Adding the Manufacturer to a Suit Against End-users

Seismotech IP Holdings Inc v John Does 2023 FC 1335 Grammond J

2552603 / 2364081 / 2551854 / 2621287 / 2551847*

This procedural decision, adding the manufacturer to an action brought by the patentee against end-users, will be of interest in actions relating to patent assertion entities (PAEs). Patent assertion entities are businesses whose primary business is asserting patents against alleged infringers which typically independently developed the technology. The PAE’s patents are normally acquired from third parties, though in some cases the PAE may be the final business model for a previously successful operating company. The PAE may also be the inventor of ‘paper’ patents that were never commercialized: see generally Patent Assertion Entity Activity: an FTC Study (2016).

Some PAEs assert strong patents or large portfolios against large companies, seeking a licence for large sums, often in the millions of dollars. Other PAEs assert a small number of patents, which are often weak, against smaller entities, seeking much smaller settlements in a pattern that is consistent with nuisance litigation: FTC Study 41. The nuisance actions may be brought against end-users because the interest of the end-user extends only to the disruption and expense of switching to another product if a settlement is not reached. An end-user will often be willing to settle for a small amount to make the litigation go away, even if the patent is weak and the infringement claim is doubtful. A similar issue arises in the context of demand letters, as illustrated by Fluid Energy Group v Exaltexx 2020 FC 81, discussed here.

The interest of the patentee or licensed manufacturer, on the other hand, extends to the product itself. The interest of the patentee will be much greater than the interest of any individual end-user, and indeed, will generally be much greater than even the cumulative interests of all the current end-users, because the patentee hopes to also sell its product to future end-users. Consequently, the patentee will be willing to spend money to defend the validity of the patent that covers its product. The manufacturer is therefore a far more formidable foe for the PAE, which will accordingly wish to avoid prodding the bear.

This appears to be the situation here. Judging from its name, it’s recent incorporation in BC on 3 November 2022, and the lack of an online footprint, the plaintiff, Seismotech IP Holdings Inc, appears to be a PAE, perhaps with ‘paper’ patents. Even if it is not, its tactics are typical of the nuisance action PAEs. The patents at issue relate to smart thermostats, which help save money by reducing energy use. In the underlying litigation, Seismotech is suing as of yet unidentified end-users who purchased allegedly infringing smart thermostats, as well as the retail distributors—but not the manufacturer. In this decision, Seismotech was resisting a motion by Ecobee, the manufacturer of the allegedly infringing product, seeking to have Ecobee added as a party to the action [6].

Grammond J ordered that Ecobee be added as a party under Rule 104(b). That Rule is to be interpreted in light of the principle of party autonomy, according to which “parties are free to choose the manner in which they will assert or defend a claim, including the plaintiff’s choice of the defendants against whom to bring an action” [9]. Thus there is a fairly high hurdle if a party is to be added against the objections of the plaintiff [11].

In Ferguson v Arctic Transportation Ltd [1996] 1 FC 771 Prothonotary Hargrave provided a very helpful review of the cases to that point, including International Minerals v Potash Company of America [1965] SCR 3 in which the SCC addressed the issue in the patent context. More recently, in Servier v Apotex 2007 FC 1210, Snider J updated Hargrave P’s discussion and provided a helpful summary of the relevant principles at [17]. The current leading case from the FCA is Canada (Fisheries and Oceans) v Shubenacadie Indian Band 2002 FCA 509, though the discussion is fairly brief.

The case most directly relevant is Havana House (1998) 80 CPR (3d) 443 (FCTD) in which “[t]he owner of a trademark sued sellers of allegedly infringing cigars, but not their distributor. The Court added the distributor as a defendant in spite of the plaintiff’s objections” [16]. Rothstein J, as he then was, stated that:

Kozy Korner’s and Nigro are retail sellers, and Copa-Habana is the distributor to them. It may well be that Kozy Korner’s and Nigro will defend, but there is no reason that Copa-Habana should have to accept that its interest and its ability to market its merchandise as the original distributor to them should have to be defended vicariously. Its rights and its pocket-book would be directly affected by any order made against Kozy Korner’s and Nigro and it therefore has a direct interest to protect.

Exactly the same principle applies in this case.

Grammond J rejected Seismotech’s arguments that Havana House should not be applied. The most interesting argument made by Seismotech was that Havana House has been “overtaken by subsequent cases” [18]. A point emerging from the earlier cases is that “[a] mere commercial interest rather than a legal interest is not sufficient to make a person a necessary party,” as Snider J [17] put it in her summary.

Grammond J did not accept this argument. He held that the action “affects [Ecobee’s] legal interests, and consequently Ecobee should be added as a party [29]. He explained:

[18] Copa-Habana’s “ability to market its merchandise” was a legal right that would be affected by Havana House’s trademark. This is similar to Ecobee’s right to manufacture and sell its products, which would be affected by Seismotech’s allegations of patent infringement.

Further, “the reality [is] that the action cannot be allowed without determining the lawfulness of Ecobee’s products” [19].

In response, it might be said that while the lawfulness of Ecobee’s products is at stake, Ecobee’s legal rights are not at stake. Customers were never legally obliged to buy Ecobee’s products, and if in the future they refuse because Ecobee’s products are found to be infringing, that does not affect Ecobee’s legal rights as such any more than if in the future customers refuse to buy because they don’t like the colour.

The law doesn’t support such a fine distinction. International Minerals is directly on point. It concerned a conflict proceeding between International and Duval. The Potash Company of America (PCA) had for many years operated a process which it believed would infringe the patent, if granted. PCA and International had initially agreed to cooperate in either obtaining a royalty-free licence from Duval, or, failing that, in vigorously prosecuting International’s claim to be entitled to the patent. International then backed out of that agreement and told PCA it would be negotiating independently with Duval. PCA was concerned that Duval would reach an agreement with International, with the result that the patent would issue to Duval without challenge and without protection for PCA. PCA therefore sought to be added as a party. Cartwright J for the Court held that PCA should be added:

The order for which Duval is asking in the action is that it be declared that it is entitled to the issue of a patent which, if granted, will confer upon it the exclusive right of using the flotation process which PCA has been using for years and proposes to use in the development of its deposits of potash ores in Saskatchewan. The order sought would, in my opinion, affect the legal right of PCA to continue to carry on its business. It is true that if the intervention were not allowed the question of the validity of any patent to which Duval might be declared entitled would not as against PCA be res judicata and could be put in question under either s. 61 or s. 62 of the Patent Act, but until the patent was successfully impeached the right of PCA set out above would be affected. To allow the present action to proceed to judgment without the intervention of PCA, leaving it to its rights under the sections mentioned, would be to countenance the multiplicity of proceedings which it was one of the objects of the rule to avoid.

These words are equally applicable to this case. Seismotech already has its patent, but if it is successful in the underlying action, the result would confirm that Seismotech has the exclusive right of selling the product which Ecobee has been selling for some time. This in itself “would. . . affect the legal right of [Ecobee] to carry on its business.” It is true that if Ecobee were not added as a party, the outcome of the action would not be res judicata as against Ecobee, which would be entitled to bring an action under s 60 to determine whether Seismotech’s patent is valid and infringed by Ecobee’s product, but until the patent was successfully impeached, the right of Ecobee to sell its product would be affected. To allow the present action to proceed without Ecobee “would be to countenance the multiplicity of proceedings which it was one of the objects of the rule to avoid.”

In summary, in my view Grammond J’s decision was clearly right for the reasons he gave. All that I would add is to point out that this result is supported not only by Havana House, but also by the SCC decision in International Minerals.

*Grammond J did not specify the patents at issue, noting merely that there were four. The patents I have listed here are patents owned by Seismotech IP Holdings Inc which appear to broadly relate to the kind of technology at issue. Clearly, not all five patents are being asserted and it is possible that none of these patents are actually at issue in this litigation.

PS - I checked the Statement of Claim on a suggestion by a commenter. All the listed patents are being asserted except the 287 patent.

Column IV Costs for Summary Trial

Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC 2023 FC 780 St-Louis J

2,226,784 / tadalafil / CIALIS / NOC

There are a couple of points worth noting in this costs decision following from the summary trial in Lilly v Teva 2022 FC 1398*, in which the defendants, Apotex, Mylan, Teva and Pharmascience, prevailed: see FC “Or” And FC Overbreadth. Only Mylan and Lilly filed written submissions in regards to costs [1].

The first point is that while Rule 407 provides that costs are normally assessed on column III, the jurisprudence has established that the upper end of column IV is often appropriate in patent trials due to their greater than average complexity. Lilly argued that notwithstanding this caselaw, column III should apply in respect of summary trials. St-Louis J rejected this submission: “Accepting Lilly’s argument of some sort of a norm being fixed at column III for summary trials in intellectual property would entail, in addition to encroaching on the Court’s discretion, assuming that summary trials in intellectual property are, by default, of average complexity. While summary trials may mitigate the considerations highlighted by the Chief Justice in Allergan [2021 FC 186], I have not been convinced that they necessarily or always completely diminish the complexity of a pharmaceutical patent litigation to the point that these 400(3) factors cannot be considered and found to be present” [37].

Secondly, St-Louis J confirmed that an offer to settle that does not meet the conditions of Rule 420 may nonetheless be considered as one factor in awarding costs under Rule 400. This point is by now well-established [32]. (In this case, Mylan’s offer did not meet the timing conditions in subsection 420(3)—ie presumably it was made less than two weeks prior to trial.)

(I will have a post on the FCA decision in Benjamin Moore 2023 FCA 168, addressing the difficult issue of patentable subjet-matter, but the post may be delayed as I am teaching a new course in the fall and I have an article deadline coming up.)

*For some reason, the trial decision is still not available on the FC website, so I’ve linked to a copy made available by Smart & Biggar.

Collaboration of Counsel in Preparing Expert Reports

dTechs EPM Ltd v British Columbia Hydro and Power Authority 2023 FCA 115 Gauthier JA: Mactavish, Leblanc JJA varg 2021 FC 190 Fothergill J

2,549,087 / Electrical Theft Detection System

Gauthier JA’s decision for the FCA in dTechs involves “the application of known principles to a very unusual set of facts” [7]. While it did not set out new law, the unusual facts provided an opportunity for a helpful discussion of the principles and procedure related to the introduction of new evidence on appeal [20]–[30], and the proper role of counsel in preparing expert reports [32]–[37]. There is also a helpful nugget on claim construction.

The patentee, dTechs, lost comprehensively at trial: see here. During the costs assessment, dTechs obtained invoices and working agreements relating to BC Hydro’s expert witness, Mr. Shepherd, which led dTechs to believe that Shepherd did not author his reports. dTechs formed the view that the reports had instead been ghostwritten by a Mr Falany, the President of the corporation which provided Shepherd’s services [41]. There was also some suggestion that first drafts of the reports may have been written by counsel for BC Hydro [45]. dTechs consequently argued that the trial decision was unreliable as it was based on tainted evidence.

A motion to allow these documents to be introduced as new evidence on appeal was granted by a motion judge. Gauthier JA’s extensive discussion on the law and practice relating to the role of the motion judge on such a question [20–[30] will be essential reading for anyone pursuing a similar motion in the future.

Gauthier JA then went on to address the role of counsel in the preparation of expert reports. She noted that “In patent cases, it is not unusual for expert reports to be prepared in close collaboration with counsel in an effort to present the substantive opinion of the expert in a manner and format that is helpful to the Court in light of the complexity of the issues raised” [32], and “[a]s a practical matter, it is known that extensive notes are taken during meetings with experts to help prepare the draft reports, and that counsel are actively involved in putting these reports together” [33]. However, “[t]his does not inevitably mean that those drafts do not reflect the substantive and objective opinion expressed by the expert during those meetings.” A “high level of instruction by lawyers to expert witnesses” is not necessarily objectionable in patent cases [53]. While there are limits to the involvement of counsel, the important point is not who puts the words to paper: “I know of no cases where an expert report was excluded in a patent case on the sole ground that the first draft of said report was penned by counsel after meetings with the expert to discuss their opinions in detail” [34]. The key point is that “the Court must ultimately be presented with the substantive and objective opinion of the expert” [34].

Gauthier JA also noted that any potential overstepping of the proper limits on the role of counsel will normally be revealed on cross-examination at trial, and that is the appropriate place to raise such objections, so that it may be considered by the trial court in assessing the evidence [34]–[35]. The FCA will not be sympathetic to parties trying to raise this kind of argument on appeal [37].

Further, the degree of involvement of counsel will go to weight rather than admissibility, unless it is established that the expert “is unable or unwilling to comply with the duty to give fair, objective and non-partisan opinion evidence” [49]. Consequently, “[t]he Federal Court could not conclude that there was a reasonable basis for refusing to admit Mr. Shepherd’s expert evidence simply because the first drafts of his reports were penned by counsel after many hours of consultation with him” [55]. However, the fact that Shepherd might not have drafted the reports himself might have affected the weight that the trial court would have given to his evidence [56].

The weight to be given to the evidence is a matter for the trial court, not the FCA [56], but even so, the fact that the new evidence might have affected the weight to be given Shepherd’s reports was not in itself sufficient to require sending the matter back for redetermination [57]. There is a second question, whether the trial conclusions would remain unchanged, taking the view most favourable to dTechs. Gauthier JA therefore considered whether “based on the other evidence adduced at trial, the distinct findings and conclusions of the Federal Court would remain unchanged, such that the outcome of the trial would not be affected” [57], even if no weight were given to Shepherd’s evidence [58].

Gauthier JA therefore turned to the question of whether the result would have been the same without Shepherd’s evidence. This required a detailed look at the construction of the claims. While most of the discussion turned on the facts and evidence, Gauthier JA made some more general points.

The most basic point is that claim construction is ultimately a matter of law [68]. “[T]he role of the expert is not to interpret the patent claims per se, ‘but to put the trial judge in the position of being able to do so in a knowledgeable way’” [69], primarily by providing evidence to the court as to the meaning of technical terms. Conversely, this means that the interpretation of non-technical terms, or a fortiori, legal terms of art, are for the court, not for experts. This point arose in considering the term “further comprising”. After hearing evidence on this point, the trial judge had remarked that “certainly claim construction is a matter for the Court, and I’m not sure that terms like ‘further’ or ‘wherein’ require the input of an expert witness” [78]. Gauthier JA affirmed that “I fully agree with the trial judge that if the words ‘further comprising’ are terms of the art, it is in the art of claim drafting, one that none of the experts were qualified to opine on, and in respect of which the judge did not require expert guidance” [80].

On the facts, Gauthier JA concluded that giving Shepherd’s evidence no weight could not have impacted the holding that the 087 patent was not infringed, but it might have affected the validity of one claim (Claim 4), which had been attacked by way of counterclaim. The appeal on infringement was therefore dismissed, but the appeal on validity was allowed in part, amending the judgment to the extent that Claim 4 is not declared to be invalid [118]–[120]. The defendants are entitled to a retrial on the validity of Claim 4, if they so chose.

Case Management May be Preferrable to Summary Disposition

Noco Company, Inc v Guangzhou Unique Electronics Co, Ltd 2023 FC 208 Pallotta J2,916,782 / Portable Vehicle Battery Jump Start Apparatus

Pallotta J’s decision refusing a motion for summary disposition is an interesting contribution to the developing jurisprudence on this issue. There is no new law as such and the decision ultimately turned on the facts, but Pallotta J’s analysis is noteworthy for emphasizing that in some circumstances case management may serve the goal of just and efficient dispute resolution more effectively than summary adjudication.

As an initial point, there was a dispute as to whether the motion was actually a motion for summary judgment under Rule 215, or instead a motion for summary trial under Rule 216 ”[13]. The mere fact of the confusion illustrates that the distinction is fuzzy. While Pallotta J concluded that it was indeed a Rule 216 motion, she pointed out that there is overlap in the factors to be considered [91] and she noted that “judges faced with a motion for summary disposition based on a paper record may be guided by similar factors to decide whether the matter is suitable for summary adjudication, regardless of whether the motion is made under Rule 215 or Rule 216" [93]. On the facts, her decision to dismiss the motion did not turn on the “true nature” of the motion [95]. Her comparison of the requirements under the two Rules is very helpful in clarifying the similarities and differences in requirements for each [91]–[97].

One of the main reasons Pallotta J dismissed the motion is the standard ground that “the Moving Defendants have not presented a sufficiently narrow and well-defined non-infringement issue that is suitable for summary adjudication” [97]. She noted that:

[99] The Moving Defendants’ . . . have not limited their arguments to the claim terms that must be construed in order to make a finding of non-infringement based on a single essential element of claim 1. Instead, they have advanced what appear to be all possible non-infringement arguments for claim 1.

[105] The Moving Defendants presented multiple non-infringement arguments, and a range of possible non-infringement declarations that this Court could make, with the expectation that the Court could decide the motion on a narrower basis or re-define the relief. The issues raised and the expert and fact evidence that was adduced required NOCO to respond to a full-scope non infringement action extending beyond the allegedly infringing products in NOCO’s pleading, before any oral or documentary discovery had taken place. In my view, such an approach is inconsistent with the values underlying summary adjudication as a means for proportionate, cost effective, and timely dispute resolution that fairly balances expediency with a just resolution of the issues in dispute.

It seems that the strategy of “throw mud at the wall and see what sticks” backfired, by broadening the issues beyond what was suitable for summary disposition.

Pollatta J also referred to the importance of trial in cases where there are serious issues with respect to the credibility of the witnesses, which is another well-established factor, recently re-emphasized by the FCA in Gemak 2022 FCA 141 (see here): [122]–[124].

While these are well-established concerns, Pallotta J also noted that summary disposition is not necessarily more efficient. She emphasized that case management can also promote efficient dispute resolution, and may do so more effectively than summary disposition:

[109] Motions for summary judgment or summary trial are time-intensive, and do not necessarily provide an “express route” to resolving a dispute: ViiV at para 41. Proportionality is inevitably comparative; even slow and expensive procedures can be proportionate when they are the fastest and most efficient alternative: Hryniak at para 33.

[110] Procedural steps leading to trial, including documentary and oral discoveries, may also serve to streamline a case, narrow the issues for trial, and promote settlement. The evidence on this motion demonstrates that there are serious issues with respect to the underlying factual basis for deciding infringement, including whether the [exemplary product] is representative of [the Defendants] Products. In my view, allowing the discovery process to unfold is a more proportionate and efficient way to address these issues, particularly under case management.

[111] Restricting judgment to the [exemplary product] alone, without deciding whether it is representative of other products, is not an efficient way to proceed and amounts to litigating in slices. This approach would not narrow the issues for discovery with respect to other products at issue, including the products of defendants who are not parties to this motion. Furthermore, deciding the issues the Moving Defendants have raised without understanding how the findings would affect other products at issue may result in repetition or even complicate the issues to be determined at trial on a more complete factual record.

In concluding, she again emphasized the problem of “litigating in slices” and held that “Allowing the discovery process to unfold provides a more just and proportionate way to streamline the case and narrow the issues for trial” [131].

The entire decision is well worth reading for anyone dealing with a summary disposition motion.

Counterclaim Against Non-Asserted Claims Available By Right in NOC Action

Boehringer Ingelheim (Canada) Ltd v Sandoz Canada Inc 2023 FC 241 Fothergill J

2,557,801 / 2,606,650 / 2,696,558 / 2,751,833 / 2,752,435 / 2,813,661 / empagliflozin / JARDIANCE / NOC

In Janssen v Apotex 2022 FCA 184 Locke JA held that the validity of non-asserted claims may be attacked in an action under the PM(NOC) Regs with the leave of the court, but he explicitly left open the question of whether a defendant may challenge non-asserted claims “by right”:” see here. That open question was raised in this case, in which Boehringer sought summary judgment on a question of law dismissing the Defendants’ counterclaims respecting any patent claim that was not asserted in the s 6(1) actions [3].

Fothergill J noted that while the question had been left open, Locke JA's decision in Janssen v Apotex provided considerable guidance [36]. Fothergill J noted that the arguments made by Boehringer in this case were very similar to those made in Janssen [36] and Boehringer did not establish any principled basis for distinguishing the two contexts [41], [43], [51].

Fothergill J therefore granted summary judgment in favour of Sandoz, holding that the defendants “may counterclaim by right against the Non-Asserted Claims in the actions commenced by Boehringer under s 6(1) of the PM(NOC) Regulations” [59]. However, he noted that “this does not mean that the counterclaims in respect of the non-asserted claims will necessarily be permitted to proceed to trial. Boehringer remains at liberty to bring a motion pursuant to Rule 221(1) to strike the counterclaims against the non-asserted patent claims on any of the enumerated grounds” [5]; and similarly [58], [59]–[60].

Validity of Non-asserted Claims May Be Attacked in NOC Action

Janssen Inc v Apotex Inc 2022 FCA 184 Locke JA: Mactavish, Monaghan JJA affg Janssen Inc v Apotex Inc 2021 FC 7 Phelan J

2,661,422 / abiraterone acetate & prednisone / ZYTIGA / NOC / FC Expectation of Success

In this decision, the FCA affirmed Phelan J’s holding (see here) that Janssen’s 422 patent, relating to the combination of abiraterone acetate (AA) and prednisone (PN) for the treatment of prostate cancer, was invalid for obviousness. Phelan J also held that the 422 patent was not invalid for lack of utility, and that it would have been infringed by inducement if it had been valid, but the only issue addressed on appeal was obviousness [8]. The main point of legal interest is the holding that the Federal Court has jurisdiction in a PM(NOC) proceeding to hear a counterclaim attacking the validity of claims that are not asserted in the action, at least on agreement by the parties.

Phelan J’s obviousness analysis turned on the facts, and the FCA affirmed on the same basis: see [31]–[32] finding there was a sufficient factual basis for the key obviousness finding. There were two “palpable” errors in the decision [24], [35], but reading the decision as a whole, Locke JA considered that the errors did not reflect any error in Phelan J’s appreciation of the evidence; both were merely a “slip of the pen” [26], [35]. In another slip of the pen in both the decision [FC 261] and the Judgment itself [56], Phelan J had erroneously dismissed the counterclaim, even though he had found the claims to be invalid. Locke JA accordingly ordered that the Judgment be amended to grant the counterclaim, reflecting the Judgment that Phelan J should have made [58].

Janssen had argued that Phelan J had erred in treating a particular statement in the 422 patent as a binding admission [19], but Locke JA found that Phelan J had not in fact treated the statement as a binding admission, and therefore it was unnecessary to address the circumstances under which an admission in a patent will be binding on the patentee [22].

On the procedural point, Phelan J had also made orders allowing a late addendum to an expert report addressing claims that were not asserted by Janssen, and also allowed an amendment to the counterclaim challenging the validity of the non-asserted claims. In a separate appeal, Janssen v Apotex 2022 FCA 185 (not blogged) the FCA affirmed these orders. While Phelan J’s decision is not entirely clear, it seems that he held the non-asserted claims to also be invalid, as being “essentially the same” [FC 118] as the asserted claims. While Phelan J’s Judgment is not appended to his reasons that are available online, he apparently consequently ordered the 422 patent to be removed from the Patent Register [1], [56].

Janssen challenged this on the basis that the Federal Court does not have jurisdiction under s 6(3)(a) of the PM(NOC) Regs to address non-asserted claims [40]. Locke JA concluded that Phelan J had assumed jurisdiction to address the non-asserted claims on the basis that Janssen had consented to counterclaim [44]. Locke JA therefore addressed the question of “whether such a counterclaim is permitted with leave. As did the Federal Court, I will leave for another day, the question of whether a defendant in an action under subsection 6(1) may make such a counterclaim by right” [46, original emphasis]. Locke JA noted that there were reasonable arguments to be made on either side of the question [49], but after a review of the text, context (including the RIAS) and purpose of the legislation, Locke JA concluded that “In my view, the intention of the Regulations is to leave to the Federal Court the discretion to permit a counterclaim under subsection 6(3) that includes non-asserted claims” [54]. I note that Phelan J apparently based his decision to consider the counterclaim on the “consent” of Janssen [FC 232], [FC 235], but the FCA has held that a counterclaim including non-asserted claims is permitted at the discretion of the Federal Court. Janssen’s consent is evidently not required, but is simply one factor that the Federal Court may consider in the exercise of its discretion.

Burden on the Merits in Summary Trial

Mud Engineering Inc v Secure Energy (Drilling Services) Inc 2022 FC 943 St-Louis J

            2,635,300 / 2,725,190 / Drilling fluid

The most significant aspect of this decision, dismissing Mud Engineering’s action on a summary trial, is the discussion of the the burden of proof in a summary trial. The result on the facts turned on lack of evidence, with the strange result that the action was dismissed because the listed inventor was not proven to be the inventor, but at the same time no one else was held to be the inventor, and there was no order to vary the record, so the result is that the 300 patent is an invention without an inventor.

Mud Engineering is the listed owner of both disputed patents and Mr Wu, the founder of Mud, is the sole listed inventor on the 300 patent and the co-inventor on the 190 patent [57]. Before founding Mud, Wu had worked for Secure’s predecessor and had invented or co-invented some related technology that is the subject of its own patents or applications owned by Secure (see eg 2,451,585). When Mud brought this infringement action against Secure, Secure argued that Secure, not Mud, is the rightful owner of the patents, [9] on the basis that Mr Wu had actually invented or co-invented the inventions when he worked at Secure’s predecessor. There was very little evidence on either side as to how the disputed patents had been developed, so the burden of proof was a major issue.

Everyone agreed [18], and it is now established, that the party seeking summary trial bears the burden of demonstrating that summary trial is appropriate: see also ViiV FC 2020 FC 486 [19]. The main question in this case was as to the burden on the merits of a summary trial issue, once it has been determined that summary trial is appropriate.

The question of burden of proof in a summary trial was addressed, albeit briefly, by Manson J in ViiV FC 2020 FC 486, where he said:

[20] On the merits of the summary trial issue, the usual burden in a civil trial applies, that is, the “party making an assertion must prove it by relevant evidence and the application of appropriate law” (Teva Canada [2011 FC 1169] at para 36). In this case, [the defendant] asserts that [its product] does not fall within the scope of claims 1, 11, and 16 of the 282 Patent, and thus bears the burden of proving non-infringement.

Consequently, while the usual burden lies on the patentee to prove infringement, that burden was reversed in ViiV because of the way the issue had been raised in a summary trial.

Subsequently, in Janssen v Pharmascience 2022 FC 62, after much fuller consideration of the issue and the relevant caselaw, Manson J held expressly that his holding on this point in ViiV was wrong ([55]), and the burden in a summary trial is the same as in underlying action:

[57] [W]hile on a motion for summary trial, the burden is on the moving party to demonstrate that a summary trial is appropriate, once the onus of the merits of the matter, in terms of either infringement or validity, are before the Court for determination, the burden and onus of proof of the underlying action applies.

Nonetheless, in this decision, St-Louis J held that she should follow Manson J’s decision in ViiV, not Janssen, on the basis that Manson J’s holding on the issue had been affirmed by the FCA in ViiV FCA 2021 FCA 122 [44], and she was bound by the FCA decision: [26], [28].

This would all make sense if ViiV FCA was released after Janssen. But ViiV FCA was released seven months before Manson J decided Janssen. So why didn’t Manson J also follow his own prior decision in ViiV, on the basis that he was bound by the FCA decision? One possibility, that is implicit in St-Louis J’s decision, is that this specific point simply wasn’t argued in Janssen. It is a bit odd that neither counsel nor Manson J himself recognized that the point had been decided, especially ViiV FCA was considered on the summary judgment standard generally, with Manson J even quoting a nearby passage from ViiV FCA: see Janssen [33], quoting ViiV FCA [42].

The other possibility is that Manson J and the parties in Janssen did not conisder ViiV FCA to have settled the point. The passage that St-Louis J considered to have affirmed Manson J’s ViiV decision is this:

[44] ViiV contends that the Federal Court ignored the issue of onus of proof. I disagree: see 2020 FC 486 at paras. 19-22.

The cited paragraphs included ViiV FC [20], where Manson J articulated the burden that he subsequently repudiated in Janssen. However, it also includes ViiV FC [19], where Manson J held that the party seeking summary trial bears the burden of demonstrating that summary trial is appropriate. In ViiV FCA at [43], the FCA outlined ViiV’s argument that Manson J had erred in finding that a summary trial was appropriate. Arguably “the issue of the onus of proof” adverted to in the next paragraph is the issue of the onus of establishing that a summary trial is appropriate, not the separate issue of who bears the onus on the merits in a summary trial. That would explain why neither Manson J nor counsel in Janssen considered ViiV FCA to have settled the latter point.

With that said, the FCA in ViiV did refer to the entire passage, which includes the crucial [20]. On the other hand, the FCA did not specifically approve everything in that passage as being correct in law, but rather referred to it to say that Manson J had not ignored the onus of proof.

I’ll also point out that the issue of onus often doesn’t matter; in fact, it ultimately did not matter in either ViiV, or in Janssen, or, as I understand it, in this case. In ViiV, while Manson J did hold that the burden lay on the defendant to prove non-infringement, reversing the usual burden, infringement turned entirely on claim construction [21], which is a question of law for the court. Manson J decided that without any presumption except that the plaintiff / patentee bears the burden of proving non-essentiality of any element [22] — which is the same presumption as in the underlying action: Free World 2000 SCC 66 [57]. In Janssen the onus didn’t make any difference on the facts [62].

Further, the burden will not matter in a case in which there is an applicable presumption. The ViiV position is that the “party making an assertion must prove it by relevant evidence and the application of appropriate law”; the Janssen position is that “the burden and onus of proof of the underlying action applies.” The “appropriate law” under the ViiV position includes any presumption, such as the presumption of validity in s 43(2).

There is a parallel with the burden issue under the old NOC regs, where the point was well developed. The patentee responding to an NOA was the applicant, and as such bore the burden of establishing that none of the allegations, including any allegation of invalidity, are justified: Pfizer v Apotex 2007 FCA 209 [107]; in effect, the applicant must prove validity. The applicant / patentee could rely on the statutory presumption of validity to meet this burden: Pfizer v Apotex 2007 FCA 209 [109]. The burden would then shift to the generic to adduce evidence of invalidity, or validity would be established on the basis of the presumption alone. To discharge its burden, the generic must adduce sufficient evidence “on a balance of probabilities” and once it has done so, the first person must disprove the allegation, also on the balance of probabilities: Pfizer v Apotex 2007 FCA 209 [110]. That is, once the second person has adduced evidence sufficient to displace the presumption, the presumption “is no longer relevant” and the matter is decided in light of the evidence adduced by the parties: Pfizer v Apotex 2007 FCA 209 [110]; see also Pfizer Canada Inc v Novopharm Ltd 2008 FC 11 [32] “If both parties lead evidence, the Court will weigh all the evidence and determine the matter on the usual civil balance.” In this sense the presumption of validity is weak; it suffices to establish validity only in the absence of relevant evidence adduced by the generic.

Similarly, under the ViiV approach to a summary trial, if the moving party is a patentee making an assertion of validity, the patentee must prove it, but can take advantage of the presumption of validity. This is no different than under the Janssen approach, since a patentee in an action can of course also rely on the presumption of validity. This means that a party attacking the validity of a patent bears the burden of proving invalidity under either ViiV or Janssen.

It seems to me that for the same reason, the burden didn’t matter in this case either. The question was ownership. Pursuant to the ViiV rule, applied by St-Louis J, the burden lay with the party making an allegation to prove it on the balance of probabilities. Since Mud alleged ownership, it bore the burden of proving ownership [90]. But the parties agreed, and St-Louis J held, that there is a weak presumption pursuant to s 43(2) that the registered owner is the owner [64], [81], [89]. Mud was able to rely on this presumption, though St-Louis J held on the facts that it had been rebutted [89]. With the presumption rebutted, it seems to me that we would be in the same situation as in an NOC case where the generic has adduced sufficient evidence to rebut the presumption of validity, which is to say that the matter is to be decided on the balance of probabilities in light of the evidence adduced by both parties.

St-Louis J nonetheless indicated that the burden did matter, and indeed that it was “dispositive” [35]. After having held that Secure had presented “some evidence” which was sufficient to displace the presumption that the named inventor is the true inventor [89], she continued:

[90] Since the presumption is rebutted, the party making an allegation holds the burden to prove it on balance of probabilities. As Mud made an allegation of ownership of the Disputed Patents on this Motion for summary trial, seeking a declaration from the Court in that regard, they must prove their allegations. The parties agreed that, to establish that Mud is the proper owner of the Disputed Patents, they had to establish that Mr. Wu, name as the inventor, invented what he claims.

St-Louis J then reviewed the evidence adduced by Mud, and decided it was not sufficient to establish that Wu had invented the patented technology, and hence Mud had not carried its burden [93].

St-Louis J seems to have treated the evidence adduced by Secure as going only to rebutting the presumption of ownership, and not to the merits of whether Wu was the inventor. That is why, in her view, the burden mattered.

But the view that the evidence adduced to rebut the presumption does not go to the merits is contrary to  the approach taken in the NOC cases, in which it is very clear that the evidence that displaces the burden is also considered in the subsequent analysis on the merits.

Further, an important point is that, as I understand it, evidence sufficient to displace the presumption of validity is also sufficient to establish invalidity on the balance of probabilities, in the absence of any evidence adduced by the applicant. As the FCA explained in Pfizer v Apotex 2007 FCA 209 [105] quoting Bayer Inc.v Apotex Inc (2000) 6 CPR(4th) 285 (FCA) [9]:

[9] The operation of the statutory presumption in the face of evidence of invalidity depends upon the strength of the evidence. If the evidence proves on a balance of probabilities that the patent is invalid, the presumption is rebutted and is no longer relevant: Diversified Products Corp. v. Tye-Sil Corp. (1991), 35 C.P.R. (3d) 350 (F.C.A.) at 359. (Bayer at paras. 6, 9)

The FCA in Pfizer v Apotex repeated this passage for emphasis at [110]. It made the same point at [107] quoting Aventis Pharma v Apotex 2006 FCA 64 [78]–[79]:

[78] Relying upon the presumption of validity, [the patentee] can thus meet its initial burden merely by proving the existence of the patent.

[79] Once this is done, the burden shifts to [the generic] to establish that the patent is invalid. The standard of proof that [the generic] is required to satisfy is that of a balance of probabilities [citing Bayer [9]]

In this case, evidence was adduced by Secure and accepted by St-Louis J, to the effect that “Mr. Wu did not invent the broad scope of subject matter claimed in the Disputed Patents” [83]. Under the approach taken in the NOC cases, this evidence, being sufficient to rebut the presumption, would also be sufficient to establish that Wu was not the inventor on the balance of probabilities, in the absence of evidence to the contrary. It is clear that St-Louis J considered the evidence of inventorship adduced by Mud to be weak. Under the NOC approach, the presumption, having been rebutted, was no longer relevant, and the evidence adduced by Secure, and not countered by Mud, was sufficient to establish that Wu was not the owner on the balance of probabilities. Thus, it seems to me that the question of the burden of proof in a summary trial ultimately did not matter, assuming that the approach to burden shifting in the NOC proceedings also applies in a summary trial.

The point of all this is that the question of burden did not matter in ViiV, in Janssen, or in this case. (This is not to suggest it never matters; for example, it would matter in a case in which infringement turned on the facts, rather than on claim construction.)

In the end, this is a tricky question of binding precedent. I can understand why St-Louis J felt she was bound by ViiV FCA on this point, but I don’t think that this passing and somewhat ambiguous reference, that was clearly not fully considered at either level in ViiV, can be considered to have settled a point of principle, particularly as the point was not determinative. As I see it, this point remains open.

To return briefly to the facts, the invention was drilling fluid. There was very little evidence of Wu’s involvement in the development of the technology [98]. The evidence of Secure’s expert that led St-Louis J to conclude that Wu had not invented the claimed subject-matter was that the claimed drilling fluid, was strikingly similar to the drilling fluid subject matter of the 585 patent (not in dispute), developed by Wu and a co-inventor while he was at Secure’s predecessor [100]. St-Louis J held that in order to establish that Wu was the inventor, Mud would have to establish that the drilling fluids of the disputed patents were “completely different” from those Wu worked on while at Secure’s predcessor [101], and Mud had failed to carry that burden [105]. (I must say that I am inclined to agree with Mud [133] that this is a validity argument in the guise of an ownership argument.) At the same time, Secure failed to establish that its employees, other than Wu, were the true inventors of the disputed patents [138]–[139]. The result of St-Louis J’s decision is that the 300 patent is an invention without an inventor, at least for the purposes of this proceeding. At the same time, there does not appear to have been any order to vary the records under s 52, so presumably Wu will remain as the listed inventor. There are going to be some interesting estoppel / abuse of process arguments if Mud ever tries to assert these patents against another party.

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.

Elevated Costs and Refusal to Bifurcate

Paid Search Engine Tools, LLC v Google Canada Corporation 2022 FC 519 McDonald J

2,415,167 / Paid Search Engine Bid Management

This is the costs decision following on 2021 FC 1435 (blogged here and here), in which McDonald J held that that the 167 patent asserted by Paid Search (PSET) against Google was invalid and not infringed.

McDonald J awarded costs at an elevated level (the upper range of Column of IV—Google did not seek a lump sum[10]), in light of several considerations. The main point of general interest is that PSET had refused to bifurcate and Google argued the consequent increase in litigation costs weighed in favour of elevated costs [23]. In response, PSET relied on Seedlings 2020 FC 505 [25], in which Grammond J noted parties are not required to seek bifurcation, and further noting, as McDonald J put it, “that the unsuccessful party would already face the consequences of failing to bifurcate as the costs award would include the fees that the successful party spent on the damages portion of the claim.”

McDonald J was not persuaded by this argument:

[25] In my view, this is a case that should have been bifurcated. The trial on construction, infringement and validity could have been conducted in half the time with significantly fewer experts. Although I acknowledge that, as in Seedlings, PSET will be responsible for Google’s damage experts’ fees, this was, nonetheless, a case that would have benefited [] from the liability portion of the claim [] proceeding in advance of the damages portion of the claim.

[26] Here, despite there being 59 claims that required construction, there is no doubt that the damages portion of the case took the majority of time and was the focus of most of the expert evidence. Damage and remedy-related evidence focused on reasonable royalty, accounting of profits, apportionment and non-infringing alternatives.

[27] This proceeding would have been more efficient as a bifurcated matter. The failure of PSET to agree to bifurcate is a factor which weighs in favour of higher fees.

This seems to be something of a difference of principle (albeit one that is within the discretion of the judge awarding costs). PSET v Google was perhaps more complex than Seedlings — McDonald J described this case as being “above average” in complexity [19], while Grammond J said Seedlings was “[not] overly complex” [p24], but I don’t read McDonald J as relying on this to distinguish Seedlings.

Moreover, I don’t see as the complexity of the case makes any difference. The question is whether the naturally elevated costs faced by an unsuccessful party who refused to bifurcate is a sufficient disincentive, or whether some additional sanction in the form of elevated costs is appropriate. Either way, the additional costs will increase proportionately with the complexity of the case, so I don’t think the complexity affects the principle. Similarly, some cases may benefit more from bifurcation if the damages portion is particularly time consuming relative to the liability portion, but again costs will increase proportionately under either approach.

The question of how to deploy costs awards to encourage just yet efficient resolution of a dispute is always tricky—there is no academic consensus even on the basis issue of the Amercian rule v the English rule for fee shifting—and I have no opinion as to which approach is preferable. I note that this case did not raise the problem of access to justice by small or unsophisticated parties: McDonald J observed that “PSET is neither an inexperienced nor an unsophisticated litigant. Accordingly, I do not accept that the access to justice rights of smaller patent holders is a factor that needs to be considered in setting the quantum of costs in this case” [15].

Non-Standard Bifurcation in SEP Litigation

Wi-Lan Inc v Apple Canada Inc 2022 FC 276 Tabib CMJ

This decision raises an interesting procedural issue regarding SEP litigation, in particular the question of a non-standard bifurcation. (Coincidentally, last Friday’s post also dealt with a non-standard bifurcation, albeit along different lines.)

Wi-Lan, a non-practising entity (NPE) [1], is suing Apple for infringement of its 159 patent. (The full patent number is not given in the decision, but my guess is that it is 2,686,159.) While not stated in the decision, Wi-Lan appears to be a patent assertion entity (PAE), which is to say that its main business is monetizing patents through licensing to operating companies. Wi-Lan asserts that the 159 patent is a standard essential patent (SEP) which is essential to the 4G and 5G standards. Apple denies that is it an SEP, but argues that if it is, Wi-Lan is not entitled to an injunction, and its sole remedy is a reasonable royalty on FRAND (fair, reasonable and non-discriminatory) terms [8].

In this motion, Apple is seeking to bifurcate the proceedings. Bifurcation is common in patent actions. In the standard bifurcation, the first phase deals with validity and infringement, as well entitlement to an injunction and the election between an accounting and damage, though not quantification. The second stage is quantification of the monetary remedy. In this motion, Apple sought a bifurcation in which the entitlement to remedies, not just quantification, would be left to the second stage. More specifically, validity and infringement would be assessed in the first stage, but “Wi-Lan’s right to an injunction, right to delivery up of infringing devices, right to elect between profits and damages, and the calculation of profits or damages” would be left to the second stage” [2].

Why is Apple seeking this unusual bifurcation? It may be that Apple’s main objective was to put off the question of Wi-Lan’s entitlement to injunctive relief [2] (though that may be reading too much between the lines.) If so, why would Apple seek to defer the question of Wi-Lan’s entitlement to injunctive relief to the second stage?

Injunctive relief plays an outsized role in SEP litigation, and more broadly in litigation involving any ‘complex’ product which embodies a large number of patented technologies, each of which contributes only a small part of the overall value. This gives rise to the problem of ‘holdup’. As Shapiro explained in an early influential article, Navigating the Patent Thicket (2000) 1 Innovation Policy and the Economy 119, 125 consider a manufacturer of a complex product

who could, with ease, invent around a given patent, if that manufacturer were aware of the patent and afforded sufficient lead time. Clearly, in this case the patented technology contributes little if anything to the final product, and any reasonable royalty would be modest at best. But, oh, how the situation changes if the manufacturer has already designed its product and placed it into large scale production before the patent issues . . . . The patentee can credibly seek far greater royalties, very likely backed up with the threat of shutting down the manufacturer if the Court indeed finds the patent valid and infringed and grants injunctive relief. The manufacturer could go back and redesign its product, but to do so (a) could well require a major redesign effort and / or cause a significant disruption to production, (b) would still leave potential liability for any products sold after the patent issued before the redesigned products are available for sale, and (c) could present compatibility problems with other products or between different versions of this product. In other words, for all of these reasons, the manufacturer is highly susceptible to holdup by the patentee.

The problem of holdup, when it exists, means that a patentee armed with an injunction can extract a settlement that reflects not just the value of the patented technology, but some part of the sunk costs that have been incurred by the manufacturer. A very influential article on the problem is Lemley & Shapiro, “Patent Holdup and Royalty Stacking” (2007) 85 Tex L Rev 1991. I have also addressed it in a couple of co-authored pieces, namely Ch 4 Injunctive Relief in Patent Remedies and Complex Products: Towards a Global Consensus (2019) and Ch 7 reviewing the literature; and Cotter, Hovenkamp & Siebrasse, Demystifying Patent Holdup (2020) 76 Washington and Lee Law Review 1501-65.

It is injunctive relief which allows the patentee to extract sunk costs, thereby capturing a reward greater than the value of the patent. Consequently, an important part of the response to the holdup problem in US law has been to deny injunctive relief entirely to patent assertion entities, following eBay v MercExchange (2006) 547 US 388: see Seaman, “Permanent Injunctions in Patent Litigation After eBay: An Empirical Study” (2016) 101 Iowa L Rev 1949. (I’ll note that in Farmobile v Farmers Edge 2022 FC 22, [80] blogged last Friday, Farmers Edge argued that Farmobile should be denied injunctive relief because it was a non-practicing entity (NPE). NPEs include patent assertion entities, but the category also includes eg small R&D startups which invent new technology but then licence it to a larger entity for commercialization. Those types of NPEs do not practice the invention themselves, but they typically seek to assert their patent rights to secure market exclusivity, albeit for their licensee or future assignee, not for themselves. This is in contrast to PAEs, which exploit the patent by licensing, rather than by enforcing market exclusivity. The distinction between PAEs and NPEs more broadly is important when considering injunctive relief. PAEs are almost never granted injunctive relief in US law, but NPEs seeking market exclusivity are not disfavoured, or at least not as disfavoured.)

The problem of holdup also arises in the context of SEPs specifically, because standards normally embody hundreds or thousands of patented technologies, subject to a FRAND obligation to grant royalties on fair, reasonable and non-discriminatory terms. In US law, injunctive relief is rarely granted for infringement of an SEP, on the view that the patentee is contractually bound to accept a reasonable royalty.

While injunctive relief is routinely granted to a successful patentee, we have not yet had a case in Canada squarely raising the question of whether injunctive relief should be granted to a PAE in respect of an SEP [9]. This case may be the first, if it proceeds to trial, as Apple is seeking to argue that Wi-Lan should be denied injunctive relief as a matter of law if the 159 patent is determined to be an SEP [8].

With all that in mind, I can think of a two reasons Apple might have been seeking to use bifurcation to delay the question of entitlement to injunctive relief.

One reason a manufacturer of a complex product might seek bifurcation of this point is that it would operate as a kind of stay, so that the manufacturer would have time to design around the patent if it were found to infringe. The manufacturer would still be liable for reasonable royalty damages for infringement during the design around period, but this would avoid or at least mitigate the holdup problem. That is unlikely to be the motivation in this case because it is not possible to design around an SEP, unless the patented technology at issue can first be removed from the standard entirely. (I think this has happened, but it is very rare).

A more likely reason is simply to delay the date the injunction comes into force. If the patent can’t be designed around, the excess value that can be extracted by a patentee armed with an injunction depends on the value to the manufacturer of having its product on the market. The less time that the injunction holds the patent off the market, the less the excess value. If I’m right that the 159 patent is 2,686,159, it expires in 2027. If this takes a couple of years to get to the end of the first stage—say end of 2023, with four years left—and another year to the end of the second stage, the difference between the grant of the injunction at the end of the second stage instead of the first would be roughly a 25% reduction in Apple’s maximum willingness to pay.

Neither of these is a good reason in principle for bifurcation. Both of these amount to using bifurcation as a substitute for a stay of the injunctive relief. But the purpose of bifurcation is to ensure the most expeditious and least expensive determination of the outcome, and to use it as a substitute for a stay would detract from that purpose. To the extent that it is desirable to limit injunctive relief, it should be done directly, by the court refusing injunctive relief entirely on substantive grounds, or tailoring the injunction to allow a design around. And in this decision Tabib CMJ refused to bifurcate because she found that “Apple has not met its onus to show that bifurcation would result in the just, most expeditious and least expensive determination of the issues on the merits in the circumstances of this case” [20].

Another reason Apple might be seeking a stay is to avoid having to argue the law with respect to entitlement to injunctive relief. As noted above, injunctive relief is routinely granted to a successful patentee. However, we have never had a case addressing entitlement to injunctive relief in respect of an SEP, and particularly when asserted by a PAE. SEP cases are clearly distinguishable in principle because of the FRAND agreement. PAE cases are also distinguishable in principle, as the US eBay approach illustrates—it is pretty clear that Wi-Lan would be refused injunctive relief in US law. I am not* necessarily of the view that the US approach should be adopted, either broadly or in its specifics; whatever one might think of the practical outcome, the eBay court’s doctrinal analysis is very suspect: see Gergen, Golden & Smith. 2012. “The Supreme Court's Accidental Revolution” (2012) 112 Colum L Rev 203. (And see Ch 4 of Complex Products for a more detailed discussion.) Moreover, European law is more favourable to injunctive relief in SEP cases, following Huawei v ZTE (2015) Case C-170/13. But the split in approach between US and European law serves to emphasize the difficulty of the issue. In my view, this is a difficult and novel point of law. If Apple prevailed on the merits, then Wi-Lan’s entitlement to injunctive relief would not arise, and it would not be necessary to argue the point. It would be understandable for Apple to try to avoid making this novel legal argument if it didn’t have to, and in my view, that would be consistent with the purpose of bifurcation.

On this point,

[19] Apple submits that delay in the determination of Wi-Lan’s entitlement to an injunction is just, because it would not be in the public interest to grant an injunction at all. Such an argument presupposes the ultimate favourable determination of Apple’s arguments on the merits. They require the Court to assess the merits and conclude that Wi-Lan’s claim to injunctive relief is most likely to fail. These arguments are, as discussed above, not factors that the Court should consider on a motion to bifurcate.

If, as this passage indicates, Apple’s argument turns on the point that injunctive relief should not be granted at all, then I agree that this is not a point that can be decided on a motion to bifurcate, without the benefit of full argument on a difficult legal point.

But it is a different matter if the argument is that there will be a saving by not having to argue the point at all if Apple prevails at the first stage. This brings us to the arguments “discussed above,” which evidently refer to this paragraph:

[12] It is untenable at law to take into account, in considering whether a bifurcation might result in substantial savings, that the cost of determining remedies would be entirely saved if the plaintiff were to fail to establish liability. If one is to consider significant or substantial savings as a reason to bifurcate, then those savings must come from the likelihood that the determination of the first phase issues would inherently lead to a narrowing of the issues in the second phase, whatever that determination may be.

I have to say I don’t find this persuasive. Suppose that the first phase will not lead to any narrowing of the second phase issues at all. There are no doubt some additional expenses inherent in bifurcation, so that if exactly the same issues will have to be litigated whether or not the case is bifurcated, the costs will be higher. This is a thumb on the scales against bifurcation.

But on the other hand, we know as a practical matter that many litigated patents are held to be invalid. This is not happenstance—parties will settle rather than litigate if both sides are confident as to liability, one way or other. Parties only choose the expense of litigation if there is a real dispute as to validity or infringement. Only the hard cases get litigated, so we expect to see, and what we do see, is that success more or less equally divided, overall. There will be a very substantial cost savings in all of those cases that don’t have to proceed to the liability phase at all. Moreover, there are often significant cost savings even in cases in which the patentee prevails, as the parties often settle before the second phase. Thus, on average bifurcation leads to substantial cost savings even if the issues are not narrowed at all. While it is true that a motions judge can’t predict in advance whether the particular case before her will be one of those in which there are substantial cost savings, I don’t see any reason to ignore the reality that bifurcation is likely to lead to costs savings on average.

The argument against seems to be that taking into account the cost savings that would result if there is no need to go to the liability phase would require an assessment of the merits, which is inappropriate at the very early stage where bifurcation is normally ordered [19]. That would be a strong objection if the bifurcation decision rests on a mathematical balancing of the expected costs of proceeding one way or the other. But that is not done, and it is not required. As Tabib CMJ noted, the combination of Rule 3 and Rule 107 means the basic question whether “is it more likely than not that a bifurcation order would result in the just, expeditious and least expensive determination of the proceeding on its merits, so as to justify depriving the Plaintiff from its basic right to have all its issues resolved in one trial” [4]. The Prothonotaries have considerable discretion of make such orders in light of their extensive experience in managing complex litigation. I see no reason that an appreciation of the practical cost savings should be a thumb on the scales in favour of bifurcation, on the other side. Against this is the idea that the patentee has a “basic right” to a single proceeding. This was articulated in Elcano v Richmond (1986), 55 OR(2^nd) 56, 59, quoted with approval in Bristol-Myers Squibb v Apotex 2003 FCA 263 [7]; but in Bristol-Myers Squibb v Apotex the FCA went on to say that “When an experienced specialist bar like the intellectual property bar commonly consents to the making of a bifurcation order, it is open to a judge to infer that, in general, such an order may well advance the just and expeditious resolution of claims” [9]. As I read it, this statement acknowledges that bifurcation results in costs savings on average, and holds that it is permissible for the motions judge to take this into account.

This is not to say that Tabib CMJ should have granted the motion for bifurcation in this case. Her decision turned on a number of other considerations specific to the motion, which I have not touched on. But it does seem to me that the fact that bifurcation can reduce costs by eliminating the need for a second stage if the alleged infringer prevails at the first stage, or if the parties settle, is a legitimate consideration in deciding whether bifurcation should be ordered.

*The original post omitted the word "not". My policy is not to make substantive changes to my posts, but I usually correct minor typos without comment. In this case, I always intended to say "not" - I trust that was clear from the context - but I thought I should make it clear that I was not trying to surreptitiously change my mind.