Wednesday, June 22, 2022

Limitation Periods and the "Awkward Dance" of Concurrent Jurisdiction

Secure Energy Services Inc v Canadian Energy Services Inc 2022 ABCA 200 affg 2020 ABQB 473 Gates J

2,624,834 / 2,508,339

The case engages in “the awkward dance of concurrent jurisdiction between the Federal Court and provincial superior courts” [11] in the context of the limitation periods for asserting patent ownership. The general question raised by the case is whether the limitation period for deciding ownership will differ depending on whether the issue is raised in a s 52 application to vary the records of the Patent Office, brought in Federal Court, or in the course of an action in a provincial superior court. Ultimately, the answer seems to be that if the cause of action arises within a province, as in this case, the same limitation period will apply regardless of forum, by virtue of s 39(1) of Federal Courts Act.

The facts are a bit messy, and to simplify I will ignore various corporate transactions and relationships, and refer to the corporate parties’ predecessors by the name of the current parties, namely Canadian Energy Services (CES) and Secure. (Mud King was CES’s predecessor and Secure’s predecessors are Genesis, New West, Marquis, 1658774 Alta Inc.) So far as I can tell, nothing turns on any issue of corporate successorship, as it does not seem to be disputed that the rights and obligations of predecessors carry over to the current parties.

Ewanek, currently the named inventor on the 834 patent, originally worked for Secure. He left Secure in 2005 to work for CES. About a year later, CES filed an application for what became the 834 patent, with Ewanek listed as the sole inventor. The patent issued in 2016, with CES as the owner of record of the 834 and Ewanek as the sole inventor, which is the way the record stands currently.

In 2018 CES brought an infringement action against Secure in the Court of Queen’s Bench of Alberta.1 Secure’s defence alleged, inter alia, that Secure is the rightful owner of the 834 patent, on the basis that the invention was based on confidential information improperly taken by Ewanek when he left Secure; and alternatively, on the basis that Levey, an employee of Secure, was a co-inventor. Secure counter-claimed seeking a declaration that it is the owner of the 834 patent, as well as a declaration of infringement by CES plus associated monetary remedies.

CES responded by bringing an application for summary judgment on the basis that Secure is barred by s 3 of the Alta Limitations Act from claiming that it is the rightful owner. CES prevailed on this issue at first instance and Gates J consequently granted summary judgment in favour of CES. The ABCA has now affirmed, by a 2-1 majority. (CES also prevailed on an alternative argument that a prior settlement between Ewanek and Secure’s predecessor applied to bar this claim. This turned on the facts and I won’t say anything more about it.)

As we’ll see, Secure faced an uphill battle in respect of the Alta Limitations Act. Secure’s main argument on appeal was an effort to avoid the limitations issue, on the basis that there was a “threshold question” as to who the inventor was, and “that question must first be decided in Federal Court pursuant to s 52 of the Patent Act” [5].

[10] The effect of Secure’s argument is that, until that question is answered by the Federal Court, all steps in a provincial superior court action should then come to a full stop. In effect, then, Secure argues that an application under s 52 of the Patent Act trumps all others and an action in a provincial superior court should then be held in abeyance. Or operates as a stay.”

As I understand it, Secure’s position is that it should be able to first go to the Federal Court, get the record rectified under s 52, then come back to defend the Alberta litigation, now as the owner of record. The “threshold question” argument effectively amounts to seeking a stay. So, in the ABQB, after filing its counterclaim seeking a declaration that it is the owner, Secure also sought an order severing the issue of ownership, and a stay of all other issues pending resolution thereof [QB 25a]. At both levels, the stay issue was subsumed in the “threshold question” issue, but it is perhaps easier to think of the problem as being whether a stay should be granted until the s 52 proceedings are resolved.

Gates J at first instance dealt with this by addressing the substantive ownership issue, holding that CES was the owner because it was first to file its application and Canada now has a “first to file” regime [FC 30]–[31]. It is uncontroversial that this was an error [12], [75].

The majority in the ABCA was of the view that this error made no difference because it was not necessary to decide the ownership issue at all. The ABCA framed the issue primarily as a matter of concurrent jurisdiction—hence the “awkward dance.” The majority’s basic logic is: the Alta courts properly have concurrent jurisdiction; s 12 of the Alta Limitations Act provides that the Alta limitations period applies to the Alta action; and nothing in SALT v Baker 2020 FCA 127, which clarified that the FC does have jurisdiction to determine such matters of ownership (see here), in any way diminishes the concurrent jurisdiction of the provincial superior courts [9]–[10],[19]. This all makes sense so far as it goes. But the gist of the reasoning is that for that reason, it doesn’t matter what might happen in the Federal Court proceeding; even if Secure is declared owner in a s 52 FC proceeding, it won’t affect the Alta proceeding. I’ll quote at length from the key paragraphs (my bold):

[12] Even in a “forums conveniens” sense, severing the “inventorship” question – ie the threshold question – from the remaining parts of the Alberta claim and counterclaim and holding those matters in indefinite abeyance until the threshold question is answered does not assist the appellants in the Alberta action. Secure is in a better position than the average plaintiff because of s 52 of the Patent Act. The chambers judge’s decision does not preclude Secure from determining ownership and rectifying the Patent Register under s 52 of the Patent Act. They can do that. If they own Patent 834, they can even enforce it going forward. [The trial judge applied the wrong test in determining inventorship.] Regardless, we need not decide the inventorship question in any event.

[13] Even assuming the appellant subsequently establishes it as the rightful owner of Patent 834, that does not end the matter relative to the Alberta action. While a successful s 52 Patent Act application may assist Secure moving forward, it does not assist in the Alberta action retrospectively. The proceedings brought in Alberta are enforcement proceedings and any defences the party might have apply to that action. Available defences include that a claim is statute barred under the Limitations Act, or otherwise precluded because the current lawsuit is governed by the terms of a settlement release. Secure cannot assert a title or an entitlement that was released or is statute barred. In that way, the case is analogous to any other case where a plaintiff has a valid claim but is prevented from enforcing that claim because of the expiry of a limitation period or has previously indemnified or released an otherwise valid claim.

The stay issue is not addressed explicitly, but the implication is that Secure is not entitled to a stay because even if the proceedings would give different results, neither result is illegitimate, and there is no particular reason to prefer one over the other.

The fairly clear implication is that the substantive outcome may depend on the order in which the proceedings are brought. If Secure had brought its s 52 application first, and had been successful, and then the Alta action was commenced, Secure would prevail in Alta litigation, even though the same claim is barred if raised initially in Alta. Indeed, it seems there is an application by Secure currently in the FC seeking a declaration that Secure is the owner of the 834 patent, that has been stayed by the FC [72]. What if FC had declined a stay and granted a declaration that Secure is the owner while the Alta action was in progress. Would the result turn on whether Secure would be allowed to amend its pleadings? And if Secure does ultimately prevail in its s 52 application, will it be able to bring an action against CES for infringement? No doubt prior acts of infringement are res judicata in light of the Alta decision, but what about future acts of infringement? Perhaps issue estoppel would preclude it—or maybe not—but even if it does, this just goes to highlight the point that the substantive rights turn on the order in which the proceedings were brought.

There is no doubt an “awkward dance” of concurrent jurisdiction between the Federal Court and provincial superior courts, but this strikes me as substantively awkward, not just procedurally awkward.

It would be more satisfactory if the same limitation period applied in both contexts. If so, Secure’s claim that it is the rightful owner is either barred in both forums, or allowed in both forums. And there is a second strand to the ABCA’s reasoning. The majority stated that “even if Secure had made its claim in the Federal Court, the Alberta limitation periods would apply since the cause of action arose in Alberta” noting that s 39(1) of Federal Courts Act provides that the provincial limitation period applies “in respect of any cause of action arising in that province” [19]. This implies that even if Secure brings a s 52 application in Federal Court, its claim to be the owner is barred by the Alta limitation period. This largely eliminates the problem that substantive rights to a patent might turn on the forum in which the action is brought.

This seems right to me both on the Act and as a matter of policy, but I should note that the point was not discussed at length; the main thrust of the decision is that the Alta Limitations Act does apply because the action was brought in Alta, so what might be the case if it were brought in the Federal Court was not a key issue.

Also, I say it ‘largely’ eliminates the problem because in this case, the ABCA was of the view that the cause of action arose in Alta [19], so the Alta limitation period would apply whether the application is brought in Alta or Federal Court. But could a cause of action for ownership arise in more than one province? If so, there is still a possibility of conflict, as the six-year period would apply if the action were brought in Federal Court, and the two or ten-year period would apply if the action were brought in Alta, by virtue of s 12 of the Alta Limitations Act. But that strikes me as a tolerable discrepancy; a technical divergence of that kind is almost inevitable in a federal system, barring complete uniformity of limitation periods.

If the Alta Limitations Act applies, whether in the Alta courts or in a s 52 application, what is the result? The Alta Limitations Act s 3(1) bars an action seeking a “remedial order” brought more than (a) two years from reasonable discoverability, or (b) ten years from when the claim arose, whichever is first.

The reference to a “remedial order” means that it is well established in Alta law that a declaratory order is not subject to the limitation period in s 3(1) of the Limitations Act: see Yellowbird v Samson Cree Nation No. 444 2006 ABQB 434 discussing the legislative history. This is not merely a peculiarity of the Alta Act; Ontario has a similar provision in s 16(1)(a) of its Limitations Act.

Secure therefore argued that the declaration of ownership it was seeking was a declaratory order, and so not subject to any limitation period at all [16]. Both levels of court held that Secure was seeking a remedial order, not merely a declaratory order, because Secure conceded that if granted the declaration of ownership, it would continue its counterclaim for infringement against CES, and seek damages or other relief [22]. This is sufficient to make the claim remedial in Alta law [23]–[24].

Accepting that is correct as a matter of Alta law, what if Secure had brought an application under s 52 for an order varying the record to show it as owner, before bringing an action against CES? Would this be a claim for declaratory relief as a matter of Alta law?

I suspect not, though I haven’t investigated enough to have a firm opinion. In Yellowbird, a declaration that the plaintiffs had been members of the Samson Cree Nation No. 444 since the 1980s was considered declaratory, but a declaration that they were consequently entitled to receive financial benefits that for that period was considered remedial. The test for a declaratory order in Alta law is apparently whether the interested persons “may leave the court in peace and comply with their duties as defined in the declaration without further resort to the judicial process” [22]. If Secure sought an order in the Federal Court under s 52 that it was an owner, it would perhaps not be currently seeking further resort to the judicial process, but that would obviously be contemplated; as a practical matter, the whole point of seeking a declaration of ownership is to subsequently bring an infringement action. No doubt in some cases the parties would expect to settle; eg if validity and infringement of the patent were clear, and the only question was ownership, the party who was declared to be the owner might well extract royalties in a settlement. In one sense, that settlement would be “without further recourse to the judicial process,” but that would only be because of the implicit or explicit threat of recourse to the judicial process. In those scenarios, where the declaration will have a practical effect on the pocketbook of another party, it seems wrong to me to say the relief is declaratory. And the ABCA has said that declaratory relief is “construed narrowly so as to discourage litigants from claiming declaratory relief merely to avoid the limitation period”: Joarcam 2013 ABCA 118 [7].

With that said, it does happen that a correction of ownership will be sought under s 52 even in the absence of specifically contemplated litigation, presumably because the patent owner wants to make sure that a mistake in inventorship in a valuable patent won’t cause problems if the patent ever is litigated. In that case, it would seem wrong to refuse the order because it was brought late in the term, which, after all, is when many patents become valuable. But it seems wrong to say that the Alta period applies if the party is contemplating litigation, but not otherwise—how can the application of a limitation period depend on the subjective state of mind of one of the parties? A limitation period is intended to allow parties to feel secure in their rights after sufficient time has passed; whether the period has run shouldn’t turn on what someone’s plans and ideas happened to be at one time or another.

I suppose this is all to say that I find the concept of a purely declaratory order to be difficult to grasp. On the facts of this case, it seems clear that the determination of ownership was not purely declaratory as a matter of Alta law, but it’s not clear to me how the concept applies to s 52 applications more generally.

Finally, we can get to the Alta limitations provisions. Para 3(1)(a) provides for a period of two years from reasonable discoverability. Gates J at first instance found that Secure had actual knowledge of the possible misappropriation of confidential information in Sept 2005, and alternatively, that it should reasonably have known by April 2007 [26]–[27], and the ABCA held that this conclusion was supported by the evidence. Thus the two-year limitation period had long passed when the infringement action was brought, and this was determinative.

CES also argued that the ten-year limitation period had also expired, having commenced running in either 2005 (when Secure had knowledge of the possible misappropriation) or 2007 (when the application was published) [FC 44]. The point doesn’t really matter, given that the two-year limitation period had passed, which is enough to bar the claim, and the analysis on this point was a bit difficult to follow.

Gates J held that the ten-year period has passed [52], but there was no real analysis of the ten-year period that I can see at either level of court. (All of the points summarized by the ABCA [26] refer to whether Secure knew or should have known.) Under the Alta Limitations Act, the action is barred if either limitation period has run, so this makes no difference to the outcome. The strict ten-year limitation under 3(1)(b) runs from the time “the claim arose” and in the absence of any analysis, this means that even though this ten-year period was actually applied, this decision is not helpful as to when it begins to run. A further possibility is that it only begins to run when the patent is actually granted. This possibility was not addressed. It is implicit that Gates J considered that the strict ten-year period began to run on either the application date or the publication date, but in the absence of any analysis, I suggest that this decision does not preclude the possibility that it properly begins to run only at grant. To be clear, I am only pointing out the ambiguity in the decision on this point, and I have no opinion as to when the cause of action arose for the purpose of the ten-year limitation period.

Secure also argued that the Alta limitation period had not run because alleged misuse of confidential information by CES and Ewanek constituted a continuing tort [29]. The ABCA rejected this, saying “the continued use of property, including intellectual property, does not constitute an ongoing tort. To find otherwise would render limitation periods meaningless” [30]. Stated so broadly, this does not seem right to me. If I own a patented coffee maker and I use it every day, it seems to me that is indeed an ongoing tort. That is why s 55.01 is backward-looking, specifying that no remedy is available for an infringement committed “more than six years before the commencement of the action.” But the Court was referring specifically to Ewanek’s alleged misuse of confidential information which led to the patent. It does seem to me that the misuse of confidential information is not ongoing; if I stole a car in 2002, that’s when the limitation period on a claim for conversion starts running, even if I am still driving it today.

Finally, Secure also argued that the limitation period in s 55.01 of the Patent Act should apply. The basis for the argument is not clear, as the ABCA dismissed the argument very briefly, saying “Secure provides no authority for that proposition except to argue federal paramountcy generally” [20]. Even apart from paramountcy, I don’t really see how s 55.01 applies, as it provides that no remedy may be awarded “for an act of infringement” committed more than six years prior to commencement of the action. An application for a declaration of ownership, or to vary the records, isn’t an act of infringement, so the provision doesn’t apply on its face — though it might of course apply to bar recovery in a subsequent action, after ownership is decided.

However, that does raise the question of what limitation period applies to an infringement action brought in provincial superior court. The Patent Act s 55.01 limitation period runs backwards for six years from the time the action was brought. The standard provincial limitation period runs forward, typically two years from reasonable discoverability. If an infringement action is brought in provincial superior court ten years after the first infringement, but one year from reasonable discoverability, can the patentee claim damages for the full ten-year period, even though it would be restricted to the last six years by s 55.01? That strikes me as problematic, but I’ll just leave it there: it is getting too far afield in what is already a long post, and I’m not aware of any caselaw.

1 CES originally brought an infringement action against Secure in the Federal Court, just a few months before commencing the Alberta action. Secure has not filed a statement of defence and that action is on hold. I would speculate that after CES brought the FC action, it became aware of Secure’s argument that it had a claim to ownership, which at the time — before SALT Canada Inc v Baker 2020 FCA 127 (see here)— would have to be decided in provincial superior court.

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