Monday, February 29, 2016

EWCA Requires Apportionment in Accounting of Profits

See here for Professor Tom Cotter’s discussion of the recent EWCA decision on accounting of profits in Design & Display Ltd v Ooo Abbott & Anor [2016] EWCA Civ 95. I won’t be blogging on this aspect of the case myself. While it is good to see the EWCA recognizing the need for apportionment profits between patented and unpatented features of an infringing product, the English courts are still hampered by unfortunate legacy of United Horse-Shoe & Nail Co v John Stewart & Co. (1888), 5 RPC 260 (HL), and have not fully embraced the importance of non-infringing alternatives to an accounting of profits which was recognized by the SCC in Schmeiser 2004 SCC 34, [102]. Consequently, English analysis of apportionment remains unstructured, and their case law on this issue will remain of limited interest to Canadian law unless and until the English courts adopt the more rigorous and conceptually sound Canadian methodology.

The EWCA also discussed at some length the difficult question of whether to allow an infringer to deduct some part of its fixed costs (such as general overhead or rent) from the profits to be disgorged. That issue has also arisen in several Canadian cases, The EWCA discussion is interesting at first read, and Professor Cotter is of the view that the court “got this point right,” but I wonder if the analysis might be hampered by the fact that the court has not fully embraced the non-infringing alternative analysis. I will blog on this aspect of the case after I’ve had a chance to review it more carefully.

Friday, February 26, 2016

No Presumption Against an Accounting of Profits

Philip Morris Products S.A. v. Marlboro Canada Limited 2016 FCA 55 Trudel, Scott, Boivin JJA aff’g 2015 FC 364 de Montigny J

This issue in this decision is whether the trademark owners who had prevailed in their infringement action should be entitled to elect an accounting of profits. While it is a trademark case, it is directly relevant to the same question in the patent context, both as a matter of principle and because the parties and the courts considered the patent case law. As discussed here, de Montigny J’s decision was noteworthy for its extensive review of the factors to be considered in deciding whether to allow a successful party to elect an accounting. Since the decision to award an accounting is discretionary, the standard of review is deferential and the FCA has affirmed on the basis that the appellants had not demonstrated any error sufficient to warrant intervention [23]. With that said, the FCA’s comments were broadly approving of de Montigny J’s analysis.

The most general issue raised is whether there is a presumptive entitlement to an accounting. That is, will a successful IP owner normally be permitted to elect an accounting unless there is some reason why that remedy should be denied; or will an accounting be denied unless the plaintiff can show some positive reason why it should be granted? As discussed in my post on Phelan J’s decision in Varco v Pason 2013 FC 75, there had been something of a split in the FC cases on this point. This case is the first time the question has been directly raised in the Court of Appeal. Relying on Hughes J’s decision in Janssen [2006] FC 1234, which indicated that an accounting would presumptively be denied, “the appellants claim that the onus was on the respondents to show their entitlement to the accounting of profits by establishing a causal link between the damages suffered and the use of their property by the appellants” [15]. The FCA rejected this argument, on two grounds. First, “it is clear that a causal link has been established since this Court has determined that there was confusion and infringement, which is the source of the appellants’ unjust enrichment” [17]. I don’t want to parse this too finely, but this could be taken to indicate either that the causal link will be established in any IP case in which the plaintiff was successful; or at least any case in which the plaintiff suffered lost profits, though perhaps not in a case in which the plaintiff would only have been entitled to a reasonable royalty had it elected damages. Secondly, the FCA noted that “the statement in Janssen on which the appellants rely stands alone in the jurisprudence and is not supported by any prior case law” [18]. This is not quite the same thing as saying there is a presumptive entitlement to an accounting, but it does at least mean that there is no presumption against an accounting.

The appellants had also argued that de Montigny J had failed to consider the restitutionary purpose of an accounting. The FCA rejected this. The court noted that de Montigny J had clearly turned his mind to the restitutionary purpose [9], and moreover, the FCA indicated, correctly in my view, that Strother 2007 SCC 24 did not present a test requiring an accounting be granted solely for a restitutionary purpose [7]. Strother [75] noted that a disgorgement of profits “may be directed to either or both of two equitable purposes" (my emphasis), namely a prophylactic (deterrent) purpose or a restitutionary purpose, and as noted by Zinn J in Monsanto v Rivett, 2009 FC 317, [20] discussed here, “It is not necessary that both purposes be served in every case” [20]. I might add that in Strother the SCC gave the example of “wrongful exploitation by the defendant of the plaintiff’s intellectual property” [76] as a situation where the restitutionary rationale would be engaged, so a singular focus on restitution would not in any event militate against awarding an accounting to a successful IP owner.

The FCA also approved de Montigny J’s analysis of the question of the complexity of an accounting [14]. As discussed in my post on de Montigny J’s decision, this point is significant because the accounting remedy was rejected in US law because of the putative difficulty of carrying out an accounting, though this was at a time when the accounting remedy was not assessed on the same basis as it now is in Canadian law.

Tuesday, February 23, 2016

No New Cases for the Week of 15 February

No new patent / NOC / data protection cases were released for the week of 15 February 2016.

Friday, February 12, 2016

Failure to Pay the Large Entity Fee Does Not Invalidate a Granted Patent

Apotex Inc v Pfizer Inc 2016 FC 136 Diner J
            1,339,132 / latanoprost / XALATAN

Pharmacia Aktiebolag (Pfizer’s predecessor) paid a small-entity final fee prior to issuance of the 132 patent, when it should have paid the large entity fee [16]. Nor did it top-up the payment during the grace period provided by 78.6(1) [40]. This motion consequently addressed a single legal issue: does failure to pay the proper fee invalidate the granted patent? Diner J held that it does not.

The main authority relied on by Apotex to argue that the patent was invalid was Dutch Industries FCA 2003 FCA 121 var’g [2002] 1 FCR 325. Dutch Industries involved an application (904) and an issued patent (388) for which small entity fees had been paid, and the Commissioner had subsequently accepted large entity fees as a top-up after statutory deadlines had passed. The Federal Court held that the Commissioner did not have the authority to accept late payment and remanded to the Commissioner for redetermination on that basis, with the implication that the 904 application was abandoned and the 388 patent lapsed [FC 54]. The FCA affirmed that “the Commissioner lacks the authority to permit a deficient maintenance fee to be topped up after the date upon which the fee was due” [26] (though with some apparent criticism of the complexity of the regime and the harshness of the result [3]-[4]). However, the FCA held that the patentee was in fact a small entity at the time the patent was granted, and that status did not change, so the 388 patent was not invalid [47], though the 904 application was deemed to be abandoned because the patentee was a large entity while it was still pending [48]. Evidently as a response to Dutch Industries, 78.6(1) was enacted, providing for a grace period for top-up payments.

Pfizer relied primarily on Weatherford 2011 FCA 228, in which the court held that non-compliance with 73(1)(a) of the Act (requiring an applicant to reply in good faith to a requisition) cannot result in invalidation of a granted patent: “To be clear, the concept of abandonment in paragraph 73(1)(a) operates during the prosecution of the application for a patent. Its operation is extinguished once the patent issues” [150]. The FCA emphasized that “The jurisprudence distinguishes between an “application for a patent” and a “patent” and considers the issuance of the patent to be a demarcation point,” [145], and post-grant invalidation for misrepresentations is left to s 53(1) [149].

Diner J held that to the extent that there was any inconsistency between Weatherford and Dutch Industries, Weatherford was to be followed as clarifying the prior case law [66]. Moreover, Diner J recognized the force of the law and policy reflected in the Weatherford decision. In addition to relying on Weatherford itself, he reviewed the case law emphasizing the long-standing distinction between the application and post-grant status of patents [71], [77], [81]. As a matter of policy, Diner J emphasized the distinction between the substantive patent bargain – the patentee provides an invention which is in fact new, useful, inventive and properly disclosed in return for a limited period of exclusive rights [82] [86] – and administrative consdierations, aimed at the operation of CIPO and clearing the system of deadwood [83], [88]:

[87] Indeed, the non-compliance of a patent holder will either be rooted in administrative or substantive breaches of the statute. It is consequently the type of non-compliance that will ultimately determine whether the breach invalidates the patent: does the breach go to the substantive heart of the patent bargain, or rather administrative dealings with the Patent Office, such as fee for service payments? Breaches which go to the heart of the patent, namely those which require the inventor to pay the figurative hard coinage, can be fatal to issued patents. [original emphasis]

While Weatherford dealt with 73(1)(a), and the requirement to pay prescribed fees is found in 73(1)(f), Diner J noted that “[i]f one paragraph of a given section cannot invalidate an issued patent, the others cannot do so either, without some express direction otherwise” [74].

Diner J's reasoning strikes me as entirely persuasive, with a couple of caveats. 

One caveat is that the FCA in Weatherford distinguished Dutch Industries on the basis that “Canadian Patent Application No. 2,146,904 was deemed abandoned. No patent regarding that application had issued” [151]. While that is true, the FCA made no mention of the 388 patent; while that was granted, the FCA in Dutch Industries was clearly of the view that the same principle would have applied. It seems to me that there is actually a conflict between the two cases, even if Dutch Industries can be formally distinguished on the basis that no granted patent was held invalid. With that said, Weatherford is both more recent and substantively preferable, in my view, and in any event, regardless of how persuasive the distinction might be, it was the FCA's explanation of its own prior decision, and Diner J was certainly entitled to rely on it. An unpersuasive distinction is a way of over-ruling a prior decision sotto voce.

Another caveat is that there appears to be no sanction for failure to pay the top-up fees within the grace period. It might be suggested that in responding to Dutch Industries with the grace period in 78.6(1), the legislature was implicitly affirming that if the top-up payments were not made within that grace period the Dutch Industries rule would still apply. I don’t think this argument is strong enough to counter the Weatherford reasoning, but it does seem to me that the whole matter would be clarified if the act would provide an administrative penalty, such as triple fees, for an administrative failure. Any law that provides that provides a sanction that is disproportionate to the offence will make for an unsatisfactory jurisprudence.

Wednesday, February 10, 2016

Failure to Disclosure Status as Public Servant Not Material for Purposes of s 53

Brown v Canada 2016 FCA 37 Boivin JA: Webb, de Montigny JJA rev’g 2014 FC 831 Kane J

Mr Brown was a member of the Canadian Forces Supplementary Reserve when he filed his application for the 748 patent. The patent related to technology used for decontamination and containment of biological and chemical hazards, which has military applications [9]-[10]. After the firm started by Mr Brown failed to win a contract with Public Works to supply related technology, Mr Brown launched infringement proceedings against the Crown and the winning bidder. The Crown defended by bringing a motion for summary judgement on the basis that (a) Mr Brown was a “public servant” as defined by s 2 of the Public Servants Inventions Act, and as such he was required by s 4(1)(c) of that Act to disclose that he is a public servant in his patent application; and (b) Mr Brown’s failure to make such a disclosure was an untrue material allegation which invalidated the 748 patent pursuant to s 53 of the Patent Act. In the Federal Court, Kane J held that Mr Brown was a public servant, and that the failure to make that disclosure was an untrue material allegation, but whether it was wilfully made for the purpose of misleading was a matter for trial. On appeal, the FCA held that Mr Brown was indeed a public servant, but the failure to disclose was not material to the Patent Act.

On the first issue, the FCA held that “for the purpose of the PSIA, all members of the Canadian Forces are ‘public servants’ whether they are in the Regular Force or the Reserve Force” [27]. While the English version of s 2 is somewhat ambiguous, saying that a public servant means an employee “and includes” a member of the Canadian Forces, the French version of s 2 is perfectly clear that public servant means an employee and a member of the Forces [25].

On the second issue, the FCA held that there was an “apparent conflict and lack of consistency” between the forms and regulations under the PSIA and the Patent Act, in that the former require disclosure of the public servant status and the latter do not. The FCA concluded that the Patent Act prevails and hence there was no requirement on the Patent Act for the applicant to disclose their status a public servant [45]. Moreover, even apart from this inconsistency, a reading of the two Acts together supports the conclusion that Parliament did not intend that a patent could be void for a failure to disclose public servant status [46], as penalties for failure to make that disclosure are provided by s 4(1) of the PSIA [48]. This second point strikes me as entirely compelling. Indeed, the contrary conclusion would be perverse. The purpose of the PSIA is to vest in the Crown inventions that are made by public servants: s 3. If the position advanced by the Crown was correct, then any public servant inventor could unilaterally deprive the Crown of a valid patent to which the Crown was entitled by law, simply by failing to disclose their status as a public servant. Yes, the sanction of invalidity would provide an incentive to disclose, but not a very strong one, since the inventor would not be entitled to the invention either way: if the inventor didn’t disclose, the inventor would run the risk that the patent would be held invalid, and if the inventor did disclose, the inventor would run the risk that the patent would be vested in the Crown. And in any event, the sanction of invalidity puts the victim and the wrongdoer together in front of the firing squad. The offences of s 11 of the PSIA, which are target the public servant, are a far more sensible sanction. I can’t help but think that there was a failure of communication between the Crown’s litigation team and those responsible for longer term policy.

Friday, February 5, 2016

$2.9 Million Award Is 30% of Actual Legal Fees

Dow Chemical Co v NOVA Chemicals Corp 2016 FC 91 O'Keefe J here
            2,160,705 / film-grade polymers / ELITE SURPASS

I don’t normally blog on procedural issues, but I’ve made a partial exception for costs because of the interesting disparity between the Federal Court tariff and the actual costs of patent litigation. Awards for fees in the range of 10% of actual fees, which is not uncommon if the tariff is applied, are effectively a hybrid between the English rule (substantial costs in the cause) and the American rule (each party bears their own costs), which strikes me as the worst of both worlds: big enough to fight over (thus increasing costs), but not big enough to make any difference to litigation strategy. We have seen the courts gradually move from Column III of the tariff to Column IV or V in complex patent cases (see here for a review of the trends), but even that is often not enough to make a real difference: in this case fees assessed under Column V would amount to only 11% of actual legal fees. Even if “an award of costs represents a compromise between compensating a successful party and not unduly burdening an unsuccessful party” [10, quoting 2011 FC 1113 [11]], 11% is a distraction rather than a compromise.

O’Keefe J held that costs awarded pursuant to Column V of the tariff “would be totally inadequate as an amount of costs for the plaintiffs in this case. To only recoup 11% of your costs in such a complex case is not acceptable” [26]. Accordingly he exercised his discretion to depart from the tariff and award lump sum costs for legal fees in the amount of $2.9 million, which is
approximately 30% of the actual legal fees [29], for a total award, including disbursements, of $6.5 million [36].

It seems to me that this award of 30% of fees is entering the range where it is reasonable to view the award as actually being a compromise between the English and American rules. I don’t have an opinion as to whether such a compromise is better than the applying a pure version of either of the alternatives, but at least it is a substantive alternative, as opposed to the fee structure of the tariffs, which increasingly appears to reflect no principle other than historical accident. It will be very interesting to see what emerges from the discussion paper on costs that was issued by the Rules Committee.

Wednesday, February 3, 2016

Section 52 Allows Correction of Ownership

Gray Manufacturing Company, Inc. v. Canada (Attorney General) 2016 FC 55 Shore J

This was an uncontested application under s 52 of the Act, which gives the Federal Court broad jurisdiction to vary or expunge Patent Office records related to the title to the patent, to correct the ownership of the patent. The inventor had intended to assign his rights in the invention to Gray Automotive Products Co., but the assignment document (which was attached to the patent application) inadvertently specified Gray Automotive Products, Inc., and the Patent Office consequently registered it against that name [4]. The mistake was unintentional, made in good faith, and, was made without any attempt to mislead or cause delay [10]. Shore J held that the broad jurisdiction conferred by s 52 includes the power to vary errors relating to the ownership of a patent [9] and he ordered the appropriate correction.

For a slightly more extended discussion of s 52, see here.

Update: Here is an interesting note by Ken Bousfield describing Gray Manufacturing as symptomatic of a secular shift in CIPO's attitude towards clerical errors.