Wednesday, July 5, 2023

Does an Order to the Commissioner to Vary the Patent Office Records Engage the Limitations Period?

Secure Energy (Drilling Services) Inc v Canadian Energy Services LP 2023 FC 906 Zinn J

2,624,834 / Water-Based Polymer Drilling Fluid

This case raises a difficult question as to whether the limitations period in s 39(2) of the Federal Courts Act applies to a declaration of inventorship and consequent declaration of ownership. It also raises a subsidiary question as to whether a formal order directing the Commissioner to vary the records of the Patent Office is required when the court issues a declaration of ownership under s 52. For convenience, I will refer to the corporate parties’ predecessors by the name of the current parties, namely Canadian Energy Services (CES) and Secure; some arguments based on chain of title were raised, but these came to nothing: [78]–[83]. (CES’s predecessor was Mud King and Secure’s predecessors are Genesis, New West, Marquis, 1658774 Alta Inc.)

The 834 patent relates to drilling mud with anionic polymers as an anti-accretion additive to prevent the mud from sticking to the drilling components [2]. Ewanek, currently the named inventor on the 834 patent, worked for Secure. He hired Levey to work on anti-accretion additives [10]. In this decision, Zinn J found that it was in fact Levey alone who devised the anionic polymer additive which was the subject of the 834 patent [55]. In 2005, after Levey devised the anionic additive, Ewanek left Secure to work for CES [13]–[14]. CES then filed an application for what became the 834 patent, with Ewanek listed as the sole inventor. The 834 patent issued in 2016, with CES as the owner of record of the 834 patent and Ewanek as the sole inventor, which is the way the record stands as of the date of the decision. (It’s worth noting that Levey also devised a cationic polymer, which led to a separate patent 2,508,339, which issued to Secure; both Ewanek and Levey were named inventors on the 339 patent application, relating to the cationic polymer, but Ewanek’s name was subsequently removed: Secure v CES 2021 FC 1169 Zinn J discussed here.)

So, at heart, this was a case of contested inventorship, in which Zinn J found on the facts that Levey was the true sole inventor, and not Ewanek, who was listed as inventor on the record. This was the easy part. The finding that Levey was the true inventor was not a close call [42]–[54], and there was no real dispute that if Levey was the true inventor, then Secure as his employer was properly the owner, as Levey did not advance any personal claim to ownership [81].

The difficult issue related to the application of the limitations period. This was complicated by the procedural history. In Feb 2018 CES brought an infringement action against Secure in the Federal Court, based on the 834 patent,. Secure sought a stay on the basis that it would be commencing an action in the Alberta Court of Queen’s Bench seeking a declaration of ownership of the 834 patent; this was before SALT v Baker 2020 FCA 127 (see here), so both parties believed that the FC did not have jurisdiction to determine ownership [20]. This evidently alerted CES to the fact that Secure was going to defend on the basis of ownership, so in July 2018, CES commenced an action in the ABQB seeking a declaration that it was the owner of the 834 patent and that Secure had infringed. Secure defended and counterclaimed on the basis that it was the true owner or at least co-owner [18]–[19]. The FC action was stayed on consent until the Alta decision was received: [23].

In the Alberta action, the parties brought competing applications seeking a determination of ownership. Secure’s counterclaim seeking a declaration that it was owner was dismissed on the basis that the Alberta Limitations Act applied and Secure’s claim to be declared owner was statute barred under that Act: Secure Energy 2022 ABCA 200 affg 2020 ABQB 473 (see here). The ABCA [12] explicitly did not decide who was the true inventor.

Having lost in Alberta on the basis of the Alberta limitation period, Secure came back to the FC with this application, seeking a declaration that Levey was the true inventor or a co-inventor with Ewanek. As noted, Zinn J had little difficulty in finding on the facts that Levey was indeed the true inventor [55], [84].

While the factual determination that Levey was the inventor was straightforward, there were two legal hurdles standing in the way of to a declaration to that effect.

First, what was the effect of the Alberta decision? CES argued that this application by Secure was improper as being an abuse of process, a collateral attack on the Alberta decisions, or as precluded by issue estoppel [35]. Zinn J dismissed these arguments on the basis that the issue was different. He pointed out that the ABCA has repeatedly and explicitly stated that it was not deciding anything with respect to inventorship or ownership [41]. Moreover, the ABCA explicitly stated that “Nothing the chambers judge did prevents Secure from seeking rectification under s 52 of the Patent Act” [40]. Doing something the ABCA explicitly said you can do can’t possibly be a collateral attack on that court’s decision.

The more difficult question was the application of the limitation period. Under s 39 of the Federal Courts Act the provincial limitations period applies “in respect of any cause of action arising in that province,” and a six year limitation applies “in respect of a cause of action arising otherwise than in a province.” So, either the Alberta period or the Federal six-year period applies, depending on whether the cause of action arose in Alberta (which means all the elements of the cause of action occur in that province: 2017 FCA 9 [114]).

Zinn J did not find it necessary to decide which limitation period applied, on the view that the result would be the same in either case because there is no limitation period applicable to a declaration of inventorship.

The key question was whether the limitation period applies to declaratory relief. Zinn J relied on the decision of Heneghan J in Calwell Fishing 2016 FC 312 [140] in which she held that an application for declaratory relief does not assert a cause of action, and so is not subject to the s 39 limitation period. Her reasoning was based primarily on the text of s 39, both subparagraphs of which refer to a proceeding in respect of “a cause of action,” as well as on Manitoba Metis Federation [2013] 1 SCR 623, which noted that declaratory relief “is available without a cause of action” [64]–[65]. So, Zinn J concluded “I find in this matter that Secure is seeking only a declaration. It does not assert a cause of action” [67]. The key point is that s 39 only applies in respect of “a cause of action.”

As I understand Zinn J’s reasoning, it does not matter whether the cause of action arose in Alberta. Subsection 39(1) says that provincial limitations law applies in respect of “any cause of action” arising in Alberta. If a declaration is not a cause of action, then 39(1) is not engaged, and provincial limitations law is not relevant. Subsection 39(2) similarly bars a proceeding in respect of “a cause of action,” so if a declaration is not a cause of action s 39(2) is not engaged either. This is consistent with with Calwell Fishing [139], in which Heneghan J made it clear that her reasoning applies to both subsections, because both refer to a “cause of action.” The result is that there is no limitation period applicable to a declaration of inventorship and a consequent declaration of ownership, at least if the application is brought in Federal Court.

That deals with the declaration of inventorship sought by Secure. But Secure also sought an order under s 52 of the Patent Act directing the Commission to vary the records of the Patent Office to reflect Levey as the sole inventor [68]. This is a routine order consequently on a declaration of inventorship or ownership. Zinn J considered that “The request for an Order directed to the Commissioner of Patents might arguably lie beyond the request for a declaration and appear to be remedial in nature” [69]. The implication seems to be that if an order is remedial in nature, then s 39 might apply. Zinn J sidestepped this issue by holding that “such an order is unnecessary when the Court issues a declaration of inventorship” [69]. Consequently, Zinn J’s Judgment simply “declares” that Levey is the inventor and that Secure is the owner, but made no order directing the Commissioner to rectify the records accordingly.

I am not very comfortable with this. As Zinn J acknowledged, when an application is made regarding a declaration of inventorship, it has been routine to grant an order directing the Commissioner to vary the records accordingly: see eg Zinn J’s own order in respect of the 339 application, directing the Commissioner of Patents to “vary all entries in the records of the Patent Office” to correct the inventorship (2021 FC 1169). Zinn J’s decision not to grant an order was transparently to avoid potentially triggering the limitations provision. A limitations period is not a technical defence and should not be avoided on a technicality, by avoiding the normal order.

Nor am I persuaded by Zinn J’s reasoning. He adopted the reasoning of Prothonotary Lafrenière (as he then was) in Grenke v Corlac 2007 FC 396, who, as Zinn J put it “held that in issuing a declaration under section 52 of the Patent Act,” [70]

The Federal Court is simply determining the rights of private parties as reflected in the Patent Office records, and it is the statutory obligation of the Commissioner to give effect to any such orders.

The Commissioner has no more power or authority than would a clerk of the Federal Court to refuse to give effect to such a court order.

The holding that “issuing a declaration under section 52" does not require an order strikes me as being difficult to reconcile with the text of s 52:

52 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.

It seems strange to say that an application under a provision giving jurisdiction to “order” the Commissioner to vary the record, doesn’t actually require an order. Now, we might say that this was not in substance an application under s 52, but merely an application for a declaration of inventorship (under whatever provision empowers the court to grant general relief). But that would arguably make s 52 redundant.

Nor is the analogy to a clerk of the FC helpful. Presumably a clerk who refused such an order could be disciplined under the contract of employment; the FC has no such direct authority over the Commissioner. It is not clear how the declaration could be enforced if the Commissioner, for whatever reason, did not make the change. It might be said that after Zinn J’s Judgment, CES is the true owner even if the record is not corrected, as a consequence of Zinn J’s declaration; but it is clearly undesirable to have the records of ownership diverge from the reality.

Further, in my view, Lafrenière J’s decision in Grenke v Corlac does not support Zinn J’s holding. In that case, the question was whether the Commissioner should be named as a party in an action seeking relief pursuant to section 52 of the Patent Act. Lafrenière J’s point that in such an application the Federal Court “is simply determining the rights of private parties,” was by way of saying that the Commissioner need not be joined because he has no interest in the outcome. So, when Lafrenière J said that “The Commissioner has no more power or authority than would a clerk of the Federal Court to refuse to give effect to such a court order” (emphasis added) this presupposes that an order pursuant to s 52 was granted; Lafrenière J made numerous references to an “order” throughout his decision. The analogy to a clerk is simply a way of saying that the Commissioner has no independent jurisdiction to assess the validity of inventorship before correcting the order, which is why he does not need to be joined.

With all that said, it strikes me that none of these objections matter, because, with respect, Zinn J’s discussion of whether the order is remedial is beside the point. He began his discussion by saying that an order might appear “to be remedial in nature” [69]. But what does that matter? Zinn J had just explained that the question in respect of s 39 is whether the proceeding is in respect of “a cause of action.” The reason that the declaration of inventorship does not engage s 39 is because it is not “a cause of action,” not because it is not remedial. The accompanying order is separate from the declaration, but the question remains whether the application for an order is “a cause of action.” Prima facie, it is not. But Zinn J never addressed the question of whether the order is a cause of action; while his discussion of the declaration focused on the “cause of action” question, his discussion of the order turned on whether it is remedial. I suspect that some confusion arose because of the way the issue was argued. Section 3(1) of the Alberta Limitations Act bars a claimant from seeking “a remedial order” after the relevant limitations period has expired. The parties had been litigating in Alberta, the ABCA had held that the limitations period applied because the declaration Secure was seeking was remedial [21]–[24], and the parties were no doubt arguing about the application of the Alberta Act in this application, as it relates to 39(1). So the Alta provision was top of mind: eg “CES submits that Secure is seeking a remedial order and these limitation periods apply” [59]. Presumably there was considerable argument over whether the order was remedial, I suspect Zinn J slipped into answering that question, even though he had effectively just explained why it is irrelevant.

So, if an order directing the Commissioner to vary the records is not “a cause of action,” there is no limitation period because s 39 is not engaged, whether or not such an order is remedial. As I see it, there is a good prima facie argument that such an order is not “a cause of action.” If that is correct, then s 39 is not engaged by such an order, whether or not it is remedial.

This has been a purely technical analysis of s 39. A holistic requirement, considering text, context and purpose, is always required.

There are three main rationales for a limitations period: see eg Peixeiro v Haberman [1997] 3 SCR 549 [34]. 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.”

First consider certainty. Subjecting a declaration of inventorship to the limitations period will not generally affect third parties one way or the other. Barring the change does not affect whether third parties are likely to be sued, but only who will sue them; it will make no difference to a third party whether they are sued by CES or Secure.

So consider how these rationales apply where ownership is contested between a plaintiff and defendant, as in this case. I expect that typically this will arise in a situation like the case at hand, when an employee transfers between industry competitors. In such a case, either (1) the defendant will be seeking a declaration that it is the true owner in order to defend against the plaintiff’s action, as in this case; or (2) the plaintiff will be seeking a declaration in order to bring an infringement action against the defendant, which Secure might do now that it has been declared owner.

In scenario (1), the certainty rationale does not apply in the same way as in a typical action; arguably, it does not apply at all. In a tort action, the effect of the limitations period provides certainty for “a potential defendant,” by barring the plaintiff’s action. In scenario (1), as in this case, the limitations period benefits the plaintiff, by barring the defendant’s meritorious defence. Surely the limitations provisions were not intended to bar a meritorious defence. As a general matter, it makes perfect sense to say that defences are never subject to the limitations period, because they never get raised except in response to an action. If the action is not barred, a substantive defence should not be barred either. This view is consistent with the text of s 39(2), which bars a “cause of action,” not a defence. The idea of a limitations period is that at some point, you no longer have to worry about being sued for acts you did long ago; a plaintiff never has to worry about that, as a plaintiff can avoid litigation by not bringing the action in the first place. (The same point can be made when the plaintiff brings an action against a party who defends on the basis that the patentee is not the true owner, but rather some other person who is not party to the litigation.)

Scenario (2) cuts the other way in terms of the certainty rationale. If D is recorded as owner, shouldn’t D be able to rely on that as assurance that it will not be sued on that very patent? The ABCA [22] found this point persuasive in holding that the declaration of inventorship was barred: “Secure concedes that if Secure were granted a declaration of ownership, Secure would continue its infringement claim against CES and seek injunctive relief, damages and disgorgement of profits as stated.” Zinn J adverted to this point, but sidestepped it: “This is not to suggest that should Secure commence an action against CES or another for infringement that a defence based on prescription would not be available to the defendant. That will be a matter for that trial judge” [72]. Would the prescription defence actually be available? Prima facie, the answer is no, as the s 55.1 limitation period for bringing an action runs backward from the time of the infringement. As noted, this is not a problem if Secure were to bring an action against a third party, as that party would have been equally vulnerable to an action brought by CES. But the situation is arguably different if Secure brings an action against CES, which might reasonably have relied on being the owner itself.

Now consider the diligence rationale. When an employee moves from a first firm to a second, which then applies for a patent, the second firm will always be in a better position to determine whether it is the owner. The second firm is actually filing the application and can ask their employee, who is the named inventor, about their role in the invention. In this case, Ewanek did not have any notebooks or other documentary evidence to support his inventorship, he could not explain how he came up with the idea, and he acknowledged that Levey had tested anionic polymers while at Secure [48]–[49]. All of this information would presumably have been available to CES at the time of the application: Ewanek claimed to have had the idea for the invention “within days” of leaving Secure. CES could have asked him for some evidence of that before filing the application. More generally, the second firm will always be in a position to take some kind of steps to confirm inventorship.

On the other hand, the first firm may or may not be in a position to confirm inventorship, and it will never be in as good a position as the second firm. In this case, Secure had actual knowledge of a possible misappropriation of confidential information by Ewanek in the fall of 2005, soon after Ewanek left, and so was in a position to challenge CES’s application: ABQB [47]. On the other hand, Levey also left Secure at around the same time, taking his notebooks with him [11], and it is not clear whether Secure should have known that Levey might be the true inventor. It is possible that in 2005 Secure was in a position to bring an action for misappropriation of confidential information, but not immediately in a position to challenge inventorship, though the information necessary to challenge inventorship might have emerged if it had pursued a misappropriation claim. This is an example in which the first firm did have considerable knowledge. Even so, it was not in as good a position to verify inventorship as the second firm, CES, which was actually making the patent application. And this case is probably a high-water mark in terms of the information that the first firm might have. If the first firm was not aware of the significance of the technology, or was not aware of the possible misappropriation, it would be difficult to fault it for lack of diligence. In many cases, the first firm may not even know of the application or the patent. We can’t require every firm to proactively patent everything that any employee might have invented, or to challenge inventorship on another firm’s patents which they know nothing about. So, the second firm will always be in a better position than the first firm to verify inventorship and the only question is how much better.

With this in mind, I would suggest that far from encouraging diligence, applying the limitations period to a declaration of ownership, would actually have a perverse effect: it would discourage diligence on the second firm’s part, because its best strategy would be to turn a blind eye to any defects in inventorship and hope that the true owner will not discover the situation until it is too late. It’s worth noting that in this case, the 834 application was filed in 2006, but only issued ten years later in 2016; the ultimate limitation period under s 3(1)(b) of the Alberta Limitations Act also happens to be ten years.

The evidentiary rationale seems to me not to have much purchase one way or the other. If the evidence is stale, the declaratory action will simply fail. The problem of stale evidence is also addressed by the fact that the term of a patent is 20 years from filing, so any change of inventorship after that time will be largely moot.

On the whole, I suggest that a purposive analysis strongly supports the view that a declaration of ownership is not subject to a limitation period. The most important point is that the limitations provision cannot have been intended to bar what is effectively a substantive defence, which is the effect in Scenario (1). That purposive point is buttressed by the text of the provision, which only bars a cause of action. In Scenario (2), barring the declaration of ownership provides certainty of ownership to the patentee; but against this, it creates a perverse incentive for the patentee not to act diligently in verifying its rights. Put another way, if the patentee wants certainty that it is the true owner, and so will not be sued on the patent, that certainty can be provided by giving the patentee an incentive to diligently investigate inventorship at the time of the application, rather than by barring the true owner from claiming ownership. Thus, diligence on the part of the party who is best placed to verify inventorship is encouraged by not applying the limitations period to a declaration of inventorship.

We’ve seen that the ABCA held the declaration of inventorship should be barred to prevent Secure from turning around and bringing an action against CES. While the ABQB made the point that Secure knew of a possible misappropriation of confidential information, that point cuts both ways. CES also knew that it had just hired someone who came up with a valuable invention just days after leaving his prior employer. And it is difficult to feel much sympathy for CES; if it wanted to avoid being sued by Secure, CES should have taken steps to verify that it was the true owner before bringing the action against Secure.

In summary then, it seems to me that Zinn J was right in holding that a declaration of ownership is not subject to any limitation period because it is not “a cause of action.” A textual and purposive analysis of s 39 of the Federal Courts Act support this interpretation. However, I would suggest that the order that normally accompanies such a declaration is not subject to the limitation period either, for exactly the same reason.

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