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PAGE 26 CaseLawLaw Intellectual Property FEDERAL COURT Industrial And PATENTS Action for infringement of patent for making drug lovastatin allowed Action by pharmaceutical com- pany against competitor for relief for patent infringement. Counterclaim by competitor for declaration that patent was invalid. Pharmaceutical com- pany held patent for process for making drug lovastatin, which was used to treat elevated blood cholesterol. Process involved fermentation using particu- lar species of micro-organism. Patent specified two particular strains of micro-organism but claimed all strains within spe- cies that produced lovastatin and three related compounds. Competitor formulated process for producing lovastatin us- ing different micro-organism. Competitor entered into joint venture with partner pursuant to which partner was to sup- ply competitor with lovastatin made using non-patented pro- cess. Pharmaceutical company alleged competitor made one batch of infringing product and that some product received from partner had been pro- duced with patented process. Issues of validity and liability proceeded to trial. Action al- lowed, counterclaim dismissed. Extent of infringement and resulting damages were to be determined by way of refer- ence. Competitor had directly infringed patent by producing one batch of infringing prod- uct. Testing of this batch indi- cated presence of DNA of spe- cies covered by patent. DNA evidence was not successfully challenged. Competitor had indirectly infringed patent by receiving infringing product from joint venture partner. Circumstantial evidence estab- lished partner could not have produced quantity of product sent to competitor using non- infringing process. Partner's evidence regarding production was unreliable, particularly since its original production records had been destroyed. Adverse inference was drawn against partner from failure to establish it had sufficient quan- tities of substance necessary for production by non-infringing process. Durations of produc- tion runs and amounts pro- duced were inconsistent with use of non-infringing process. Partner had motive, means, and opportunity to infringe. Competitor failed to establish invalidity of patent. Patent did not claim all strains of species covered by patent would work or that all four compounds would necessarily be produced by any particular strain so pat- ent was not overbroad. Fact that not all strains worked or that not all compounds were pro- duced by any particular strain did not establish lack of util- ity. Pharmaceutical company established sound basis for pre- dicting utility of patented pro- cess. Pharmaceutical company had body of evidence suggest- ing claimed compounds would work in humans. Enough was known about cholesterol syn- thesis pathway and disruption of that pathway to be able to predict claimed compounds would work. Failure to disclose all information underlying pre- diction was not fatal. Only fail- ure to disclose necessary infor- mation would have been fatal. Patent disclosed sufficient basis for predicting utility of claimed compounds. Patent was not re- quired to disclose which strains of species would work since interested persons would have been readily able to determine for themselves which strains worked. Existence of prior pat- ent application covering dif- ferent process had not affected pharmaceutical company's enti- tlement to patent. Competitor failed to show that product known as Red Yeast Rice con- tained lovastatin prior to pri- ority date. In any event, any lovastatin content of Red Yeast Rice had not been disclosed to public. Pharmaceutical com- pany had not lost standing just because it had licensed all rights in patent to related company. Pharmaceutical company had not transferred entire interest in patent. Pharmaceutical company had retained certain rights that were inconsistent with inten- tion to transfer all rights under patent. Pharmaceutical com- pany also remained as named patentee. Pharmaceutical com- pany's remedy was limited to damages rather than account- ing of profits. Determining competitor's profits would have been difficult in light of passage of time. Difficulty would have been compounded by existence of various related entities and fact that settlement had been reached with joint venture part- ner. Merck & Co. v. Apotex Inc. (Dec. 22, 2010, F.C., Snider J., File No. T-1272-97) 197 A.C.W.S. (3d) 731 (244 pp.). April 11, 2011 • lAw Times COURT DECISIONS CaseLaw is a weekly summary of notable civil and criminal court decisions by the Supreme Court of Canada, the Federal Court of Canada and all Ontario courts. CaseLaw is a weekly summary of notable unreported civil and criminal court decisions by the Supreme Court of Canada, the Federal Court of Canada and all Ontario courts. Single or multiple copies of the full text of any case digested in this issue can be obtained by: These cases may be found online in BestCase and other electronic resources from Canada Law Book. To subscribe, please call 1-800-565-6967. TAX COURT OF CANADA Aboriginal Peoples EXEMPTION FROM TAXATION Appellants' employment income situated off-reserve Income to status Indians per- forming employment duties and residing outside of reserve not exempt from federal in- come tax. Appellants were sta- tus Indians employed by other status Indian carrying on place- ment business with principal office in reserve. Appellants' duties were performed princi- pally at community health cen- tre in Toronto. Neither appel- lant lived in reserve. Minister of National Revenue reassessed appellants' taxation years at is- sue on ground that employment income received by appellants were not exempt from federal income tax as being personal property situated on reserve. Appellants brought appeal of reassessments. Appellants submitted that income quali- fied for exemption because employer's office was located on reserve. Appeal dismissed. Connecting factors analysis was correct test to apply in de- termining whether income was situated on reserve for purpos- es of tax exemption. Only lo- cation of employer connected appellants' income to reserve. On other hand location and nature of employment as well as appellants' place of residence were factors that supported po- sition that income was situated off-reserve. Appellants' income was not qualified for exemp- tion from tax. Hester v. Canada (Dec. 20, 2010, T.C.C., Woods J., File No. 2007-1428(IT)I; 2007- 2500(IT)I) 197 A.C.W.S. (3d) 559 (12 pp.). Taxation INCOME TAX Appellant was entitled to claim deductions for inventory write-downs Appellant company initially carried on business of design- ing, producing and selling gift- ware products made of glass, steel and wood. After enjoying good sales, demand for prod- ucts started to decline for next few years. Appellant decided to shift focus of business to custom design work. By 2006, product sales became minor compo- nent of appellant's business and inventory of product compo- nents remained. In determin- www.lawtimesnews.com i) completing and mailing in the order form in this issue; or ii) calling CaseLaw's photocopy department at (905) 841-6472 in Toronto, (800) 263-3269 in Ontario and Quebec, or (800) 263-2037 in other provinces; or iii) faxing a copy of the completed order form to (905) 841-5085. ing income for 2006 and 2007 appellant claimed deductions for inventory write-downs. Minister of National Revenue made reassessments of appel- lant's 2006 and 2007 taxation years on basis that appellant was not entitled to deductions. Appellant brought appeals of reassessments. Appeal allowed. Appellant was entitled to claim deductions for inventory write- downs. Inventory items were obsolete as same were compo- nents of products that appellant was no longer actively selling. Fair market value of inventory likely decreased once appel- lant no longer sold products. Under circumstances tax judge found write-downs claimed by appellant in 2006 and 2007 to be reasonable. Appellant was entitled to deductions claimed in computing income for 2006 and 2007. This Is It Design Inc. v. Canada (Dec. 22, 2010, T.C.C., Webb J., File No. 2010-1572(IT)I) 197 A.C.W.S. (3d) 784 (13 pp.). ONTARIO CIVIL CASES Conflict Of Laws JURISDICTION Ontario had jurisdiction over all defendants Motion by defendants for or- der dismissing plaintiff's action. Plaintiff was Ontario resident. Personal defendants were all residents in Quebec. Corporate defendants all had their head offices in Quebec. Plaintiff commenced action claiming that defendants conspired to take fraudulent bankruptcy proceedings with intention to cause damages to him. Plaintiff commenced action in Ontario. Motion dismissed. Ontario had jurisdiction over all of defen- dants. Defendant D attorned to jurisdiction. Evidence indicated that there was some connection between C Inc. and Ontario. Remaining defendants had real and substantial connection to Ontario. Title v. Canadian Asset Based Lending Enterprise (Cable) Inc. (Feb. 9, 2011, Ont. S.C.J., Newbould J., File No. CV-10- 401688) 197 A.C.W.S. (3d) 630 (16 pp.). Civil Procedure CLASS ACTIONS Class counsel fees approved in amount of $6,225,000 as well as taxes and disbursements Motion for approval of fees of class counsel with respect to global settlement reached in action. Settlement was for total sum of $20,750,000, inclusive of costs. Settlement would result in compensation to approximately 20 passengers on Air France Flight 358 and some 454 relatives who claimed under Family Law Act (Ont.). Class counsel requested fee of $6,225,000, plus disburse- ments and taxes. This was based on 30% of settlement amount. Retainer agreement between class counsel and representa- tive plaintiff provided for fee of 33%. Hard work, outstanding organization, tactical and legal skills, and persistence of class counsel had resulted in excel- lent result in this class action. Order issued approving retainer agreement between class coun- sel and representative plaintiffs and approving fees in amount of $6,225,000 as well as taxes and disbursements. Abdulrahim v. Air France (Jan. 21, 2011, Ont. S.C.J., Strathy J., File No. 05-CV-294746 CP) 197 A.C.W.S. (3d) 583 (8 pp.). COSTS Costs assessed on substantial basis after plaintiff substantially successful on primary allegations of defamation Plaintiff was ultimately success- ful and recovered judgment of $25,000 plus order that defam- atory publications be removed from defendant's website. Plaintiff was substantially suc- cessful on primary allegations of defamation. However, he was not completely successful as pu- nitive damages were not award- ed and some of alleged defama- tory statements were found not to be defamatory or were sub- ject to valid defences. Subject matter of libel action was quite complex and was important to both parties. Costs should be assessed on substantial basis because defendant published defamatory statements about plaintiff for ulterior purpose and his actions were malicious, and also because plaintiff ob- tained result after trial which exceeded financial terms of offers to settle by substantial amount and included remedy of removal of defamatory com- ments from defendant's web- site. Defendant was ordered to pay $20,000 towards plaintiff's costs incurred with law firm, inclusive of HST and disburse- ments. Plaintiff was lawyer and devoted substantial amount of time and effort to work that would ordinarily have been per- formed by lawyer and prepared for and argued his case at trial.