Friday, August 26, 2016

Jurisdiction of the Federal Court and IP Related Contracts

SALT Canada Inc v Baker 2016 FC 830 Boswell J
            2,222,058

Section 52 of the Act gives the Federal Court “jurisdiction. . . to order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged.” SALT Canada brought an application for a declaration under s 52 that the register be varied to list SALT as the owner of the ‘058 patent. Boswell J dismissed the application for lack of jurisdiction. In so doing Boswell J reviewed a number of cases and provided a helpful and clear statement of the law related to the jurisdiction of the FC under s 52. However, he did not discuss Kellogg Co v Kellogg [1941] SCR 242, presumably because it was not cited to him. This omission is unfortunate, as that case might be taken to suggest a different result, and it would have been interesting to see how it would have affected his reasoning. Boswell J also emphasized the need for the court which does have jurisdiction hear the dispute to take into account s 51 of the Act, which establishes a priority scheme for patent title based on registration. But that same point, looked at from the other direction, suggests that the FC might have jurisdiction to begin with. So, while Boswell J’s holding initially appears to be a straightforward application of existing law, a closer look suggests there may be a reasonable argument for a broader interpretation of the Court’s jurisdiction.

The case involved two conflicting assignments of rights in the ‘058 patent from the inventor, Dr Markels. The first was a complex series of assignments which ultimately led to the Respondent, Baker. Baker registered his ownership with the Patent Office. Some of the assignments in this series included provisions requiring the ‘058 patent to be reassigned to Markels if certain conditions were breached. Apparently believing that the conditions had indeed been breached, in 2015 Markels assigned title to the Applicant, SALT. Markels also prepared a reassignment from Baker to Markels, which was, however, never executed by Baker. SALT sought to have its ownership registered, but the Patent Office refused on the basis that the assignment was not executed by Baker, the registered owner [3]-[9].

SALT then brought this application for a declaration under s 52 that the register be varied to list SALT as the owner of the ‘058 patent (as well as other additional and alternative relief). A key substantive question related to the interpretation of the various agreements, and whether the conditions in the first series of assignments had been breached, such that Markels was entitled to a reassignment [24].

Bowwell J held the mere fact that the ultimate relief sought was an amendment to the records of the Patent Office did not mean the FC had jurisdiction [24]. He distinguished between two categories. “The first concerns applications to vary an entry in the patent register because of an error or in light of some other technical reason that prevents the Patent Office from doing so without an order from the Court,” such as cases where one inventor has inadvertently not been listed. The FC has jurisdiction in such cases [19]. The second type of case relates to “contested proceedings where the Court is asked to determine the proper owner of a particular patent. . . . where determination of the ownership of a patent depends upon the application and interpretation of contract law principles.” In such cases, the FC lacks jurisdiction [20]. In sum, the question is whether the matter at hand “relates primarily to contract or to patent law: this Court will have jurisdiction over a case that primarily concerns the latter, but not the former” [21].

In some cases it may be difficult to draw the line between these categories, and Boswell J stated that the jurisdiction conferred by s 52 is not confined to administrative rectification of the register, and in some cases where all relevant evidence is on the record and all parties are joined, the FC may have jurisdiction even where the matter is disputed [22]. However, it does seem that such cases will be limited. In any event, this particular case was not close to the line, and Boswell J dismissed the application on the basis that the FC lacks jurisdiction to determine the parties' rights to the patent pursuant to the relevant agreements [34]. This means it will be necessary for SALT to obtain a decision from a court with jurisdiction over the contractual dispute. (It appears that if and when a favourable decision is obtained, a subsequent s 52 application will not be required, as the Commissioner will change the register when served with a declaration of a court as to ownership: Axia v Northstar Tool Corp, 2005 FC 573, [25].)

In my view, the distinction drawn by Boswell J accurately reflects the cases cited, as does his summary statement of the law. However, Kellogg Co v Kellogg [1941] SCR 242 may suggest a different conclusion.

Section 52 itself does not compel the conclusion regarding jurisdiction. On the contrary, as Bowell J acknowledged, s 52 is sufficiently open-ended that it could be interpreted as giving the FC jurisdiction even in this type of case [24]. The reason the FC does not have jurisdiction turns primarily on a point of policy, namely that the interpretation of the agreements is a matter of contract law [24]. As the SCC stated in ITO-Int'l Terminal Operators v. Miida Electronics [1986] 1 SCR 752, 766, in addition to a statutory grant of jurisdiction, a second requirement to support a finding of jurisdiction in the Federal Court is that

There must be an existing body of federal law which is essential to the disposition of the case and which nourishes the statutory grant of jurisdiction.

In a case “purely and simply concerning a contract between subject and subject,” the FC would have no jurisdiction: Kellogg Co v Kellogg [1941] SCR 242, 249. But there is a question of exactly how much nourishment the body of federal law has to supply. Kellogg was a conflict proceeding in which the main question was which of the two parties was the true inventor. But Kellogg Co had also pleaded in paragraph 8 of its statement of claim that even if Kellogg was the true inventor, Kellogg was an employee of Kellogg Co and had made the invention in the course of his employment, and therefore Kellogg Co was the owner of the invention. The Exchequer Court had ordered paragraph 8 to be struck on the basis that it concerned a matter of contract between subject and subject. The SCC reversed, on the basis that the primary issue in the case was who was first to invent. This emphasizes the point that for the FC to have jurisdiction, it is not necessary for the issue to be primarily one of patent law, so long as the case is primarily one of patent law. This much is consistent with Boswell J’s summary of the law at [21], as well as with his holding on the facts.

But the SCC went on (at 250) to note a “further reason” why the Exchequer Court should take jurisdiction, namely that s 22(c) of the Exchequer Court Act, gave the court jurisdiction “in all other cases in which a remedy is sought under the authority of any Act of the Parliament of Canada or at Common Law or in Equity, respecting any patent of invention.” This is substantively identical to the current s 20(2) of the Federal Courts Act, giving the FC concurrent jurisdiction “in all cases [in which it does not have exclusive jurisdiction], in which a remedy is sought under the authority of an Act of Parliament or at law or in equity respecting any patent of invention.” The SCC stated that

The remedy sought by the appellant, as a result of paragraph 8 of its statement of claim, is evidently a remedy in Equity respecting a patent of invention. The appellant claims that remedy as a consequence of the facts alleged in its paragraph 8. It claims the remedy as owner deriving its title from the same alleged inventor of whom the respondent claims to be the assignee, through other assignors. In such a case, the invention or the right to the patent for the invention is primarily the subject-matter of the appellant's claim, and the remedy sought for is clearly "respecting any patent of invention." And this is covered by subsection (c) of section 22 of the Exchequer Court Act, as it stands at present.

I must say that this logic seems to me to be equally applicable to the case at hand. It is true that the cases are substantively distinguishable because the question of whether Kellogg invented the invention in the course of his employment was undoubtedly intimately connected with the question of who exactly was the inventor. But that was the first (and primary) ground for the SCC’s decision, and seems to play no part in the Court’s reasoning on this second rationale.

I am certainly very sympathetic to the rationale provided by Boswell J and in the cases he cited dealing with s 52. If a contract provides, for example, that it is to be governed by the laws of Ontario, it makes more sense as a matter of relative expertise to have that contract interpreted by the Ontario superior courts rather than the Federal Court, just as it makes more sense to have substantive patent issues determined by the Federal Court rather than the provincial superior courts.

On the other hand, a pure division of responsibility according to relative expertise will often not be possible. In this case, one of the agreements in question states that it is made subject to the laws of South Carolina, another is subject to the laws of Georgia, and a third to the laws of Ontario [29]. Whichever court hears the case will have to apply the contract law of some other jurisdiction.

Further, as Boswell J emphasized, statutory rights in Canadian patents are governed by the Canadian Patent Act, no matter which court hears the dispute. Regardless of what law is applicable to the assignment, it cannot take place except in accordance with the Act [30].

[31] Accordingly, nothing in the assignment agreements could have the effect of exempting them from the operation of section 51 of the Patent Act, which renders an unregistered assignment void against subsequent assignees.

[32] The ultimate outcome of this case will thus need to take the Patent Act into account notwithstanding whatever provincial or foreign law may be applicable to the assignment agreements at issue. This will be so regardless of the forum that ultimately adjudicates this dispute, be it a provincial superior court in Canada or the Superior Court of the State of Georgia. . . .

This is certainly true. But the point cuts both ways. Boswell J’s point is that s 51 must be taken into account because it is essential to the outcome of the case, and it is certainly federal law, so it seems to satisfy the second ITO criterion of “an existing body of federal law which is essential to the disposition of the case.” Perhaps this is enough to “nourish” the statutory grant of jurisdiction. Put another way, while contract law principles are certainly essential to the resolution of the dispute, so is federal patent law. It is difficult to say which is primary. The fact that Boswell had registered his assignment might even be determinative, depending on the details of the agreements. Thus, even under the first rationale of Kellogg Co v Kellogg, it is arguable that the FC has jurisdiction.

Boswell J relied on the FC decision in Lawther v 424470 BC Ltd. (1995), 60 CPR(3d) 510 (FCTD), which, in a passage quoted by Boswell J [20], cited Titan Linkabit Corp v SEE See Electronic Engineering Inc (1992), 44 CPR(3d) 469 (FCTD), for the proposition that the fact that an IP dispute includes contractual disagreements will not preclude the court’s jurisdiction, provided the action “primarily” concerns a patent, trade mark or copyright (emphasis in Titan Linkabit). That relates to the first rationale from Kellogg Co v Kellogg. It seems that the second rationale has largely disappeared from the case law. Whether this means it is no longer good law is a different question.

In summary, on the facts and on the recent case law dealing directly with s 52, SALT Canada Inc v Baker seems to be an easy case, in which, as Boswell J held, the Federal Court does not have jurisdiction because the case turns primarily contract law. On closer examination, the combination of Kellogg Co v Kellogg and s 51 of the Act make the question more difficult than it first appears.

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