Patents -- Infringement -- Appeal from Federal Court decision granting motions for summary judgment, striking paragraphs from appellant's defence and counterclaim to patent infringement action brought by Eli Lilly and Company, Eli Lilly Canada Inc. (Lilly) -- Lilly commencing action for infringement of seven patents relating to processes that may be used in making cefaclor, antibiotic -- Lilly later claiming appellant infringing eighth patent; amending statement of claim -- Four out of those eight patents assigned to Lilly by Shionogi & Co. Ltd. (Shionogi) -- Lilly simultaneously granting Shionogi non-exclusive licence respecting patents assigned -- Appellant alleging assignment of patents constituting conspiracy to unduly lessen competition contrary to Competition Act, s. 45; claiming damages under s. 36 -- Patent Act, s. 50 providing patent issued for invention assignable in law -- Federal Court of Appeal decision in Molnlycke AB v. Kimberly-Clark of Canada Ltd. establishing assignment of patent cannot be undue when lessening of competition resulting from assignment thereof -- Molnlycke not applying if reduction of competition resulting from something more than mere exercise of patent rights -- Federal Court erring when considering Molnlycke binding in present circumstances -- Also erring when holding assignment of patents exempt from Competition Act, s. 45.

Competition -- Appeal from Federal Court decision granting motions for summary judgment, striking paragraphs from appellant's defence, counterclaim to patent infringement action brought by Eli Lilly and Company and Eli Lilly Canada Inc. (Lilly) -- Assignment of patent may as matter of law unduly lessen competition -- When assignment increasing assignee's market power in excess of that inherent in rights assigned, Patent Act, s. 50 not precluding possibility assignment unduly lessening competition under Competition Act, s. 45 -- Purpose of Competition Act to maintain, encourage competition in Canada to promote efficiency, adaptability of Canadian economy -- Federal Court not erring when concluding patent assignment having effect of reducing competition -- Appellant claiming loss, damages sustained as result of conduct proscribed in Competition Act, s. 45 -- Submitting any potential amount required to pay for infringement constituting "loss or damages" -- S. 36(1) providing claimant must prove proscribed conduct causing loss, damages -- S. 36(4) establishing limitation period to claim loss, damages -- Federal Court not erring in concluding issues of damages, limitation period to be resolved at trial, not on summary motion.

Practice -- Summary Judgment -- Appeal from Federal Court decision granting motions for summary judgment, striking paragraphs from appellant's defence, counterclaim to patent infringement action brought by Eli Lilly and Company and Eli Lilly Canada Inc. -- Appellant's claim for loss, damages under Competition Act not matter to be resolved at summary judgment stage -- Also inappropriate to decide by summary judgment matter in which application of discoverability rule (when facts discovered, could reasonably have been expected to be discovered) likely to be important, i.e. determining start of limitation period for damages claimed under Competition Act.

This was an appeal from a Federal Court decision granting motions for summary judgment and striking paragraphs from the appellant's defence and counterclaim to an action brought by the respondents Eli Lilly and Company and Eli Lilly Canada Inc. (Lilly) for patent infringement. In 1997, Lilly had commenced an action against the appellant for infringement of seven patents, which relate to processes that can be used in the making of cefaclor, an antibiotic, to intermediates that can be formed using those processes and to a compound used in the processes. An eighth patent, which it claimed had been infringed, was later added to its statement of claim. Of the eight patents Lilly claimed were infringed by the appellant, four had been assigned to it by Shionogi & Co. Ltd. (Shionogi) in 1995. In turn, Lilly simultaneously granted Shionogi, the assignor, a non-exclusive licence with respect to those patents assigned. The last of the process patents assigned to Lilly expired in 2000. In its defence and counterclaim, the appellant alleged that the agreements between Lilly and Shionogi constituted a conspiracy to unduly lessen competition, thereby violating section 45 of the Competition Act and entitling it to damages under section 36. Prior to this appeal, the Federal Court had held that since any lessening of competition arose from Shionogi's assignment of the patents to Lilly, it could not be undue because it was authorized by Patent Act, section 50. It regarded Molnlycke AB v. Kimberly-Clark of Canada Ltd. as binding authority to this effect. The appeal was allowed on the ground that Molnlycke applied only when the lessening therefrom of competition resulted from the assignment alone. The matter was remitted to the Federal Court Judge to determine whether there was "something more" than the mere exercise of patent rights such that the Competition Act was not excluded. The Federal Court found that there was not. The main issue in this appeal was whether an assignment of a patent constitutes an agreement or arrangement to lessen competition unduly if the assignment results in an increase to the assignee's market power greater than that inherent in the patents assigned, contrary to section 45 of the Competition Act.

Held, the appeal should be allowed.

The assignment of a patent may as a matter of law unduly lessen competition. Section 50 of the Patent Act provides that a patent issued for an invention is assignable in law. However, when the effect of the assignment is to increase the assignee's market power by more than that inherent in the rights assigned, section 50 does not preclude the possibility that the assignment unduly lessens competition under section 45 of the Competition Act. An interpretation of section 50 that does not immunize the assignment of patents from section 45 when it lessens competition enables it and section 45 to operate harmoniously in accordance with the ordinary meaning of the statutory language. Since section 50 of the Patent Act neither compels nor expressly authorizes what section 45 forbids, there is no true conflict between these two provisions. Moreover, section 32 of the Competition Act provides that the Federal Court may make certain orders where use is made of the exclusive rights conferred by a patent so as to unduly restrain trade or lessen competition in an article. On that basis, Parliament clearly did not intend to exclude the exercise of patent rights from the reach of the Competition Act altogether. This interpretation is also consistent with the purpose of the Competition Act, which is "to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy." Finally, this interpretation is consistent with administrative guidelines. Therefore, the Federal Court judge erred in law by holding that the assignment of patents is exempt from section 45 of the Competition Act.

The Federal Court also erred when it considered the Federal Court of Appeal decision in Molnlycke AB v. Kimberly-Clark of Canada Ltd. as authority for the proposition that, in the present circumstances, any lessening of competition could not be undue for the purpose of section 45 of the Competition Act. Molnlycke established that an assignment of patents could not be undue when the lessening of competition results from the assignment thereof. However, the situation in Molnlycke was distinguishable since the only market power created by the assignment in that case was that inherent in the patent assigned. In the present case, because of Lilly's existing ownership of related patents, the agreement between Lilly and Shionogi resulted in Lilly's acquiring patent rights that allowed it to control all of the commercially viable processes for making cefaclor. Before the patent assignment, those processes were controlled by two companies. Therefore, Molnlycke does not apply if there is evidence that something more than the mere exercise of patent rights may affect competition in the relevant market.

The Federal Court made an express finding of fact that there was a lessening of competition after the 1995 assignment of Shionogi's patents to Lilly. It concluded that the evidence amply demonstrated that, because of Lilly's existing ownership of other patents, the result of the assignment was to increase Lilly's monopoly power. Given the absence of a palpable and overriding error, the Federal Court of Appeal could not disturb the Federal Court's conclusion that the effect of the assignment was a lessening of competition.

The appellant counterclaimed against Lilly and Shionogi under section 36 of the Competition Act for damages for loss or damage sustained as a result of conduct proscribed in section 45. Subsection 36(1) provides that a claimant must prove that the proscribed conduct caused it loss or damage and subsection 36(4) provides that no claim for damages may be made after two years from "a day on which the conduct was engaged in". Therefore, in this case, the start of the limitation period had to be determined. However, the evidence pertaining to both how much the appellant knew about the relevant facts (including details of the agreement) and when it acquired its knowledge was not so clear as to warrant the Federal Court of Appeal's interference with the Federal Court's conclusion that the issue of whether the appellant's counterclaims are statute-barred should be resolved at trial. It will generally be inappropriate to decide by summary judgment a matter in which the application of the discoverability rule (when facts were discovered and could reasonably have been expected to be discovered) is likely to be important.

The appellant's strange proposition that, for the purposes of subsection 36(1), any amount that it may be required to pay Lilly by way of damages as a result of Lilly's infringement action constitutes "loss or damages" was a matter that had to be determined at trial, not at the summary judgment stage.

statutes and regulations judicially

considered

Competition Act, R.S.C., 1985, c. C-34, ss. 1 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19), 1.1 (as enacted idem), 32 (as am. by S.C. 1990, c. 37, s. 29; 2002, c. 16, s. 4(F)), 36 (as am. by R.S.C., 1985 (4th Supp.), c. 1, s. 11), 45 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 30; S.C. 1991, c. 47, s. 714), 79 (as enacted by R.S.C., 1985 (2nd Supp.), c. 19, s. 45; S.C. 1990, c. 37, s. 31; 1999, c. 2, s. 37; 2002, c. 16, s. 11.4).

Patent Act, R.S.C., 1985, c. P-4, s. 50 (as am. by R.S.C., 1985 (3rd Supp.), c. 33, s. 20).

cases judicially considered

distinguished:

Molnlycke AB v. Kimberly-Clark of Canada Ltd. et al. (1991), 36 C.P.R. (3d) 493; 132 N.R. 315; [1991] F.C.J. No. 532 (C.A.) (QL).

considered:

Eli Lilly and Co. v. Apotex Inc. (2004), 240 D.L.R. (4th) 679; 32 C.P.R. (4th) 195; 323 N.R. 180; 2004 FCA 232; Eli Lilly and Co. v. Apotex Inc. (2003), 28 C.P.R. (4th) 37; 2003 FC 1171; R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606; (1992), 114 N.S.R. (2d) 91; 93 D.L.R. (4th) 36; 313 A.P.R. 91; 74 C.C.C. (3d) 289; 43 C.P.R. (3d) 1; 15 C.R. (4th) 1; 10 C.R.R. (2d) 34; 139 N.R. 241.

referred to:

Smith v. The Queen, [1960] S.C.R. 776; (1960), 25 D.L.R. (2d) 225; 128 C.C.C. 145; 33 C.R. 318; Multiple Access Ltd. v. McCutcheon et al., [1982] 2 S.C.R. 161; (1982), 138 D.L.R. (3d) 1; 18 B.L.R. 138; 44 N.R. 181; Canada (Commissioner of Competition) v. Superior Propane Inc., [2001] 3 F.C. 185; (2001), 199 D.L.R. (4th) 130; 11 C.P.R. (4th) 289; 269 N.R. 109; 2001 FCA 204; Nowegijick v. The Queen, [1983] 1 S.C.R. 29; (1983), 144 D.L.R. (3d) 193; [1983] 2 C.N.L.R. 89; [1983] CTC 20; 83 DTC 5041; 46 N.R. 41; Aguonie v. Galion Solid Waste Material Inc. (1998), 38 O.R. (3d) 161; 156 D.L.R. (4th) 222; 17 C.P.C. (4th) 219; 107 O.A.C. 115 (C.A.).

authors cited

Bureau de la concurrence. "Lignes directrices pour l'application de la loi", Industrie Canada, 2000.

Competition Bureau. Intellectual Property Enforcement Guidelines. Industry Canada, 2000.

Sullivan, Ruth. Sullivan and Driedger on the Construction of Statutes, 4th ed. Toronto: Butterworths, 2002.

APPEAL from a Federal Court decision ([2005] 2 F.C.R. 225; (2004), 35 C.P.R. (4th) 155; 262 F.T.R. 154; 2004 FC 1445) granting motions brought by the respondents for summary judgment and striking paragraphs from the appellant's defence and counterclaim to an action by Eli Lilly and Company and Eli Lilly Canada Inc. for patent infringement. Appeal allowed.

appearances:

Harry B. Radomski and David Scrimger for appellant (plaintiff by counterclaim).

Anthony George Creber and Patrick S. Smith for respondents (defendants by counterclaim) Eli Lilly and Company and Eli Lilly Canada Inc.

A. David Morrow and Colin B. Ingram for respondent (defendant by counterclaim) Shionogi & Co. Ltd.

Randall Hofley for intervener.

solicitors of record:

Goodmans LLP, Toronto, for appellant (plaintiff by counterclaim).

Gowling Lafleur Henderson LLP, Ottawa, for respondents (defendants by counterclaim) Eli Lilly and Company and Eli Lilly Canada Inc.

Smart & Biggar, Ottawa, for respondent (defendant by counterclaim) Shionogi & Co. Ltd.

Deputy Attorney General of Canada for intervener.

The following are the reasons for judgment rendered in English by

Evans J.A.:

A.    INTRODUCTION

[1]This is an appeal by Apotex Inc. from a decision of the Federal Court granting motions brought by the respondents, Eli Lilly and Company, Eli Lilly Canada Inc. (Lilly) and Shionogi & Co. Ltd. The Judge granted motions for summary judgment by Lilly and Shionogi and struck paragraphs from Apotex' defence and counterclaim to an action by Lilly for patent infringement. The Judge's decision is reported as Eli Lilly and Co. v. Apotex, [2005] 2 F.C.R. 225.

[2]The appeal raises an important question of law arising at the intersection of patent law and competition law. It is this. As a matter of law, can an assignment of a patent constitute an agreement or arrangement to lessen competition unduly, contrary to section 45 [as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 30; S.C. 1991, c. 47, s. 714] of the Competition Act [R.S.C., 1985, c. C-34, s. 1 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19)], if it results in an increase to the assignee's market power greater than that inherent in the patents assigned?

[3]Lilly and Shionogi say that it cannot. They rely on section 50 [as am. by R.S.C., 1985 (3rd Supp.), c. 33, s. 20] of the Patent Act [R.S.C., 1985, c. P-4], which authorizes a patentee to assign a patent. They argue that, by their nature, patents create monopolies. Since the right to assign is one of the rights conferred on patentees by Parliament, any lessening of competition following the exercise of the right to assign cannot be undue. Lilly and Shionogi say that there is binding authority to this effect: Molnlycke AB v. Kimberly-Clark of Canada Ltd. et al. (1991), 36 C.P.R. (3d) 493 (F.C.A.). However, they concede that it is different if, in addition to the assignment, the assignor and assignee enter into some other competition-restricting arrangement.

[4]Apotex, on the other hand, submits that section 50 of the Patent Act and section 45 of the Competition Act can be read harmoniously: section 50 enables patents to be assigned to comply with other laws, including section 45 of the Competition Act. Hence, it is argued, when the effect of an assignment is to increase the assignee's market power by more than that inherent in the rights assigned, section 50 does not preclude the possibility, as a matter of law, that the assignment unduly lessened competition.

[5]Apotex says that Molnlycke is distinguishable on the ground that the Court in that case was not considering a situation in which the assignment created in the assignee market power greater than that inherent in the patents assigned. In contrast, such power was conferred in the present case because of the assignee's existing ownership of related patents.

[6]The Commissioner of Competition was given leave to intervene to assist the Court on whether section 50 of the Patent Act precludes the application of section 45 of the Competition Act from the assignment of patents, and whether the Judge erred in concluding that his view on this issue was consistent with the Intellectual Property Enforcement Guidelines (Industry Canada, 2000) issued by the Commissioner.

B.     BACKGROUND AND JUDICIAL HISTORY

[7]The essential background to this appeal has already been described by Rothstein J.A. in the previous round of the present litigation, reported as Eli Lilly and Co. v. Apotex Inc. (2004), 240 D.L.R. (4th) 679 (F.C.A.), at paragraphs 2-5:

On June 18, 1997, Eli Lilly and Company and Eli Lilly Canada Inc. ("Lilly") commenced an action against Apotex Inc. ("Apotex") for infringement of seven patents which relate to processes that can be used in the making of the antibiotic cefaclor, to intermediates that can be formed using those processes, and to a compound used in the processes. On January 11, 2001, Lilly amended its statement of claim to add an eighth patent which it claimed had been infringed.

By amendments to its Statement of Defence and by Counterclaim made in 2001, Apotex alleged that certain conduct of Lilly violated s. 45 of the Competition Act, R.S.C. 1985, c. C-34, thereby entitling Apotex to damages under s. 36 of that Act. In 2002, Apotex further amended its Statement of Defence and Counterclaim to add Shionogi & Co. Ltd. ("Shionogi") as a defendant by counterclaim in the proceedings as part of its claim for damages under the Competition Act.

Of the eight patents Lilly claimed were infringed by Apotex, four had been assigned to Lilly by Shionogi in 1995. Apotex says that these assignments constituted an agreement that resulted in an undue lessening of competition contrary to s. 45 of the Competition Act.

Subsection 45(1) of the Competition Act makes it unlawful for parties to enter into agreements which lessen competition unduly:

[8]I would only add that the patent for cefaclor expired in 1994 and the last Shionogi process patent expired in 2000, shortly before the last of Lilly's process patents. Finally, contemporaneously with the assign-ment, Lilly granted a non-exclusive licence to Shionogi with respect to the patents, which Shionogi assigned to Lilly.

[9]In the first round of these proceedings, the Judge granted three motions. In the first, Lilly was awarded summary judgment striking the paragraphs of Apotex' defence and counterclaim that rested on section 45 and dismissing the counterclaim. In the second, Shionogi was awarded summary judgment on the counterclaim and, in the third, the Judge allowed Shionogi's appeal from a decision of a Prothonotary refusing to strike Apotex' counterclaim against it.

[10]The Judge held that, since any lessening of competition arose from Shionogi's assignment of the patents to Lilly, it could not be undue because it was authorized by section 50 of the Patent Act. He regarded Molnlycke as binding authority to this effect. The Judge's decision is reported as Eli Lilly and Co. v. Apotex Inc. (2003), 28 C.P.R. (4th) 37 (F.C.).

[11]Apotex appealed to this Court, which allowed the appeal and remitted the matter to the Judge, on the ground that Molnlycke only applied when the lessening of competition resulted from the assignment alone. If there was "evidence of something more than the mere exercise of patent rights" [underlining added] (at paragraph 15), the Competition Act was not necessarily excluded. Accordingly, the Court referred the matter back to the Judge, requesting him (at paragraph 22) to address the following questions "at a minimum":

. . . (1) whether subsection 45(1) can ever apply to an agreement involving the exercise of patent rights; and (2) if it can, whether the facts of this case are sufficient to prove that Lilly and/or Shionogi engaged in conduct that was contrary to section 45. Finally, even if Apotex can establish that section 45 applies and that Lilly and/or Shionogi's conduct was contrary to section 45, the motions judge will still have to determine if any of the other arguments raised by Lilly and Shionogi, which he did not originally consider, prevent Apotex from recovering damages under section 36 of the Competition Act.

The citation for the Federal Court of Appeal's decision was set out at paragraph 7 of these reasons.

[12]When the matter went back to the Judge, he asked himself whether there was some agreement or term, in addition to the assignment of the patents, which could constitute the "something more" to which the Federal Court of Appeal had alluded. Finding that there was not, he again granted the motions. He said (at paragraph 9):

. . . where an agreement deals only with patent rights and is itself specifically authorized by the Patent Act, any lessening of competition resulting therefrom, being authorized by Parliament, is not "undue" and is not an offence under section 45.

In the Judge's view, therefore, since any lessening of competition resulted from the assignments alone, Molnlycke applied.

[13]Accordingly, the Judge (at paragraph 26) answered yes to the first question, but no to the second, because [at paragraph 15]:

The agreement which constitutes the conspiracy alleged by Apotex, however, is solely and exclusively the assignment of the Shionogi patents and there is no other agreement alleged or shown by the evidence which could be the basis of a section 45 offence.

As for the third question, the Judge said that [at paragraph 26], while it did not arise, "it too would receive a negative answer."

[14]For the reasons that follow, I have concluded that the assignment of a patent may, as a matter of law, unduly lessen competition. I would allow Apotex' appeal from the Judge's decision, dismiss the motions, restore the paragraphs struck from the defence and counterclaim, and allow the matter to proceed to trial on all other issues, except whether there was a lessening of competition as a result of the assignment.

C.     STATUTORY FRAMEWORK

Patent Act, R.S.C., 1985, c. P-4

50. (1) Every patent issued for an invention is assignable in law, either as to the whole interest or as to any part thereof, by an instrument in writing. [Underlining added.]

Competition Act, R.S.C., 1985, c. C-34 [sections 32 (as am. by S.C. 1990, c. 37, s. 29; 2002, c. 16, s. 4(F)), 36 (as am. by R.S.C., 1985 (4th Supp.), c. 1. s. 11), 79 (as enacted by R.S.C., 1985 (2nd Supp.), c. 19, s. 45; S.C. 1990, c. 37, s. 31; 1999, c. 2, s. 37; 2002, c. 16, s. 11.4)]

32. (1) In any case where use has been made of the exclusive rights and privileges conferred by one or more patents for invention, by one or more trade-marks, by a copyright or by a registered integrated circuit topography, so as to

(a) limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any article or commodity that may be a subject of trade or commerce,

(b) restrain or injure, unduly, trade or commerce in relation to any such article or commodity,

(c) prevent, limit or lessen, unduly, the manufacture or production of any such article or commodity or unreasonably enhance the price thereof, or

(d) prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, transporta-tion or supply of any such article or commodity,

the Federal Court may make one or more of the orders referred to in subsection (2) in the circumstances described in that subsection.

. . .

36. (1) Any person who has suffered loss or damage as a result of

(a) conduct that is contrary to any provision of Part VI, or

(b) the failure of any person to comply with an order of the Tribunal or another court under this Act,

may, in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct or failed to comply with the order an amount equal to the loss or damage proved to have been suffered by him, together with any additional amount that the court may allow not exceeding the full cost to him of any investigation in connection with the matter and of proceedings under this section.

(2) In any action under subsection (1) against a person, the record of proceedings in any court in which that person was convicted of an offence under Part VI or convicted of or punished for failure to comply with an order of the Tribunal or another court under this Act is, in the absence of any evidence to the contrary, proof that the person against whom the action is brought engaged in conduct that was contrary to a provision of Part VI or failed to comply with an order of the Tribunal or another court under this Act, as the case may be, and any evidence given in those proceedings as to the effect of those acts or omissions on the person bringing the action is evidence thereof in the action.

(3) For the purposes of any action under subsection (1), the Federal Court is a court of competent jurisdiction.

(4) No action may be brought under subsection (1),

(a) in the case of an action based on conduct that is contrary to any provision of Part VI, after two years from

(i) a day on which the conduct was engaged in, or

(ii) the day on which any criminal proceedings relating thereto were finally disposed of,

whichever is the later; and

(b) in the case of an action based on the failure of any person to comply with an order of the Tribunal or another court, after two years from

(i) a day on which the order of the Tribunal or court was contravened, or

(ii) the day on which any criminal proceedings relating thereto were finally disposed of,

whichever is the later

. . .

45. (1) Every one who conspires, combines, agrees or arranges with another person

(a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product,

. . .

(d) to otherwise restrain or injure competition unduly,

is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten million dollars or to both.

. . .

(3) Subject to subsection (4), in a prosecution under subsection (1), the court shall not convict the accused if the conspiracy, combination, agreement or arrangement relates only to one or more of the following:

(a) the exchange of statistics;

(b) the defining of product standards;

(c) the exchange of credit information;

(d) the definition of terminology used in a trade, industry or profession;

(e) cooperation in research and development;

(f) the restriction of advertising or promotion, other than a discriminatory restriction directed against a member of the mass media;

(g) the sizes or shapes of the containers in which an article is packaged;

(h) the adoption of the metric system of weights and measures; or

(i) measures to protect the environment.

. . .

(7) In a prosecution under subsection (1), the court shall not convict the accused if it finds that the conspiracy, combination, agreement or arrangement relates only to a service and to standards of competence and integrity that are reasonably necessary for the protection of the public

(a) in the practice of a trade or profession relating to the service; or

(b) in the collection and dissemination of information relating to the service.

(7.1) Subsection (1) does not apply in respect of an agreement or arrangement between federal financial institutions that is described in subsection 49(1).

. . .

79. (1) Where, on application by the Commissioner, the Tribunal finds that

. . .

the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.

. . .

(5) For the purpose of this section, an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under the Copyright Act, Industrial Design Act, Integrated Circuit Topography Act, Patent Act, Trade-marks Act or any other Act of Parliament pertaining to intellectual or industrial property is not an anti-competitive act. [Underlining added.]

D.     ISSUES AND ANALYSIS

Issue 1:     As a matter of law, may an assignment of a patent unduly lessen competition by virtue of the assignee's ownership of related patents?

(i) Molnlycke AB v. Kimberly-Clark of Canada Ltd. et al.

[15]Lilly and Shionogi rely heavily on the decision in Molnlycke. They argue that, in the first round of this litigation (see paragraph 7 of these reasons), this Court held that Molnlycke is good law and should be followed. Consequently, they submit, as far as the present parties are concerned, the soundness of Molnlycke is res judicata. For present purposes, I accept this. However, the more important question is to define the scope of the proposition for which this Court affirmed Molnlycke.

[16]In my view, this Court's opinion of the scope of Molnlycke is clear from the reasons it gave when allowing the appeal from the first decision of the Judge. If, as Lilly and Shionogi argue, Apotex is bound by the Court's conclusion that Molnlycke should be followed, Lilly and Shionogi, in my opinion, are equally bound by the Court's view of the ratio of Molnlycke. This is what Rothstein J.A. said about Molnlycke [at paragraphs 14-15]:

In the case of Molnlycke, there was a single supplier lawfully entitled to sell the subject of the patent prior to the patent being assigned. The assignment merely transferred the patent to another company. The only effect of the assignment was that a different company could sue the defendant for infringement. There was no change in the number of patent-holders before and after the assignment. The defendant appears to have claimed that an agreement to assign a patent and thereby allow the assignee to enforce the patent monopoly, with nothing more, could itself be an agreement that unduly lessened competition under subsection 45(1).

Molnlycke held that, in order to provide scope for the statutory monopolies granted by the Patent Act to operate, Parliament must have intended that "undue impairment of competition cannot be inferred from evidence of the exercise of [patent] rights alone". Where, however, there is evidence of something more than the mere exercise of patent rights that may affect competition in the relevant market, Molnlycke does not purport to completely preclude application of the Competition Act. [Emphasis added.]

[17]Distinguishing Molnlycke, the Court said [at paragraph 17]:

In the present case, Apotex does not allege that it is the mere assignment of patent rights or the enforcement of those patent rights by Lilly that gave it a cause of action. Rather, Apotex says that the assignment in this case resulted in one company, Lilly, acquiring patent rights that allow it to control all of the commercially viable processes for making cefaclor where, before the agreement, those processes were controlled by two companies, Shionogi and Lilly. Apotex argues that this consolidation was something more than the mere exercise of patent rights. Therefore, it says, the assignment agreement gave rise to an undue lessening of competition which engaged subsection 45(1) of the Competition Act.

[18]Since the Court did not refer to any other basis on which Apotex sought to distinguish Molnlycke, the Court's reference to "something more" must mean, in this case, the anti-competitive effects of the assignment, namely, the increased power of Lilly in the market for bulk cefaclor, as a result of its existing ownership of the patents for the other known, commercially viable processes for manufacturing the medicine.

[19]Hence, Molnlycke must be distinguished on the basis that it was dealing with a situation where the only market power created by the assignment was that inherent in the patent assigned. To the extent that there is broader language in Molnlycke, it must be understood to have been read down.

[20]In my respectful opinion, therefore, the Judge erred in confining his consideration to whether the parties entered into some agreement or other arrangement, in addition to the assignment itself.

(ii) Interpreting sections 45 of the Competition Act and 50 of the Patent Act

[21]My conclusion that, in the previous round of this litigation, this Court held that Molnlyke was not determinative of this case would be sufficient to allow the appeal. Nonetheless, because the merits were fully argued, and in case the matter should go further, I shall explain why I agree with the interpretation of the relevant legislation implicit in the conclusion of this Court in the previous round of this litigation: namely, section 50 of the Patent Act does not immunize an agreement to assign a patent from section 45 of the Competition Act when the assignment increases the assignees's market power in excess of that inherent in the patent rights assigned.

[22]First, this interpretation of section 50 of the Patent Act enables it and section 45 of the Competition Act to operate harmoniously in accordance with the ordinary meaning of the statutory language of the provisions. It avoids the need to imply limiting words into section 45 exempting the assignment of patents from its scope. Nor does it render section 50 otiose because the provision clarified what otherwise would have been, at best, uncertain: namely, that a patentee's rights include the right to assign the statutory rights conferred under the Patent Act on the grantee of a patent.

[23]Since section 50 neither compels nor expressly authorizes what section 45 forbids, there is no true conflict between these two provisions of statutes which have different purposes: see Ruth Sullivan, Sullivan and Driedger on the Construction of Statutes, 4th ed. (Toronto: Butterworths, 2002), at pages 262-266; see also Smith v. The Queen, [1960] S.C.R. 776, at page 800; Multiple Access Ltd. v. McCutcheon et al., [1982] 2 S.C.R. 161, at page 191.

[24]Further, it is possible that an assignment pursuant to section 50 of the Patent Act which unduly lessens competition, and thereby potentially gives rise to criminal proceedings under section 45 and a claim for damages under section 36, may still be valid as between the assignor and assignee, even though section 45 may prevent the assignee from enforcing the rights assigned against certain third parties. However, this is not an issue that falls for decision here.

[25]To subject the right to assign patents to section 45 in the circumstances under consideration in this case is also consistent with the scheme of the Competition Act.

[26]For example, subsections 45(3), (7) and (7.1) provide specific exceptions and defences to the offences created by subsection 45(1). None deals with intellectual property rights. Moreover, it is clear that Parliament considered the interface of the Competition Act and intellectual property rights. For example, while subsection 79(1) prohibits the abuse of market dominance, subsection 79(5) provides that, for the purpose of section 79, "an act engaged in pursuant only to the exercise of any right . . . derived under the . . . Patent Act . . . is not an anti-competitive act." Section 45 contains no analogous exemption for the exercise of rights under the Patent Act, including assignments pursuant to section 50.

[27]In light of the above, the presumption of statutory interpretation, expressio unius est exclusio alterius, supports an interpretation of section 45 that does not impliedly exclude an assignment of patents which lessens competition by increasing the market power of the assignee beyond that inherent in the rights assigned.

[28]Further, section 32 provides that the Federal Court may make certain orders where use is made of the exclusive rights conferred by a patent so as to unduly restrain trade or lessen competition in an article. It is clear from this that Parliament did not intend to exclude the exercise of patent rights from the reach of the Competition Act altogether. In order to achieve consistency with section 32, section 45 should be interpreted as applicable to an assignment of a patent which unduly lessens competition.

[29]Lilly and Shionogi argue that, if a person had applied for and been granted patents for all the known processes for making a product, the person would have a monopoly over the manufacture of that product. This would not be contrary to the Competition Act, unless the patentee abused its market power in breach of section 79. Why should it make a difference if the patentee acquired some or all of the patents as a result of an assignment?

[30]In my view, the answer is that the right to exclude others is an essential part of the bargain: the monopoly granted to the patentee is the recompense for ingenuity and the public disclosure of the invention. Moreover, as a unilateral act, the issue of a patent cannot be a conspiracy or agreement for the purpose of section 45.

[31]The right to assign a patent is also valuable, and Parliament has authorized patent holders to assign their patents. No doubt, a patent holder may expect to obtain a higher price from a purchaser who already owns patents that would give the assignee a monopoly in a relevant market. However, to deter a patentee from obtaining the full potential value of the patent in these circumstances in order to maintain competition in a market is not incompatible with the essential bargain between the patentee and the state.

[32]Second, an interpretation of section 50 of the Patent Act that does not immunize the assignment of patents from section 45 when it lessens competition is consistent with the purpose of the Competition Act, which is stated in section 1.1 [as enacted by R.S.C., 1985 (2nd Supp.), c. 19, s. 19] to be "to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy." The importance of the Act and, within it, of section 45, was emphasized in R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606, at page 648, where Gonthier J. described the Act as being "central to Canadian public policy in the economic sector" and said that "s. 32 [now section 45] is itself one of the pillars of the Act." It would be inconsistent with this view of the Competition Act, and of the place of section 45 within it, to reduce the scope of section 45 by reading in words that exclude an assignment of patents that lessens competition in the relevant market.

[33]Third, this interpretation is consistent with the Competition Bureau's Intellectual Property Enforcement Guidelines. Like other administrative interpretations, the Guidelines are not, and do not purport to be, legally binding nor determinative of the meaning of the Competition Act: Canada (Commissioner of Competition) v. Superior Propane Inc., [2001] 3 F.C. 185 (C.A.), at paragraph 124. Nonetheless, they may be considered by the Court as an aid to the Act's interpretation (Nowegijick v. The Queen, [1983] 1 S.C.R. 29, at page 37 (Revenue Canada Interpretation Bulletin)), especially since the Guidelines are promulgated after an extensive consultative process.

[34]The following paragraph of the Guidelines is particularly relevant.

4.2.1 General Provisions

The mere exercise of an IP right is not cause for concern under the general provisions of the Competition Act. The Bureau defines the mere exercise of an IP right as the exercise of the owner's right to unilaterally exclude others from using the IP. The Bureau views an IP owner's use or non-use of the IP also as being the mere exercise of an IP right.

The unilateral exercise of the IP right to exclude does not violate the general provisions of the Competition Act no matter to what degree competition is affected. To hold otherwise could effectively nullify IP rights, impair or remove the economic, cultural, social and educational benefits created by them and be inconsistent with the Bureau's underlying view that IP and competition law are generally complementary.

The Bureau applies the general provisions of the Competition Act when IP rights form the basis of arrangements between independent entities, whether in the form of a transfer, licensing arrangement or agreement to use or enforce IP rights, and when the alleged competitive harm stems from such an arrangement and not just from the mere exercise of the IP right and nothing else.

Applying the Competition Act in this way may limit to whom and how the IP owner may license, transfer or sell the IP, but it does not challenge the fundamental right of the IP holder to do so. If an IP owner licenses, transfers or sells the IP to a firm or a group of firms that would have been actual or potential competitors without the arrangement, and if this arrangement creates, enhances or maintains market power, the Bureau may seek to challenge the arrangement under the appropriate section of the Competition Act. Part 7 of this document provides a series of hypothetical examples to illustrate how the Bureau would examine the licensing, transfer or sale of IP under the Competition Act. [Footnote omitted.]

[35]It should be noted, however, that none of the hypothetical examples provided in Part 7 of the Guidelines deals with the facts of the present case.

[36]To conclude, in my respectful opinion, the Judge erred in law by holding that the assignment of patents is exempt from section 45 when, by reason of the assignee's existing ownership of other patents, the assignment transfers more market power than that inherent in the patents assigned. He also erred in regarding Molnlycke as authority for the proposition that, in these circumstances, any lessening of competition could not be undue for the purpose of section 45.

Issue 2:     Did the assignment of the patents by Shionogi to Lilly lessen competition?

[37]The alternative argument of Lilly and Shionogi is that the evidence does not establish that the assignment of Shionogi's patents to Lilly in 1995 lessened competition. Lilly says that this is because, as a result of the 1995 assignment and Lilly's grant of a non-exclusive licence back to Shionogi of the assigned patents, there were two sources, namely, Shionogi and Lilly, from which a competitor could purchase, or seek a licence to manufacture, cefaclor. Previously, only Lilly could utilize the Shionogi cefaclor patents in Canada because, in 1975, Shionogi had granted Lilly an exclusive licence with respect to these patents.

[38]Whether there was a lessening of competition after the 1995 assignment is a question of fact, on which the Judge made an express finding. After quoting a passage from the Federal Court of Appeal's decision in the previous round of this litigation, the Judge said [at paragraphs 13-14]:

To avoid any possible doubt, what was stated by the Court of Appeal in the quoted passage to be an allegation of Apotex is a fact amply demonstrated by the evidence and not seriously contested by either Lilly or Shionogi.

So, there is and never has been any doubt that the result of the assignment of Shionogi's patents to Lilly was to increase the latter's monopoly power. Where formerly it had held four process patents useful in the production of cefaclor, it now held eight and no one else held any. In a word, it had a monopoly of the known production processes. It may well have been in a position of market dominance. [Emphasis added.]

To put his view beyond any doubt, he added (at paragrah 22) that the agreement between Lilly and Shionogi "had the effect of lessening competition".

[39]In the absence of a palpable and overriding error, this Court cannot disturb the Judge's conclusion that the effect of the assignment was a lessening of competition because of Lilly's existing ownership of other patents. The question for trial is whether the lessening of competition resulting from the assignment is sufficiently significant as to be undue: see R. v. Nova Scotia Pharmaceutical Society, at page 646 and following.

[40]Lilly argues that, since Shionogi was not in the Canadian market for cefaclor and, in 1975, had granted an exclusive licence to Lilly, Lilly held a monopoly in Canada prior to the assignment. After 1995, as a result of both the assignment, and Lilly's grant to Shionogi of a non-exclusive licence with respect to cefaclor, there were two potential sources from which Apotex could have sought either to purchase or to obtain a licence to manufacture bulk cefaclor. Thus, it was argued, the assignment merely enabled Lilly, rather than Shionogi, to sue for infringement of the assigned patents and actually increased competition.

[41]Moreover, Lilly and Shionogi say, since Apotex had not sought a licence from Lilly or Shionogi, before or after the assignment, it was in no position to say that the effect of the assignment was to shut it out of the cefaclor market. Indeed, Apotex had obtained bulk cefaclor from another source which, Apotex alleged, was manufactured by a process that did not infringe the Shionogi or Lilly patents.

[42]Although the Judge made his finding of fact on the lessening of competition without referring to the grant of the licence back to Shionogi in 1995, he based his decision on the same arguments and record as were before us, including those relating to the grant of the licence back to Shionogi. The fact that Lilly granted a non-exclusive licence to Shionogi at the time of the 1995 assignment does not mean that it thereby lost control of the patents. For example, the licence prevented Shionogi from granting a sub-licence "without the written prior approval of, and at the sole discretion of, Lilly."

[43]Affidavits filed by Apotex from experts in various fields, including competition policy, provided significant evidence of a lessening of competition in the market for bulk cefaclor. In contrast, Lilly served only one relatively short affidavit, by an employee, in support of its position. Shionogi filed none.

[44]As for the assertion that Shionogi had licensed its cefaclor process patents to Lilly in 1975, the evidence before the Judge about the pre-1995 relationship between Shionogi and Lilly with respect to those patents does not establish that the Judge's finding that the 1995 assignment lessened competition was vitiated by palpable and overriding error.

[45]Nor do I regard the Judge's reference in paragraph 14 of his reasons to the possibility that the assignment may have put Lilly in a position of "market dominance" as an indication that, in making a finding respecting a lessening of competition, he had in mind section 79, not section 45.

[46]On the basis of the evidence in the record, I would not disturb the Judge's finding that the assignment lessened competition.

Issue 3:     Are Apotex' counterclaims statute- barred?

[47]Apotex' counterclaims against Lilly and Shionogi under section 36 of the Competition Act are for damages for loss or damage sustained as a result of conduct proscribed in section 45. As applied to this case, subsection 36(4) provides that no claim for damages may be made after two years from "a day on which the conduct was engaged in."

[48]In response to Lilly's infringement action, Apotex issued a counterclaim against Lilly in March 2001 and against Shionogi in November 2002. In order to maintain these claims, they had to have been made within two years of the start of the limitation period. The question, therefore, is to determine when the limitation period commenced.

[49]The Judge concluded as follows (at paragraph 25) with respect to the issues of prescription, and the research and development:

. . . there is sufficient conflict and lack of clarity in the relevant evidence on the questions of foreseeability and the reach of the 1975 research and development agreement between Lilly and Shionogi that those questions are not suitable for summary judgment and should only be resolved after a full trial.

[50]Lilly and Shionogi say that, on the basis of the evidence before him, the Judge's conclusion on the issue of prescription was vitiated by palpable and overriding error.

[51]First, they argue that the assignment of Shionogi's patents was the conspiracy ("the conduct . . . engaged in" for the purpose of subsection 36(4)) and this occurred in 1995, six and seven years respectively before the counterclaims were issued against Shionogi and Lilly. Moreover, the assignment was registered with the Commissioner of Patents in 1995, a copy of the registration was given to Apotex' counsel in 1999, and Apotex had knowledge of the assignment in 1997 when Lilly issued its statement of claim for infringement. Each of these possible starting dates for the running of time under subsection 36(4) is more than two years before Apotex issued its counterclaim against Shionogi. Only Apotex' receipt of a copy of the registration occurred less than two years before Apotex issued its counterclaim against Lilly.

[52]In my view, the problem with this argument is that it assumes that, for the purpose of subsection 36(4), the conspiracy is the assignment, considered in the abstract as a single act. However, Apotex' case is that the assignment must be seen in its context: its enhancement of Lilly's market power, that is, Lilly's additional ability to act independently of the market by virtue of its ownership of the patents for all known, commercially viable processes for manufacturing cefaclor. On this view, the conspiracy continued as long as the assignment had competition-lessening effect. Because of the evidential questions to be resolved, this is not the kind of issue on which it would be appropriate to grant summary judgment.

[53]Second, Shionogi argues that the last of the process patents that it assigned to Lilly expired in April 2000, two years and seven months before Apotex issued its statement of claim against Shionogi. The argument here is that, if Apotex' counterclaim is based on the assignment and its anti-competitive effects, these effects must have ended on the expiry of the last of the assigned Shionogi patents.

[54]I do not find this argument compelling either. The expiry of the last of Shionogi's process patents in 2000, more than two years before Apotex issued its counterclaim against Shionogi, is only relevant if it is not arguable that, after that date, there could be no competition-lessening effects as a result of the assignment.

[55]However, the expiry of the Shionogi patents will not necessarily mark the start of the limitation. On the assumption that the discoverability principle applies to claims under section 36, if Apotex did not discover, and could not reasonably have been expected to discover, details of the 1975 and 1995 agreements between Lilly and Shionogi, more than two years before it issued its counterclaim, the counterclaim was not time-barred. Apotex says that it did not discover important details about the agreements until November 2001.

[56]I am not persuaded that the evidence pertaining to both how much Apotex knew about the relevant facts (including details of the agreements), and when it acquired its knowledge, is so clear as to warrant this Court's interfering with the Judge's conclusion that this issue should be resolved on the basis of a trial. It will generally be inappropriate to decide by summary judgment a matter in which the application of the discoverability rule is likely to be important: Aguonie v. Galion Solid Waste Material Inc. (1998), 38 O.R. (3d) 161 (C.A.), at paragraph 36.

[57]Apotex also says that Lilly's pursuit of the infringement action against it is a continuing competition-lessening effect. I would not be prepared to decide the correctness of this submission on a summary motion.

Issue 4:     Did Apotex sustain any damage as a result of the conspiracy?

[58]In order to claim damages under subsection 36(1), a claimant must prove that the proscribed conduct caused it loss or damage. Lilly and Shionogi argued before us, as they had done before the Judge, that Apotex had suffered no loss or damage as a result of the assignment of the patents because there was no evidence that the assignment had delayed Apotex' entry into the cefaclor market. Apotex' reply is that any amount that it may be required to pay to Lilly by way of damages as a result of Lilly's infringement action constitutes "loss or damage" for the purpose of subsection 36(1).

[59]I can do no better than to adopt the Judge's conclusion on this issue (at paragraph 24):

While that appears to me to be a rather strange proposition in law, it is not clear that it cannot succeed and if Apotex were otherwise successful on its section 36 claim, I would not be prepared to dismiss it on that basis alone at the summary judgment stage.

E.     CONCLUSION

[60]For these reasons, I would allow the appeal with costs here and below, set aside the order of the Judge, and dismiss the motions for summary judgment and for striking Apotex' counterclaims and certain paragraphs from its defence to Lilly's action for infringement.

Desjardins J.A.: I concur.

Sharlow J.A: I concur.

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