It’s a Sword! It’s a Shield! It’s Res Judicata! - The dilemma of patent validity in South Africa

We're really grateful for the extremely comprehensive article below on a very important case in South Africa, which was brilliantly written by Sfiso Nxumalo. He is a South African lawyer, currently reading for the Bachelor of Civil Law degree at the University of Oxford. He worked at Bowmans as a candidate attorney, and also worked as a law clerk at the South African Constitutional Court before reading for the BCL. You can find his LinkedIn profile here. 

Introduction

On 9 May 2019, the South African Constitutional Court, the highest appellate court in South Africa, heard its first ever patent litigation case in Ascendis Animal Health (Pty) Limited v Merck Sharpe Dohme Corporation. The case required the Constitutional Court to interpret the South African Patent Act 57 of 1978 and decide the correct approach to proceedings concerning the (in)validity of patents. 

The legal issue before the Constitutional Court was significant, namely: are the different grounds of challenging the validity of a patent separate and distinct causes of action or are they one cause of action. In addressing this issue, the Court also had to consider whether the bifurcated nature of the patent litigation affected the main issue. More precisely, does it matter if the challenge of (in)validity of patents is raised in patent revocation proceedings (as a ‘sword’) or in patent infringement proceedings (as a ‘shield’)? 

Unfortunately, the Court was evenly split in its decision (usually 11 justices sit on the bench – but the Court had one justice missing due to other judicial commitments). Thus, the first patent case to be heard by the apex Court of South Africa is of very little jurisprudential value. However, the want of jurisprudential value should not stop us from engaging some of the key issues in the case. 

Facts

In June 2011, Ascendis Animal Health (Pty) Limited (the applicant) initiated revocation proceedings against Merck Sharp Dohme Corporation and Merial Limited (the respondents) for the annulment and repeal of the Patent 1998/10975 (the patent) in terms of section 61(1) of the Patents Act 57 of 1978 (the Act) because the invention was not patentable under section 25 of the Act as the invention was not new and it lacked an inventive step. These were the revocation proceedings. 

While the revocation proceedings were taking place, the respondents in October 2011 instituted proceedings against the applicant for infringing the patent. The respondents argued that, since August 2011, the applicant had made, sold, used, offered for sale and/or imported an anti-parasitic formulation under the trademark entitled Ivermax LA Platinum and had infringed the patent. This was the infringement action. 

The infringement action was stayed awaiting the conclusion of the revocation proceedings. The applicant challenged the patent exclusively on the ground of novelty. At first instance, the Commissioner of Patents found in favour of the applicant and revoked the patent for its lack of novelty. 

On appeal the Supreme Court of Appeal overturned the decision of the Commissioner of Patents and found in favour of the respondents. After this decision, the applicant sought to amend its plea in the infringement action, to remove the defence of novelty (since it lost this case in the revocation proceedings) and sought to include an additional defence – inutility. In response, the respondents sought to amend their pleadings in the same proceedings and argue that all the defences by the respondent were res judicata (already decided by a court) since the question of the validity of the patent had been definitively decided and upheld by the Supreme Court of Appeal.

In hearing the infringement action, the Commissioner of Patents granted the respondents’ amendment and held that the grounds on which an applicant may rely on to attack the validity of a patent are not separate causes of action. It held that the applicant had effectively abandoned the obviousness claim as a basis of invalidity in the revocation proceedings and that it had not formally elected to reserve the right to rely on a separate cause of action. This is the decision the applicants subsequently appealed to the highest court. 

The Constitutional Court’s decision

Five justices of the Court in a judgment penned by Justice Khampepe upheld the appeal and ordered that the parties’ pleadings should be allowed to be amended. The other five justices in a judgment penned by Justice Cameron, held that they would dismiss the appeal. The effect of this is that there is no majority decision and the decision of the Commissioner of Patents stands. The issues are discussed in more detail below.

(i) Are the grounds of challenging the validity of the patent single or distinct and separate causes of action

Justice Khampepe held that the grounds on which a patent may be challenged under section 61 of the Act (such as novelty, utility and obviousness) are concrete, distinct and separate causes of action. She opined that a cause of action comprises every fact that would be necessary for the plaintiff to prove in order to support his right to judgment of the Court. A cause of action, she emphasised, comprises facta probanda (the facts required to be proved) as opposed to the facta probantia (the facts by means of which they are proved, i.e. particulars or evidence). She then strongly reasoned that each ground of revocation are separate, distinct and independent causes of action because the facta probanda that need to be proven for each ground are markedly different. She then explained that although the legal conclusion that results from claims of either novelty, obviousness or inutility may be the same (i.e. the finding of a patent’s invalidity), it does not mean that they all represent a single cause of action. The facts required to prove a claim of novelty, inutility and obviousness are disparate as the elements constituting each ground are dissimilar. 

A compelling point is raised by Justice Khampepe when she reminds us that South Africa is a non-examination state, i.e. the state does not check whether an invention is novel before it is registered as a patent. As a result, South Africa relies on private parties to challenge the artificial monopolies created by way of registering a patent.

In the opposing judgment, Justice Cameron held that the default position should be that a previously unsuccessful patent validity claim should bar an applicant from raising the validity of the patent as a defence in an infringement action. He posited that the question is essentially the validity of the patent and this was definitively decided by the Supreme Court of Appeal and thus the matter was res judicata or is barred by issue estoppel. In his opinion, all the grounds constituted a single cause of action. 

While Justice Cameron’s argument that there is a need to stabilise our patent litigation system is attractive, it does not overcome Justice Khampepe’s reminder that South Africa relies on private parties to litigate the validity of patents. If the state relies on private parties to litigate, such parties should not be subjected to burdensome procedural requirements seeing that their litigation, while it may be driven by profit, benefits the public. Of greater consequence, allowing parties to challenge patents ensures competition in key industries and thus benefits the larger public. This does not mean that piecemeal litigation should be permitted and encouraged. In this author’s opinion the different grounds of validity claims are separate causes of actions and parties should bring as many claims known to them at the time of instituting proceedings. Should they later bring another ground, it should not be barred based on res judicata or issue estoppel. To my mind, this is a lesser evil, compared to a complete bar, which would mean that parties have one shot at challenging a patent, and should they fail, the patent holder gains a product monopoly. Justice Cameron’s conclusion is striking because it seems to go further than just bar the litigant party. He seems to suggest that res judicata could be relaxed even regarding different parties litigating over the same ‘issue’. 

(ii) Are the defences raised in the infringement action res judicata

On this issue, Justice Khampepe held that the defences were not res judicata. She described the scheme of the Act in great detail and she then distinguished between revocation proceedings and infringement actions. Justice Khampepe considered that, in revocation proceedings, evidence is provided by way of affidavit, whereas in an infringement action, evidence is given orally. In addition, the remedies available in these proceedings are different – revocation proceedings remove the patent from the register of patents, thus making it a remedy in rem (against a thing); whereas an invalidity defence in an infringement action does not remove the patent from the register but simply renders it unenforceable against the person challenging it, thus making it a remedy in personam (against a person). She then found that ‘the findings in the revocation proceedings have a final effect on the infringement action for causes which have not actually been adjudicated upon in revocation proceedings.’ In other words, in revocation proceedings the grounds of patent validity are a sword; and in infringement actions such grounds are a shield. And in her view this matters because it would lead to the dual proceedings being nugatory and of no effect because a finding on the revocation proceedings could be carried over to the infringement action.

In plain terms, Justice Cameron argued that the dispute is essentially about the validity of the patent. Once a court of appeal has ruled on the validity of a patent, the applicant is estopped from bringing the same issue of patent validity (regardless of the ground) in the infringement proceedings. He opined that same cause of action can be interpreted widely to include the same issue (the issue being the validity of the patent). 

Again, Justice Khampepe’s incisive approach is appealing. There seems to be stark differences between the two proceedings. In this author’s view, a statutory basis for the differences indicate that the legislature intended for them to be serve different functions (i.e. a sword and shield). The applicant of course will be barred from raising the same grounds that have been decided before in revocation proceedings. In my mind, requiring parties to bring all their claims at the in one suit might have adverse effects on the patent litigation going forward.

Conclusion

No patent litigation regime is without disadvantages, and the law should be applied with a purposive approach that serves the (national) objectives of patents. While there was no binding decision by the Constitutional Court, its importance lies in its detailed discussion of the South African patent system.