Tuesday, October 16, 2018

Kellogg Co v Kellogg and Jurisdiction of the Federal Court to Interpret Contracts Related to Patent Ownership

Farmobile, LLC v Farmers Edge Inc 2018 FC 915 Ring J
            2,888,742 / Farming data collection

Farmobile brought an action against Farmers Edge for infringement of the 742 patent. Farmers Edge wants to defend on the basis that it is the rightful owner of the 742 patent. On this motion to strike, Ring J has held that the Federal Court lacks jurisdiction, because determination of ownership is essentially a matter of interpretation of the contracts of assignment. This means that in order to effectively defend against this action brought against it, Farmers Edge will have to bring a separate action in a different forum seeking a declaration that it is the true owner [55].

The jurisdiction of the Federal Courts in such matters is governed by s 52 of the Act, which (in combination with s 20) gives the 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.” Ring J stated that “It is well-established that this Court lacks jurisdiction to entertain a claim under section 52 of the Patent Act where the issue to be decided is the proper owner of a particular patent, and the determination of ownership depends on the interpretation of various contract documents between the parties and the application and interpretation of contract law principles” [27].

There is indeed a well-established line of authority in the Federal Court to that effect. In my post on SALT Canada Inc v Baker 2016 FC 830, I suggested that this line of authority had overlooked the SCC decision in Kellogg Co v Kellogg, [1941] SCR 242, or interpreted it too narrowly. Kellogg also involved a motion to strike, where the underlying action was a conflict between pending applications. It is worth setting out the pleading (246) which was allowed to stand by the Supreme Court:

8. In the event that the Court should find as a fact that the said John L. Kellogg, Jr., was the first inventor of the subject-matter of the said application serial No. 450,047, then the plaintiff alleges

(a) That the late John L. Kellogg, Jr., was employed in the Experimental Department of the Kellogg Company from October 15, 1936, until December 19, 1936;

(b) If any invention was made by the said John L. Kellogg, Jr., which is not admitted but denied, it was made during and in the course of his employment by the plaintiff and when he was carrying out work which he was instructed to do on the plaintiff's behalf. By virtue of the contract of employment and the circumstances under which the invention was made the said John L. Kellogg, Jr., became and was a trustee of the invention for the company which was and is entitled to the benefit of it.

(c) The said John L. Kellogg, Jr., was by reason of his being such a trustee unable to transfer any right, title or interest in the invention to any other party and the plaintiff is now the owner of any invention covered by the application serial No. 450,047.

Compare this with the allegations which were stuck in Farmobile (reformatted for clarity)

[4] In support of its assertion that all rights to the invention claimed in the ‘742 Patent were ultimately assigned to it, Farmers Edge pleads that

(a) the three individuals who incorporated Farmobile, Heath Gerlock, Randall Nuss, and Jason Tatge, had previously been employed by Crop Ventures Inc., the corporate predecessor of Farmers Edge;

(b) Ron Osborne, who was the CEO of Crop Ventures, and Gerlock and Nuss jointly conceived and developed the invention claimed in the ‘742 Patent while they worked for Crop Ventures;

(c) Gerlock and Nuss each signed confidentiality and non-competition agreements whereby they assigned all rights and interests in the intellectual property to the inventions claimed in the ‘742 Patent to Crop Ventures; and

(d) Tatge signed an employment terms letter agreement whereby he agreed to sign Crop Venture’s standard Proprietary Information and Inventions Agreement [collectively the “Agreements”].

The allegations are substantively virtually the same: they are both to the effect that the invention was made during the course of employment and therefore belong to the employer.

Ring J distinguished Kellogg as follows (original emphasis):

[33] Further, I am of the view that the Supreme Court’s decision in Kellogg Co v Kellogg, [1941] SCR 242, is distinguishable and does not assist Farmers Edge in responding to Farmobile’s motion to strike. In Kellogg, the moving party sought an order striking out a claim, pled in the alternative, that the plaintiff was entitled to the benefit of an invention by virtue of an employment contract. In the present case, the essence of the Amended Counterclaim, namely the claim of ownership to the subject matter of the ‘742 Patent based on a series of Agreements, is sought to be struck out.

The distinction being drawn by Ring J is evidently that in Kellogg the disputed pleading was in the alternative, whereas in Farmobile it was by way of counterclaim. While that is true, I do not see it as a satisfactory distinction, for two reasons.

First, in the preceding section of her decision, Ring J had made the point that jurisdiction over the counterclaim has to be assessed separately from jurisdiction over the main action, relying on Innotech (1997) 74 CPR (3d) 275 (FCA) rev’g 72 CPR (3d) 522 (FC). In Innotech, the FCA held that “The counterclaim, when viewed by itself, would stand alone as an action for breach of contract and as such is not within the jurisdiction of this Court.” The same principle would appear to apply to the alternative claim in Kellogg, as the issue raised in the disputed pleading would have been capable of standing alone as a separate action. That is, if the pleading in Kellogg had been struck, and the plaintiff had subsequently lost and the patent issued to the defendant, nothing would have prevented the plaintiff from bringing an action to establish its ownership of the patent based on the facts alleged in the pleading at issue.

Secondly, and more importantly, there is not the least hint in Kellogg itself that the fact that the pleading was in the alternative is at all relevant; it was mentioned in the description of the facts, but never even adverted to in the Court’s reasoning.

Ring J then stated:

[34] Kellogg stands for the proposition that the Federal Court may resolve incidental contractual issues where the overall claim is, in “pith and substance”, within the Court’s jurisdiction. However, this Court has no jurisdiction to adjudicate a claim (or in this case, a counterclaim), where the claim is “purely and simply” a contractual dispute (Kellogg), or where an issue over which the Court may have jurisdiction is “secondary to and dependent upon” the resolution of a contractual issue (Salt).

[35] Since the relief sought by Farmers Edge in its Amended Counterclaim is dependent on a prior determination of the rights conferred by the Agreements described in the Amended Counterclaim, and the interpretation of these Agreements is clearly a matter of contract, rather than patent law, it is plain and obvious that the Court lacks jurisdiction to adjudicate the impugned portions of the Amended Counterclaim, and those pleadings must be struck out.

Ring J’s point is that the interpretation of the agreements is “purely and simply” a contractual dispute. One could certainly say that the dispute is over the interpretation of a contract, which just happens to involve ownership of a patent; but one could also say that the dispute is over the ownership of a patent, which just happens to turn on contractual interpretation. In my view, the SCC decision in Kellogg makes it quite clear that the second way of looking at the matter is correct. 

Here is the crux of the SCC’s reasoning in Kellogg (249-50):

It is undoubtedly true, as stated by the learned President, that the Exchequer Court has no jurisdiction to determine an issue purely and simply concerning a contract between subject and subject (His Majesty the King and Hume and Consolidated Distilleries Limited and Consolidated Exporters Corporation Limited); but here the subject-matter of the appellant's allegation only incidentally refers to the contract of employment between John L. Kellogg, Jr., and the appellant. The allegation primarily concerns the invention alleged to have been made by him and of which the appellant claims to be the owner as a result of the contract and of the other facts set forth; in the allegation. The contract and the claims based thereon are advanced for the purpose of establishing that the appellant is entitled both to the rights deriving from the invention and to the issue of a patent in its own name. That is precisely the remedy which the Exchequer Court of Canada has the power to grant under paragraph (iv) of subs. 8 of sec. 44 of the Patent Act

That is, in Kellogg the claim was allowed to stand because it was primarily about who owned the patent – even though the answer to that question turned entirely on the contract of employment. On its face, Kellogg says that a contractual dispute over ownership of an invention is primarily a dispute about the invention, not primarily about the contract. This holding was not obiter: the result in Kellogg itself is that Court had jurisdiction over a contractual dispute concerning the ownership of a patent, because of the subject matter of the dispute, ownership of the patent, meant it was more than “purely and simply” a contract between a subject and subject. An example of a dispute which is purely and simply between subject and subject is Consolidated Distilleries, in which the SCC held that the Exchequer Court did not have jurisdiction to hear a claim for indemnity for loss suffered by reason of certain bond agreements; it was a contractual dispute about a underlying issue which was itself unrelated to any head of federal power.

While I don’t find Ring J’s attempt to distinguish Kellogg to be at all persuasive, I again acknowledge that she was right to say that her decision is consistent with a well-established line of Federal Court authority. In my view, Farmobile illustrates the inconsistency between Kellogg and that line of cases. At the very least, there is a real tension. We should keep in mind that this was a motion to strike. It may be plain and obvious that the Court lacks jurisdiction based on the recent line of Federal Court cases; but the real question is whether it is plain and obvious that those cases are consistent with with Kellogg. Even if my interpretation of Kellogg is wrong, I would like to think that it is not “plain and obvious” that I am wrong. Ring J’s attempt to distinguish Kellogg implies that if the facts were such that the claim at issue in Farmobile had been pleaded in the alternative, it would have been allowed to stand. Is it plain and obvious that there is a crucial principled distinction between a counterclaim and a claim in the alternative?

Ring J, and the Court of Appeal, have said that the fact that the parties whose claim is struck will have to bring its action in a different forum is an “inconvenience,” but “such inconvenience ‘is not, of itself, a basis for this Court assuming jurisdiction.” [39], [55]. No doubt it is true that the Court cannot assume jurisdiction simply because it would make good practical sense for it to do so, but the problem should not be dismissed as a mere inconvenience. It is a defect in our patent system — indeed, a scandal worthy of Dickens — that a party seeking to defend a patent action should have to bring a separate action based on overlapping facts in a different court. If the law requires such a scandalous result, so be it, but I remain unconvinced.

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