Wednesday, July 27, 2011

Fraud on the Patent Office: Lessons Learned from the US Experience

Corlac Inc v Weatherford Canada Ltd 2011 FCA 228 Layden-Stevenson JA: Nadon, Evans JJA substantially affirming 2010 FC 602 Phelan J

As noted in yesterday’s post, in Corlac v Weatherford the Court of Appeal held that paragraph 73(1)(a) of the Act cannot be relied upon to attack the validity of a granted patent. Corlac is also an important decision on the doctrine of fraud on the patent office under subsection 53(1). The decision has a thorough treatment of materiality of false attribution of inventorship under this provision, and it will now be the leading case on this point. More broadly the decision of the FCA also signals a generally cautious approach to subsection 53(1).

The doctrine of material misrepresentation, or fraud on the patent office (see 2008 FC 142 at [62] noting that this provision “implicates the notion of fraud”) corresponds broadly to the US doctrine of inequitable conduct. The doctrine of inequitable conduct has recently been extremely controversial in the US. A lowered standard for materiality, combined with a remedy of invalidity – “the ‘atomic bomb’ of patent law” – turned the focus of litigation from the merits of the patent to the details of the prosecution process: see Therasense, Inc v Becton, Dickinson and Co (Fed Cir 2011) slip op at 21. Consequently, the Federal Circuit in Therasense has recently attempted to correct a doctrine that it acknowledged at 23 “has plagued not only the courts but also the entire patent system.” The FCA in Corlac is clearly concerned that Canadian law should not follow the US path. It quoted the “atomic bomb” reference [150], and while this was in the discussion of paragraph 73(1)(a), the criticisms of the inequitable conduct doctrine that were leveled by the Therasense court and echoed by the FCA in Corlac are directly relevant to subsection 53(1), as both apply to invalidate patents post-grant. The FCA also rejected reliance on American authorities, saying that “apart from highlighting the problems associated with and experienced by the courts in the United States as a result of an ever-expanding doctrine of inequitable conduct, the cases are of no assistance” [128]. The FCA at [120] expressly took into account the “draconian” nature of the remedy provided for in subsection 53(1) (namely invalidity of the patent) in assessing whether a willfully misleading statement had been made.

This general sense is reflected in specific holdings. It is evident that the restrictive reading of paragraph 73(1)(a), discussed yesterday, was influenced by the US experience. The same is true of the Court's interpretation of subsection 53(1), which provides:

A patent is void if any material allegation in the petition of the applicant in respect of the patent is untrue, or if the specification and drawings contain more or less than is necessary for obtaining the end for which they purport to be made, and the omission or addition is wilfully made for the purpose of misleading.

In a grammatically straightforward reading of the provision, the requirement that “the omission or addition is wilfully made for the purpose of misleading,” had been interpreted as applying only when the specification and drawings contain more or less than is necessary, so that there would be no additional requirement of wilfulness if a material allegation were untrue: Beloit Canada Ltée/Ltd v Valmet Oy (1984), 78 C.P.R. (2d) 1 (Fed. T.D.) at pages 28-29. However, in Apotex Inc v Wellcome Foundation Ltd / AZT, 2002 SCC 77 the Supreme Court indicated at [94], [109] that the requirement of wilfulness applies also to the untrue material allegation branch of the provision. Though these remarks were, strictly, obiter, this reading of the SCC decision was adopted in 671905 Alberta Inc v Q'Max Solutions Inc 2003 FCA 241 at [31]. At trial in Corlac Phelan J acknowledged the “debate” as to whether wilfulness is required, but stated at [331] that “[w]hile willfulness may add colour to the misstatement, as acknowledged by the Defendants, even an untrue statement made with something less than a purpose to mislead, will void a patent if it is material.” On appeal in Corlac the FCA clarified at [116] that the Q'Max interpretation is the law: “an untrue ‘material allegation’ that consists of a failure to name co-inventors in a petition for a patent will not render the patent void if the allegation was not ‘wilfully made for the purpose of misleading’.” This was expressly in the context of a failure to name co-inventors, but as a matter of grammar it is very difficult to see how this type of allegation could be treated differently from any other. Thus a patent will not be void simply because a material allegation is untrue; it must also be made for the purpose of misleading. (See also 2011 FC 174 at [196]) This in itself will substantially restrict the reach of the first branch of subsection 53(1) as compared with the previous interpretation.

On the wilfulness branch, Phelan J at trial had found that the inventor had deleted a co-inventor from the application in part because he perceived that the co-inventor “had ‘cut him out’ of other patents which he believed should be in their joint names” [335]. The FCA did not consider this sufficient to establish wilfulness. Phelan J’s subsequent conclusory statement at [351], that “the provision of [the applicant’s] affidavit claiming sole inventorship has already been held not to be a material misstatement nor a willful misleading,” undermined his earlier finding regarding intent, and because of the “draconian” nature of the remedy, the FCA was “loath” to conclude that a wilful misleading statement had been made, absent a clear analysis by the trial judge. While this is an appellate decision, the remedy is equally draconian at trial, and trial judges might be also be loath to conclude that there was wilful misleading in the absence of clear evidence on point.

On the materiality branch, the FCA noted that materiality under subsection 53(1) is “a fact-specific determination” [126] (and see [128]). Thus it rejected the argument that a misstatement as to inventorship is always material [115]. It also rejected, in principle, a rule that inventorship is never material. However, the clear trend of the case-law, as reviewed by the Court, has been that inventorship will rarely be considered material. The FCA reinforced this trend, both by upholding Phelan J’s decision that inventorship was not material on the facts, and more importantly for the development of the law, in rejecting the defendant’s policy arguments after deliberate consideration [124]-[125].

Thus the FCA has adopted a cautious approach to fraud on the patent office. This is of course not to say that there is no place at all for invalidating patents for fraud on the patent office: see Therasense at 15 - 19 describing the “egregious misconduct” in the early cases, including perjury and the manufacture of false evidence. But on the whole, in its treatment of both paragraph 73(1)(a) and subsection 53(1), the Court of Appeal has shown that it has been attentive to the American experience, and it intends to ensure that Canadian law does not travel down the same path.

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