Friday, November 27, 2020

Does the Discoverability Rule Apply to the Patent Act Limitations Provision?

Paid Search Engine Tools, LLC v Google Canada Corp 2020 FC 992 McVeigh J

            2,415,167

In this motion McVeigh J declined to direct the proposed determination of a question of law relating to the limitations period in s 55.01 the Patent Act pursuant to Rule 220(1)(a), but in so doing she decided an equally important question of law—just not the one that was asked. This issue is also very interesting, and I’m afraid I went down the rabbit hole—this blog post is longer than the decision.

The patent at issue was published in January 2002 and granted in March 2017, and an action was brought by Paid Search against Google on January 12, 2018 [3]-[4]. The question presented for determination by Google was whether the six-year limitation period in s 55.01 of the Act applies to a claim for “reasonable compensation” pursuant to s 55(2) of Act, for acts of ‘infringement’ between the time the application was published and the time the patent was granted,“such that in the present action no remedy, including no reasonable compensation, may be awarded for any act of infringement committed prior to January 12, 2012?” [4]. Thus the answer to the question affects the claim to reasonable compensation potentially over a ten year period, depending on when any infringement began.

Rule 220(1)(a) allows the court to determine a pure question of law when that question may be answered without having to make any determination of fact [10]. McVeigh J held that the question was not a pure question of law because the discoverability rule applies to the s 55.01 limitation period [14], [23]. Under the discoverability rule, the limitation period does not begin to run until the material facts were reasonably discoverable: Pioneer Corp v Godfrey 2019 SCC 42 [31] cited at [16]; and see eg the s 5 of the Ont Limitations Act for a statutory implementation. The discoverability rule therefore turns on factual issues, including “the moment at which [Paid Search] learned of the patent infringement, the moment [Paid Search] was able to commence the action and the reasons for the delay, if any” [24]. So, if the discoverability rule applies, the question posed — as to whether reasonable compensation may be awarded for acts prior to January 2012 — is not a pure question of law [24]. While the question might nonetheless be decided under Rule 220 if the relevant facts were undisputed, that was not the case [25-26]. McVeigh J consequently dismissed the motion [29]. Her holding on this point was strictly not determinative, as she also held that determination of the question prior to trial would not be likely to save time and money, particularly given the likelihood of an appeal of the motion decision [33]-[46], but the central holding was that the discoverability rule applies to s 55.01.

Thus, while McVeigh J declined to answer the question of whether limitations period barred reasonable compensation prior to the relevant date, she did answer the even more important question of whether the discoverability rule applies to the limitation period set out in s 55.01 of the Act, which applies to any remedy:

55.01 No remedy may be awarded for an act of infringement committed more than six years before the commencement of the action for infringement.

This is a novel point of law, as McVeigh J noted: “The question of whether the discoverability principle applies to the limitation period found in section 55.01 of the Patent Act has not been yet resolved by the courts” [17].

In coming to her conclusion McVeigh J relied on the leading authorities respecting limitations periods generally, primarily Pioneer Corp v Godfrey 2019 SCC 42 as well as Peixeiro v Haberman [1997] 3 SCR 549, which was relied on in Godfrey. As McVeigh J noted [19], Godfrey [33] held that the discoverability rule applies, at least presumptively, “where the limitation period in question runs from the accrual of the cause of action, or from some other event that occurs when the plaintiff has knowledge of the injury sustained.” So, the Competition Act s 36(4)(a)(i), which was at issue in Godfrey, provides that: “No action may be brought . . . after two years from. . . a day on which the [wrongful] conduct was engaged in.” The wrongful conduct triggers the limitation period and the wrongful conduct is an element of the cause of action. On the other hand, the discoverability rule does not apply “where a statutory limitation period runs from an event unrelated to the accrual of the cause of action”: Godfrey [35]. An example is the provision at issue in Ryan v Moore 2005 SCC 38, which stated that “An action shall not be brought . . . after the expiration of 1 year after the date of death of the deceased” because the date of the death of the deceased is not an element of the cause of action: Godfrey [35].

In light of the Godfrey test, Google argued that the s 55.01 limitation period does not run from “an act of infringement” [20]. McVeigh J disagreed, saying [21] “The question is whether the running of the limitation period is contingent upon the accrual of a cause of action.” She observed that the event “triggering” s 55.01, namely the act of infringement, is an element of the underlying cause of action, just like in Godfrey.

I can see McVeigh J’s point: whether the right to recovery is extinguished under s 55.01 depends on when the right to recovery arose, as in Godfrey, and not on an independent event, such as the death of the deceased in Ryan v Moore. On the other hand, I can also see Google’s point. On the text of s 55.01 it is a bit strained to say that the limitation period runs from the accrual of the cause of action. The cause of action for infringement runs from the time of first infringement, but under s 55.01 it does not matter whether the first act of infringement was January of 2002, or 2010 or 2018; the limitation period will be the same in any of these scenarios, as the period turns on when the action was brought, not when the infringement occurred.

My point here is not that McVeigh J was wrong in her application of the Godfrey test to s 55.01, but rather that the Godfrey test is more difficult to apply to s 55.01 than in cases such as Godfrey, Peixeiro and Ryan v Moore, where the Godfrey test gives a straightforward answer. Why is the Godfrey test difficult to apply to s 55.01?

Structurally Unique Aspects of s 55.01

I suggest that the answer is that s 55.01 is structurally different from the typical limitations period at issue Godfrey, Peixeiro and Ryan v Moore, as well as the earlier leading cases such as Central Trust Co v Rafuse [1986] 2 SCR 147, Kamloops (City of) v Nielsen [1984] 2 SCR 2, M(K) v M(H) [1992] 3 SCR 6, Murphy v Welsh [1993] 2 SCR 1069, and Fehr v Jacob 1993 CanLII 4407 (MBCA). In all these cases, the limitation period at issue ran forward from a triggering event (eg accrual of the cause of action; when the damages were sustained; the death of the deceased). Section 55.01 looks backward from a triggering event (ie bringing the action). This is what makes the Godfrey test an awkward fit for s 55.01; the “runs from” language of the test implies an event that starts the clock running for a set period. But an act of infringement in itself does not set any clock running under s 55.01, which instead reaches backwards from the triggering act. There is a second structural difference: the provisions at issue in the SCC decisions barred the cause of action, while s 55.01 only bars the remedy for infringement outside the period.

I would also suggest that there is a good functional reason for these differences: patent infringement is generally ongoing, while more typical torts, such as an auto accident, are single events, or at least temporality limited. A forward looking bar on the cause of action does not sit easily with an action based on an ongoing infringement. If the trigger is the first act of infringement the result might be that the action itself would be barred even though the infringement was currently ongoing, even with a discoverability rule. If the trigger is the last act of infringement, this would be tantamount to no limitation period at all. With that said, a forward looking bar on the cause of action could be implemented if we conceive of each act of infringement as a separate wrongful act, so that patent infringement is not strictly ongoing but is conceived of as a series of single acts which follow each other in close succession. If a forward looking bar were implemented, numerous individual limitation periods would run concurrently, ending in close succession. The effect would be to bar recovery for the earlier incidents. Of course, only a single statement of claim is filed in respect of “an action,” but this might viewed as a joinder of these numerous individual claims, albeit without a formal motion to that effect. Rather than going down this rather convoluted route, it is quite understandable why the legislature instead chose the conceptually simpler option of barring the remedy outside a specified (six year) window.

Given the decision to bar the remedy for a specified period rather than barring the cause of action, it is easy to understand why the limitation period runs backwards rather than forwards. It would be possible to have a forward running bar on the remedy, allowing the cause of action to be brought anytime while restricting recovery for a period running forward from a triggering event. In fact, that is how the US limitation period applicable to reasonable compensation operates, with the triggering event being the time the patent is published: 35 USC § 154(d)(3). So, under the US rule, Paid Search would be entitled to reasonable compensation for any ‘infringement’ starting in 2002 and ending in 2008, and would not be entitled to reasonable compensation for the period from 2008-2017.[*Update: this statement is wrong; see correction below]In theory, a similar provision might be possible for all monetary remedies; we might have a provision that eg damages are available only for a period of six years after the first infringement, will allowing the action for recovery of those damages to be brought anytime. The backward looking Canadian provision seems more sensible, particularly given that one rationale for a limitations period is “the desire to foreclose claims based on stale evidence”: Peixeiro [34]. It seems likely that allowing recovery for the more recent six years is also more advantageous to the patentee, as the first infringement is typically pre-commercial, followed by a ramp-up period, and so in many cases the magnitude of the more recent infringement will be greater.

So, the backward looking bar on the remedy in s 55.01, rather than a forward looking bar on the cause of action as in Godfrey, makes perfect sense in the context of an ongoing tort such as patent infringement. Thus the ultimate reason the Godfrey test is difficult to apply to s 55.01 is that patent infringement is typically ongoing rather than a single discrete event.

Rather than trying to apply the Godfrey test to s 55.01 in light of these considerations, I suggest that we should take a step back. Whether the discoverability rule applies to s 55.01 is ultimately a matter of statutory interpretation; as the SCC pointed out in Peixeiro, the discoverability “rule” is not a substantive rule as such, but is rather “an interpretive tool for the construing of limitations statutes” [37]. The Godfrey test was a reflection of purposive considerations appropriate to the more typical limitations statutes, such as were at issue in Godfrey and the cases discussed therein. I suggest that the structural differences between s 55.01 and more typical limitation periods, and the underlying functional differences motivating those structural differences, means that the purposive considerations relevant to the interpretation of the s 55.01 limitation period are likely to be significantly different from those arising in a more typical limitations period. Rather than trying to apply the Godfrey rule out of context, it is preferable to undertake a modern holistic interpretation of s 55.01 directly. The purposive considerations identified in Peixeiro and Godfrey must of course be part of that analysis, to the extent that they arise, but s 55.01 is sufficiently different from that at issue in the leading cases, that I suggest that it would be wrong to apply the Godfrey test directly.

The modern holistic approach to statutory interpretation looks to text, context and purpose, though textual considerations are dominant when the words of the provision are clear: Canada Trustco Mortgage Co 2005 SCC 54 [10]; Biolyse 2003 FCA 180 [13]. The ultimate question is whether a holistic consideration requires that s 55.01 be interpreted as incorporating the discoverability rule in order to properly reflect the true intention of the legislature.

Purposive Considerations

What then are the relevant purposive considerations? As the SCC has noted several times, eg in Peixeiro [34], there are three main rationales for a limitations period. These are:

(1) certainty— “There comes a time, it is said, when a potential defendant should be secure in his reasonable expectation that he will not be held to account for ancient obligations”;

(2) the evidentiary rationale, so as to “foreclose claims based on stale evidence”; and

(3) diligence:” “plaintiffs are expected to act diligently and not ‘sleep on their rights’; statutes of limitation are an incentive for plaintiffs to bring suit in a timely fashion.”

These considerations must be balanced against “the concerns of fairness to the plaintiff who was unaware that his injuries met the conditions precedent to commencing an action” [34].

Thus, the purpose of the discoverability rule is “to avoid the injustice of precluding an action before the person is able to raise it” Peixeiro [36]. However, because of the ongoing nature of most infringement, this problem will typically not arise under s 55.01, even without the discoverability rule. In the case at hand, if the discoverability rule does not apply Paid Search can nonetheless bring an action, and if it is successful it will be able to recover reasonable compensation for the period from January 2012 to March 2017, and damages or an accounting for the period from March 2017 to date, as well as likely obtaining an injunction against future infringement, which may provide substantial leverage in subsequent negotiations over the use of the technology. This is a very different situation than in the leading cases, including Godfrey or Peixeiro, where the claim at issue would have been barred entirely and no remedy at all would have been available to the plaintiff.

So, in the majority of cases s 55.01 will not bar an action before the patentee could have raised it. Instead, the effect is to set a six year window of recovery for an ongoing infringement. This arguably strikes a sound balance between providing certainty for a defendant that has been carrying on business undisturbed for many years and allowing substantial recovery by the patentee. Both are achieved at the same time, by a rule that the patentee may recover for six years, but only six years prior to the action.

Another consideration is the length of the limitation period. The diligence rationale requires that plaintiffs are expected to act promptly. The basic limitations period in modern limitations statutes which explicitly incorporate the discoverability rule is typically two years from the time the action is discovered: see eg BC Limitation Act s 6; Ont Limitations Act s 5; Alta Limitations Act s 3; NB Limitation of Actions Act s 5. A more extended period, or none at all, may be used for particularly heinous offences, or when the plaintiff was particularly vulnerable, such as sexual assualt or domestic violence: see eg Ont s 16. Applying the discoverability rule to s 55.01 would give the patentee six years, not two, in which to bring an action. Such an extended limitation period does not reflect the same kind of balance between diligence and repose that is implied in those other limitations acts. It is possible that Parliament considered that launching an infringement action six years after it was discovered constitutes reasonable diligence in the context of a patent infringement action, but patent infringement is not the kind of unsavoury offence that typically gives rise to an extended limitation period. Rather, I would suggest that the six year period is consistent with the view that the legislature intended to fix a six year window of recovery for ongoing infringement, rather than setting a six year limit on the time in which the patentee has to bring its action.

A purposive interpretation of s 55.01 must also consider the context of the Act as a whole. The cause of action at issue in Godrey was for price fixing conspiracies and other criminal offences under the Competition Act, which are per se illegal; in M(K) v H(K) it was for incest and breach of a father’s fiduciary duty to his child. The cause of action at issue in Peixeiro and Ryan v Murphy was for negligent operation of a motor vehicle causing bodily injury; in Rafuse, negligent provision of legal services. Patent infringers are not typically morally culpable in the manner of an intentional wrongdoer, or even a negligent tortfeasor. This is because independent infringement is not a defence to patent infringement. The infringer may be, and often is, a party who independently invented the technology at issue and brought it to market in ignorance of the rights of the patentee. In such cases the infringer’s culpability, such as it is, turns on the failure to find the prior patent through a freedom to operate search. But failure to find prior patents generally does not amount to any kind of negligence. In many industries, full patent clearance may be prohibitively expensive or effectively impossible for most products. As a result, it is generally not unreasonable to fail to carry out a freedom to operate search, and even if a freedom to operate opinion is obtained, it will not guarantee that the product does not infringe. A freedom to operate search is a tool used to manage business risk, not an obligation that should be routinely infringed on any potential infringer (which is to say every business in the country). Thus, the contest is often not between a wrongdoer and a victim, but rather between two parties who both independently commercialized the same innovation. And indeed, in a significant class of cases, the patentee is a non-practising entity which has never brought a product to market, often preferring to delay infringement proceedings until the invention has become fully entrenched as a result of the efforts of others, so as to maximize its recovery without having commercialized the invention itself.

Even when the invention is in fact copied from the patentee, as is typically the case in pharmaceutical sector litigation between an innovator and a generic, the infringer is not typically a wrongdoer in a moral sense. This is because many granted patents are invalid. This is not a failing of the patent office, but rather a reflection of the fact that the majority of patents are commercially worthless, and it would be a waste of resources to conduct an exhaustive investigation of patents that will never even be commercialized: see Lemley, Rational Ignorance at the Patent Office, 95 Nw U L Re 1495 (2001). Generics who copy and infringe a patented invention in the hopes of invalidating the patent are fulfilling an important role in keeping down health care costs by ensuring that potentially evergreening patents are eliminated.

With all that said, there are certainly some instances of unscrupulous copiers — see eg Eurocopter 2013 FCA 219 aff’g 2012 FC 113 — but these are by no means typical, and it is unlikely Parliament intended the limitation period to be crafted around that unusual case.

There are reasons why independent creation is not a defence to patent infringement, but there is no doubt that the rule creates real unfairness; the infringer’s moral culpability in patent infringement cases is typically minimal or non-existent, certainly as compared with a price-fixing conspirator or negligent driver. Moreover, the purpose of the Patent Act is to increase innovation, and the fact that independent creation is not a defence, combined with the difficulty of searching the prior patents in many fields, means that the patent system can increase risk to true innovators and thereby potentially discourage innovation. This is not to say that patent system should be abandoned entirely (though some scholars have made that argument), but the remedial balance must recognize the legitimate role in innovation played by infringers as well as by patentees. The purpose of s 55.01 is to provide some certainty, especially to a party who independently developed and commercialized the technology at issue, that it can take some comfort in long undisturbed use. To introduce a discoverability rule would be to increase the burden and risk on infringers who are often innocent independent inventors of the technology, who are responsible for having actually brought the product to market.

Now, even if patent infringement is typically ongoing, there will be some cases where there is a period of infringement which then stops, and in such cases the patentee will be barred from any redress six years after the activity ceases. Apart from the point that this scenario is not typical, introducing a discoverability rule is unlikely to be an effective cure for that unfairness. This is because in the patent context, a harm that is not discovered at the time of the infringement or soon thereafter, is unlikely to become discoverable with the passage of time. In the typical limitations cases the discoverability issue arises because the wrongful act takes place at one point in time, but the harm arising from the wrong only manifests itself some time later, and the plaintiff is not likely to become aware of the wrongful act until it becomes aware of the harm. It is the temporal separation between the wrong and the harm that drives the discoverability rule in most contexts. This temporal separation is unusual in a patent infringement case, where the harm is in the form of sales lost to the infringing competitor, or lost licensing revenues. The harm arises at the same time of the infringement, or soon thereafter as market share is lost. Now, it is true that the infringement may not be readily discoverable, but this is because it may be difficult to identify the infringement as the source of the harm, not because a temporal separation between the wrong and the manifestation of the harm. Consequently, the discoverability rule is a less effective response to the problem. Once the infringement stops and infringing goods are no longer on the market, it will generally become increasingly difficult to link the harm with the past infringement as time passes. Generally, if the patentee did not discover the infringement while it was happening or shortly thereafter, it would be unlikely to discover it six or more years later. It is no doubt possible that in some cases the infringement would not be reasonably discoverable until long after it had stopped, but such cases must be rare, and to interpret the limitations period around that rare case would be the tail wagging the dog.

With that said, the case for the discoverability rule is different in the context of a claim for reasonable compensation because the applicant cannot bring any action before the patent is granted. So the patent applicant may have known of the infringement from the outset and yet been unable to bring an action until the patent was granted. This problem should not normally arise, as the notional delay in examination is about three years (hence the shift from 17 years from grant to 20 years from filing.) But in practice the delay may be substantially longer in some cases. If the delay is substantial, the patentee may be barred from recovery for some significant part of the term. In effect, the discoverability rule would extent the time for bringing an action for reasonable compensation in order to compensate for delay in the grant.

There are several problems with this as an argument for saying the discoverability rule should apply to s 55.01. The first is that we are back to the problem of the tail wagging the dog. If this is the underlying problem driving the discoverability rule, the solution would be to extend the limitation period for recovery of reasonable compensation, not for all remedies.

Second, the result would be to disadvantage the infringer as well as the patentee. In the typical limitations problem, the liability of the defendant does not change as a result of the discoverability rule; the issue is whether the defendant will be held liable for the harm it caused. In the context of patent infringement, if we extend the discoverability rule for reasonable compensation, the infringer will still be liable for up to six years of infringement after the patent is granted, as well as an additional amount for reasonable compensation; that is, the quantum of liability will actually increase. This may not seem unfair, given that the infringer did in fact infringe; but it is crucial to recognize that the infringer very typically will not know that it infringed until the patent is granted and the infringement action is brought. That is, the delay in issuance of the patent does not only adversely affect the patentee, who cannot bring an action; it also adversely affects the infringer, who cannot know that it is infringing.

Further, the argument for using the discoverability rule is not nearly as strong if the delay was due to the applicant rather than the patent office. Historically, some applicants, particularly non-practising entities, would deliberately delay issuance of the patents (sometimes for decades under the old regime where the term ran from grant and patents were secret until granted), in order to ensure that there would be a large pool of infringers who had independently developed the invention and brought it to a successful commercial market, who would then be ripe for ambush by the PAE once the patent was granted. This is not fanciful; this problem was a significant factor in the US move to a regime in which term runs from filing instead of grant. In that case, we should be much less sympathetic to the view that the limitation period should be relaxed because the patentee was not in a position to bring an action. Of course I have no idea of the particular cause of the delay in allowance in this case, but we should not simply assume that it was the fault of the patent office.

All of these points are a reflection of the fact that the discoverability rule was developed to address the problem that arises because of the temporal separation between the wrong and the manifestation of the harm. In the context of reasonable separation the problem, such as it is, arises instead because the grant is delayed, not because the harm is not discoverable. Consequently, the discoverability rule is a poor solution to the problem.

In response it might be said that this problem will not arise, as the limitation period will nonetheless be effective if the patentee should reasonably have known about the infringement. But there are likely to be significant practical problems with applying a discoverability rule in the patent context.

First, in the context of the problem of reasonable compensation and delayed grant, what does the discoverability rule imply if the patentee actually knew of the infringement but could not bring an bring an action because the patent was not granted? A literal application of the rule, that the limitation period begins to run when the plaintiff has knowledge, would imply that the period would run, and the patentee would be denied reasonable compensation even though it could not have brought the action. Thus a literal application of the discoverability rule would not necessarily solve the problem at hand. On the other hand, perhaps we might say that the period should not begin to run until the patentee knew of the infringement and was in a position to bring an action. That is arguably consistent with the spirit of Godfrey, though it is certainly more than a simple application of the discoverability rule enunciated in that case. But what about the problem that the delay might have been due to the applicant? In that case we might want a rule that said that the period should not begin to run until the patentee knew of the infringement and was in a position to bring an action, so long as the delay was not the fault of the patentee. At this point it is clear that we are not applying Godfrey in any meaningful sense. This would be a wholesale rewriting of s 55.01. Maybe it is a good idea, but it would arguably push the text beyond what would normally be permitted even under a purposive interpretation.

More generally, when is the infringement reasonably discoverable? In the case of a product patent, it is enough that the infringing product was available on the market and could have been reverse engineered? In other words, is the test for discoverability the same as for anticipation? That would have the virtue of applying a bright line test that provides some certainty, but it might be said that it would not address the unfairness to the patentee (such as it is) in cases in which the product is difficult to reverse engineer. Moreover, it might well be said that just because it was possible to discover the infringement, that does not imply that it was reasonable to do so, for example if the product was not widely sold, or there was no particular reason to think it was infringing. But any test that turns on exactly how widely available the product was, and so whether it would reasonably have come to the attention of the patentee, and how difficult it is to reverse engineer the product, would introduce considerable expense and uncertainty that would undermine the certainty rationale for the limitation period.

And what about process patents, where it is only an unpatented product that is actually marketed? A process patent is often valuable because it is allows the product to be made at lower cost than the existing processes, and often the patentee becomes suspicious of infringement when a rival is able to match its price. Is that enough to trigger the discoverability rule? And if marketing the product of the patented process does not trigger the limitation period, what would? The effect of the discoverability rule might be that there would effectively be no limitation period in respect of process patents. It is doubtful whether that strikes the right balance. To multiply examples, what about a case like Lovastatin 2010 FC 1265, where infringement of the process patent was established by analysing residual DNA from the organisms that had been used in the patented process to make the unpatented product. Would the infringement be reasonably discoverable because of the presence of that DNA, which would have revealed the nature of the process if the patentee had thought to analyse it?

Of course, whenever a new legal rule is established there will be loose ends that will need to be settled through the development of the caselaw. Nonetheless, we must be mindful of the fact that one of the basic rationale for limitation periods is to provide certainty. I would suggest that rationale is particularly important in the patent context where the infringer is often innocent and could not themselves reasonably have known they were infringing prior to the action being brought.

Textual Considerations

The foregoing has addressed various purposive considerations which I suggest are relevant to the interpretation of s 55.01. The text of the provision must also be considered: “the clearer the ‘ordinary meaning’ of the text, the more compelling the contextual considerations must be in order to warrant a different reading of it, especially when that involves adding words to those used by the legislator”: Biolyse 2003 FCA 180 [13].

So, in the typical limitation provisions the limitation period runs from the time “the cause of . . . action arose,” or “when the damages were sustained”: see eg Central Trust v Rafuse [68]; Kamloops p40, Murphy v Welsh. In such cases cause of action is considered to arise for purposes of a limitation period when the material facts were reasonably discoverable: see Central Trust Co v Rafuse [1986] 2 SCR 147 [77]; Fehr v Jacob 1993 CanLII 4407 (MB CA) [16], [19]. This gloss on the provision does not stretch the words unduly.

With this in mind we may consider exactly how s 55.01 would be construed in light of the discoverability rule, so assess how much the ordinary language would be stretched. As an example, consider a modified timeline that raises the issue of remedies such as damages: suppose the patent at issue was published in January 2002, granted in July 2003 (ie a ‘normal’ three year delay from filing), and the action was brought in January 2018 [3]-[4]. I can think of a few ways of implementing the discoverability rule.

I will start by considering the approach suggested by Fox Canadian Law of Patents, which was relied on by McVeigh J at [22] as supporting her conclusion, and which I therefore take as reflecting her view. Unfortunately, neither Fox nor McVeigh J provided specific wording as to how the provision should be understood, so it is somewhat difficult to assess it for textual harmony with s 55.01.

With that said, after reviewing the leading cases on limitations periods generally, the authors of Fox say:

The limitation period pursuant to 55.01 of the Act runs from "an act of infringement".

They cite no authority for this proposition and I have difficulty seeing it. On its face s 55.01 runs backward from the commencement of the action. They continue:

Applying the principles as set out in Peixeiro as discussed above, it seems that section 55.01 should be interpreted as being subject to the general rule of discoverability. Infringement can occur in circumstances where it would be impossible for the patentee or persons claiming under the patentee to discover the infringement — for example manufacture of an infringing product or use of an infringing machine or infringing process within a factory. As stated by Major, J. in the quotation above, the fundamental unfairness of requiring a plaintiff to bring a cause of action before he could reasonably have discovered that he had a cause of action is a compelling consideration.

This summarizes the purposive point that it is unfair to preclude a plaintiff from bringing an action before they had knowledge of it, but without stating explicitly how the authors would intend the discoverability rule to operate, though the reference to Peixeiro and other leading cases implies that s 55.01 should be interpreted as operating in the same manner as the limitation provisions at issue in those cases.

They conclude by saying that the view that the discoverability rule applies to infringement actions:

is also consistent with earlier authorities mentioned above holding the discoverability principle to be applicable to patent infringement.

The authorities cited (see below) were cases in which the applicable general limitations provisions were found in the provincial limitation acts as a result of the operation of s 39(1) of the Federal Courts Act (which is no longer applicable to most patent actions). The applicable provisions were essentially the same as those at issue in the leading SCC cases.

Putting together their statement that the limitation period pursuant to 55.01 of the Act runs from “an act of infringement,” the reference to Peixeiro, and the reference to case decided under the general provincial limitations provisions, my best guess is that they intended a provision that is substantially the same as the general provincial limitation provisions, which is to say something along the following lines:

(A) No action for infringement may be brought more than six years from the time at which the infringement was reasonably discoverable.

Whatever the merits of this proposal substantively, textually it is a wholesale rewriting of s 55.01, replacing a backward looking bar on the remedy running from the commencement of the action with a forward looking bar on a cause of action running from the date of infringement. Perhaps this is substantively better than s 55.01, perhaps not, but that decision is one for the legislature: rewriting the provision to this extent surely goes far beyond the proper bounds of statutory interpretation. It is possible that the authors had in mind some other interpretation that hews more closely to the text, but I would simply be guessing.

There are a couple of other possibilities that occur to me that would involve relatively less rewriting of the provision.

Option (B) would be to read the limitation period as running backwards from the date at which the infringement was reasonably discoverable. In effect, we would read s 55.01 as saying:

(B) No remedy may be awarded for an act of infringement committed more than six years before the infringement was reasonably discoverable.

So, if the infringement was not reasonably discoverable until March 2017, damages would be recoverable for infringement from March 2009 to date; if it was not discoverable until 2008, damages would be recoverable for infringement from 2003 to date (with reasonable compensation for the period from January 2002 to July 2003).

Textually, while better than Option (A), Option (B) is nonetheless very problematic because it entirely reads out the reference to the commencement of the cause of action. It is also problematic purposively, as it would allow the patentee to “sleep on their rights” and bring an action long after it should reasonably have done so. Moreover, the longer the plaintiff waits, the greater the damages; if interpreted this way, the provision might perversely encourage delay. Now, the desire for an injunction might nonetheless induce the patentee to bring the action expeditiously after learning of the infringement, but the point remains that in this interpretation, the limitation period itself does not discourage the patentee from sleeping on its rights, even though that is a primary purpose of the limitations period.

We might therefore modify the interpretation along the following lines:

(B.2) No remedy may be awarded for an act of infringement committed more than six years before the infringement was reasonably discoverable, or for an act of infringement committed after the infringement was reasonably discoverable if the plaintiff delayed unduly [or for some specified time] in bringing the action.

This interpretation would solve the problem of the patentee sleeping on its rights, but it is hugely problematic textually, as it reads a forward looking limitation on the cause of action into the existing provision where nothing of the sort exists. Right now there is no limitation period barring the action itself in the Patent Act. This makes sense in the absence of a discoverability rule: if the infringement is a single event, s 55.01 bars the remedies after six years and there is no need for a separate bar on the cause of action; and if the infringement is ongoing, we don’t want to bar the cause of action at all. If we read in a reasonable discovery rule that extends the recovery period, then it is also necessary to read in a limit on the cause of action to compensate. But this would be some very substantial and intricate rewriting of the statute, which is very problematic textually in a statutory construction exercise.

Much the same can be said of relying on an equitable doctrine such as laches to control the abuse of the discoverability rule, rather than reading a forward looking limitation into s 55.01. We would still be in a position where the court has rewritten the statutory provision and then invoked other doctrines to fix the problems introduced by its rewriting. It is discomfiting to interpret a statute in a way that is so problematic that we know from the outset that it will have to be cured by other doctrines. It is difficult to imagine how this could have been the outcome intended by Parliament. (Moreover, laches is less desirable as a limitation period , as the concept of undue delay provides less certainty than the fixed time period typically used in a limitations period.) In such a case, it is better to acknowledge that the rewriting goes beyond what is normally permissible as a matter of statutory interpretation.

Another possibility would be to read s 55.01 as saying:

(C) No remedy may be awarded for an act of infringement committed more than six years before the commencement of the action for infringement, unless the act of infringement was not reasonably discoverable.

On this interpretation, if the infringement was not reasonably discoverable until March 2017 damages would be recoverable for the entire period from July 2003 to date (with reasonable compensation for the period from January 2002 to July 2003). But this does not mean the six year limitation has no effect at all. If the infringement was reasonably discoverable in March 2008 damages would be recoverable from 2003 to 2008, then not for 2008-2012, and then again from 2012 to date. So this interpretation does preserve some role for the “six year” period, which is a plus textually as compared with Option (B). Moreover, it does provide some incentive for the patentee to bring the action in a timely manner, to avoid the gap. However, this incentive is quite limited, as the patentee is never barred from bringing the action. To the extent that infringement increases with time, damages for the later period may be greater than for an earlier period, and it may make sense for the patentee to delay bringing an action and accept the gap in order to get increased damages for a later period. Again, we might say that this strategy would be precluded by doctrines of laches or abuse of process; but again, it seems wrong to interpret a provision in a way that we know will require further fixes.

Secondly, the potential gap in recovery created by this interpretation seems arbitrary: what exactly is the purposive justification for the gap? The answer is that the gap does not serve any purpose. It is a reflection of the fact that Option (C) mashes together two unrelated limitation provisions, one reaching backward from the date of discoverability, and the other reaching backwards for the date of commencement of the action.

Context

Finally, the context of the enactment is also relevant. As noted above, the authors of Fox say that the view that the discoverability rule applies to infringement actions:

is also consistent with earlier authorities mentioned above holding the discoverability principle to be applicable to patent infringement.

I would suggest that the cited caselaw is irrelevant; indeed, if anything it cuts the other way. The authorities cited are Lubrizol (1990), 33 CPR(3d) 1, 45 (FCTD) aff’d 48 CPR(3d) 1, 5 (FCA) and Beloit v Valmet-Dominion Inc (1997) 73 CPR(3d) 321, 34950 (FCA). Both of these cases did hold that the discoverability rule applied to a patent infringement action, but this was before the Patent Act had its own limitation period and the applicable limitations provisions in these cases were found in the general rule of the provincial limitation acts. In the both cases the applicable limitation period was a typical forward looking limitation period barring the cause of action, such as was at issue in Central Trust; it was therefore straightforward to hold that the discoverability rule applied to patent infringement: Beloit, which has the more extensive discussion, relied expressly on Central Trust.

As discussed above, the fact that the provincial limitations act incorporate a discoverability rule tells us next to nothing about how the very different s 55.01 should be interpreted, apart from the general point that any interpretation must be attentive to the unfairness of barring a cause of action before the plaintiff could have been aware of it.

If anything, the fact that the discoverability rule was held to have been applicable to patent infringement under the applicable provincial provisions implies that it does not apply to s 55.01. The law related to discoverability really only started to take firm shape in Canada with the decision of the SCC Kamloops (City of) v Nielsen [1984] 2 SCR 2, followed soon thereafter by Central Trust Co v Rafuse [1986] 2 SCR 147. Previously, Canadian courts had relied on English precedent, which was itself unsettled, as the SCC discussed in Kamloops at pp36–39. Since the issue has gained prominence, the legislatures have tended to deal with it expressly, often by expressly incorporating the discoverability rule into the statute: see eg BC Limitation Act s 6; Ont Limitations Act s 5; Alta Limitations Act s 3. Since it was established law that the discoverability rule applied to patent infringement prior to the enactment of s 55.01, and the issue of discoverability was prominent around the time s 55.01 was introduced, in 1993, it seems certain that the drafters were aware of the discoverability rule generally and very probable that they were also aware that it was applicable to patent infringement. Certainly, one would hope that the drafters were aware of the relevant prior law when they introduced a patent specific limitations period. Moreover, it is clear that legislatures of the time were perfectly capable and willing to enact an express discoverability rule once the issue had become salient. In these circumstances the failure of Parliament to expressly include an express discoverability rule when drafting a limitation provision specific to the Patent Act, implies, if anything, that the legislature intended that the discoverability rule should not apply.

I don’t want to lean too heavily on this reasoning, as there are several links in the chain, but I would suggest that it is at least plausible to suppose that the drafters specifically turned their mind to the question of whether a discoverability rule should be part of the limitations period in the Patent Act, and chose not to include one.

Conclusion

The question of whether the discoverability rule applies to s 55.01 is ultimately a matter of statutory interpretation. That is an exercise that must focus on the text of the Act, as the best guide to legislative intent; where the text is ambiguous, purposive considerations will play an important role in the interpretive process, but the clearer the text, the more compelling the purposive considerations must be to justify a departure from the legislative intent as revealing by that text.

Any interpretation of s 55.01 that I have been able to think of that would introduce some version of the discoverability rule seems to me to require a very drastic departure from the wording of s 55.01, which could be justified, if at all, only by very clear and compelling reasons purposive and contextual considerations. I fail to see any compelling justifications for departing from the text. On the contrary, my inclination is to think that in light of the functional considerations unique to patent infringement, a straightforward textual reading of s 55.01, without the discoverability rule, strikes a very good balance between the various considerations of ensuring certainty and minimizing risk to innovators, while encouraging patentees not to sleep on their rights while ensuring a fair opportunity to recover for infringement. Perhaps the provision might be fine tuned one way or the other, but even then any modification, such as carving out a special rule for reasonable compensation, has significant countervailing considerations. I do not see any objection to the current structure of the provision that is so compelling as to warrant a significant departure from the text of the Act.

*Correction: This sentence is not an accurate description of the way the US provision works. The limitation period for seeking reasonable compensation is 6 years after the patent is issued, but if the action is brought within 6 years, the patentee is entitled to compensation for the entire period from publication to issuance, so long as the 'infringer' had actual notice. I have to admit that I don't really know what I was thinking when I wrote that sentence. In any event, the inaccuracy relating to the actual US rule doesn't change the point that a forward running bar on remedy is possible in theory, but not very appealing. My thanks to Professor Tom Cotter for bringing this error to my attention.


No comments:

Post a Comment