A man of two jobs

In today’s case, the facts and the timeline are everything, and they are far from straightforward, so bear with me.

  • Flex Elektrowerkzeuge (“Flex”) is a German company marketing electrical appliances and tools such as sanders.
  • In 1990 a French company called Flex Electroportatif Machines et Accessoires (“FEMA”) was set up to distribute Flex’ products in France.
  • In 1992, a Mr. B (remember his name! I mean, his initial) became the CEO of FEMA.
  • In 1995, Mr. B founded another company, Accessa.
  • In 1999, yet another company, MBH Développement (“MBH”) was founded by Mr. B and a Mrs. H.
  • In 2005, a first dispute arose between the German company Flex and Mr. B. Flex discovered the existence of MBH and learned that MBH had registered several trademarks (such as “Asflex”) covering products typically marketed by Flex. The dispute ended with a transaction signed in 2007, per which the trademarks at stake were assigned to Flex.
  • In 2007, Flex discovered that MBH had filed two patent applications on sanders, listing Mr. B as an inventor. Flex was again (unsurprisingly) quite unhappy. The matter was however resolved with MBH granting a free, exclusive license agreement to Flex in 2008. Another license agreement was executed between MBH and FEMA in 2009.
  • In 2011, Flex agreed to the acquisition by MBH of part of the shares of FEMA. Further to this acquisition, the major shareholders of FEMA were Flex and MBH.
  • In 2014, an exclusive distribution agreement was signed between FEMA and Accessa, while MBH took control of Accessa.
  • Later in the same year, Flex acquired most of the shares of FEMA, took full control of the subsidiary and replaced Mr. B as the CEO.
  • In 2016, FEMA filed a complaint against Mr. B, MBH and Accessa in front of the Paris TGI.
  • In 2018, both Accessa and MBH went into liquidation.
  • In November 2019, the Paris TGI issued its judgment.
  • MBH appealed and FEMA counter-appealed, which leads us to the appeal decision dated September 22, 2020 and discussed today.

The first instance lawsuit had several prongs: infringement and invalidity claims on the one hand, and an ownership claim on the other hand.

I have almost no information to share on the infringement and invalidity aspect, as this part was not challenged on appeal – and as the first instance judgment is not readily accessible online (yes, the outrageous unavailability of first instance judgments in France still persists to this day). I will thus focus on the ownership part of the litigation, which is addressed in the appeal ruling.

The dispute on appeal centered on a number of patents and patent applications filed from 2005 to 2014. Here is the full list: FR 3026668, FR 3025447, FR 3024063, FR 3021889, FR 2980502, FR 2980501, EP 2572828, EP 2314422, FR 2936439, EP 2113338, FR 2882913, EP 1632311, EP 1570932.

All of them, it seems, were filed by MBH, with Mr. B as the inventor. FEMA claimed full ownership of this portfolio.

The first instance judges granted this request, which is why MBH (or rather the administrator in charge of its liquidation) appealed.

The Cour d’appel essentially confirmed the first instance ruling. In its reasoning, the court relied on a whole body of evidence rather than a single fact.

First, they noted that FEMA had an R&D department, in which a Mr. B was employed – not the same Mr. B as defendant-Mr. B, mind you, but since the judgment has been extensively redacted, it is not always easy to get your bearings. This was evidenced, inter alia, by the employment agreement of this second Mr. B (shall we say Mr. B’?), an organization chart as well as industrial drawings (one of which was quite similar to the figure of one of the patents in suit).

Second, looking at MBH’s management reports, they were not persuaded that MBH had any actual R&D activity. As from 2008, the reports started mentioning an R&D activity justifying a tax rebate, but the court was of the opinion that this only corresponded to patent costs. An accounting report dated 2019 mentioned the existence of R&D costs and tools, but the court did not trust this report as it was issued by Mrs. H, who is none other than Mr. B’s former partner at MBH and who happens to be currently involved in another lawsuit against FEMA.

The court was thus convinced that the inventions can only have been developed using FEMA’s resources.

Mr. B appears to have been a man of two jobs. Or as we would say in French: he had a double hat.

The appellant emphasized that the mother company Flex was aware of the existence of MBH as well as of its patent filing activity as early as 2006. However, the court deemed that this did not amount to a consent to MBH’s filings.

The license agreements signed in 2008 and 2009 did not imply any consent to MBH’s filings either. Indeed, FEMA was headed by Mr. B at that time, and he thus signed the MBH / FEMA contract on behalf of both parties. As to the MBH / Flex contract, it was analyzed by the court as an attempt by MBH to avoid litigation. More importantly, the agreements only covered one patent filed in 2005, and cannot be interpreted as a consent by FEMA concerning the later filings that took place from 2008 to 2014.

The fact that MBH became a shareholder of FEMA in 2011 cannot be interpreted as proof of consent to the patent filings either.

Another interesting defense raised by MBH was that FEMA’s action was time-barred. As a reminder, the patents / applications were filed from 2005 to 2014. The first patent in the portfolio was granted in 2007, and FEMA filed its complaint only in 2016.

According to article L. 611-8 Code de la propriété intellectuelle, the limitation period applicable to claims for ownership is in principle five years from the grant of a patent. But, “in case of bad faith at the time of grant or acquisition of the right, the limitation period is five years from the expiry of the right“. Depending on which starting point is used (grant or expiry of the patent), FEMA’s action would be time-barred with respect to at least part of MBH’s portfolio.

The court analyzed Mr. B’s behavior and concluded that he acted in bad faith. Said the court, Mr. B consistently concealed his activities, as evidenced by the successive discovery by Flex of the existence of Mr. B’s other companies, of his trademarks filings, and then of his patent filings. He was thus dishonest with FEMA. The court went on to consider that Mr. B’s bad faith also meant that MBH acted in bad faith, since Mr. B was the CEO and almost sole owner of MBH.

Therefore, MBH’s defense based on the statute of limitations also failed.

The court further noted that, until 2014, Mr. B remained FEMA’s CEO, so that FEMA was in practice not able to file suit before his departure.

The court concluded:

Mr. B, owing to his position as CEO of FEMA, used the financial, material and human resources of this company to develop inventions for the company MBH Développement that he created and headed, although they should have benefited FEMA, which should have been their owner, since the inventions related to products within its business perimeter. Therefore, the appealed judgment must be confirmed in that the ownership of the following patents and patent applications to FEMA was ordered: [….]. 

The court also ordered that all agreements on the patents between MBH, Accessa and FEMA be canceled. Besides, since the transfer of ownership is ex tunc, MBH must pay back FEMA any money earned through the exploitation of the patents. The court awarded provisional damages of EUR. 100,000 and ordered the communication of accounting information to enable a full assessment of damages.

MBH argued that the costs of patent filing and prosecution should be deduced from the damages, based on the general provision on unjust enrichment (article 1303 Code civil). The court disagreed, since MBH acted for its own profit and can thus not benefit from the unjust enrichment provision.

FEMA further requested that Mr. B be held personally liable in addition to MBH. However, the court deemed that this claim was time-barred, since FEMA was aware of Mr. B’s actions as early as 2006 (more than three years before the writ of summons filed in 2016). At first sight, this may seem contradictory with the finding that the claim for ownership of the older patents / applications was not time-barred, but the difference seems to be that the statute of limitations for an ownership claim explicitly contains a provision extending the limitation period in case of bad faith.

So, why is this case unusual? Well, first off, I think everyone will agree that the facts appear to be quite colorful, to say the least. But maybe this is always so in an ownership dispute.

Other than that, I do find the court’s reasoning unorthodox, to some extent.

Let’s go back to article L. 611-8:

If an IP right was filed on an invention either stolen from the inventor or their beneficiary, or in breach of a statutory or contractual obligation, the harmed party may claim ownership of the application or of the granted right. 

As a basic principle, an invention belongs to the inventor or his/her beneficiary. In order to know to whom a patent portfolio should belong, we must thus in principle 1) determine who the inventors are for each invention, and 2) establish whether there is an entity that holds the rights on the invention as a result of employment agreements signed by the inventors or as a result of any other statutory or contractual obligation.

But the court did not carry out this analysis. Assuming that Mr. B was the true inventor of the inventions at stake (which the judgment does not say), it should be borne in mind that inventions made by the head of a company who is not an employee do not necessarily and automatically (i.e. by way of the patent statute itself) belong to the company. The same applies for instance to an intern, who is not an employee either. So, did FEMA hold the rights on Mr. B’s inventions by way of an employment agreement? If not, what is the exact statutory or contractual obligation assigning his (presumed) inventor’s rights to FEMA and which was breached?

The court broadly stated that “Mr. B, owing to his CEO position at FEMA, used the financial, material and human resources of this company to develop inventions”.  While this of course sounds wrong and actionable, I am not sure it is in itself sufficient to conclude that FEMA was the true owner of the inventions. In particular, financial and material resources do not characterize ownership, I would venture. Human resources are an entirely different story, but again this aspect is not really addressed in the decision.


CASE REFERENCE: Cour d’appel de Paris, pôle 5 chambre 1, September 22, 2020, SAS MBH Développement et al. v. Flex Electroportatif Machines & Accessoires FEMA, RG No. 20/00471.

This is not a pipe

A regular patent law blogging activity comes with a number of serious pitfalls. Rambling may be one of them.

I hope readers will amicably warn me if this blog ever gets there – unless this point has already been reached?

A couple of weeks ago, when commenting on the recent pemetrexed decision of the Paris TJ, I lamented that French courts have a tendency to rely on the detailed choice of words in the description of a patent to draw dramatic conclusions concerning its scope of protection – either to restrict it or to broaden it beyond the literal wording of the claims.

I would like to continue this conversation today, but with a different perspective, namely an SPC angle; the case I would like to look at is the latest judgment in the Inegy® litigation (already reported on by others here and there).

Merck Sharp & Dohme Corp. (MSD) owns SPC No. FR05C0040 (FR’040) based on European patent EP 0720599 (EP’599) for the product “ezetimibe optionally in the form of its pharmaceutical acceptable salts in combination with simvastatin”. The originator’s product has been marketed as Inegy®.

At least four different lawsuits have taken place in France concerning this SPC, some of which have already been mentioned on this blog:

  • One involving Biogaran. MSD’s request for preliminary injunction was rejected in April 2018, and this rejection was confirmed in June 2018 (see this post), the reasons being that the SPC appeared to be invalid.
  • One involving Mylan and one involving Sandoz, in parallel. Here, MSD surprisingly obtained a preliminary injunction in March 2019 (see this post). This was however overturned on appeal in February 2020 (see this post), as the SPC appeared to be invalid.
  • One involving Teva, not yet mentioned on this blog.

Teva launched a generic version of Inegy® in April 2018 and initiated nullity proceedings against EP’599 and the FR’040 SPC. What was still known as the Paris TGI at that time rejected Teva’s nullity claim in October 2018, on the merits this time. By the way, this could be why a preliminary injunction was initially ordered against Mylan and Sandoz in March 2019 although it had been previously denied with respect to Biogaran in April-June 2018 (this piece of the puzzle was missing the last time I wrote on this topic).

Today’s decision is the ruling by the Paris Cour d’appel on Teva’s appeal against the October 2018 judgment. The first instance judgment has now been overturned, and the Cour d’appel has declared the FR’040 SPC invalid – consistently with its previous rulings of June 2018 and February 2020, but this time on the merits.

In the decision, the court rejected Teva’s objections to the validity of the basic EP’599 patent, but entertained Teva’s claim that the SPC itself is invalid under articles 3(a) and 3(c) of the SPC regulation. The reasoning is mostly in line with the February 2020 ruling already discussed here, so I may as well be brief.

EP’599 specifically claims:

  • a very broad family of compounds in claim 1 (in the form of a Markush formula);
  • ezetimibe as a specific compound in dependent claim 8; and
  • a pharmaceutical composition for the treatment or prevention of atherosclerosis, or for the reduction of plasma cholesterol levels, comprising an effective amount of the above compounds, alone or in combination with a cholesterol biosynthesis inhibitor selected from the group consisting of lovastatin, pravastatin, fluvastatin, simvastatin, CI-981, DMP-565, L-659,699, squalestatin 1 and NB598, in a pharmaceutical acceptable carrier (claim 17).

As a reminder, the FR’040 SPC is directed to the combination of ezetimibe and simvastatin.

The test of article 3(a) of the SPC regulation is whether the product was protected by the basic patent; and the test of article 3(c) of the SPC regulation is whether the product protected by the basic patent had already been the subject of a certificate.

In this case, MSD had already obtained an earlier SPC (No. FR03C0028) for ezetimibe itself.

The court reviewed the relevant case law of the CJEU, placing special emphasis on Sanofi, also known under the name of the other party, Actavis (C-443/12). In that case, based on a same patent, Sanofi had obtained a first SPC on the drug irbesartan based on a first MA, and then a second SPC on the combination of the drug irbesartan with a diuretic substance, HCTZ, based on a second MA. The CJEU ruled that, in this case, the grant of the first (mono) SPC prevented the grant of the second (combo) SPC.

The court found that the facts of the present case are very close to those of Sanofi – which, I think, is quite convincing.

Merck countered that, in Sanofi, the second compound HCTZ was not explicitly recited, only the therapeutic class (diuretics) was. But the court cited paragraph 30 of Sanofi: “it cannot be accepted that the holder of a basic patent in force may obtain a new SPC, potentially for a longer period of protection, each time he places on the market in a Member State a medicinal product containing, on the one hand, the principle active ingredient, protected as such by the holder’s basic patent and constituting, according to the statements of the referring court, the core inventive advance of that patent, and, on the other, another active ingredient which is not protected as such by that patent“. The court deemed that this reasoning applies in the present case.

Merck relied on two more recent CJEU rulings, namely Gilead (C-121/17) and Royalty Pharma (C-650/17), but the court found that these concern different situations and are not applicable.

The court then investigated “whether, from the perspective of the skilled person, based on common general knowledge at the filing date of the basic patent, and in the light of the description used to interpret the claims, according to article 69 EPC and its interpretative protocol, the product of the combination of ezetimibe and simvastatin, which is the subject-matter of the second SPC, is a product different from ezetimibe alone, protected by the patent as such“.

The court then turned to the description of the patent. Here is the central part of the reasoning:

The description of the patent, which uses the singular form to designate the invention, and uses the formulation “in yet another aspect” to present the combination of a hydroxy-substituted azetidinone, which is the subject-matter of the invention, with a cholesterol biosynthesis inhibitor, indifferently refers for hydroxy-substituted azetidinones alone and for their combination with a cholesterol biosynthesis inhibitor, to an effect “for the treatment and prevention of atherosclerosis or for the reduction of plasma cholesterol levels” without any indication of the specific therapeutic effect that distinguishes the product composed of ezetimibe alone from that comprising the combination of ezetimibe and a cholesterol biosynthesis inhibitor such as simvastatin. Therefore, the skilled person, who was aware in the prior art of the possibility of combining two anticholesterolemic drugs having different mechanisms of action (paragraph 8 of the patent – an HMG CoA reductase inhibitor and a bile acid sequestrant), and who was familiar with statins, and in particular simvastatin, which have been commonly used since the late 1980s for the treatment of hypercholesterolemia, will not consider that the combination of ezetimibe with simvastatin, or with the 9 other active ingredients also covered by claim 17 (in particular atorvastatin, for which Merck, on the basis of the same reasoning, filed a third SPC on September 12, 2014), constitutes a distinct product protected by the basic patent as such.

The underlying idea is that there is only one invention in the patent, namely ezetimibe itself (or the other compounds of the same class). The combination of ezetimibe with another, well-known, anticholesterolemic drug, is not patentably distinct from that invention, I would say (using U.S. vocabulary).

The court’s conclusion, as far as it is based on a review of the therapeutic effect of the products at stake, and of the actual contribution of the basic patent to the art, seems to make a lot of sense.

There is one portion of the reasoning that I do not feel comfortable with, though, namely the first part of the paragraph, in which the court pays attention to the expressions “the invention” (singular) and “in another aspect” – which, to me, do not really mean anything one way or the other.

Every patent attorney, sometimes every firm, has their own drafting style. This should have no impact on the extent of monopoly granted to a patent proprietor.

Let’s take an example. Imagine that, in the EP’599 patent, the combination of ezetimibe with another anticholesterolemic drug had been presented as being “a second invention“, or “a number of further inventions“. Should this have made a difference? Of course not. Simply naming a product as a distinct invention does not make it so.

“This is not a pipe” – can words change reality?

My fear is that some patent owners may take advantage of the judges’ over-reliance on contingent aspects of the specification to unduly extend the scope of their legal monopoly. Conversely, some may be hurt by innocuous, if unfortunate, syntactic structures.

Going back to the judgment at hand, the court decided that the case was clear and that there wasn’t any need for a reference to the CJEU. The FR’040 SPC was thus formally revoked.

According to reports published on other blogs, this is not the end of the story yet, as a final appeal in front of the Cour de cassation is already pending, at least in connection with the refusal to grant a PI against other generic companies. Presumably, this judgment is also going to be appealed.

As a final note, this seems to be one of these instances of fragmented European landscape. The decision acknowledges that preliminary injunctions have been granted and sometimes confirmed on appeal in Norway, the Czech Republic, Portugal, Belgium and Austria; and have been rejected (with sometimes a confirmation on appeal) in the Netherlands, Germany and Spain.


CASE REFERENCE: Cour d’appel de Paris, pôle 5 chambre 2, September 25, 2020, SAS Teva Santé et al. v. Merck Sharp & Dohme Corp., RG No.18/23642.