South Africa’s Constitutional Court rules on whether patent validity can be used as both a sword (revocation action) and a shield (infringement action) in patent proceedings

Late in October last year, the Constitutional Court of South Africa (the ConCourt) handed down its decision on the appropriate default position in patent proceedings in Ascendis Animal Health (Pty) Limited vs Merck Sharp Dohme Corporation and 2 Others [2019] ZACC 41. The appeal raised the question of whether a defendant who has unsuccessfully challenged the validity of a patent in revocation proceedings may be permitted to raise the issue of patent validity as a defence in infringement proceedings.

...a sword or shield or both?

The decision is significant because it involved the appellate jurisdiction of the ConCourt and the first time it was deciding on the subject of patent prosecution. The ConCourt assumed jurisdiction on the matter because the appeal raised a “constitutional issue” (i.e. the applicant’s constitutional right to fair hearing as guaranteed by Section 167(3)(b) of the South African Constitution) and “an arguable point of law of general public importance” (i.e. interpretation of section 61 of the South African Patents Act, which not only affected the parties in the dispute but also future patent litigants). [Paragraph 32].

Background
In 2011, Ascendis Animal Health (Pty) Limited (the applicant) instituted revocation proceedings at the High Court seeking to invalidate the patent held by Merck Sharp Dohme Corporation and Merial Limited (the respondents) on grounds that the patent was not new (novelty) and lacked an inventive step (obviousness) under section 25(5), (6) and (10) of the South African Patents Act. [Paragraph 7].

While the revocation action was pending, the respondents instituted proceedings against the applicant for patent infringement.

The parties agreed to stay the infringement proceedings and proceed with the revocation proceedings to finality. Also, the applicant informed the respondent of its decision to argue only the novelty claim and to present oral evidence regarding the obviousness claim, should the novelty claim fail. The respondents opposed this approach as untenable in law and procedure but the applicant proceeded as it planned and there was no ruling on this during the revocation proceedings. [Paragraph 10]

The High Court revoked the respondents’ patent for lack of novelty and on appeal to the Supreme Court of Appeal, it was held that the novelty claim had no merit and that the patent was valid. [Paragraph 14]

The applicant returned to the revocation proceedings at the High Court and filed an application to amend its application thus: remove the novelty claim; retain the obviousness claim and introduce a new defence of inutility under section 61(1)(d) of the Patents Act. The respondents opposed this application and sought to amend their pleadings to plead res judicata based on the Supreme Court decision. The respondent also sought an interim order to restrain further infringement pending the outcome of the suit. [Paragraphs 15-16].

The High Court refused the applicant’s amendment application holding that it amounted to piecemeal litigation as the intention to proceed with the invalidity claim on grounds of obviousness was not raised before the Supreme Court. The High Court also granted the claim for interim order sought by the respondents. [Paragraphs 17-19].

At the High Court for the infringement proceedings, the applicant presented a similar application and argument to amend its pleadings. It argued that each ground of patent revocation is a separate cause of action and as such, the obviousness ground may be introduced by way of an amendment. See paragraph 21. The High Court rejected this argument and dismissed the amendment application. The High Court also granted the respondents’ amendment application and upheld the res judicata argument.

The applicant then sought leave to appeal against the decision refusing the amendment of its pleadings in the infringement action. The High Court refused leave to appeal and likewise, the Supreme Court refused leave.

The applicant then appealed to the ConCourt challenging the decision of the High Court refusing its application to amend its pleadings in the infringement action.

The decision
10 justices of the ConCourt sat on the appeal and unanimously granted the applicant leave to appeal. However, while 5 of the justices upheld the appeal and ordered the amendment of the applicant and respondents’ respective pleadings, the other 5 dismissed the appeal. In the absence of a majority decision, the  judgment of the High Court remained valid and in place. [Paragraphs 1-2].

The ConCourt justices were split on two issues:
(a) Are the grounds for challenging patent validity single or separate causes of action?
Justice Khampepe held (with the concurrence of 4 other justices) held that the grounds on which the validity of a patent may be challenged under section 61 of the Act (novelty, obviousness and inutility) constituted separate and independent causes of action. [Paragraph 49]. Also, the facts needed to prove each ground differ. While the novelty ground requires proof that the patent is not new or different than what existed before, the obviousness ground and the inutility ground respectively require proof that the so-called inventive step is in fact obvious to anyone versed in the prior art and proof that “the blueprint of the patent itself does not lead to the claimed usefulness or result”. See paragraphs 54 and 55.

Justice Cameron (with the concurrence of 4 other justices) took the opposite view holding that the validity of the patent was the sole subject matter of the dispute both in the revocation proceedings and in the infringement action.

(b) Is the defence raised in the infringement proceedings res judicata because it borders on validity of patent?
On this issue, Justice Khampepe and 4 others held that the defence was not res judicata as the grounds of patent validity were separate causes of action. The justices considered the “scheme of the Act” and distinguished between revocation actions and infringement proceedings. See paragraphs 44-48, 85-86 of the judgment. The differences between revocation and infringement actions meant that the legislature intended the proceedings to be separate and distinct such that failure of one cannot preclude the other. A claim of res judicata on revocation proceedings could not be applied to foreclose defence on infringement proceedings. See paragraphs 47, 68, 74 and 75.

Moreover, the amendment should have been permitted under Rule 28(1) of the Uniform Rules of Court, which allow parties to amend their pleadings unless good cause is shown to the contrary. [Paragraphs 87-89]

Justice Cameron and 4 other justices were of the view that the defence was res judicata based on several considerations:
a. The dispute between the parties is based on the validity of the respondents’ patent. Once the Supreme Court rebuffed the applicant’s attempt to revoke the respondents’ patent, the applicant was estopped from bringing the same issue of patent validity (no matter the ground) in the infringement proceedings. [Paragraph 110]

b. While res judicata forbade same parties from re-litigating the same cause of action and seeking the same relief, the concept of “same cause of action” may be interpreted widely to accommodate and forbid a party from demanding the same thing on the same issue. The issue in the instant appeal being on the validity of the patent. [Paragraphs 112-113].

c. Each jurisdiction has its own method of ensuring a fair and efficient patent enforcement system. For example, Germany and Japan had a patent examination system, which acts as a safeguard for their respective strictly bifurcated systems for validity challenges and damages claims [paragraphs 125 and 127]. The US, which had a unitary system similar to South Africa, had patent examination as a safeguard to address duplication of litigation. [Paragraph 126]. The broad interpretation of the res judicata principle may be South Africa's own safeguard.

Comment
To the extent that the defence proposed for the infringement proceedings bordered on the validity of the patent, it appears to make sense that a defendant that has failed as applicant in revocation proceedings should not be allowed to re-litigate the validity of the patent as a defence to infringement. But in this Kat’s opinion, that should depend on the nature of the challenge regarding the patent validity.

While it may not be proper to allow the same applicant to bring multiple revocation proceedings against the same patent on different grounds, an applicant that unsuccessfully challenges the validity of a patent for lack of novelty should be able to rely on obviousness as a defence to an infringement claim. This is in the public interest particularly for jurisdictions that have no patent examination system. Otherwise, as Justice Khampepe pointed out, there would be no opportunity to test the strength of patents in a non-examination jurisdiction such as South Africa. [Paragraph 100]. [Even in cases where a patent licensee is sued for infringement, such licensee may defend the action by arguing that the patent was invalidly granted as happened in the Ethiopian teff patent case. It would not matter that the licensee had previously acknowledged the patent by procuring a license to use]

To this Kat’s mind, the appeal should have failed, not because the amendment sought was res judicata but because of the timing of the amendment application. The High Court had a discretion under the Rules of court to decide whether or not to grant an application for amendment of pleadings. The ConCourt may then decide whether the High Court’s discretion was exercised judiciously vis-a-vis constitutional rights. The point in time at which the defence was raised is a strategic issue that the applicant failed to explore appropriately. There appears to have been no acceptable reason why the applicant failed to plead all the defences available to it at the inception of the infringement proceedings.

In closing, this Kat is of the opinion that the issue of whether failure of revocation proceedings (made on any ground) would foreclose a validity defence in infringement proceedings may not be conclusively settled in South Africa. The simple reason for this as far as this Kat is concerned is the fact that 10 justices (an even number) sat on the appeal. It may be advisable to ensure an odd number quorum for the Concourt when sitting in appellate capacity, as this is the only way to guarantee a majority decision and a judicial precedent.