Monday, August 10, 2020

Jurisdiction of the Federal Court to Interpret Contracts Relating to Patents: A Fresh Start

SALT Canada Inc v Baker 2020 FCA 127 Stratas JA: Near, Woods JJA rev’g 2016 FC 830 Boswell J

            2,222,058

In a direct and vigorous decision, Stratas JA for the FCA has held that the Federal Court always has jurisdiction to determine who has title to a patent in an application under s 52 of the Act [12], [47], [49], expressly repudiating a line of cases holding that the FC does not have jurisdiction if determination of ownership of the patent is “primarily” a matter of contractual interpretation [27]-[31]. This a very welcome development that will simplify litigation in this area. This issue has been a pet peeve of mine ever since the trial decision in SALT v Baker four years ago and I am very pleased to see the issue dealt with so clearly. There is, however, one loose end, namely the effect on Innotech (1997) 74 CPR (3d) 275 (FCA) rev’g 72 CPR(3d) 522 (FCTD), holding that the Federal Court does not have jurisdiction when a contract relating to patent ownership is used as a sword, rather than a shield. Innotech is formally distinguishable, in that it did not involve an application under s 52, but the holding is extremely difficult to reconcile with Stratas JA’s reasoning in this case. In my view, Innotech is no longer good law, but some uncertainty remains, as it is an FCA decision and was not directly addressed in SALT v Baker.

As discussed here, SALT v Baker involved 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. 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].

Boswell J at first instance, relying primarily on Lawther (1995), 60 CPR(3d) 510 (FC), held that the Federal Court “lacks jurisdiction where determination of the ownership of a patent depends upon the application and interpretation of contract law principles” [20]. 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].

The FCA has now reversed. The reasoning of Stratas JA was straightforward. The basis of the FC jurisdiction is the grant by Parliament. The text of s 52 of the Patent Act is clear [8]:

[5] Section 52 of the Patent Act provides that the “Federal Court has jurisdiction…to order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged”. The application before the Federal Court sought just that. On the plain language of . . . section 52 of the Patent Act, the Federal Court had jurisdiction over the appellant’s application.

There is no constitutional objection to the grant of jurisdiction under s 52 [49].

The decision of the SCC in Kellogg [1941] SCR 242 supports the same conclusion. Kellogg involved a conflict proceeding in which the appellant alleged that even if it was not the first inventor, it was the true owner by reason of a contract of assignment. That pleading had been struck by Exchequer Court on that basis that it did not have jurisdiction to decide the contractual issue [23]. The SCC reversed, holding that the contract was 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” and this grounded jurisdiction in the Exchequer Court (249-50). The rule from Kellogg is that “the Exchequer Court (and now the Federal Court) can interpret contracts between private citizens as long as it is done under a sphere of valid federal jurisdiction vested in the Federal Court” [24].

A purposive analysis also supports the same conclusion. In the first place, the Federal Court is certainly competent to interpret contracts, and does so routinely in a variety of areas within its jurisdiction [16]-[20]. Further, refusing jurisdiction in cases like this one would increase the cost and complexity of litigation. Divided jurisdiction between the Federal Courts and the provincial superior courts had at one time forced parties to divide their case between jurisdictions [41]-[42]. The legislature remedied this by giving the FC concurrent jurisdiction in certain areas. To hold that the FC does not have jurisdiction in cases such as this one would recreate that problem of divided proceedings [44].

Consequently, “The Federal Court can determine issues of title. . .and ensure that the records of the Patent Office reflect the correct legal situation” [12]. “Adjudicating title to a patent” is “firmly within the Federal Court’s jurisdiction” [23]. The question of “who has title to the patent. . . . is a matter of federal jurisdiction” [49]. The Federal Court does not have jurisdiction over a purely contractual matter between private parties [45], but

[47] [W]hen dealing with an application under section 52 of the Patent Act, the Federal Court remains free to carry out the task Parliament has given to it—to determine who should be reflected on the records of the Patent Office as the owner of a patent—even if that involves interpreting agreements and other instruments.

The only roadblock in the way of this very sensible conclusion is Lawther (1995), 60 CPR(3d) 510 (FC) and cases following it, which held that the FC has lacks jurisdiction if the matter relates “primarily” to contract, even if the issue is title to a patent. The FCA has now expressly overruled Lawther: Stratas JA stated that “In my view, this case, not binding on this Court, was incorrectly decided” 27]. Lawther is both contrary to Kellogg [27], and unsound in principle [31]-[32].

After coming to this conclusion on the law, Stratas JA made short work of the merits. As the facts were not in dispute, Stratas JA saw no need to remit the matter to Boswell J; he held that Markels was indeed the owner of the patent and the records of the Patent Office should be varied to reflect that fact [52]-[57].

I have one quibble with this analysis, and one question regarding its implications.

The quibble is this. Section 20(2) of the Federal Courts Act provides as follows:

(2) The Federal Court has 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. . . issued under the Patent Act

On its face, this arguably gives the Federal Court jurisdiction in this case. However, Stratas JA indicated that it was irrelevant:

[6] The respondent and the Federal Court suggest that section 20 of the Federal Courts Act concerning the jurisdiction of the Federal Courts over certain forms of intellectual property is somehow relevant to the statutory jurisdiction of the Federal Court in this matter. Arguably, it has no relevance whatsoever. This matter does not arise and has nothing to do with section 20 of the Federal Courts Act.

To the extent that Stratas JA is simply saying that s 20(2) was not pleaded and was therefore not at issue in this case, then I have no objection.

But if he is suggesting that s 20(2) is not relevant to the jurisdiction of the Federal Court in this kind of matter, as opposed to this particular matter, then I respectfully disagree. Section 52 of the Patent Act grants the FC jurisdiction over a particular kind of patent remedy, namely an order varying the records of the Patent Office relating to title. On its face, s 20(2) is a broader grant of jurisdiction over any tupe of patent remedy. There is no redundancy between the provisions, as the grant under s 52 is exclusive and the grant under s 20(2) is concurrent. Moreover, Kellogg was not based on s 52 or its equivalent, but rather on the conflict provisions of the Act at the time (s 44(8)(iv)), and, alternatively, on the provision corresponding to s 20(2). As explained by Stratas JA at [22]-[24], the rule in Kellogg gives the Federal Court authority in this kind of matter, and the rule in Kellogg was based on s 20(2), not s 52.

This matters when the remedy sought is not an order varying the records of title. This arose in Innotech (1997) 74 CPR (3d) 275 (FCA) rev’g 72 CPR(3d) 522 (FCTD). The patentee sued the defendant for infringement and the defendant defended on the basis that it acted under licence. The defendant also counterclaimed, seeking a declaration as to the validity of the license, injunctions for its enforcement, and damages for the alleged breach by the appellant of the license. In a brief decision, relying only on Kellogg, the FCA allowed the defence to stand, but held that the counterclaim should be struck on the basis that

In the statement of defence [the licence] is being used as a shield against a claim of infringement. In the counterclaim it is being used as a sword, a basis for obtaining remedies against the appellant for its enforcement.

Innotech might formally be distinguished on the basis that the defendant was not seeking any remedy under s 52: see the relief requested at p525 of the FCTD decision. Presumably this is because the defendant was only claiming to be a licensee, not the owner. Innotech might also be distinguished on the basis that the Federal Court has jurisdiction to consider contractual matters related to title, but not licences. I note that the explicit statements of the law by Stratas JA in this decision, quoted above, all relate to “title.”

With that said, I have a great deal of difficulty seeing how Innotech can be reconciled with the reasoning in SALT v Baker. In Innotech the FCA held that the Federal Court did not have jurisdiction to hear the counterclaim because the counterclaim “primarily involves a claim for an alleged breach of contract.” In SALT v Baker, Stratas JA was scathing in dismissing this argument:

[31] The bounds of the Federal Court’s jurisdiction do not rest on the nebulous exercise of assessing whether something is “primarily a case in contract” or whether contractual interpretation will “dictate” the end result. To do this is to take a Goldilocks approach to jurisdiction, taste-testing each case for the appropriate amount of federal flavour and asserting jurisdiction only in cases where the federal content is, in the personal opinion of a judge, “just right”. . . . And for reasons of access to justice and minimization of litigation expense, Parliament does not set fuzzy tests for jurisdiction but rather adopts more certain, brighter lines. Courts should analyze jurisdictional issues with that front of mind.

Moreover, in Innotech the FCA remarked that “It may well be, as counsel for the respondent ably demonstrated, that this result will lead to inconvenience. But that is not, of itself, a basis for this Court assuming jurisdiction.” In SALT v Baker, Stratas JA explained that on the contrary, dealing with this “inconvenience” is central to a contextual and purposive analysis of the provision. He noted that “If the Federal Courts declined cases that ‘primarily’ involved contracts, it would be forced to divide many of its cases across different superior court jurisdictions across the country” [41]. Interpreting the relevant statutory provisions to address this problem is not a matter of free-ranging judicial policy making; on the contrary, as Stratas JA took pains to show that this inefficiency and waste in the administration of justice should be and in fact was an important purposive consideration when interpreting the statutory grant of jurisdiction. In carrying out a purposive interpretation of a statute the courts often rely on a contextual reading of the statute itself to determine the relevant purpose; in SALT v Baker, Stratas JA went the extra mile and looked to the legislative history itself: “To paraphrase the [legislative] discussion, it is hard enough for many to pursue a case from beginning to end; why force them to do it twice?” [38]. In the process leading up to legislative reform of the Federal Courts Act in 1990, the Canadian Bar Association had opposed granting the Federal Courts’ concurrent jurisdiction over certain disputes. The Bar Association’s position was expressly rejected by the legislature. As Stratas JA noted “This express rejection tears at the notion that Parliament regards the interpretation of agreements as a task alien to the Federal Courts or that its judges are incapable of applying contractual principles” [40].

The sole authority relied on by the FCA in Innotech was Kellogg: “Using the language of Kellogg Co. v. Kellogg the main action is primarily for the enforcement of a patent.” While it is true that the SCC in Kellogg did say that the allegation “primarily concerns the invention,” this was by of contrast with “an issue purely and simply concerning a contract between subject and subject” (249); the SCC did not suggest that the Exchequer Court only had jurisdiction in such circumstances. (The example given in Kellogg of a case where the Ex Ct would lack jurisdiction was Consolidated Distilleries [1930] SCR 531, holding that the Ex Ct did not have jurisdiction over a contractual claim for indemnity against a third party.) The Innotech reading of Kellogg is inconsistent with Stratas JA’s holding: “Kellogg tells us that where such a grant is present, parties can claim a remedy even if their entitlement turns on a matter of interpretation of an agreement or other instrument.”

I also have great difficulty seeing how Innotech can be reconciled with the text of s 20(2). On a straightforward textual reading of s 20(2), similar in spirit to the straightforward textual reading of s 52 employed by Stratas JA in SALT v Baker, a party seeking a declaration that it is a licensee under a patent, is, on its face, seeking a remedy at law or in equity respecting a patent of invention.

Farmobile 2018 FC 1269 (here) illustrates the close connection between the reasoning in Innotech and the questions at issue in SALT v Baker. The plaintiff in Farmobile brought an action for patent infringement and the defendant counterclaimed on the basis that it was the rightful owner of the patent in dispute by way of assignment pursuant to a series of written and implied agreements [8]. Mactavish J held the counterclaim should be struck, following Innotech [50]. Mactavish J noted that the sword / shield distinction articulated in Innotech was consistent with Lawther, RLP Machine & Steel Fabrication (2001) 12 CPR(4th) 15, Axia 2005 FC 573, and the first instance decision in SALT v Baker; all of these cases, except Innotech itself, were expressly overruled by the FCA in SALT v Baker: [30]. While Farmobile was not discussed in SALT v Baker, it is perfectly clear that it is no longer good law, as the defendant had sought relief under s 52 of the Patent Act [48]. But if Farmobile is bad law and Innotech remains good law, this would mean that the Federal Court always has jurisdiction to interpret a contractual matter relating to patents as a shield, but only has jurisdiction to interpret a contract used as a sword if the contract concerns title, and not if it concerns a licence. This kind of arcane distinction is very difficult to square with the text of s 20(2), or with the broad purposive and contextual concerns articulated so forcefully by Stratas JA in SALT v Baker.

The question then is whether Innotech remains good law. The key distinguishing point is that s 52 was not at issue in Innotech. But it appears to me that Stratas JA’s purposive and contextual reasoning is equally applicable in the context of s 20(2). Moreover, the SCC decision in Kellogg was primarily based on what is now s 20(2), and not on s 52. In my view, Innotech is no longer good law. If it were a decision of the Trial Division, I would say it would be beyond dispute that it had been implicitly overruled. Because it is an FCA decision, perhaps some doubt remains. With that said, Innotech relied solely on a misinterpretation of Kellogg, and did not undertake a purposive and contextual analysis of the relevant statutory grant of jurisdiction; indeed, remarkably, the FCA in Innotech did not even mention which statutory provision was at issue. With the in-depth analysis in SALT v Baker, a new day has dawned.

 

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