Monday, January 24, 2022

First Decision on Prior User Rights: Overview

Kobold Corporation v NCS Multistage Inc 2021 FC 1437 Zinn J

            2,919,561 / Bottomhole assembly

This motion for summary judgment is the first decision to consider the new prior user defence set out in s 56 of the Act, which came into in effect in December 2018 [53]. The previous s 56 also provided for a form of prior user defence, but the new provisions are so completely revamped that the cases interpreting the old s 56 are of no assistance (except, in some cases, in the negative sense of constituting the problem that the legislature intended to correct). Zinn J’s decision in Kobold v NCS has given us a very careful analysis of the key operative provision, 56(1), as well as some discussion of 56(6),(9), which provides for third party prior user rights. This post will give an overview and discuss some of Zinn J’s general observations.

Prior user rights are assessed on a claim by claim basis, and the key date for establishing such rights is the claim date. Subsection 56(1) provides that if a person, before the claim date,

committed an act that would otherwise constitute an infringement. . . it is not an infringement. . . if the person commits the same act on or after that claim date.

The key question is what it means for the subsequent act to be “the same act” as the prior act. This question didn’t arise under the old provision, which gave protection only in respect of “the specific article” that had been used or acquired before the claim date. It is clear that the new provision is intended to expand the prior user rights, so that a person who used an infringing device—more precisely, a device that would be infringing if used after the claim date—before the claim date can not only use that very device, but can also use new devices, so long as the new device is “the same” as the old device. What if the old device was painted green and the new device is painted red, but is otherwise identical—is it the same? The answer is clearly yes. Where, then, do we draw the line? At the risk of oversimplifying, Zinn J’s view is that considerable variation is permitted, so long as the new device does not incorporate changes related to the inventive concept. I’ll discuss this key point at more length in my next post.

Then the question is what it means for changes to relate to the inventive concept. This decision provides some guidance in this respect, although it is limited. Zinn J granted summary judgment on the interpretation of 56(1), but not on its application to the facts, which he held required a trial; but he did address a couple of points on the facts. Zinn J also granted summary judgment on claim construction, which did of course turn on the facts, but the analysis did not implicate the s 56 issue. Finally, he also granted summary judgment in respect of the 56(6), (9), but this did not turn on the question of whether the prior acts were the same as the subsequent acts.

The facts nonetheless provide context for the rest of the discussion. The 561 patent relates the bottomhole assembly [BHA] used in fracking. Fracking involves pumping large volumes of fluid at high pressure into the well to fracture the formation. Kobold’s 561 patent particularly relates to one element of the BHA, namely the packer, which seals the well so the pressurized fluid cannot escape. The packers at issue in this litigation use an elastomeric material to seal the well. The BHA is pushed into the desired position, and then the packer is anchored to the wall of the well. A mandrel connected to the packer is then pushed further, compressing the elastomer, and causing it to expand and seal the well. This much was all part of the prior art [7–13]. The trick is to get the BHA out again. After fracking, there is a large pressure differential above and below the packer that has to be equalized before the BHA can be moved. The most common ways to do this in the prior art were the use of an equalization valve on the sealing element, or by having a passageway through the centre of the tool. The inventive concept of the ‘561 patent is a new method of equalizing pressure by using the mandrel to pull on the sealing element, decompressing the elastomer, which contracts, creating an annular passageway on the outside of the packer which the fluid flows through, equalizing the pressure [13–18]. The inventive concept “is the connecting of the sealing element to the mandrel so that when the mandrel is pulled the sealing element is also pulled, thus forming an annular passageway that equalizes pressure” [153]. (Note that most of the claims, including Claim 1, the representative claim, were method claims, to the method of using such a BHA, not the BHA itself, though some claims were to the tool itself: nothing turns on this.)

NCS builds and operates four BHAs at issue in this litigation [26]. One, known as the Mongoose, was in use since 2012, predating the claim date of the 561 patent [30]. I assume that NCS did not argue that the 561 patent was invalid as being anticipated by the Mongoose because the BHA would not have been available to the public, since it was used at the bottom of a high pressure oil well and, so far as I can tell, was actually operated by NCS, rather than being leased out so that it might have been available for inspection. Kobold conceded that NCS could continue to use the Mongoose, presumably because it was protected by s 56 [31]. The question for s 56 was whether the other three models can be considered “the same” as the Mongoose.

Expanded protection

Zinn J began his analysis with a comparison of the old and new provisions. He noted that it is express in the amending legislation that the new s 56 is intended to grant more expansive rights than the previous version: [67]–[68], referring to Budget Implementation Act, 2018, No 2, SC 2018, c 27, Summary of Subdivision A of Division 7 of Part 4.

He observed that the current version of subsection 56(1) differs in three key ways from the former [70]:

● The former provision was limited to physical inventions and did not cover patented methods. The current provision, referring to “an act” that would otherwise be infringing, encompasses any act kind of potentially infringing act: [71]. (For convenience, in what follows I will generally refer to a physical device, like a BHA, but keep in mind that the protection is broader; the actual claims at issue in this case were method claims.)

● The former provision protected the “specific article”; the current provision instead protects “the same act”: [72].

● The former version only protected persons who had committed an infringing act prior to the claim date; the current provision also protects persons who made “serious and effective preparations” to do so [73]. Zinn J pointed out that this change was likely intended to legislatively overturn Merck v Apotex 2006 FCA 323, in which the FCA held that Apotex was not protected by the former s 56 because it had not actually acquired title to the infringing product by the claim date, even it had ordered the product and production had actually started [74]–[75]. Merck v Apotex can no longer be considered good law.

Further, Zinn J noted that s 56(6) and 56(9), which deal with third party use of a purchased article or service have no corresponding provisions in the previous provision.

The same type of infringement

The current provision protects “the same act.” What does it mean for the acts to be the “same”?

Part of the answer is that the acts must be the same in the sense that the type of infringement—make, sell or use—must be the same. So, if a person manufactured and used an infringing device prior to the claim date, “they can continue to manufacture and use it, but they cannot now sell the device to others to use, as selling is not an act done prior to the issuance of the patent” [98], and see [97], [91]. Section 56 seems to be broadly modeled on the corresponding provision of the UK Patents Act 1977, s 64, and this holding is consistent with the UK caselaw: see Lubrizol Corp v Esso Petroleum Co Ltd [1998] 115 RPC 727 (CA) 769–70 (Aldous LJ); Forticrete [2005] EWHC 3024 [15] (Kitchin J). This point does not appear to have been disputed.

In some cases, this limitation seems straightforward. If NCS was making and operating infringing BHAs before the claim date, but was not selling them to third parties, then it can continue to make and operate the same BHA after the claim date, but it does not have the right to start selling them. A more difficult question arises if a person has in good faith imported an infringing product prior to the claim date, with the intention of selling it, but did not actually make any sales prior to the claim date. In such a case, it appears that the protection would allow the person to continue to import the product, but not to sell it—”unless the importation amounted to an effective and serious preparation to sell it”: see Forticrete [2005] EWHC 3024 [15]. Zinn J did not discuss this point, which did not arise on the facts of this case.

It is necessary that the type of infringement is the same, but that is not sufficient to invoke s 56: a person who makes one infringing device prior to the claim date does not have carte blanche to make any infringing device after the claim date: [100], [90]. A comparison must be made between the prior act and the subsequent act to determine if those acts are the same. This point does not seem to have been contested. (Zinn J accepted Kobold’s submission on that point [90], and that submission does not appear to have been opposed by NCS.) This holding is also consistent with the UK jurisprudence: Lubrizol v Esso (No. 1) (1992) 109 RPC 281 (Pat) 295 (Laddie QC); Lubrizol Corp v Esso Petroleum Co Ltd [1998] 115 RPC 727 (CA) 770 (Aldous LJ); Forticrete [2005] EWHC 3024 [25] (Kitchin J).

So, it is clear that on the one hand, the prior user right is not confined to the same specific article that had been used prior to the claim date; but the fact that the person did an ‘infringing’ act before the claim date does not give them carte blanche to carry out any infringing act after the claim date. The answer lies somewhere between these two extremes. This will be the subject of my next post.

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