COURT FILE NO.: 886/17

DATE: 20180306

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Sernova Corp.

Applicant

– and –

James Shapiro, James Shapiro Professional Corporation, and The Governors of the University of Alberta

Respondents

P. Wells and A. Chisholm., for the Applicant

P. Smith and V. Vijayakumaran, for the Respondents

HEARD: October 23, 2017

LEITCH J.

[1] This application relates to the ownership of a family of patent applications, which are described below, and whether injunctive relief should be granted to protect such ownership.

Background Facts

[2] Sernova Corp. (“the Applicant”), which was founded in 1992, is a health science company focused on commercialization of innovative medical technologies. It is based in London, Ontario and is now a public company.

[3] The Applicant developed and patented a device called the Cell Pouch^TM System (“CPS”) that permits therapeutic treatment of diseases, such as diabetes. The CPS is a small device that is placed in the body, and therapeutic cells are transplanted into compartments in the CPS, which then treat disease. The Canadian patent for the CPS was filed on August 28, 2010.

[4] Dr. Toleikis is the Applicant’s Chief Executive Officer. He swore an affidavit on August 22, 2017 and on September 18, 2017 in support of this application.

[5] Dr. Shapiro is a renowned diabetes researcher, educator, and surgeon. He is a Professor at the University of Alberta (the “U of A”) and, with his research team at the U of A, is involved in over 100 research projects. As Dr. Shapiro outlined in para. 14 of his affidavit, sworn September 7, 2017, in response to this application:

Perhaps I am best known for leading the clinical team that developed the Edmonton Protocol. The Edmonton Protocol is a revolutionary treatment for patients with Type-1 Diabetes that uses donated islet cell transplants implanted in a patient’s portal vein…. The July 27, 2000 article of which I was the lead author [describes] the Edmonton Protocol…. This paper was most notable as for the first time all of the first seven patients transplanted with islets cells were able to discontinue their insulin injections, as the transplanted cells effectively reversed the diabetic state. By transplanting the cells in the liver through the portal vein, the liver had taken over the functions of the pancreas and restored good, normal sugar control.

[6] Dr. Shapiro and Dr. Toleikis first met in August 2010 at an international conference. They spoke about the possibility of Dr. Shapiro’s research team doing testing and perhaps a human clinical trial on the CPS.

[7] By the time Dr. Toleikis met Dr. Shapiro, the Applicant had filed, or was about to file, its patent application relating to the CPS and had already filed a provisional application about a year earlier. As Dr. Toleikis confirmed on the cross-examination on his affidavit sworn August 22, 2017 at questions 357 and 358, Dr. Shapiro was not involved in the design or manufacture of the CPS.

[8] In December 2010, Dr. Shapiro advised the Applicant that he had no authority to sign any agreements on behalf of the U of A. This confirmation took place in relation to a Confidential Disclosure Agreement between Dr. Shapiro and the Applicant, the purpose of which was to allow the U of A (supervised by Dr. Shapiro) to perform pre-clinical testing in mice using the CPS.

[9] Dr. Shapiro’s surgery services are billed through James Shapiro PC (“Shapiro PC”). Dr. Shapiro also offers his consulting services through Shapiro PC.

[10] On February 1, 2011, the Applicant entered into a consulting agreement with Shapiro PC (the “Consulting Agreement”). Dr. Shapiro provided the first draft of the Consulting Agreement to the Applicant.

[11] The Consulting Agreement required that Shapiro PC act as a consultant and provide advice to the Applicant in its pursuit to develop technologies and products that involve cell transplantation for the treatment of diabetes, clinical aspects of diabetes and related disorders, and the design and implementation of clinical trials for diabetic patients. As the Applicant put it, Shapiro PC was to provide ideas and creativity to improve the Applicants’ device and technique.

[12] Section 4 of the Consulting Agreement is key to the issues on this application.

[13] Generally speaking, Section 4 restricts Shapiro PC from using Proprietary Information belonging to the Applicant and mandates that any ideas, inventions, and developments arising out of the consultation contemplated under the Consulting Agreement would be assigned to the Applicant. Technology that was owned by or licensed to Shapiro PC in existence in the form of writing or working prototype prior to the effective date of the Consulting Agreement is excluded from this restriction.

[14] The full terms and provisions of Section 4 of the Consulting Agreement will be outlined below.

[15] In the Consulting Agreement, Shapiro PC represented and warranted that it had the full right and power to enter into and perform the obligations under the agreement without the consent of any third party.

[16] The Applicant paid Shapiro PC $4000 each month as required by the Consulting Agreement from February 2011 until May 2016 when Shapiro PC terminated the Consulting Agreement.

[17] The Consulting Agreement does not specifically restrict any disputes to a particular court forum, but s. 7 provides that the Consulting Agreement will be governed and construed in accordance with the laws of the Province of Ontario.

[18] The Applicant, Dr. Shapiro, and the U of A signed a clinical trial agreement (CTA) in February 2012 that governed clinical human trials of the CPS at the U of A.

[19] According to the terms of the CTA, any intellectual property that a party owned prior to the clinical trial or developed independently of the clinical trial would remain separate property of that party and would not be affected by the CTA.

[20] The CTA includes a provision that Alberta law and the federal laws of Canada shall govern any disputes and restricts the court forum for disputes to either courts in Edmonton, Alberta or the Federal Courts of Canada. Section 15 of the CTA is set out below:

15. Applicable Law

This Agreement shall be construed, interpreted and enforced solely in accordance with, and the respective rights and obligations of the parties hereto shall solely be governed by, the laws of the Province of Alberta and the federal laws of Canada applicable therein without regard to the conflict of laws provisions thereof. The parties hereto hereby irrevocably consent and submit to the exclusive jurisdiction of the courts of Edmonton, Alberta, Canada and, as applicable, the federal Courts of Canada, and all courts competent to hear appeals therefrom and to any other court having jurisdiction over a party solely to enforce a judgment of a Court of Alberta or a Court of Canada. The parties hereto waive any objections to the laying of venue in such courts. No party hereto shall seek to enforce an order that has its origin in any court other than the Courts of Alberta or a Court of Canada.

[21] Dr. Shapiro and the U of A filed a patent application for the Device-Less Invention (“DLI”) in 2014. Dr. Shapiro is named as the sole inventor. The DLI is a device that is placed in the body as a temporary spacer for sufficient time to allow for granulation tissue containing new blood vessels to develop around it. The DLI is then removed and therapeutic cells are transplanted into the collapsible cavity formed by the subject’s tissue that formed around where the DLI was inserted.

[22] Dr. Toleikis, in his affidavit sworn August 22, 2017 in support of the application, explained that “as early as on or around April 20, 2015” he “became concerned about” certain actions of Dr. Shapiro that seemed inconsistent with his contractual obligations to the Applicant. He referenced an article co-authored by Dr. Shapiro and an email from someone associated with the U of A, which he described as “the first indicators” that “Dr. Shapiro and U of A were asserting ownership of the intellectual property in what he [Dr. Shapiro] had developed during the course of the Consulting Agreement”.

[23] On his cross-examination, Dr. Shapiro confirmed at page 42 that the 2015 article included a “subset of the data that was provided to the patent application team”.

[24] The Applicant noted in its materials that “Ironically, U of A has sought to commercialize the technology that was the subject of Dr. Shapiro’s Patent Application by sending emails and promotional literature to Sernova in London”.

[25] The patent applications filed by the Respondents were made public for the first time on March 24, 2016.

The Application

[26] The Applicant asserts that the DLI is a modification of the CPS and is therefore property belonging to the Applicant under the Consulting Agreement.

[27] The Applicant seeks:

(a) A declaration of the Applicant’s rights under the Consulting Agreement and in particular, a declaration that the Applicant is the true owner of a family of patent applications including CA 2865122 and US 2016/0082158 A1 both entitled “Cellular Transplant Site”;

(b) An injunction restraining the Respondents (including its employees, officers, directors, servants, and agents) from violating the terms of the Consulting Agreement, including sections 4.1 [which protects the Applicant’s trade secrets and intellectual property rights] and 6.3 [which requires non-interference with the Applicant’s business—the Applicant did not make argument in relation to this provision];

(c) A mandatory injunction requiring the Respondent and the Governors of the U of A to assign each and every member of the “Cellular Transplant Site” family of patent applications, including CA 2865122 and US 2016/0082158 A1, to the Applicant; and

(d) A reference to determine the damages suffered by the Applicant.

[28] In response, among other arguments, the Respondents submit that Dr. Shapiro invented the DLI before ever becoming involved with the Applicant and as such, the patent applications filed by the Respondents do not belong to the Applicant.

The Respondents’ Motion to Stay

[29] On August 30, 2017, the Respondents brought a motion seeking a stay of the application pursuant to Rule 17.06 of the Rules of Civil Procedure on the basis that the CTA supersedes the Consulting Agreement and governs the issues raised by the Applicant relating to confidentiality and ownership of intellectual property. As previously set out, the CTA has a forum selection clause and a choice of law clause in favour of the Courts in Edmonton, Alberta or the Federal Courts of Canada and the laws of Alberta.

[30] The Applicant responded to the Respondents’ motion to stay by asserting that Ontario law governs the dispute and Ontario is the appropriate forum for interpretation of the parties’ rights.

[31] The Applicant and the Respondents also disagreed about whether an application was appropriate to resolve the dispute.

[32] The Respondents’ stay motion was heard by Carey J. on August 30, 2017. On September 8, 2017 he dismissed the motion to stay without prejudice to the Respondents renewing their stay request at the return of the application (Sernova v. Shapiro, 2017 ONSC 5308 at para. 22). Carey J. held that, at the time, it was premature for the Court to determine whether the issues were suitable to be determined by application and whether the proper forum was Ontario or Alberta (Sernova at paras. 18–19). Carey J. held that a more complete record would be before the application judge, who would be in the best position to determine if the Applicant’s decision to proceed with an application in Ontario was a prudent one (Sernova at paras. 18, 22).

[33] As contemplated by the order of Carey J., the Respondents renewed their stay motion when the application was heard. The Respondents submit that the CTA is the governing agreement and therefore s. 15 of the CTA restricts jurisdiction to courts in Alberta.

[34] However, I agree with the Applicant’s submission that the Respondents have not met the two-step test stipulated in Douez v. Facebook Inc., 2017 SCC 33 for determining if a forum selection clause, such as the clause in s. 17 of the CTA, is enforceable. At paras. 28–29 of Douez, the Supreme Court referred to Pompey Industrie v. ECU-Line NV, 2003 SCC 27 and reiterated that courts faced with a question of enforceability of forum selection clauses must complete the following analysis:

1. the court must apply the principles of contract law to determine the validity of the forum selection clause. The party seeking a stay based on the forum selection clause must establish that the clause is “valid, clear and enforceable and that it applies to the cause of action before the court” [citations omitted]; and

2. the court must assess whether the plaintiff has shown strong reasons why the court should not enforce the forum selection clause and stay the action (Douez at paras 28–29).

[35] As more fully discussed below, the Applicant takes the position that the CTA is irrelevant to this application as it only seeks to enforce the provisions of the Consulting Agreement.

[36] For reasons set out below, I am satisfied that the CTA does not govern the current dispute. Therefore, the court forum is not restricted to courts in Edmonton, Alberta or the Federal Courts of Canada and the law of Alberta is not applicable based on the terms of the CTA. In other words, the Applicant is correct in asserting that the Respondents have not shown that the forum selection clause in the CTA is applicable to the dispute as required under the first step of the test laid out in Douez.

[37] I note also that the Applicant relied on 2249659 Ontario Inc. v. Sparkasse Siegen, 2013 ONCA 354 at paras. 42–47, where the Court of Appeal held that a forum selection clause in a particular agreement does not apply if a party is not seeking interpretation or implementation of that agreement.

[38] During the hearing, Mr. Smith, on behalf of the Respondents, conceded that this Court is the appropriate forum to determine the application if it can be determined on the evidentiary record filed.

[39] I observe that it appears that such a concession was appropriate because the Applicant would have been successful in establishing a real and substantial connection to Ontario and the Respondents would have been unable to oust such jurisdiction through the application of forum non conveniens.

[40] The Supreme Court held in Club Resorts Ltd. v. Van Breda, 2016 SCC 30, that the existence of a contract that was created in a province creates a presumptive connecting factor between the dispute and the province, which unless rebutted, establishes jurisdiction simpliciter in that province.

[41] I note also that relevant to jurisdiction over the U of A, the Supreme Court in LaPointe Rosenstein Marchand Melançon LLP v. Cassels Brock & Blackwell LLP, 2016 SCC 30 held at para. 44 that for the purposes of determining jurisdiction simpliciter on the basis of the existence of a contract, a party in the dispute does not have to be a party to the contract and all that is required to establish the presumptive connecting factor is that a party’s conduct “bring him or her within the scope of the contractual relationship and that the events that give rise to the claim flow from the relationship created by the contract”.

[42] As Dr. Toleikis outlined in his affidavit, the Applicant is located in Ontario, its products are developed in Ontario, the information about its CPS is developed in Ontario, the law applicable to the Consulting Agreement is the law of Ontario and the harm suffered as a result of the Respondents’ conduct is occurring in Ontario. Alberta is not clearly a more appropriate jurisdiction, to use the language of Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), 1993 CanLII 124 (SCC), [1993] 1 S.C.R. 897 at 900 cited in Muscutt v. Courcelles (2002), 2002 CanLII 44957 (ON CA), 60 O.R. (3d) 20 (C.A.).

[43] I am satisfied that it is appropriate for this court to assume jurisdiction for this application in accordance with the Respondents’ concession.

[44] I note also that at the hearing of the application both the Applicant and the Respondents took the position that this court could determine the issues on the application on the evidentiary record filed. As counsel put it, if this court can dispose of the application on the evidentiary record filed, it should do so. If the court cannot make the necessary findings to dispose of the application then a trial should be ordered (the Respondents taking the position that any trial should be held in Edmonton, Alberta).

[45] I turn now to address the issues on the application.

Does the Consulting Agreement or the CTA Govern the Dispute?

[46] As noted, the Applicant claims that the DLI is a modification of the CPS and was created using confidential information obtained by Dr. Shapiro through his work for the Applicant pursuant to the Consulting Agreement.

[47] The Applicant emphasized that it seeks relief only under the Consulting Agreement.

[48] The Consulting Agreement includes an “entire agreement clause” as set out below:

7.9 Entire Agreement

This Agreement is the final, complete, and exclusive agreement of the parties with respect to the subject matter thereof. This Agreement supersedes all prior discussions between the [Applicant] and [Shapiro PC]. No modification of or amendment to this Agreement nor any waiver of any rights under the Agreement, will be effective unless in writing and signed by the party to be charged. The terms of this Agreement will govern all Services undertaken by [Shapiro PC] for the [Applicant].

[49] As previously set out, the Respondents argue that the CTA supersedes the Consulting Agreement. The comparable “entire agreement clause” in the CTA, which the Respondents rely on, states the following:

17. Entire Agreement

This Agreement together with the Attachments, hereto, which are incorporated by reference herein, constitutes the entire agreement and supersedes all prior or contemporaneous negotiations and agreements among the parties hereto regarding the subject matter herein [emphasis added].…

[50] The Respondents maintain that the CTA is the governing agreement because it is the comprehensive agreement between the parties dealing with confidentiality and ownership of intellectual property; it is the last agreement executed by the parties and it contains an entire agreement clause; the DLI was developed by Dr. Shapiro and his research team at the U of A and was not developed by Shapiro PC; and the CTA prescribes the process regarding the publication of clinical trial results which were raised in the Notice of Application. In relation to this latter point, I note that in its amended application the Applicant struck the pleading referencing the CTA. The Applicant advised that the reference to the CTA was erroneously included in the original notice of application.

[51] As previously set out, the Applicant is not seeking any relief under the CTA or any agreement other than the Consulting Agreement (the Applicant and the U of A also entered into a Confidentiality and Material Transfer Agreement on January 11, 2011 which dealt with “preclinical work”. This agreement had the same purpose as the Confidential Disclosure Agreement described earlier and according to its terms superseded that agreement).

[52] The Respondents submit that the subject matter of the CTA supersedes the Consulting Agreement, because the CTA includes both confidentiality and intellectual property ownership issues.

[53] The Respondents rely on Red Seal Tours Inc. v. Occidental Hotels Management B.V., 2007 ONCA 620 for the assertion that it is improper to selectively enforce agreements to defeat forum selection clauses.

[54] In relation to this first issue, the determinative words are “regarding the subject matter herein” in s. 17 of the CTA. If the “subject matter herein” in the CTA includes the subject matter of the Consulting Agreement, then the Consulting Agreement would be a “prior or contemporaneous negotiation and agreement among the parties” that would be superseded by the CTA.

[55] I am satisfied that the contract governing the dispute is the Consulting Agreement. The word “subject” is defined in the Oxford Dictionary as “a person or thing that is being discussed or dealt with” and the word “matter” is defined as “an affair or situation under consideration; a topic”. The phrase “subject matter” is defined in the Oxford Dictionary as “the topic dealt with or the subject represented in a debate, exposition, or work of art”.

[56] Therefore, looking to the contracts as a whole, the subject matter of the Consulting Agreement is Shapiro PC’s consultation regarding the CPS specifically. The subject matter of the CTA is the human clinical trials related to the CPS at the U of A specifically and not the CPS or any other subject generally. The CTA therefore does not supersede the Consulting Agreement. Since the Consulting Agreement and the CTA cover different subject matters, both contracts operate contemporaneously.

[57] In my opinion, the Respondents’ submission that the subject matter of the CTA “includes” confidentiality and intellectual property ownership provisions (and therefore the CTA supersedes the Consulting Agreement) ignores the basic tenet of contract interpretation that contracts must be interpreted in their entire context. It is not enough for the CTA to include provisions on confidentiality and intellectual property similar to those that were included in the Consulting Agreement for the subject matter of the CTA to be the same as the subject matter of the Consulting Agreement. When looking at the contract as a whole, it is, in my opinion, clear that the Consulting Agreement’s subject matter was the governance of Dr. Shapiro’s consultation and the CTA’s subject matter was the governance of clinical trials.

[58] The Respondents’ reliance on Red Seal is also not persuasive. In Red Seal, the original contract contained a forum selection clause and an addendum was added to the contract, which did not include a forum selection clause. The respondent in Red Seal attempted to rely only on the addendum and argued that the forum selection clause did not apply. At para. 12, the Court of Appeal held that the respondent could not “escape the application of the choice of forum clauses by framing its claims as only being …under the [addendum]” and noted that “[p]arsing jurisdiction clauses to determine whether they apply to claims as they are framed could foster dubious efforts to evade legitimate agreements for dispute resolution, which can be of considerable significance in international commercial dealings [citations omitted].”

[59] Red Seal is distinguishable because this application does not involve an addendum that omits the forum selection clause contained in the original contract. Rather, this application involves two separate valid and enforceable contracts. In other words, the Applicant is not attempting to “escape…the choice of forum”, but rather is attempting to rely on an enforceable contract where the parties did not choose a forum.

[60] I note also that as in Sparkasse Siegen, the Applicant is seeking a remedy relying on obligations imposed by the Consulting Agreement as “distinct” from obligations under the CTA.

[61] Therefore, the Respondents’ first two arguments for why the CTA is the governing agreement (because it is the comprehensive agreement between the parties dealing with confidentiality and ownership of intellectual property and because it is the last agreement executed and contains an entire agreement clause) are not supported by the proper interpretation of the contract.

[62] The Respondents’ remaining argument in support of the contention that the CTA is the governing agreement requires a different analysis.

[63] The Respondents argue that Shapiro PC, “housed in Dr. Shapiro’s house”, does not do any research and does not, and has never, owned patent rights. They argue that Shapiro PC “was not involved in the development” of the DLI. They emphasize that the DLI was developed by Dr. Shapiro and his research team in their capacity as researchers and employees at the U of A. As a result, they submit that the Consulting Agreement cannot be the governing agreement since the Consulting Agreement does not bind Dr. Shapiro personally or the U of A. In other words, the Respondents suggest that the CTA is the applicable agreement because it is the only agreement signed by Dr. Shapiro personally and the U of A.

[64] However, I agree with the Applicant that the fact that Dr. Shapiro and the U of A signed only the CTA does not alter the nature of the CTA and render it applicable to the issues on this application.

[65] Further, I agree with the Applicant that the U of A and Dr. Shapiro are proper respondents on this application. They are the applicants for the patents that are in dispute and proper parties pursuant to Rule 5.02(2) or necessary parties pursuant to Rule 5.03. As previously noted, according to Dr. Toleikis, the U of A is marketing the DLI in Ontario and the U of A is the beneficiary of Shapiro PC’s impugned conduct under the Consulting Agreement.

[66] In addition, Shapiro PC was obliged not to disclose or grant any right to Company Work Product to third parties according to the terms of the Consulting Agreement. Therefore, if what is in issue is Company Work Product then Dr. Shapiro, as a third party recipient of such product, is a proper respondent.

[67] In addition, Dr. Shapiro is bound personally under the Consulting Agreement. Professional corporations are not limited liability corporations. For example, the Alberta Health Professions Act, R.S.A. 2000, c. H-7 governs medical professionals who are licensed by the College of Physicians and Surgeons of Alberta and who carry on the business as professional corporations, such as Dr. Shapiro and Shapiro PC. Section 107 of the Health Professions Act stipulates that a voting shareholder of such a professional corporation is liable just as he or she would be if he or she was carrying on the business of the professional corporation as a partnership or as an individual providing professional services.

[68] Similarly, pursuant to s. 3 and 4 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, Dr. Shapiro’s liability is not limited by virtue of the fact he has conducted his professional practice through a professional corporation.

[69] Shapiro PC had no ability to fulfill the terms of the Consulting Agreement without Dr. Shapiro personally. Dr. Shapiro cannot be permitted to escape responsibility for contractual obligations of Shapiro PC because he chose to provide consulting services through the vehicle of a professional corporation.

[70] I turn now to address the Applicant’s claim arising from the alleged improper use of confidential information under the Consulting Agreement, which I have found is the agreement that governs the dispute on this application.

Should the Proprietary Interests in the DLI Be Assigned to the Applicant?

[71] The Applicant asserts that the DLI is a modification of the CPS and it is Company Work Product, as described below, belonging to the Applicant pursuant to the Consulting Agreement. The Applicant does not accept that Dr. Shapiro invented the device-less approach before the Consulting Agreement was entered into.

[72] On the other hand the Respondents take the position that the DLI is not a modification of the CPS and was invented before the Consulting Agreement was signed. Dr. Shapiro deposed, in his affidavit sworn September 7, 2017, that he first conceived of the DLI in 2002. He explained the following at para. 3 of his affidavit:

It was my broad surgical background, as a liver transplant surgeon, that first resulted in my conception of the Device-Less Invention in 2002. After a complicated liver transplant, a patient may require packing of the abdominal cavity to prevent and control difficult bleeding. For this, abdominal sponge packs are placed, made of cotton-type material, to absorb fluids and apply local pressure. After having packed a particular patient after a liver transplant in 2002, I had planned to take that patient back to surgery within a day or two to remove the packs, but there were other emergency surgeries and transplants that necessitated a delay of about 5 days before we were able to remove the packs. At the subsequent surgery, I found that the sponge packing material had adhered to the patient’s tissue. I gently tore the absolvent material away from the tissue and noticed that the tissue had granulated and new tiny vascular blood vessels had formed at the adhesion sites.

[73] Dr. Shapiro described the foregoing as his “Eureka moment”. He explained further at para. 4 of his affidavit:

This was my Eureka moment. I considered what could happen if I embedded some foreign material under the skin or in other sites of a patient, temporarily, for the very purpose of inducing new blood vessels capable of sustaining an islet cell or stem cell transplant graft. The body would naturally produce an increased vascular response, with a rich network of new tiny blood vessels, allowing the foreign material to be removed and islets or stem cells could be placed in direct contact with those new vessels. Myself and members of my research team at the University of Alberta (hereinafter “the University”) refined this idea and obtained approval to test the Device-Less approach in animal models in my laboratory at the University. Our first successful test of my Device-Less Invention was performed in mice in 2005-6, four years before I even met anyone from Sernova.

[74] He was very clear that he had not simply modified or improved on the Applicant’s CPS, deposing at para 5 of his affidavit:

That my earlier developed Device-Less Invention was an improvement upon Sernova’s Cell-Pouch Technology is simply not true. Additional testing was done on the Device-Less Invention and a Canadian patent application was filed in 2014. I did not use Sernova confidential information in conceiving of or developing the Device-Less Invention.

[75] He explained further at para. 15 of his affidavit:

As I have described above, I conceived the Device-Less Invention in 2002, when carrying out clinical liver transplants, and observed that retained packing sponges induced local neovascularization as part of the foreign body reaction. My thought was that if we could temporarily insert something foreign under the skin, the body’s natural response would be an increase in the vascularization of the site surrounding the foreign object. The implanted material could be removed and islet or stem cells could be transplanted under the skin or in other otherwise [unfavourable] sites once the material had been removed. This could represent an alternative to having to implant islet cells in a patient’s portal vein. The Device-Less concept is quite different from Sernova’s Cell Pouch technology. With the Cell Pouch, a proprietary device is left permanently under the skin. The Cell Pouch is made of medical grade plastic (the exact composition has not been shared with me), and provides a permanent scaffold around cells transplanted in the middle. With the Device-Less Invention, no permanent scaffold is left, and there is no proprietary device or technology used. A plastic catheter tube that is in routine clinical day-to-day use is used as a temporary spacer while new blood vessels form. The Device-Less approach relies on controlling the body’s natural foreign-body response, and by entirely removing the tube after an appropriate period, the foreign-body reaction is extinguished while leaving behind a rich network of new blood vessels for cells to settle and attach upon.

(i) The Terms of the Consulting Agreement

[76] The Consulting Agreement contains a number of provisions related to confidentiality intellectual property rights, and, as the Applicant emphasizes, creativity.

[77] In section 4.1 of the Consulting Agreement, Shapiro PC undertook to hold the Applicant’s Proprietary Information “in trust and confidence”.

[78] Proprietary Information is described in s. 4.1 as including:

(a) trade secrets, know-how, inventions, ideas, tangible and intangible information relating to antibodies and other biological materials, processes, methods, designs, technologies, know how, improvements, discoveries and developments (collectively referred to as “Inventions”) along with other items;

(b) information regarding plans for research, development, marketing, business plans, and other related items; and

(c) information regarding the skills and compensation of employees of and consultants as well as other business terms.

[79] Importantly, according to s. 4.1 of the Consulting Agreement “the Company’s Work Product” (as defined in the Consulting Agreement as set out below) constitutes Proprietary Information.

[80] However, s. 4.1 goes on to provide that notwithstanding the other provisions in the Consulting Agreement, Proprietary Information will not include information that Shapiro PC can demonstrate by competent written evidence: (1) has been published or is otherwise readily available to the public other than by a breach of the Consulting Agreement; (2) has been rightfully received by Shapiro PC from a third party without confidential limitations; (3) has been independently developed by Shapiro PC without reference to any of the Applicant’s Proprietary Information; or (4) was known to Shapiro PC prior to its first receipt from the Applicant, except in the case of Company Work Product, which is not subject to any exception.

[81] Pursuant to s. 4.3 of the Consulting Agreement, Shapiro PC warranted that it had no other existing contract or duty inconsistent with the Consulting Agreement except as listed in Exhibit B. Nothing was listed in Exhibit B.

[82] Section 4.4 contains important definitions of Work Product and Company Work Product as follows:

• “Work Product” means any Invention, whether or not patentable, and all related know-how, designs, trademarks, formulae, processes, manufacturing techniques, trade secrets, ideas, artwork, software of other copyrightable or patentable works; and

• “Company Work Product” means all Work Product which is solely or jointly conceived, made, reduced to practice, or learned by Shapiro PC in the course of services performed for the Applicant.

[83] The Applicant’s position is that the definition of Company Work Product is key to the issues on the application.

[84] Section 4.4 requires Shapiro PC to disclose in writing to the Applicant any Prior Work Product—that is any Work Product relating to the Applicant’s business or the consulting services provided by Shapiro PC which Shapiro PC “made, conceived or reduced to practice at the time” the Consulting Agreement was signed. This disclosure was to be made in Exhibit C to the Consulting Agreement. Shapiro PC made no disclosure in Exhibit C.

[85] In fact, Dr. Shapiro inserted a check mark in the box beside the phrase “No inventions or improvements” under the heading “Prior Work Product Disclosure” and inserted no information under the heading “Background Technology Disclosure”. He did not list any inventions or improvements he could not disclose because of a prior confidentiality agreement.

[86] Section 4.5 sets out an important provision respecting ownership of Work Product as follows:

4.5 Ownership of Work Product

Consultant [Shapiro PC] shall specifically describe and identify in Exhibit C all technology which (a) Consultant intends to use in performing under this Agreement, (b) is either owned solely by Consultant or licensed to Consultant with a right to sublicense, and (c) is in existence in the form of a writing or working prototype prior to the Effective Date (“Background Technology”). Consultant agrees that any and all Inventions conceived, written, created, or first reduced to practice in the performance of Services under this Agreement shall be the sole and exclusive property of the Company.

[87] Finally, s. 4.6 provides that except for Background Technology, Shapiro PC irrevocably assigns to the Applicant “all right, title and interest worldwide in and to Company Work Product and all applicable intellectual property rights related to Company Work Product, including without limitation, copyrights, trademarks, trade secrets, patents, moral rights, contract, and licensing rights (the “Proprietary Rights”)”.

[88] The Applicant submits that the CPS, and the modifications to the CPS creating the DLI, are Company Work Product under the Consulting Agreement emphasizing that Dr. Shapiro set out no information in Exhibit C to the Consulting Agreement that is Prior Work Product and no information in Exhibit B respecting prior duties or contracts. In other words, the Applicant’s position is that Dr. Shapiro used the Applicant’s Proprietary Information in relation to the DLI.

[89] On the other hand, the Respondents submit that Dr. Shapiro invented, independently conceived and successfully tested the DLI many years before he met the Applicant. As previously described, Dr. Shapiro met Dr. Toleikis in 2010. The Respondents submit that Dr. Shapiro conceived of the DLI in 2002 and began testing the DLI in 2006, which was at least four years before Dr. Shapiro met anyone associated with the Applicant. Therefore, according to the Respondents, the Applicant has no property rights to the DLI under the Consulting Agreement.

[90] The Respondents rely on the exceptions to the definition of Proprietary Information set out in s. 4.1 of the Consulting Agreement described in subsection (3) and (4). That is, Proprietary Information does not include Inventions that have been independently developed by Shapiro PC without reference to any of the Applicant’s Proprietary Information; or that was known to Shapiro PC prior to its first receipt from the Applicant, except in the case of the Company’s Work Product (an Invention that is solely or jointly conceived, made, reduced to practice, or learned by Shapiro PC in the course of services performed for the Applicant).

[91] The Applicant contests the Respondents’ submission that the DLI was invented prior to Dr. Shapiro’s involvement with the Applicant and developed independently without any reference to the Applicant’s Proprietary Information on a number of bases, which I will address next.

(ii) The Applicant’s assertions that this Court Should Not Accept Dr. Shapiro’s Evidence that He Invented the DLI Independently

(a) Dr. Shapiro’s Statements in an October 2015 Interview

[92] Dr. Shapiro participated in an interview in October 2015, which is publicly available and which was part of the evidentiary record for the court’s consideration.

[93] During the interview, Dr. Shapiro made the following statements:

… we’ve had a trial with a company in London Ontario called Sernova Corporation and they have a, a [sic] basically a device that goes under the skin, and you leave rods under the skin for about a month, new blood vessels form in there, you take out the rods from the middle and put the islet cells in. We can get cells to survive in there, but it doesn’t look so far, in a small number of patients, as though they are functioning quite as well as they would in the portal vein. And then experimentally in the lab, we’ve developed a further modification of that [emphasis added] with what we’ve called the device-less approach, where we put a simple plastic catheter under the skin, leave it there for a month, it’s a radiological catheter that’s in routine clinical practice and use and approved already, and then we simply remove that catheter, and at the end of the month we find that there’s lots of new blood vessels have grown into that space and we can put, again, islets or stem cells in there and they graft very efficiently. …

[94] Dr. Shapiro’s interview was key to the Applicant’s assertions on this application based on the following passage at page 125 and 126 from Dr. Toleikis’ cross-examination on his affidavit sworn August 22, 2017:

Q. All right, and one of the things that the researchers have been doing is trying to look for alternative implantation sites when compared to the portal vein.

A. That’s correct, that’s the whole genesis of the Sernova technology, and…

Q. And that’s the genesis of the device-less technology too, right?

A. Well, which is the genesis of Sernova’s technology?

Q. So they’re both looking for alternative sites to the portal vein?

A. We already identified the alternative site and procedure, and…basically copied, yes…

[Dr. Toleikis reads aloud the relevant portion of Dr. Shapiro’s interview]

Q. So, he says it’s a modification of that?

A. Of that technology, which if you know English, is referring to the Sernova Cell Pouch. It is black and white, it’s not a debatable thing from my perspective.

[95] In assessing Dr. Toleikis’ assertions, it is important to also consider Dr. Shapiro’s evidence respecting the interview in issue.

[96] In his affidavit sworn in response to this application, Dr. Shapiro discussed his interview at para. 30 as follows:

During the video I introduced the concept of alternative sites other than the portal vein for implanting islet cells, and first briefly mentioned the Sernova trial. Following my statements regarding the Sernova trial, I proceeded to state “And then experimentally in the lab, we’ve developed a further modification of that with what we’ve called the Device-Less approach…” This was intended to express the idea of inducing new blood vessels to grow in response to material implanted under the skin and avoiding describing the complexities of the differences between the Device-Less Invention and Cell Pouch to the interviewer in this relatively brief interview. This statement was never intended to suggest that the Device-Less Invention was derived from the Cell Pouch, as the conception of the Device-Less Invention and the related research at the University occurred several years prior to my first encounter with Sernova, and developed in the lab at the University of Alberta entirely independently of Sernova.

[97] The Applicant argued that Dr. Shapiro is “rewriting history” in making the above referenced comments. However, I note that no questions were put to Dr. Shapiro on cross-examination in relation to this interview save and except that he was asked, at page 79, if he took issue with the transcription and he confirmed he did not:

Q. Let’s put it this way: You haven’t taken issue with any of this?

A. I think this is likely an accurate transcript word for word of what I said in the video but has been taken and used out of context.

Q. That’s a different point.

A. But an important one.

[98] I am not prepared to find that the DLI was a “modification” of the Applicant’s technology based on Dr. Shapiro’s statement during his 2015 interview. I am satisfied that Dr. Shapiro’s interview must be considered in context as Dr. Shapiro outlined in his affidavit.

(b) The Failure of Dr. Shapiro to Reference the DLI in the Consulting Agreement

[99] As previously set out, Exhibit C to the Consulting Agreement indicated that Shapiro PC had no inventions.

[100] In his affidavit in response to this application, Dr. Shapiro deposed in para. 7 that

prior to signing the Consulting Agreement, representing Shapiro PC, I informed Phillip Toleikis that Shapiro PC does not do any research and therefore Shapiro PC does not own any invention and that was why Schedule “C” of the Consulting Agreement was left blank. Furthermore, the Device-Less Invention was never utilized by Shapiro PC in providing any consulting services to Sernova. It was my opinion, which I shared with Dr. Toleikis, that confidential experimental-work carried out in my laboratory at the University could not and should not be shared in any detail as part of the consulting services provided by Shapiro PC, as in that role I was bound by obligations of confidentiality to the University.

[101] This position was reiterated and expanded upon further in Dr. Shapiro’s affidavit.

[102] These conversations are denied by Dr. Toleikis who deposed in his affidavit sworn September 18, 2017 that “at no time did I discuss with Dr. Shapiro why he did not disclose any inventions in Schedule “C” to the Consulting Agreement” and he “did not discuss with Dr. Shapiro, specifically, that his duties to the University would prevent him from disclosing any inventions on Schedule C to the Consulting Agreement”.

[103] Dr. Toleikis was not challenged on cross-examination respecting his affidavit evidence that Dr. Shapiro did not provide him with any explanation as to why he completed Exhibit C as he did.

[104] However, Dr. Shapiro was cross-examined on the foregoing portion of his affidavit. He reiterated at pages 56 and 57 that

I had a conversation with Philip by phone before the final draft – before the final version of this [the Consulting Agreement] was signed to explain the nature of why I could not disclose confidential University information relating to research on this consulting agreement with my professional corporation.

I explained to him [Dr. Toleikis] that my professional corporation was not directly involved with any research activities, and that my professional corporation did not own or was not involved in any intellectual property or that was involved at the University.

So I was not at liberty to release information about work conducted at the University as part of the consulting agreement with my professional corporation….

I simply explained to him why I marked… Exhibit C as having no inventions or improvements.

He wasn’t expecting—he was aware of my work with the device-less technology at this time, and, in fact, well before this time, and he didn’t raise that or any other concerns relating to the fact that—I mean he knew that I was an active researcher at the University, that I had numerous experiments published and in the works.

He was aware from our very first meeting when I met him in 2010 that I had worked and had a continued interest in my laboratory at the University of Alberta on the device-less approach.

We didn’t call it the device-less at that time, but he was aware that we were—had tested out in mice this procedure of replacing different kinds of tubes under the skin to induce new blood vessel formation with the purpose of including islet engraftment.

And he had no concerns about the fact that we had not provided information regarding any of that work at the University in this consulting agreement.

[105] I need not resolve the factual dispute as to whether the conversations occurred as Dr. Shapiro asserts. The significant point is that Shapiro PC did not own property of the nature contemplated in Exhibit C nor did Dr. Shapiro’s research with the U of A create a conflict of interest. The disclosure in the Consulting Agreement was factually true. While I have found that Dr. Shapiro and the U of A are proper Respondents and have potential liability to the Applicant, that conclusion does not mandate that Dr. Shapiro’s research projects with the U of A are property of Shapiro PC under the terms of the Consulting Agreement.

[106] I cannot find, as the Applicant suggests, that Shapiro PC did not make any disclosure in the Exhibits to the Consulting Agreement because Dr. Shapiro’s work arising from his “Eureka moment” was at a dead end and thus was not in his mind when Shapiro PC entered into the Consulting Agreement.

[107] I note that the Applicant contends that Dr. Shapiro’s assertion that he informed Dr. Toleikis of the September 2014 patent application in November 2014 during an informal dinner (evidence supported by e-mail described below from Dr. Toleikis in which he requested that Dr. Shapiro share the patent application discussed over dinner) was inconsistent with Dr. Shapiro’s position that his research with the U of A was confidential. However, Dr. Shapiro indicated on his cross-examination at page 76 that he “did not reveal confidential information regarding details of the patent application relating to the device-less approach” and he “didn’t share” details… and also indicated the following at page 60:

I told him [Dr. Toleikis] in principal in 2010 about work that we had ongoing and were—had previously worked on at the University.

I didn’t share confidential data sets. I didn’t share any primary data regarding that work. And I wasn’t at liberty and still not at liberty to do so because that work belongs to the University of Alberta and not to myself personally or to the Shapiro PC.

He also noted the following at page 70:

All the conversations I had with Dr. Toleikis provided generalizations relating to the device-less work but didn’t reveal confidential information from the University of Alberta.

For example, we have a clear description of the principals of the device-less work without containing any specifics or know how in a paper we published in the Journal of Clinical and Developmental Immunology in 2013 of which he saw a draft.

And I take issue with your proposal that I have breached University confidentiality by mentioning the device-less work. It was in the public domain, has been be [sic] in the public domain, not the specifics, not the experimentation not the evidence that it worked. I never provided that to him. I never released confidential information [to] Dr. Toleikis relating to that work.

He was aware in principal but not specifics. I didn’t demonstrate to him exactly how many mice were in reverse diabetes with that approach, that the—mass islet transplants worked.

I didn’t release to him what is now in the public domain that we can transplant islets and have them functioning long term beyond 500 days in that device-less site.

I didn’t release to him confidential information that demonstrated that we can get stem cells to graft in that site very successfully.

So he was aware in generalizations about that work, but he wasn’t aware of the specifics of the experimentation, nor of the confidential information retained at the University.

[108] I am satisfied that disclosure of a concept in principal to Dr. Toleikis as described by Dr. Shapiro was not inconsistent with his confidentiality obligations to the U of A.

[109] I note that the Applicant raises the issue of the inadmissibility of parol evidence in interpreting the Consulting Agreement. However, an explanation from Dr. Shapiro as to why he completed Exhibit C as he did is not evidence that is adding to, subtracting from, varying or contradicting this written contract (see Latner Estate v. Latner, 2016 ONSC 364 at para. 30 citing Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 where the inadmissibility of parol evidence in contract interpretation is discussed). This explanation also does not offend the terms of the entire agreement clause in the Consulting Agreement.

[110] I note also that the Respondents raise a limitation period defence asserting that the parol evidence establishes that at least by the dinner conversation in November 2014, Dr. Toleikis was aware of the Respondents’ patent application and he therefore brought this application outside the two year limitation period.

[111] Dr. Toleikis deposed in his affidavit sworn September 18, 2017 that when cross-examined he had not recalled the e-mail he had sent to Dr. Shapiro following their November 2014 dinner. After being shown that e-mail, his memory was refreshed and, as set out in para. 21 of his September 18, 2017 affidavit, he requested a copy of the patent application so that he could “evaluate what exactly Dr. Shapiro was developing”. He reiterated at para. 23 that he “did not become aware of the true nature of Dr. Shapiro’s work and its relationship to the CPS until he read” the 2015 article co-authored by Dr. Shapiro that I referred to earlier.

[112] I have concluded that I am able to deal with the issues raised on this application as I will discuss below. Therefore, I have only noted the competing arguments in relation to the limitation defence without analyzing and resolving that issue.

(c) The Description of the DLI as “Device-Less”

[113] The Applicant contends that the only logical inference to be drawn from the description of the DLI as “device-less” is that it is being so described in comparison to the CPS. Therefore, the DLI or the device-less approach, was created after, and not before, the CPS.

[114] However, in the passage of his cross-examination I previously set out and included as follows, Dr. Shapiro explained that he did not describe his work originally as the device-less approach (page 58 of his cross-examination):

He [Dr. Toleikis] was aware from our very first meeting when I met him in 2010 that I had worked and had a continued interest in my laboratory at the University of Alberta on the device-less approach.

We didn’t call it the device-less at that time, but he was aware that we were—had tested out in mice this procedure of replacing different kinds of tubes under the skin to induce new blood vessel formation with the purpose of including islet engraftment.

[115] I accept Dr. Shapiro’s explanation that he did not originally describe the DLI as device-less after he had his Eureka moment in 2002 and find that describing it as device-less does not suggest, as the Applicant contends, that the DLI was invented during the Consulting Agreement with the benefit of the Applicant’s Proprietary Information.

(d) The Lack of Research or Other Activity in Relation to the DLI after Dr. Shapiro’s “Eureka moment” in 2002

[116] The Applicant asserts that Dr. Shapiro’s “Eureka moment” in 2002 is an embellishment after the fact because he did not follow up or take any action until four years later in 2006.

[117] On his cross-examination, Dr. Toleikis was asked if Dr. Shapiro used the Applicant’s technology in relation to the DLI:

Q. Did he use your technology when he conceived of the device-less invention?

A. Did he use our technology?

Q. Yes.

A. He had all of the confidential information around our approach and our Cell Pouch Technology and the clinical data and based on all of that information. That’s the information he had.

Q. When did he conceive of it, though?

A. I don’t know when he specifically conceived it, I only know when the patent application was filed, that’s the fact…

Q. Right.

A. …right? So…

Q. So, you don’t…

A. However…

Q. Hang on for a second.

A. …in the consulting agreement, he said he had no inventions prior to the consulting…at the time of the consulting agreement with respect to this type of technology, so that’s my understanding. So, it occurred between then and the time that he filed his patent application.

[118] As the Respondents point out, Dr. Toleikis could not articulate what Proprietary Information was used by Dr. Shapiro in violation of the Consulting Agreement. As I previously noted, the Applicant significantly emphasized Dr. Shapiro’s statements in his interview. As Dr. Toleikis deposed in para. 19 of his August 22, 2017 affidavit filed in support of the application, “in summary, U of A and Dr. Shapiro have claimed ownership in an approach that Dr. Shapiro himself has described as a ‘further modification’ of Sernova’s technology. This further modification was developed while the Consulting Agreement was in force”.

[119] The Applicant argues that Dr. Shapiro saw something in the Applicant’s CPS that brought him back to the device-less concept and an idea that might work—all of which belongs to the Applicant. As set out in para. 89 of the Applicant’s factum, it is submitted that when called upon in this application to justify the appropriation of the modification of the Cell Pouch, Dr. Shapiro exhumed something like it from the “limbo of forgotten things” (see Lovell Manufacturing Co. v. Beatty Bros. Ltd. (1962), 1962 CanLII 967 (CA EXC), 41 C.P.R. 18 at 48 (Ex. Ct.) citing Pirrie v. York Street Flax Spinning Co. (1894), 11 R.P.C. 429 at 445 (Irl. C.A.)).

[120] However, Dr. Shapiro expanded on his “Eureka moment” during his cross-examination and was clear that his 2002 idea required a considerable amount of thought, and he noted the following at page 11:

Just putting sponges in the abdominal cavity, taking them out, and putting islets in the same place wasn’t going to be the final solution, but it demonstrated to me that we could potentially harness nature’s capacity for forming new blood vessels in some way.

[121] I am satisfied that the fact that Dr. Shapiro’s “initial idea, for harnessing the body’s natural response to forming new blood vessels in 2002” was not carried out until 2006 does not diminish the credibility of his assertion respecting his Eureka moment. I accept his explanation for why research was not conducted until 2006—the need for a suitable resident or fellow or Ph.D. student to work on such a project. As he explained at page 12

It wouldn’t be uncommon for me to have research ideas and not implement them into practice until I found a suitable resident or fellow or Ph.D. student to work with to initiate those.

And in this particular case Dr. Shaheed Merani who was a medical student who approached me and wished to be part of the MD-Ph.D. program at the University of Alberta, one of the first to do both of those degrees concurrently, and amongst many projects that I gave him included this idea of exploring neovascularization to try to make sites in the body that were currently unfavourable for engraftment and survival of islet cells to make them more favourable by using this approach.

(e) The Respondents’ Failure to Produce the Report of Invention for the DLI and the Original 2006 lab book

[122] The Applicant asserts that because the original lab book was not produced it should be inferred that the lab book is irrelevant to the DLI or that this record would demonstrate that the work done in 2006 at the U of A is irrelevant. With respect to this point, I note that a full copy of the original lab book was produced on Dr. Shapiro’s cross-examination and I am not prepared to draw the adverse inference proposed by the Applicant.

[123] The copies of the lab book provided to counsel prior to Dr. Shapiro’s cross-examination (as exhibits to Dr. Shapiro’s affidavit) appeared to be copies from a binder as Dr. Shapiro acknowledged. On cross-examination at page 30, Dr. Shapiro also acknowledged he did not know where the three-hole punched pages of the lab notebook came from. However, that evidence does not lead me to the conclusion that Dr. Shapiro was “misleading” as the Applicant suggested in argument. As I noted the original lab book was available at Dr. Shapiro’s cross-examination. In addition, Respondents’ counsel advised on the record at the cross-examination (page 29) that the exhibit provided that morning “was photocopied from the lab notebook itself”.

[124] I observe also that there is nothing untoward or suspicious about the fact that Dr. Shapiro produced the lab records in his response to the application as was made clear in the following exchange on his cross-examination at page 36:

Q. How was your attention drawn to this particular notebook when the litigation arose? How did this particular lab notebook come back to your mind?

A. I asked Reena Pollock who is our chief technician in the islet lab whether she could provide the research notebooks and the photomicrographs that were shared with me at the time of those studies so that we could pass them on to those asking for them. I don’t personally keep lab notebooks, and I don’t keep a record of those notebooks. Rena [sic] Pollock in the lab is responsible for those. And you are taking me to pages now in this notebook now [sic] which I have not scrutinized previously.

[125] The U of A has a published policy for the “Commercialization of Patentable Intellectual Property Procedure”, which requires each inventor to complete and submit a Report of Invention. Amongst other things this report requires a description of the invention; whether it is a new process or a new use for or an improvement to an existing product or process; the identification and expansion on the novel and advantageous features of the technology and how it differs from existing technology; the laboratory records; the public disclosure of the invention either by papers, abstracts, oral presentations or discussions outside the U of A; and the listing of any key competing research groups currently engaged in research and development in the area.

[126] The Applicant submits that adverse inferences should be drawn from the Respondents’ failure to provide the “Report of Invention” including inferences that the DLI was developed during the term of the Consulting Agreement and that the description of the DLI in Report of Invention would demonstrate that it was made in the course of services to the Applicant and that it related to the Applicant’s patents for the CPS.

[127] The Record of Invention was not produced because the Respondents claimed privilege over that document asserting it as a document created for the purposes of obtaining legal advice.

[128] The validity of that claim for privilege was not the subject of significant argument. I cannot find that the adverse inferences proposed by the Applicant should be drawn in these circumstances.

[129] I also am not prepared to conclude, as the Applicant argues, that the deficiencies in production by the Respondents should be fatal to their assertion as to when the invention was made.

[130] Having reached the foregoing conclusions, I turn now to address the question of whether Dr. Shapiro invented the DLI prior to the time Shapiro PC entered into the Consulting Agreement.

(iii) The Assessment of Dr. Shapiro’s Evidence that the DLI was Invented Prior to Dr. Shapiro’s Involvement with the Applicant

[131] The Applicant asserts that Dr. Shapiro’s alleged Eureka moment in 2002 and the lab work done in 2006 are irrelevant. In particular, the Applicant argues that the work done in 2006 had no effectiveness and was not inventive. As a result, according to the Applicant there is no evidence that the Respondents had invented the device-less approach prior to the execution of the Consulting Agreement and the DLI is Company Work Product.

[132] While I will be focusing on the accuracy and reliability of Dr. Shapiro’s evidence in relation to this issue, I will briefly make note that in certain respects there are concerns with the accuracy and reliability of Dr. Toleikis’ evidence. For example, Dr. Toleikis did not terminate the Consulting Agreement after he had become concerned about Dr. Shapiro and the U of A “asserting ownership of the intellectual property in what he had developed during the course of the Consulting Agreement”. Instead it was Dr. Shapiro who terminated the Consulting Agreement a number of months later.

[133] Also, Dr. Toleikis minimized the extent of the value of Dr. Shapiro’s consulting services in his August 22, 2017 affidavit and on his cross-examination on that affidavit, while in his second affidavit he deposed in para. 19 that he didn’t deny that “Dr. Shapiro was involved in investor relations”, that “involvement was welcome”, and that it “would not have merited the amounts” the Applicant paid to Shapiro PC. I note again that it was Dr. Shapiro who terminated the Consulting Agreement. In fact, Dr. Toleikis on the cross-examination on his affidavit sworn August 22, 2017 stated in response to Question 756, that he had not have a reason to terminate the Consulting Agreement.

[134] On Dr. Shapiro’s cross-examination on his affidavit, he outlined at page 6 that the Consulting Agreement was

set up for the purposes of me being reimbursed to assist [Dr. Toleikis] in preparing documentation for Health Canada, and to generally help [the Applicant] raise funds and use me and my name for the purposes of assisting that company. The idea that I was helping him was essentially limited to that and was not related to any science, specifically developmental science

[135] In his affidavit sworn in response to the application, Dr. Shapiro described his work under the CTA, the preparation by him and his team of a manuscript of the results of the clinical trial, the email exchanges with Dr. Toleikis over an approximately two-year period seeking his comment on the proposed manuscript, and the Applicant’s eventual May 12, 2016 correspondence to the proposed publisher of the manuscript denying its consent to the publication. As the Respondents note, this correspondence from the Applicant, confirmed by correspondence from its counsel, makes no reference to the Consulting Agreement and references only the CTA.

[136] Ultimately, Dr. Shapiro and his research team published a different article titled “Subcutaneous clinical islet transplantation in a prevascularized subcutaneous pouch—preliminary experience” in the publication CellR4. The abstract of the article indicated it was a report on “a first-in-human trial with a newly developed pre-vascularized subcutaneously placed pouch as an innovative approach for human islet implantation”. The article reports on less than positive results from the clinical trials relating to the CPS. The abstract concluded with the statement that the trials “suggested early functional engraftment failure in all cases”.

[137] The Respondents raised other issues relevant to an assessment of Dr. Toleikis’ evidence (the accuracy of representations respecting pig data and efforts to delay publication of a thesis by a member of Dr. Shapiro’s research team); however, as I have already noted, a determination of the issues on this application require a focus on the evidence of Dr. Shapiro.

[138] I will begin by outlining the abstract of the Respondents’ patent application, which is written as follows:

A method of preparing a transplant site for cellular transplantation in a mammal includes the steps of inserting a foreign body comprising a biomaterial into an internal tissue; and removing the foreign body after the tissue surrounding the foreign body has undergone an inflammatory response but before significant fibrous encapsulation has occurred, leaving a neovascularized lumen suitable to receive transplanted cells or islets.

And I note the following claims in the patent applications filed by the Respondents as set out in para. 1 of the patent application under the heading “What is Claimed”:

1. A method of preparing a transplant site for cellular transplantation in a mammal, comprising the steps of:

(a) inserting a foreign body comprising a biomaterial into an internal tissue; and

(b) removing the foreign body after the tissue surrounding the foreign body has undergone an inflammatory response but before significant fibrous encapsulation has occurred, leaving a neovascularized lumen suitable to receive transplanted cells or islets.

[139] In my view, the claim in the Respondents’ patent application is distinct from what is claimed in para. 1 of the Applicant’s patent in relation to the CPS, which states the following:

1. A device for implanting cells in a host body, comprising:

a porous scaffold comprising at least one chamber having a proximal end and a distal end, the porous scaffold having pores sized to facilitate growth of vascular and connective tissues into the [sic] at least one chamber; and

at least one removable plug configured to be positioned within the [sic] at least one chamber, or at least a part of the porous scaffold that is coated with a material that temporarily fills the pores of the scaffold;

wherein the porous scaffold comprises a polypropylene mesh.

[140] As Dr. Toleikis described in para. 2 of his affidavit sworn August 22, 2017 “the Cell Pouch System includes the Cell Pouch itself and other related technologies. The Cell Pouch is an implantable medical device into which therapeutic cells can be transplanted”.

[141] On the other hand, Dr. Shapiro described the DLI on his cross-examination at page 79 as follows:

Q. Now, you’re calling the approach that you take the device-less approach, correct?

A. Correct.

Q. But you do use a device. You implant the catheter under the skin, and you leave it in place for a period of time and then withdraw it.

A. If we call a catheter a device. I don’t really regard that as being implanted device. I can see why you might argue it is. We are leaving a plastic catheter under the skin. We leave it for a period of time. We remove it. Nothing permanent remains under the skin. There’s no device that remains permanently engrafted under the skin such as what would occur with a cell pouch. It is quite different.

[142] It seems to me that the DLS is not a modification of the CPS as the Applicant asserts. As the Respondents assert, the inventive concept is illustrated by the claims of the patent. The goal for the CPS and the DLI is the same but they represent a different and separate way of accomplishing that goal.

[143] As Dr. Shapiro explained at pages 66–67 of his cross-examination, the Applicant’s approach was “to test a proprietary device called the cell pouch” and there are “numerous different approaches that are used that have been used [sic] experimentally to improve engraftment in placing devices under the skin”.

[144] Dr. Shapiro further explained at page 68 that the goal “is to try to improve cellular therapy for patients and improve the safety for patients with Type 1 Diabetes” and the “fact that there are multiple parallel approaches” is a “good thing” and “improves the chances of one of those or more than one of them being successful”.

[145] In any event, what the parties focused on during their arguments is the timing of the invention of the DLI. Was it invented prior to 2010, which is when Dr. Shapiro first became involved with the Applicant?

[146] As noted above, the Applicant submits that there is no evidence that the Respondents invented the DLI before the Consulting Agreement was signed. The Applicant asserts that the Respondents have not demonstrated that there was any utility to the DLI in 2006–2007 and the DLI is a modification or an improvement of the CPS, which Dr. Shapiro was able to implement as a result of, and during the duration of, the Consulting Agreement.

[147] On the other hand, the Respondents submit that Dr. Shapiro had invented the DLI by January 2007 and perhaps as early as September 2006.

[148] The cases relied on by the parties, which I will next describe, provide helpful guidance on how to determine when an invention is made.

[149] In Apotex Inc. v. Wellcome Foundation Ltd., 2002 SCC 77, [2002] 4 S.C.R 153 (“AZT”) a generic drug company challenged the validity of another drug company’s patent on the basis that the necessary utility had not been established as of the priority date of the patent. The Supreme Court held at para. 46 citing s. 40 of the Patent Act, R.S.C., 1985, c. P-4 that “utility” is an essential part of the statutory definition of an “invention”. For example, unless an inventor is in a position to establish utility as of the time the patent is applied for, on the basis of either demonstration or “sound prediction”, the patent must be refused. In other words, in order to demonstrate that an invention was made, the inventing party must be able to demonstrate that at the time there was utility in the invention or be able to make a “sound prediction” that the invention would have some utility. As described by the Supreme Court at para. 70 of AZT, the doctrine of sound prediction has the following three components:

1. there must be a factual basis for the prediction;

2. the inventor must have at the date of the patent application an articulable and “sound” line of reasoning from which the desired result can be inferred from the factual basis; and

3. there must be proper disclosure.

[150] In AstraZeneca Canada Inc. v. Apotex Inc., 2017 SCC 36, a drug company brought an action against a generic drug company for patent infringement and the generic drug company counter-claimed to have the patent impeached. The Supreme Court assessed the validity of the patent and laid out the following principles at paras. 54–56;

To determine whether a patent discloses an invention with sufficient utility under s. 2 [of the Patent Act], courts should undertake the following analysis. First, courts must identify the subject-matter of the invention as claimed in the patent. Second, courts must ask whether that subject-matter is useful—is it capable of a practical purpose (i.e. an actual result)?

The Act does not prescribe the degree or quantum of usefulness required, or that every potential use be realized—a scintilla of utility will do. A single use related to the nature of the subject-matter is sufficient, and the utility must be established by either demonstration or sound prediction as of the filing date (AZT at para. 56).

The utility requirement serves a clear purpose. To avoid granting patents prematurely, and thereby limiting potentially useful research and development by others, the case law has imposed a requirement that an invention’s usefulness be demonstrated or soundly predicted at the time of application, rather than at some later point. This ensures patents are not granted where the use of the invention is speculative. …

[151] In AstraZeneca Canada Inc. and Apotex Inc. v. Sanofi-Synthelabo Canada Inc., 2008 SCC 61, the Supreme Court was clear that “a scintilla of utility” is sufficient to satisfy the usefulness requirement of an invention.

[152] I agree with the Respondents that Dr. Shapiro’s evidence that successful experiments were performed on the DLI in 2006–2007 is corroborated by a photograph attached as an exhibit to his affidavit filed in response to the application. The photograph of a mouse that had been “implanted” on September 8, 2006 was taken September 11, 2006 and as Dr. Shapiro explained on page 34 of his cross-examination:

This photograph shows spectacular neovascularization, new blood vessels, rich blood vessels, around the T-tube. And it was this finding that really secured in my mind that the device-less concept was one in which we could really capitalize on to make islet transplant engraftment successful in the site other than the kidney capsule in mice or potentially the liver in patients. This picture was absolutely remarkable.

So day three photograph showing blood vessels that were not there before all around the T-tube site in a very rich fine vascular network, one of which we felt we could capitalize on to advance the device-less concept. This was a big success to my mind.

[153] Dr. Shapiro’s evidence is also corroborated by a copy of the ethics approvals for animal use protocol for the period June 1, 2007 to May 31, 2008 issued by the U of A. As Dr. Shapiro explained at page 14 of his cross-examination, they “reflect clearly that we were carrying out experimental work with neovascularization and developing the device-less model and testing it, reducing it to practice, in the small animal models”.

[154] Dr. Shapiro’s evidence is further corroborated by the U of A’s annual report for ongoing projects for the use of animals in research, dated April 3, 2007, which describes the successful results of Dr. Shapiro’s work as follows:

We believe that improving the site of islet transplantation could optimize clinical islet transplantation. Currently, the Edmonton Protocol calls for transplantation of islets in the liver through the portal vein. In rodent models, we transplant islets in the liver (via the portal vein) or under the kidney capsule. Both methods require abdominal surgery. In order to promote islet survival and create a more suitable environment for islet transplantation, we have implanted natural rubber surgical tubing either within an omental-pancreatic pouch or under the skin in order to promote the formation of new blood vessels and on the whole a more islet friendly environment. Our preliminary findings suggest that new blood vessels can form at both sites within 10 days. When islets were transplanted into these newly formed spaces, only the omental-pancreatic site has proved to sustain islet function (indicated by animals returning to normal blood glucose levels). We are proceeding with different drug treatments in conjunction with the rubber tube implantation to further promote islet survival after transplant.

[155] I conclude that as of 2006–2007, the DLI demonstrated utility.

[156] I take note of the Applicant’s claim that there was no demonstrated ability of the DLI to reverse diabetes in the time period leading up to Shapiro PC’s involvement with Sernova. The Applicant refers to the results in the “reversal of diabetes” column for the “T-tube rubber” in Table 1 of the Respondents’ patent application under the heading “Cellular Transplant Site”. This column notes a 0% reversal of diabetes for the T-Tube rubber.

[157] However, I note that the purpose of the DLI is not specifically to reverse diabetes and it was only claimed that it “may” lead to reversal of diabetes. The DLI’s claim, as set out in the patent application, is to insert a foreign body and then remove “the foreign body after the tissue surrounding the foreign body has undergone an inflammatory response … leaving a neo-vascularized lumen suitable to received transplanted cells or islets”. The patent application notes that this cavity can be used to accept transplanted cells to treat a number of diseases, one of which is diabetes. At para 9 of the patent application for the DLI under the heading “Cellular Transplant Site”, the following is written:

This transplant technique may permit the reversal of diabetes by placing insulin-producing islets or stem cells under the skin without need for a permanent device, matrix, or exogenous growth factors.

Multiple other uses were suggested in the patent application. For example, paras. 2 and 44 of the patent application, again under the heading “Cellular Transplant Site”, note that the DLI has the potential to be used for ischemic injury, Parkinson’s, congenital hepatic defect, hemophilia, and hypothyroidism. Chemotherapy and optogenetics uses are also mentioned at paras. 42 and 43. The patent application also said the following at para. 45:

The scope of the claims should not be limited by specific embodiments set forth in the description or the examples, but should be given the broadest interpretation consistent with the description as a whole.

Therefore, while the potential to reverse diabetes is mentioned, that is only one of its possible uses.

[158] Under the Supreme Court’s ruling on utility and the requirement of a clear purpose, the Respondents do not have to show that the DLI was capable of being used to reverse diabetes, but rather could show that the DLI was capable of forming a cavity that therapeutic cells (which could potentially treat multiple diseases) could be placed in. Therefore, based on the Respondents’ evidence about the growth of tissue around the DLI in 2006–2007, the DLI did have utility in 2006–2007. The DLI was able to create a cavity surrounded by tissue suitable to receive transplanted cells which was “a more islet friendly environment” as claimed.

Conclusion

[159] In my opinion, the DLI had utility prior to Dr. Shapiro’s involvement with the Applicant and the Applicant’s claim must fail. The DLI was independently developed by Shapiro PC without reference to any of the Applicant’s Proprietary Information. The DLI is not Company Work Product. In order to be Company Work Product under the Consulting Agreement, the DLI must have been “solely or jointly conceived, made, reduced to practice, or learned by [Shapiro PC] in the course of any services performed for the [the Applicant]”. Since the DLI was invented prior to the implementation of the Consulting Agreement, the DLI cannot have been “conceived, made, reduced to practice, or learned by [Shapiro PC] in the course of any services performed for the [the Applicant].”

[160] If necessary, counsel may make brief written submissions on costs within 45 days.

“Justice L. C. Leitch”

Justice L.C. Leitch

Released: March 6, 2018