Thursday, November 22, 2018

Bill C-86 and Prior User Rights

As I work my way through the patent provisions of Bill C-89, I’ll be writing some posts with my initial impressions. This post looks at the prior user rights provisions set out in ss 188, 194 of the Bill. (My last post looked at the amendments in respect of the use of prosecution history in claim construction.)

S 194 proposes a complete overhaul of prior user rights under s 56, with the existing section to be replaced entirely. The proposed amendment clarifies prior user rights in several respects, extends the right in some ways and limits it in other ways. It appears that the proposed s 56 was modeled on the UK Patents Act 1977 s 64, though with notable differences. The corresponding provision in US law is 35 USC § 273. A thorough review of Canadian law up to 2001 is provided by Gregor Binkley, Prior User Rights and the Canadian Patent Act, (2001) 18 CIPR 207, and James G Fogo, “The Imperfect Monopoly—The Application and Effect of Section 58 of the Patent Act” (1962), 38 CPR 147 provides an earlier review which is also very helpful, particularly in respect of the history of the provisions.

The current s 56 provides that a prior user has the right to use “the specific article, machine, manufacture or composition of matter” that was made or acquired prior to the claim date. The proposed new section 56(1) provides that if a person “committed an act that would otherwise constitute an infringement of the patent,” it is not an infringement of the patent (or CSP) if the person commits “the same act” after the claim date. The right also arises if the prior user made “serious and effective preparations to commit such an act.”

This reference to “an act” has two effects. First, it evidently also encompasses carrying out a process, a point which was not clear under prior law: Binkley 214-15, 220-224. More generally, there is no restriction on the kind of invention which the “act” might infringe, so it is apparently intended that prior user rights may arise in respect of any kind of invention. Second, it transforms the right from a right to use the specific article, to a right to continue to carry out the infringing act. For example, suppose the patented product is a new kind of toy. Under the current Act, if the prior user had made some infringing toys prior to the claim date, it would be entitled to subsequently sell those specific toys, but not toys manufactured after the claim date. Under the proposed provision, it would be entitled to continue to make new toys.

The new provision confers the right to carry out “the same act” and there will no doubt be a questions as to how to interpret this. The point has arisen in the UK: see Terrell 18th 14-207-09, noting that in the UK “[t]he meaning to be given to the word ‘act’ has given rise to difficulties; and see Lubrizol Corp v Esso Petroleum Co Ltd [1998] RPC 727, 770-71. The UK cases may not provide much guidance, as there have been only a few UK cases to consider the point. Moreover, the operative language is different. The UK Act gives the prior user the right to do “the act” and it remains to be seen whether the Canadian courts will consider “the same act” to have intended a narrower meaning. It does appear that the reference to the continued right to do the “act” means that the new provision does not confer a general right to infringe the claim in question. So, in UK law, if the prior user had imported or made, but not sold, it would continue to have the right to import or make, but not to sell: Terrell 14-208; and see Lubrizol, 769. The parallel wording implies the same result under the proposed s 56. in Canadian law. (Of course, in some circumstances making or importing might be part of a course of practice which would constitute “serious and effective preparations” to sell, though not necessarily: see Lubrizol, in which the defence failed.) This is a change from existing law, under which prior making entitles the party to subsequently sell, even though making and selling are different acts. Nor is it clear (at least to me), how far any given right extends. Suppose the prior user has made the patented compound, but only on a pilot project basis. Would it be entitled to scale up to commercial quantities? That would be the same act of infringement, namely making, but arguably a different physical act.

Extending prior user rights from a right to use or sell a specific article, to what is in effect an ongoing licence, is not entirely uncontroversial. If the prior user is public, then the patent will normally be anticipated (subject to the grace period), so the real issue arises when the prior user is secret. Suppose person A develops a new process and decides to keep it secret rather than obtaining a patent. Person B then develops the same process and patents it. B has given the process to the world, in a way that A has not, but B nonetheless cannot stop A from competing. When B launches, expecting to take over the market with a lower price enabled by the new process, it might be surprised to discover that A is able to compete even at the lower price. Conversely, if a person invents a new process, and is deciding whether to keep it secret or obtain a patent, the new regime makes it significantly more attractive to keep it secret, as there is no risk of being shut down if someone later develops the invention. The problem is minimized under current law, as the prior rights are restricted to specific article or machine which existed prior to the claim date, and so cannot be infinitely exploited. Binkley at 212 addresses this argument by saying that “[t]here is as strong an argument to be made that because the prior user was not taught anything about the technology from the inventor, the prior user should be able to continue to practise it unimpaired by the monopoly held by the patentee.” That is indeed a strong argument, but it applies not just to a prior user, but also to a subsequent user who independently invented the invention; yet independent invention is not a defence in patent law. Perhaps the difference is that independent invention should normally be much easier to establish in the context of prior user rights, given that the prior use will normally arise before the patentee makes the invention public (as discussed below).

56(2) provides that when the prior user’s business is transferred, the prior user rights are transferred along with it, so that the transferee has the prior user rights that the transferor had, and the transferor loses them. It would seem, conversely, that the prior user rights cannot be transferred except as part of the business, but this is not entirely clear. Compare both the US Act § 273(e)(1)(B) providing that the right cannot only be transferred as part of the business, and UK s 64(1) providing that the right cannot be licensed.

56(3) extends the protection to purchasers from the prior user. More specifically, it provides that if a prior user with a right to sell, does indeed sell, the purchaser has the right to use and sell, as do all subsequent purchasers, and moreover that such purchasers have the right to resell. This clarifies a point that had been unsettled under prior law: see Binkley 234-37. Note that if the prior user had the right to make and sell, but not to use, the purchaser would nonetheless expressly have the right to use; that is, the purchaser from the prior user might in theory acquire more rights than the prior user had. 56(4) extends the same principle to services.

56(5) is not merely a clarification of prior law, but an entirely new limitation, which provides that the prior user rights do not arise if the prior user obtained knowledge of the invention, directly or indirectly, from the patentee. This will address much of the perceived injustice that could have arisen under the prior provisions: see Binkley 229. (Specifically, 56(5) provides that “Subsection (1) or paragraph (3) (a)” does not apply if the prior user copied from the inventor. Evidently, the prior rights under (2), (3)(b) and (4) are similarly inapplicable, as they are dependent on (1); (3)(a) is separately mentioned as being the only prior user right which does not explicitly reference (1).)

S 56(1) also provides that the prior act must be committed “in good faith.” A requirement of good faith had been recognized in the prior case law, but bad faith had been construed very narrowly, as being “limited to breach of confidence or secrecy between the parties” (Binkley 226-28). It seems likely that the courts will consider the new provision to be a codification of the prior law, so maintaining the same narrow interpretation. However, this narrow view of bad faith is less important than it had been for a couple of reasons. First, the older versions of the provision provided that prior user rights would arise if the invention was acquired before the patent was issued (and for a few years, before the application was laid open), but under both the current provision and the proposed new provision, the relevant date is the claim date. This substantially reduces the potential for the kind of sharp dealing which nonetheless does not amount to bad faith: see Binkley 230. Further, as just noted, the new provision is not applicable if the prior user copied from the patentee. It is difficult to imagine a scenario in which an independent inventor used the invention prior to the claim date and which would nonetheless even arguably amount to bad faith.

The proposed provision is not express as to who bears the burden, but as it is normally characterized as a defence (see Libbey-Owens 839), presumably the defendant bears the burden of establishing that it is entitled to assert the prior user rights, and presumably this includes the burden of establishing independent creation. If the patent was kept secret until filing, establishing independent creation should not be difficult, as the defendant would have had no opportunity for access to the invention from the patentee. The problem is more difficult if the invention is disclosed by the patentee prior to filing, the patent is subsequently filed within the grace period, and the prior use occurs in the interim. In such a case, the issue of burden may be important. In US law, this problem does not arise, as the prior use must arise prior to the first disclosure (§ 273(a)(2)); nor does it arise in UK law, which has no grace period.

56(6)-(8) are a package. 56(6) provides that prior user rights extend to a purchaser of an article that is “substantially the same” as an article that was made or sold prior to the claim date. It’s not entirely clear to me why 56(3) wouldn’t generate the same result in that kind of case, but in any event this subsection does not seem to go beyond the general principle set out in the prior subsections. 56(9)-(10) are a similar package relating to the use of a service. Again, this is consistent with the general thrust of the provision as applying to any kind of invention.

S 188 of Bill C-86 is a consequential amendment to 27(5), which now provides that when a claim defines the subject-matter of an invention in the alternative, each alternative is a separate claim for the specified purposes of s 2 (utility), and 28.1 to 28.3 (novelty and non-obviousness). S 188 amends 27(5) to add s 56, prior user rights, to this list. The point is evidently that if a claim defines the invention in the alternative, the prior user rights extend only to the specific alternative that was used prior to the claim date, and not to all the alternatives encompassed by the claim.

For convenience, here is text of the relevant provisions

194 Section 56 of the Act is replaced by the following:
Exception — prior use
56 (1) Subject to subsection (2), if — before the claim date of a claim in a patent — a person, in good faith, committed an act that would otherwise constitute an infringement of the patent in respect of that claim, or made serious and effective preparations to commit such an act, it is not an infringement of the patent or any certificate of supplementary protection that sets out the patent, in respect of that claim, if the person commits the same act on or after that claim date.

Transfer
(2) If the act referred to in subsection (1) is committed or the preparations to commit it are made in the course of a business and that business, or the part of that business in the course of which the act was committed or the preparations were made, is subsequently transferred,
(a) subsection (1) or paragraph (b), as the case may be, does not apply to an act committed by the transferor after the transfer; and
(b) it is not an infringement of the patent or any certificate of supplementary protection that sets out the patent, in respect of the claim, if the transferee commits the act after the transfer.

Exception — use or sale of article
(3) The use or sale of an article is not an infringement of a patent or any certificate of supplementary protection that sets out the patent if that article was acquired, directly or indirectly, from a person who, at the time they disposed of it, could sell it without infringing the patent or the certificate
(a) because the person, before the claim date of a claim in the patent, in good faith, committed an act that would otherwise constitute an infringement of the patent in respect of that claim and they disposed of the article before that claim date; or
(b) under subsection (1) or paragraph (2) (b).

Exception — use of service
(4) The use of a service is not an infringement of a patent if the service is provided by a person who, under subsection (1) or paragraph (2) (b), is able to provide it without infringing the patent.

Non-application
(5) Subsection (1) or paragraph (3) (a) does not apply if the person referred to in that subsection or that paragraph was able, as the case may be, to commit the act or make the preparations to commit the act only because they obtained knowledge of the subject-matter defined by the claim, directly or indirectly, from the applicant of the application on the basis of which the patent was granted and they knew that the applicant was the source of the knowledge.

Exception — use of article
(6) Subject to subsection (7), the use of an article is not an infringement of a patent or any certificate of supplementary protection that sets out the patent, in respect of a claim, if the article was acquired, directly or indirectly, from a person who, before the claim date of that claim, in good faith, made or sold, or made serious and effective preparations to make or sell, an article that is substantially the same as the one used, for that use.

Transfer
(7) If the making or selling referred to in subsection (6) was done or the preparations to do so were made in the course of a business and that business, or the part of that business in the course of which the making or selling was done or the preparations were made, is subsequently transferred, then
(a) subsection (6) or paragraph (b), as the case may be, does not apply in respect of an article that is made or sold by the transferor after the transfer; and
(b) it is not an infringement of the patent or any certificate of supplementary protection that sets out the patent, in respect of a claim referred to in subsection (6), to use an article for the use referred to in that subsection if it was made or sold for that use by the transferee after the transfer.

Non-application
(8) Subsection (6) does not apply if the person referred to in that subsection was able to make or sell, or to make the preparations to make or sell, the article only because they obtained knowledge of the use defined by the claim, directly or indirectly, from the applicant of the application on the basis of which the patent was granted and they knew that the applicant was the source of the knowledge.

Exception — use of service
(9) Subject to subsection (10), the use of a service is not an infringement of a patent in respect of a claim if the service is provided by a person who, before the claim date of that claim, in good faith, provided, or made serious and effective preparations to provide, a service that is substantially the same as the one used, for that use.

Transfer
(10) If the service referred to in subsection (9) was provided or the preparations to provide it were made in the course of a business and that business, or the part of that business in the course of which the service was provided or the preparations to do so were made, is subsequently transferred, then, after the transfer
(a) the transferor is deemed to no longer be the person referred to in subsection (9) for the purposes of that subsection; and
(b) the transferee is deemed to be the person who provided the service for the purposes of subsection (9).

Non-application
(11) Subsection (9) does not apply if the person referred to in that subsection was able to provide the service or make the preparations to provide it only because they obtained knowledge of the use defined by the claim, directly or indirectly, from the applicant of the application on the basis of which the patent was granted and they knew that the applicant was the source of the knowledge.


188 Subsection 27(5) of the Act is replaced by the following:
Separate claims
(5) For greater certainty, if a claim defines the subject-matter of an invention in the alternative, each alternative is a separate claim for the purposes of sections 2, 28. 1 to 28. 3, 56 and 78. 3.

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