Monday, December 18, 2017

What is the Jurisdiction of the Federal Court under s 20(2) of the Federal Courts Act?

Alpha Marathon Technologies Inc v Dual Spiral Systems Inc 2017 FC 1119 Kane J

In Alpha Marathon the plaintiff claimed to be the co-inventor of an invention patented by the defendant in the US [4]. The plaintiff sought, in substance, a declaration that it was the entitled to the US patent rights: [4], [20]. Kane J granted the defendant’s motion to strike the statement of claim on the basis that the Federal Court lacks jurisdiction over the dispute [108]. In so doing, Kane J provided an extensive and helpful review of the law related to the jurisdiction of the Federal Court under s 20(2) of the Federal Courts Act. I agree with Kane J's conclusion that the FC lacks jurisdiction in this case, but I must admit that I remain puzzled as to the exact limits of the Court’s jurisdiction in such matters.

As Kane J noted [37], [52], the basic test for the jurisdiction of the Federal Court is set out in ITO-Int'l Terminal Operators v. Miida Electronics [1986] 1 SCR 752, 766:

1. There must be a statutory grant of jurisdiction by the federal Parliament.

2. 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.

3. The law on which the case is based must be "a law of Canada" as the phrase is used in s. 101 of the Constitution Act, 1867 .

This has been re-affirmed in Windsor (City) v Canadian Transit Co, 2016 SCC 54, which, at [25ff], emphasized the importance of determining the “essential nature” of the claim.

The main question in Alpha Marathon turned on the first branch of the test. The plaintiff relied entirely on s 20(2) of the Federal Courts Act, as interpreted in Kellogg Company v Kellogg, [1941] SCR 242, as providing the necessary statutory grant of jurisdiction [46], [60].

Subsection s 20(2) gives the FC concurrent jurisdiction in all cases “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 defendants argued that s 20(2) is not applicable “because the words ‘any patent of invention’ in that section mean a patent of invention obtained in Canada, not simply an invention or a patent of invention obtained in another country” [38, my emphasis]. This seems right to me. As a matter of statutory interpretation, it would appear that “patent of invention” in s 20(2) means the same thing as “letters patent for an invention” under the Patent Act, s 2, and the Patent Act clearly refers to Canadian patents. This is not express, but clear nonetheless from eg s 4(2) which provides that “The Commissioner shall . . . do all acts and things requisite for the granting and issuing of patents of invention.” That provision is evidently not empowering the Commissioner to grant US patents.

Kane J accepted this point:

[59] In order to fall within subsection 20(2), the Plaintiff must be seeking a remedy that arises from “federal law”. With respect to patents, the only relevant “federal law” is the Patent Act, which does not create remedies respecting the ownership of unpatented inventions or foreign patents.

See also [67], emphasizing the need for a Canadian patent.

The defendant argued that s 20(2) was satisfied because the dispute related to “an invention made in Canada and by Canadians.” But s 20(2) does not require merely that the invention is somehow Canadian; it requires that the remedy sought is in respect of a Canadian patent. In this case no remedy was sought relating to any Canadian patent, nor even to a potential Canadian patent application. I should note that the Plaintiff did not actually seek a declaration as to the ownership of the US patent, but rather a declaration that it was the owner of the invention claimed in the corresponding US patent application; an injunction requiring the defendants to convey their interest in the US patent application to the plaintiffs; and injunction prohibiting the defendants from infringing the US patent application [20]. The reference in the pleadings was to the US application, notwithstanding that the US patent had actually been granted: US Patent No. 6,902,385 [18]. Presumably this was because a request for a declaration as to ownership as to the US patent would be self-evidently absurd; but dressing it up as a request for relief related to the US application does not change the substance.

While that point was enough to dispose of the issue, Kane J undertook a more general review of s 20(2), with the key cases being Kellogg, Radio Corporation of America v Philco Corporation (Delaware), [1966] SCR 296, and Cellcor Corp v Canada v Kotacka [1977] 1 FC 227, 27 CPR(2d) 68 (FCA).

I discussed Kellogg in my post on SALT Canada Inc v Baker 2016 FC 830, in which Boswell J refused to make a declaration as to ownership of a granted patent pursuant to s 52 of the Patent Act, on the view that the FC lacks jurisdiction when the essential issue is the ownership based on the interpretation and application of contract law principles. My post suggested that the parties had overlooked Kellogg , which might be read as holding that the statutory grant could be found in s 22(c) of the Exchequer Court Act, which is substantively the same as the current s 20(2) of the Federal Courts Act.

Kane J held that the jurisprudence subsequent to Kellogg reflects a more constrained approach to the interpretation of the Federal Courts Act [69]. Her conclusion is perhaps best summarized by
Tremblay-Lamer J in Peak Innovations, 2009 FC 661, [9], quoted with approval at [77]:

Section 20(2) of the Federal Courts Act only establishes jurisdiction for remedies where jurisdiction for the underlying cause of action is established elsewhere in a statute.

And see [78] reiterating the point. As I understand it, the point is that s 20(2) is effectively solely to enable the Federal Court to grant the appropriate remedy, after substantive jurisdiction has been established under some other provision.

I’m not sure I’m entirely persuaded that is the correct interpretation of s 20(2). The text of s 20(2) states that “The Federal Court has concurrent jurisdiction in all cases. . . in which a remedy is sought. . . respecting any patent of invention .” It does not say, “The Federal Court has concurrent jurisdiction in all cases . . . to grant a remedy . . . respecting any patent of invention.” I would say that on its face s 20(2) gives jurisdiction to the Federal Court (subject to the other branches of the ITO test). That is the reasoning on which the SCC in Kellogg based its interpretation of the provision.

The primary authorities for a more restrictive interpretation of this proposition were Radio Corp and Cellcor. I acknowledge that in writing my post on SALT Canada v Baker 2016 FC 830 I had overlooked both of those cases. And it is also true, as pointed out by Kane J [73], that in Cellcor at [11] the FCA perceived a possible conflict between Radio Corp and Kellogg, and chose to follow Radio Corp. But I’m not convinced there really is a conflict between Radio Corp and Kellogg.

Kellogg was a conflict proceeding in which the main question was which of the parties, Kellogg Co or Kellogg, was the true inventor. The Commissioner had made a decision in favour of Kellogg, pursuant to the procedure set out in then s 44, and that decision had been duly appealed by Kellogg Co to the Exchequer Court pursuant to s 44(8) of the Patent Act. It was undisputed that the Exchequer Court had jurisdiction in that respect. Kellogg Co had also pleaded in the alternative that even if Kellogg were the true inventor, Kellogg was an employee of Kellogg Co. In that case, the remedy sought was that Kellogg Co should be adjudged to be “the owner of the invention made by [Kellogg], and that the respondent should be directed to execute an assignment to the appellant of the entire right, title and interest in and to the invention and the application relating to it” (246). The Exchequer Court had ordered the alternative pleading struck on the basis of lack of jurisdiction, and the SCC reversed, in part because s 20(2) (then s 22(c)) gave jurisdiction because “the remedy sought by the appellant. . . is evidently a remedy in Equity respecting a patent of invention” (250).

Radio Corp also involved a conflict proceeding, and one of the parties, dissatisfied with the Commissioner’s decision, had appealed pursuant to the same provision (by then 45(8)). But in addition to attacking the Commissioner’s decision on the claims which had been found to be in conflict, the appellant had also attacked a variety of other claims in relation to which no conflict had been found (301). The SCC reviewed the history of the relevant provisions, pointing out that under the Act of 1906, conflict proceedings were to be decided by a board of arbitration, while in Hutchins Car Roofing Co ( 1916), 16 Ex CR 391, Cassells J had held that what is now s 20(2) gave the Exchequer Court concurrent jurisdiction with that board (303). The result was that there were two distinct procedures for dealing with conflicting applications. This led to the enactment of the s 44(8) (originally 22(7)), providing for an appeal procedure from a decision of the Commissioner, and, by implication, depriving the Exchequer Court of original jurisdiction in such matters. As the SCC stated (my emphasis):

This subsection [44(8)] recognized the jurisdiction of the Exchequer Court with respect to conflicting applications for patents, but limited the period during which it might be exercised.

The important point is, however, that, since 1923, Parliament has made it clear in the provisions of the various Patent Acts that, notwithstanding the jurisdiction conferred by the Exchequer Court Act upon the Exchequer Court to deal with conflicting patent applications, the right to seek redress in that Court by an applicant is governed and limited by the provisions of the Patent Act respecting conflicting applications. The conclusion which I draw from the legislative history of the provisions of the Patent Act respecting conflicting applications is that, although jurisdiction is conferred upon the Exchequer Court by s. 21 [now 20(2)] of the Exchequer Court Act in cases of conflicting applications for a patent, the right of a party involved in such a conflict to attack the patent application of another party is governed by s. 45 and such party is restricted to such rights as are conferred by that section. As previously stated, it is the opinion of this Court that proceedings under subs. (8) of that section are limited to the subject matter of the claims found to be in conflict by the Commissioner.

I read this as saying that Cassells J’s interpretation of s 20(2) was not wrong, and indeed was confirmed by s 44(8), which did not grant the Exchequer Court jurisdiction respecting conflicts, but rather limited the jurisdiction that was already conferred by s 20(2). That is, if the Act did not provide any other method for resolving a conflict, the Federal Court would have jurisdiction under s 20(2), but given that an alternative procedure had been established, s 20(2) could not be used to circumvent that alternative procedure.

A purposive analysis arguably also provides some support for a broad reading of s 20(2). It rounds out the statutory scheme in the same way that s 7(b) of the Trade-marks Act rounds out that Act. S 7(b) allows a trade-mark owner to bring an action in Federal Court based on a registered mark, and plead 7(b) in the alternative, rather than being forced to resort to a new proceeding in provincial superior court if its registration should be held invalid. Similarly, as in Kellogg, s 20(2) allows a plaintiff to raise ownership as an alternative to its claim to inventorship, when the factual issues are closely enmeshed, rather than having to resort to a new proceeding in a different court.

It may also be possible to reconcile Cellcor with Kellogg, but not so readily. In Cellcor the plaintiff sought a declaration that it was the party entitled to apply for a Canadian patent on the basis that it was the inventor of the specified invention, which had been stolen by the defendant, who intended to file an application in Canada. However, it appears that the plaintiff had not actually applied for a Canadian patent. Counsel for the defendant did argue that “the Court cannot exercise its jurisdiction under section 20 unless a right to relief exists by virtue of some other statutory provision,” but it is not clear to me that the Court accepted this proposition. The Court held (my emphasis):

Under the Patent Act, the official who must first decide whether a patent may issue to an applicant is the Commissioner. The Act does not empower the Courts to give him directions on the decision he should reach; it is only if he is alleged to have made a wrong decision that, under the statute, the Courts may be seized of the matter. In my view, it would be contrary to the scheme of the Patent Act for the Courts to assume the power, in a case like the present one, to make the declaration sought.

This could be read as saying that the Act provided for a process by which a party may apply for a patent, and to decide who is entitled to the grant of a patent in the case of a dispute, and that specific procedure displaces any general jurisdiction granted by s 20(2). This suggests a distinction between Kellogg and Cellcor on the basis that there is a specific procedure for determining a conflict between inventors, but there is no specific procedure for determining ownership, for example as between an employer and employee. So, in Comstock Canada v Electec Ltd., (1991) 38 CPR(3d) 29, 49-50 (FCTD), the Federal Court held it had jurisdiction under s 20(2) to consider a dispute as to inventorship in respect of a granted patent. Section 52, which allows the FC to order an entry in the patent records to be varied, was invoked purely as remedial authority. (Though note that Muldoon J in Comstock relied on McCracken v Watson, [1932] Ex CR 83, 88, which actually adopts a restrictive view of s 20(2)). In any event, if Comstock was rightly decided, it seems to me that on the same basis, s 20(2) gives concurrent jurisdiction to the FC to determine who, as between the employer and employer is entitled to apply for the Canadian patent, subject to the requirement under the second branch of the ITO test that the question of inventorship is essential to the disposition of the issues.

But these distinctions may be too fine. In Kellogg the underlying issue was the employer / employee relationship, while in Cellcor it was misappropriation of confidential information, both leading to dispute over ownership of a potential Canadian patent application. It strikes me that there is a real distinction between disputed inventorship and ownership, because “inventor” is a concept found in the Patent Act, and inventorship must therefore be defined under that Act, whereas ownership disputes based on contracts, confidential information, or the employer / employee relationship, turn on the proper law related to the dispute. But by the same token, I don’t see any principled distinction between a dispute based on confidential information and one turning on the employer / employee relationship,. If the Federal Court has jurisdiction in the one type of case, I would think it should also have it in the other type, and vice versa.

If Kellogg and Cellcor cannot be reconciled, perhaps it was Cellcor which was wrongly decided. On the other hand, rather than straining to reconcile Kellogg with subsequent cases, maybe it is better to acknowledge, with Kane J [69], that the law has moved on. While Kellogg is SCC authority, it is long in the tooth. Old authority is not necessarily bad authority; indeed, the authority of a case may grow with time, as it is regularly cited. But that is not the case here; while Kellogg itself is regularly cited, as Kane J noted [61], it is cited for the proposition that the Federal Court may resolve “incidental” contractual issues, and not for its holding on s 20(2). Moreover, the holding on s 20(2) was in the alternative, though perhaps not strictly obiter.

In any event, regardless of the theoretically correct interpretation of s 20(2), Kane J’s review of the case law indicates that the Federal Court has generally been reluctant to accept concurrent jurisdiction. It not clear to me why this should be. No doubt there are some cases in which the Federal Court would have concurrent jurisdiction under the Kellogg reading of s 20(2), yet where another court would be more suitable, but in such cases the Federal Court could decline to exercise its jurisdiction on the basis of forum non conveniens.

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