What is implied by a patent under international law?

An interesting blog and responses by Simon Lester on his International Economic Law and Policy blog HERE. It asks whether there is "anything in TRIPS that would restrict the ability of a state to set price controls on patented pharmaceutical products."

It seems to me that there is some logic to saying that the minimum standards for a "patent" under international law (including TRIPs) include some ability for the owner to potentially profit from it - and (to be blunt) the countries that have signed on to TRIPs had at least that in mind. But that is still a long way from concluding that no price controls are allowed at all.

Another interesting question (to me, anyway ;) ) is whether it matters what state is doing the price controls. It seems to me that whether a price control is TRIPs-compliant would be a highly factual question - i.e. how is the price control being implemented, on what grounds, is it across the board or on a drug by drug basis, and on what basis is the price ceiling set? And if so, does it matter whether the country is poor or rich? Wracked by disease (say, AIDS) or relatively healthy? Is there more unwritten leeway for a least developed country to implement price controls than, say, Canada?

Privilege extended to American patent attorneys

Here is an article I recently published on Lexology (about a motion I argued).

There is apparently a rule against the word "silly" appearing in a legal publication; however, the present Canadian situation on privilege and Canadian patent prosecution is silly (for the reasons I cleverly describe as "odd" and "startling" ;) ). Just to be clear: the court reached the correct decision in DataTreasury, but the overall situation for Canadian patent agents and patent agent/lawyers is, err, less than ideal.


The Canadian Federal Court recently held that in appropriate circumstances, communications between an inventor and an American patent attorney regarding drafting a patent application and prosecution are privileged. It provides important lessons for American and other foreign patentees who wish to assert privilege in Canada.


In DataTreasury v. Royal Bank of Canada et al. (decision dated November 6, 2009, as yet unreported), a Canadian patent case, the defendants sought to compel the patentee DataTreasury to produce documents from the files of the U.S. lawyers who drafted, filed and prosecuted the corresponding U.S. application. These documents included drawings prepared by the inventor to explain his invention to his lawyers, drafts of the patent application, and correspondence. The defendants argued that such documents were relevant to identifying the true inventors of the DTC patent and the possibility of inequitable conduct in patent prosecution.

Instead, the court ruled that such documents were privileged, relying on common law privilege principles as well as the doctrine of comity. This article explains the decision, and outlines how foreign patentees can position themselves to claim privilege over communications with their patent professionals. The lessons from DataTreasury are particularly relevant to American patentees, who often wish to assert their Canadian patent in the context of North American litigation.

Background: Privilege in the Domestic Canadian Context

In Canada, lawyers (who are licensed to practice law) and patent agents (who are licensed to practice in the Canadian patent office) are separate professions. Client communications with lawyers related to legal matters are covered by solicitor-client privilege, and cannot be disclosed in litigation without the permission of the client. However, following old United Kingdom case law (such as Moseley v. Victoria Rubber Co. (1886) 3 R.P.C. 351 (High Court of Justice, Chancery Division)), the Federal Court of Appeal has held that communications between Canadian clients and Canadian patent agents are not covered by solicitor-client privilege, notwithstanding that many legitimate activities of patent agents may involve giving legal advice:

It is clear that, in this country, the professional legal privilege does not extend to patent agents. The sole reason for that, however, is that patent agents as such are not members of the legal profession. That is why communications between them and their clients are not privileged even if those communications are made for the purpose of or giving legal advice or assistance.

This has left Canadian courts, when considering privilege for communications regarding patent drafting and prosecution between clients and professionals who are both lawyers and patent agents, in a difficult position. Case-law states that courts should assess whether the professional was acting as a patent agent or lawyer before deciding whether the communication is privileged. Given the almost indistinguishable difference between “patent agent work” and “legal advice or assistance”, it is unsurprising that courts have reached a confusing mix of decisions. It is generally difficult to predict whether privilege will apply to communications regarding patent drafting and prosecution with Canadian patent lawyers.


Foreign Patent Agents and Lawyers

An additional layer of complexity exists when Canadian Courts consider privilege for foreign patent professionals. Foreign companies and lawyers are often surprised to learn that the simple fact that such communications are protected by privilege under the law in their home country may not be sufficient to have equivalent protection granted by a Canadian court.

For example, in the 2006 Lilly Icos LLC v. Pfizer Ireland Pharmaceuticals case, privilege for communications in the United Kingdom between an inventor and his U.K. Patent Agents was considered by the Federal Court of Canada. Under U.K. law, communications between a person and his patent agent are “privileged from disclosure in legal proceedings in England, Wales, or Northern Ireland in the same way as communications between a person and his solicitor…”.

Nevertheless, the Court held that such communications were not privileged under Canadian law and were required to be produced in the Canadian litigation. Ominously for foreign patentees, Phelan J. of the Federal Court wrote:

The law in this country does not recognize this [the U.K.] patent agent-client privilege and there is no reason to create such a privilege on an ad hoc basis. Judicial comity between countries does not require Canada to recognize a privilege not established in Canada. This is so particularly for a privilege which has been advocated for but never adopted by legislation.
…
Pfizer chose to market their products in Canada and therefore take both the benefits and burdens of the Canadian legal regime when they sue or are sued in this country.

This case was settled prior to the hearing of an appeal.

Nevertheless, the Lilly Icos case left open the possibility of privilege being extended to communications between inventors and foreign patent agents if such communications qualify for common law privilege under the Canadian application of the doctrine. This issue, and others, were considered in the recent DataTreasury decision.


The DataTreasury Case – Wigmore and Comity

In DataTreasury, Claudio Ballard, the inventor of the patent at issue and a resident of the United States, engaged the American law firm of Pennie & Edmonds LLP to draft, file and prosecute his patent application. The professionals who dealt with the inventor were patent attorneys: lawyers also called to the U.S. Patent Bar as “patent agents”. The defendants, in litigation involving the corresponding Canadian patent, demanded production of communications between the inventor and the Pennie & Edmonds “patent agents” regarding the drafting and filing of the initial U.S. patent application. They argued that under Canadian law the Pennie & Edmonds professionals were clearly acting as patent agents, not lawyers, and under the Lilly Icos case communications with patent agents, domestic or foreign, were not privileged.

Prothonotary Aalto instead ruled that the communications were privileged, under both the common law “Wigmore” test, and as a matter of comity.

Wigmore’s four part test

Under common-law principles, communications are held as confidential on a case-by-case basis if they satisfy the following four “Wigmore” criteria:

(1) The communications must originate in a confidence that they will not be disclosed;

(2) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties;

(3) The relation must be one which in the opinion of the community ought to be sedulously fostered; and

(4) The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit there by gained for the correct disposal of litigation.

DataTreasury was able to satisfy Prothonotary Aalto that these four criteria were met.

Critically, DataTreasury was able to point to testimony taken during discovery from the inventor that he was careful not to disclose his invention, that he approached Pennie & Edmonds because they were lawyers and he wanted to obtain confidential, and legal, advice. This satisfied the first criteria. Based upon this, the Court was able to find that the relationship in this particular case was an attorney-client relationship. In turn, this cemented the relevance of related U.S. cases on attorney-client privilege, such as Spalding Sports Worldwide and Knogo. This factual finding underpins the other three Wigmore criteria.

Unlike in the Lilly Icos case, in DataTreasury the foreign patent professionals were lawyers as opposed to patent agents. As a result, the relation between the client and professional was an American attorney-client relationship. Canadian courts are quite familiar with the American concept of attorney-client privilege and its basis in ensuring full and frank communication between clients and attorneys, satisfying the second Wigmore criteria.

Attorney-client or solicitor-client privilege is one which both American and Canadian legal systems believe should be sedulously fostered, satisfying the third Wigmore criteria.

The fourth Wigmore criteria was not explicitly dis-cussed in the decision, although implicit in the recognition of attorney-client privilege is the notion that great injury would inure to the client/attorney relationship if confidentiality is breached.

Comity

Prothonotary Aalto also grounded his decision in the notion of comity. He noted that comity – Canadian courts recognizing the laws of another jurisdiction – is grounded in a concern to be fair to a party that operates and arranges their affairs in accord with a foreign system:

In this case, comity also requires that this Court consider and give effect to the established expectation in the U.S. regarding privilege. The Knogo case, supra, supports the proposition that privilege attaches to communications between inventors and their counsel who are also patent agents. Here, the communications between Mr. Ballard and his U.S. lawyers originate in the confidence that they will not be disclosed. That is supported by the questions and answers referred to on the examination of Mr. Ballard. In the U.S. litigation, this information would not be compelled to be disclosed and, in my view, the same position should obtain in the Canadian litigation.

This last point - “in the U.S. litigation, this informa-tion would not be compelled to be disclosed and, in my view, the same position should obtain in the Ca-nadian litigation” - may be the most interesting part of the DataTreasury decision. While the court in Lilly Icos was hostile to the notion that Canadian courts should take into account foreign laws when making privilege decisions (stating that if patentees want to enforce patents in Canada, they need to play by Canada’s rules), the DataTreasury decision instead reflects a willingness to consider whether a particular privilege ruling is fair to foreign parties before the Canadian court.


The Canadian Position after DataTreasury

Oddly, the DataTreasury decision leaves Canadian patent agents, and Canadian patent agent/lawyers, at a disadvantage under Canadian law compared to foreign patent agents and foreign patent agent/lawyers. A Canadian patentee who uses Canadian patent professionals to draft and file a priority application may be unable to claim privilege under Canadian law, depending on whether a court judges the communication to fall under a “patent agent” purpose. Meanwhile, a foreign patentee who uses foreign patent professionals may be able to claim privilege under Canadian law as a matter of comity or common-law privilege.

While this is entirely consistent with international economic law, where countries typically reserve the privilege of treating their own nationals less favourably than foreign entities, it is startling to see this arise in an industrialized country in an area as important as patent law. The DataTreasury decision may give an impetus to Canadian efforts to change this situation.


Lessons to Draw from the DataTreasury Decision

The DataTreasury decision lays out a roadmap to be followed in future motions by patentees who wish to keep their discussions with their foreign patent professionals privileged. Success on the motion will be determined by the quality of evidence on the following points:

a) Was the inventor seeking “legal advice” when approaching the foreign patent professional?

b) Did the inventor regard the confidence of communications with the foreign patent professional as important when establishing the relationship or making the communication?

c) Are communications between the patent professional and inventor covered by privilege in the foreign jurisdiction?

d) What is the reasoning behind granting the privilege? Would denying privilege in Canada frustrate the reasoning behind granting the privilege in the foreign country?

e) Can the privilege in the foreign jurisdiction be characterized as attorney-client or solicitor-client privilege?

These points will generally be easier to establish for communications between an American patentee and professional than for communications in other countries. Most importantly, communications between a U.S. inventor and a U.S. lawyer/patent agent are formally covered by attorney-client privilege as opposed to some other privilege, which has a clear and highly protected counterpart under Canadian law. The U.S. inventor can thus usually sidestep the thorny issue of whether a particular communication was to the U.S. patent attorney as agent or lawyer.

The general familiarity Canadian courts have with American law and decisions make it easier to prove to a Canadian court that American attorney-client privilege applies to the specific communications at issue. Canadian courts will be more comfortable reading American cases such as Florida Bar v. Sperry, Spalding Sports Worldwide and Knogo than foreign legislation or cases establishing privilege for patent agents. The similarity of professional desig-nations between Canada and the U.S. – where professionals are separately qualified as a lawyer and to practice before the patent office – also assists in making the Court comfortable with ruling on privilege.

The difference between the successful patentee in DataTreasury and the unsuccessful patentee in Lilly Icos largely circles around the superior evidence in DataTreasury on these critical points. Even in the case of communications with an American patent attorney, it seems that evidence from the inventor as to who they sought advice from and his/her expectations is central to the success of asserting privilege. When conducting litigation in Canada, it would be prudent for a foreign patentee to consider how to prove these points at an early point in the litigation and lay the evidentiary groundwork for success in a privilege motion. From a broader and earlier point of view, inventors (particularly repeat patentees) should consider always consulting “lawyers” for patent drafting and prosecution advice to enhance the likelihood that such communications will be considered privileged in foreign litigation.

Please note that Gilbert’s LLP represented Data-Treasury in the decision discussed in this article. This article should not be taken as the views of DataTreasury or of Gilbert’s LLP.

Prosecute with Candour in Canada

Shonagh McVean and Nathaniel Lipkus have an article in the February issue of Managing Intellectual Property Magazine titled "Prosecute with Candour in Canada". The aritlce discusses the recent Lundbeck v. Ratiopharm or Memantine decision which has raised a lot of eyebrows by appearing to place a high duty of candour upon applicants before the Canadian patent office - arguably higher than that imposed by the USPTO.

The article is available
HERE
although you'll need a subscription to see it.

Fortunately, I can provide you with a separate article on the same topic already published on lexology by Nathaniel Lipkus and Andrew Moeser

Alleging Inequitable Conduct before the Patent Office: a new way to avoid patent infringement in Canada?

Nov. 30, 2009

The Canadian Federal Court’s recent decision in Lundbeck Canada Inc. v. Ratiopharm Inc., 2009 FC 1102 (the “Memantine” decision) is remarkable, not only permitting Canadian patent defendants to rely on the patentee’s conduct during prosecution to avoid patent infringement allegations, but also placing a much heavier burden on the patentee than has ever been im-posed in the United States.

For years, American industry and some members of Congress have tried to eliminate the inequitable conduct defense to patent infringement. Efforts to water down or abolish what is known as the “inequitable conduct defense” have been picking up steam in Congress as it moves forward with comprehensive patent reform.

The Inequitable Conduct Defense in the United States

In a U.S. patent infringement suit, a defendant may defend against infringement by alleging that a patent is unenforceable due to inequitable conduct. A party seeking to avail itself of this defense must prove the following by clear and convincing evidence:

(i) Materiality: an affirmative misrepresentation of a material fact, failure to disclose material information, or sub-mission of false material information to the United States Patent Office; coupled with

(ii) Intent: an intent to deceive or mis-lead the Patent Office.

A finding of inequitable conduct renders all claims of the patent unenforceable and may adversely affect related patents contaminated by the inequitable conduct.

Critics of the inequitable conduct defense cite a concern that pleading inequitable conduct has become a matter of course, contributing disproportionately to the time and expense of patent litigation. The mere pleading of inequitable conduct allows an alleged infringer to put the patentee on the defensive, causing discovery to center around the conduct and motives of the patentee’s personnel at the time leading up to the patent grant.

Concern from the venture capital community focuses on the unpredictability of the inequitable conduct analysis. Where a patent discloses a valuable invention, investors should not be required to bear the risk that the patent will be deemed unenforceable because of the failure of a patent agent to disclose a trivial reference that does not bear on the patent’s inventiveness. This kind of unpredictability could disincentivize innovation and undermine the patent system.

Proponents of the defense note that the duty of candour is indispensable to a well-functioning patent system, and a means of enforcing the duty is equally indispensable. As Senator Leahy, Chairman of the Senate Judiciary Committee, stated in 2006 comments on the Senate floor,

“we should expect the highest caliber of behavior by those who are seeking patents – which are, after all, often highly profitable government monopolies.”

The spectre of a court challenge on inequitable conduct grounds is the only real discipline against material misrepresentation or omission on the part of the applicant in securing a patent. Some would instead have the USPTO conduct inequitable conduct investigations. However, the USPTO has already expressed its unwilling-ness to investigate or reject original or reissue applications under Rule 56 (the rule creating the duty of candour). The Commissioner of the Patent Office is on record as saying that the Patent Office is not the best forum to adjudicate inequitable conduct claims, due to its lack of re-sources to cross-examine witnesses and inability to handle live testimony. He added that, even if the Patent Office possessed the resources, such procedures would be an ineffective utilization of such resources. Accordingly, in terms of enforcing the applicant’s duty of candour and good faith, the inequitable conduct defense to patent infringement is the only game in town.

Recent jurisprudence from the Federal Circuit suggests that U.S. appellate judges have been mindful of the controversy surrounding the defense. The standard for pleading the inequitable conduct defense has been elevated considerably , and the burden of proof – clear and convincing evidence – has been applied stringently in determining whether an applicant had the specific intent to deceive the Patent Office.

The Memantine Decision Affirms the
Existence of a Duty of Candour in Canada

In stark contrast to U.S. efforts to enforce the duty of candour in only the most egregious circumstances, the Canadian Federal Court’s decision in Memantine suggests that Canadian patent agents will be held to a much higher standard than their U.S. counterparts.

The Memantine decision resulted from a Patented Medicine (Notice of Compliance) proceeding wherein Lundbeck sought an order prohibiting ratiopharm from obtaining a Notice of Compliance for its generic memantine (EBIXA®) product. Lundbeck asserted two patents, one of which – Canadian Patent No. 2,426,492 (the “492 Patent”) – involved the use of memantine, an Alzheimer’s drug, in combination with one of several cholinesterase inhibitors also indicated in the treatment of Alzheimer’s. ratiopharm’s allegations of anticipation and obviousness in respect of the other alleged patent (Canadian Patent No. 2,014,453) were found to be justified.

The Federal Court found ratiopharm’s allegations of anticipation and obviousness with respect to the 492 Patent to not be justified, as the prior art did not specifically disclose a synergistic effect when memantine and any cholinesterase inhibitors were combined. However, the Court did find that ratiopharm’s allegation that the 492 Patent lacked utility was justified, as there was no indication in the patent or the art that combination therapy yielded a synergistic, as opposed to an additive, effect.

The Court was able to dismiss Lundbeck’s prohibition application on the above basis alone. However, the Court went on to address ratiopharm’s allegation that the 492 Patent had been abandoned, and this is where it delved into the existence and scope of the duty of candour in Canada.

The Court’s analysis arises from paragraph 73(1)(a) of the Patent Act, which deems an application for a patent to be abandoned if, amongst other things, the applicant does not “reply in good faith to any requisition made by an examiner in connection with an examination, within six months after the requisition is made or within any shorter period established by the Commissioner”. (emphasis added)

ratiopharm alleged that the applicants for the 492 Patent misrepresented during examination that the prior art “taught away” from using a combination of memantine and a cholinesterase inhibitor in the treatment of Alzheimer’s disease. Although ratiopharm and the Court acknowledged that a key prior art document by Wenk had been brought to the attention of the Patent Office, ratiopharm alleged that the applicants failed to discuss the significance of or provide a copy of the Wenk article in responding to an of-fice action finding of obviousness.

In its office action response, the applicants dis-cussed several pieces of prior art that, taken together, could have been taken to suggest that a skilled person would not have been motivated to combined memantine with a cholinesterase inhibitor. The response then went on to conclude that:

It is therefore the Applicant's opinion that the teachings of the prior art as a whole would not have prompted the skilled person, faced with the problem of formulating a composition for the treatment of mild cognitive impairment or dementia, to elaborate the instant composition and that consequently the claims on file are not obvious in view of the prior art. Therefore, withdrawal of this objection is respectfully requested. [em-phasis added]

Existence of a Canadian Duty of Candour

In reviewing this exchange of communication, Justice Mactavish of the Federal Court first affirmed that s. 73(1)(a) imposes a duty of candour on the part of applicants in the prosecution of a patent application in Canada.

In affirming the existence of this duty, Justice Mactavish drew on Justice Hughes’ reasoning in G.D. Searle & Co. v. Novopharm Ltd. (2007 FC 81; rev'd 2007 FCA 173). Justice Mactavish ac-cepted Justice Hughes’ analysis as an accurate overview of the obligations on an applicant. In particular, she approved of Justice Hughes’ analogy between an application for a patent and an ex parte court proceeding. Moreover, Justice Mactavish extended this analogy by citing case law on ex parte proceedings in explaining the rationale for the duty – that “the ordinary checks and balances of the adversary system are not operative”.

Although the decision deals specifically with responses to patent office requests, there is a suggestion that the duty of candour applies to patent prosecution more generally. For example, Justice Mactavish recognized that Hughes’ decision in Searle found a failure of good faith in relation to both responses to the examiner and the initial submission of the patent application. It remains to be seen whether the duty will be interpreted this broadly, given that the statutory source of the duty, s. 73(1)(a), refers explicitly to the context of replies to patent office requisi-tions.

Application of the Duty of Candour

In applying this standard, Justice Mactavish ob-served that the patent examiner was concerned with obviousness, and in particular the obviousness of combining memantine with cholinesterase inhibitors for the treatment of mild cognitive impairment or dementia. Instead of alerting the examiner to the importance of the Wenk article, the patent agents advised the patent examiner of other articles warning against combining NMDA antagonists (of which memantine is one) with cholinesterase inhibitors because NMDA antagonists attenuate the effect of the cholinesterase inhibitors.

Missing from the patent agents’ office action response was the fact that Wenk was directly relevant to the claimed combinations (unlike the articles cited), and that Wenk came to the opposite conclusion of those other articles. Specifically, Wenk explained that certain “reversible” cholinesterase inhibitors such as those contemplated in the 492 Patent did not lose their therapeutic effect when used in conjunction with memantine. In view of Wenk, Justice Mactavish found that the patent agents did not fairly represent the teachings of the prior art when they said that “the prior art clearly teaches away” from the invention alleged in the 492 Patent. Prior disclosure of the existence of the Wenk article did not change the fact that the statements made in the response “were not a full, fair or complete depiction of the teachings of the prior art.”

In summary, Justice Mactavish set out a standard of practice for patent agents that is sure to put many patents at risk and to be controversial in ensuing jurisprudence:

“A proper understanding of the prior art is clearly critical to patent examination. The duty of good faith imposed by paragraph 73(1)(a) of the post-1996 Patent Act requires that this prior art be fully and fairly described by applicants and their agents when answering requisitions from the Patent Office.”


The Memantine Decision Appears to Go Beyond the U.S. Standard

For several years, there has been a likelihood that Canadian courts would interpret s. 73(1)(a) of the Patent Act as imposing some kind of duty of good faith on patent agents in their dealings with the Patent Office. What is surprising is that this duty appears to go well beyond the well-established duty of candour in the United States, so much so that what qualified as a violation in Memantine would not even make out a prima facie case in the United States.

In the U.S., a patentee may well be charged with inequitable conduct if a patentee knew about but failed to disclose key prior art to the examiner. However, on the Memantine facts, where the prior art was brought to the examiner’s attention, a Court could not conclude that the patentee failed to disclose the material in-formation. Even if a Court found that the patentee affirmatively misrepresented a material fact, the Court would then go on to determine whether the patentee had an intent to deceive. This inquiry was entirely missing from the analysis undertaken by Justice Mactavish.

Another unique aspect of the Court’s analysis is that it took place in the context of a NOC proceeding, where the burden of proof is on the patentee to establish that the generic manufacturer’s allegations are “not justified”. This is well short of the heavy burden on defendants in the U.S. to establish inequitable conduct with clear and convincing evidence. It remains to be seen how such allegations will be handled by a Court in the context of a patent infringement proceeding. In any case, there does not appear to be support in the language of s. 73(1)(a) for a “clear and convincing” standard, as in the U.S., unless this evidentiary standard is read di-rectly into the duty of good faith, which would be a stretch of the statutory language.

What Does the Future Hold?

Until now, many patent agents have been prosecuting patents in Canada on the assumption that no duty of candour existed at statute. It remains to be seen how many patents will be invalidated on the basis of the Court’s finding in Memantine that such a duty does in fact exist. Will the jurisprudence in Canada evolve to in-corporate the elements of the duty of candour in the U.S. (materiality and intent) at similar stan-dards of conduct and proof as we see south of the border? If so, perhaps Canada will develop its own appetite for patent reform once the dust has settled on the debate over the inequitable conduct defense in the United States.

The views expressed in this article are the views of the authors themselves, and not necessarily those of Gilbert’s LLP.

How to get a 27 year extension of time - attack an offical mark

Here's an article Matt Dugas, an articling student in our office, recently published on Lexology about a recent official marks case, where the court granted a 27 year extension of time to file for judical review. Official marks are an odd corner of Canada's Trade-mark Act - thus explaining the almost three-decade extension of time - but they are potentially very powerful, and the lack of detail in the supporting legislation makes them either a frustrating or fun topic to deal with (depending on your point of view - often depending on whether you are a plaintiff or defendant ;) ).

Official Marks: Judicial Review of 1982 Decision by Registrar of Trade-marks

In a recent Federal Court decision, Princess Group Inc. was permitted judicial review of a 27 year old decision of the Registrar of Trade-marks. Given that Judicial Review must be applied for within 30 days of a decision, how is it that Princess was able to obtain an extension of almost three decades? The answer lies in the complexities of “official marks”, which occupy an obscure corner of the Trade-Marks Act.


Official marks are marks adopted by “public authorities” and protected in Canada by their own unique but ill-defined legislative scheme. Official marks are both a powerful tool for public authorities (more powerful than a normal trade-mark) and a subject of controversy. Relevant issues include who qualifies as a public authority, the status of older marks of questionable validity, difficulties in opposing the official marks, whether judicial review is an appropriate venue for disputes, and how these issues interact with trade-marks and patents.

An example of the difficulties arising from official marks is the decision in Princess Group Inc. (“Princess”) v. Canadian Standards Association (the “CSA”). After being sued for infringement of CSA’s official mark, Princess applied for judicial review of the Registrar’s 1982 decision to give public notice of the official mark. It is suspected that Princess wishes to challenge the decision of the Registrar on the ground that the CSA is not a “public authority” and cannot own an official mark at all. Judicial review was granted for a decision that dates back a staggering 27 years.


Official Marks

A public authority is given protection of its official mark simply by asking the Registrar to give public notice of the mark’s adoption and use. Usually, public notice consists of publication by the Registrar in the Trade-marks Journal. Doing so prohibits any other person from adopting the mark or a similar mark in connection with a business, as stated in s. 9(1)(n)(iii) of the Trade-marks Act :

9. (1) No person shall adopt in connection with a business, as a trade-mark or otherwise, any mark consisting of, or so nearly resembling as to be likely to be mistaken for,
…….
(n) any badge, crest, emblem or mark

(i) adopted or used by any of Her Majesty’s Forces as defined in the National Defence Act,

(ii) of any university, or

(iii) adopted and used by any public authority, in Canada as an official mark for wares or services,

in respect of which the Registrar has, at the request of Her Majesty or of the university or public authority, as the case may be, given public notice of its adoption and use; (emphasis added)

Although based in the Trade-marks Act, an official mark is not a trade-mark. Compared to a trade-mark, an official mark is both more powerful and, if one is a public authority, easier to obtain.

An official mark is very powerful, primarily because of the broad protection granted in s.9(1)(n)(iii): “No person shall adopt in connection with a business, as a trade-mark or otherwise, any mark consisting of, or so nearly resembling as to be likely to be mistaken for” the official mark. Official marks are not limited to specific wares or fields of use. Official marks can also be used to restrain uses of marks that are not a “trade-mark use” – i.e. if a company is using a mark but not as an identification of source, an official mark may well be used to stop such uses whereas an identical trade-mark registration would fail. The only real limitation to an official mark is that a prior user of the same or similar mark may continue their use after the adoption of the mark by the public authority.

Official marks are easily obtained by a public authority. Section 9(1)(n)(iii) sets out simple and minimal requirements, namely that (1) the authority is a pub-lic authority, and (2) the authority has adopted and used a mark. The Registrar has virtually no discretion to refuse to give notice to the public of the adoption of an official mark (by advertisement in the Trade-marks Journal and in CIPO’s on-line data-base) if the requirements are satisfied . A request for an official mark is often kept confidential until the Registrar gives public notice that the mark has been adopted. It is up to the Registrar alone to determine whether the requirements are met, and there is no process whereby a third party would be informed of the process, no opposition mechanism, and no formal method for an opponent to make submissions to the Registrar. The Registrar may not refuse to give notice of its adoption and use on the ground that it is merely descriptive or is not distinctive of the authority’s wares or services. It is not necessary to describe the wares or services that the official mark will be associated with, and a previously registered trade mark by a third party is not a bar to the adoption of a similar official mark by a public authority. Finally, official marks cannot be challenged for subsequent non-use.




Public Authority Status

This scheme, which grants significant powers to the holders of official marks, places a heavy burden upon the Registrar to police who is a “public authority” under the statute. Whether a given body qualifies as a public authority has become increasingly contentious as public and quasi-public bodies are competing in the private sphere more frequently and wish to more aggressively protect their identifying marks.


Historically, there have been allegations that the Registrar has been too liberal with this requirement. It is thought that there are currently many dubious official marks that have been advertised belonging to parties that should not have been considered public authorities.

In the past, a requesting party simply had to provide the Registrar with a statement that it was a public authority, and the Registrar would proceed to give public notice of the adoption of the official mark. This practice was perhaps uncontroversial when few organizations (with clear and official government ties) pursued official marks, but over time this process resulted in considerable controversy and debate as more groups unilaterally claimed “public authority” status. Are trade associations, aboriginal groups, business associations, foreign public authorities, religious organizations, community groups, school boards, political parties, charities, special interest groups, or standards/quality assurance associations (such as the Canadian Standards Association) public authorities? Can the Olympic rings or aboriginal symbols be official mark of a public authority?

In response to critical Federal Court decisions, the Registrar of Trade-marks released a Practice Notice in 2002, the effect of which is that the Registrar now requires evidence of public authority status on every request to publish an official mark.

The Registrar follows a two-pronged test for deter-mining whether a body is a public authority. The first prong of the test is government control. The body must provide evidence of control that demonstrates ongoing government supervision of its activities, specifically that the government has continuous influence in the body’s governance and decision making process. It is not necessarily sufficient that a body is statutorily self-regulating.

The second prong of the test is public benefit. The activity of the body must benefit the public in Canada. Relevant considerations include the objects, duties and powers, and distribution of assets of the body.

While these tests will limit official mark’s public au-thority requirement from being construed too liberally in the future, what about older official marks that date back to the Registrar’s former broad acceptance of claimed public authority status?


Official Marks and the Princess v. CSA decision

In 1982, upon request by the CSA, the Registrar gave public notice of the adoption and use of an official mark. The official mark consisted of a large “C” enclosing a smaller “s” and “a”. The CSA is a “not-for-profit membership based association” that develops standards for business, industry, government and consumers.

In 2008, the CSA alleged that Princess offered wares that infringed CSA’s official mark, in violation of s.9(n)(iii) the Trade-marks Act.

Princess argued, as a defence, that the official mark should not have been accepted or advertised by the Registrar of Trade-marks in 1982 and sought judicial review. Presumably, Princess will argue that the Registrar’s actions were improper on the basis that the CSA should not have been considered a public authority for the purposes of s.9(1)(n)(iii), although the argument is not explicitly made in court proceedings to date.

Official Marks and Judicial Review

It is unclear, from reading the Trade-marks Act, whether and how a party can contest the adoption of an official mark. Section 57(1) of the Trade-marks Act allows any interested party can apply to the Federal Court to strike or amend any entry in the Register of Trade-marks; however, official marks are not listed in the Register. Section 56(1) of the Trade-marks Act creates a broad right to appeal to the Federal Court from any decision of the Registrar; however, it is suspected that only parties to the decision have standing for a right to appeal the decision. For an official mark, the only party to the Registrar’s decision is the public authority.

In 2002 this uncertainty was resolved by the Federal Court of Appeal in Assn. of Architects (Ontario) v. Assn. of Architectural Technologists (Ontario) (2002 FCA 218). The Court of Appeal ruled that in the vast majority of cases Judicial Review is the only possible way to challenge the validity of an official mark (although the decision allowed for the possibility that a third party could, in extremely rare cases, somehow be included as a party to the Registrar’s decision in accepting an official mark and therefore have standing to appeal under s.56(1)).

The 27 Year Deadline

Challenging an official mark through judicial review is a counterintuitive solution, and one that poses a number of concerns.

One limitation is the issue of standing. A party that is later sued has standing, as does a party that possessed a previous interest in the mark before the official mark was adopted by the public authority. It is doubtful that other parties, such as parties with general public interest concerns, would have standing for judicial review, although a person who has ap-plied for the same or a similar mark may have standing.

Tied to the standing issue is the issue of time limitations. Section 18 of the Federal Courts Act requires that an application for judicial review be commenced by a party that is “directly affected” within 30 days of the decision.

CSA argued in the Princess case that Princess was required to file their judicial review application within 30 days of the 1982 advertisement of their official mark – so Princess was seeking an absurd 27 year extension on the deadline. However, Prothonotary Milczynski and the Federal Court ruled that Princess only became “directly affected” by the decision when they received the CSA’s full statement of claim in April of 2009, and their 30 days in which to file for judicial review began to run on that date. It is uncertain how this would be applied if a party sought judicial review of an old official mark without being sued by the official mark owner.

As other holders of old official marks seek to enforce their marks, we may see a series of judicial review proceedings that become, as in the Princess v. CSA decision, comically out of whack with other judicial review proceedings.

The effect of the Princess decision is that Princess was not time barred from challenging the validity of the official mark through judicial review. If Princess successfully establishes that the Registrar should not have given public notice of the adoption and use of the official mark by the CSA, on the basis that the CSA should not have been considered a public authority or otherwise, then CSA’s mark will lose its protection as an official mark.

It remains to be seen whether the 27 year gap be-tween the Registrar’s decision and the judicial review proceedings has a significant practical impact compared to normally-timed judicial review proceedings. Among other challenges, Princess presumably will have to establish whether there was government control of the CSA in 1982, a question of evidence that may have disappeared over time. Hypothetically, a holder of an official mark could currently be a true public authority, but the mark could be revoked if it is determined on judicial review that it should not have been considered a public authority when the mark was originally advertised.

Accordingly, holders of some official marks may be reluctant to enforce their rights. In light of the uncertainty surrounding official marks, they may be concerned that challenging another party’s use of the mark may result in their mark being revoked. Instead of risking the loss of the mark, the holder may endure infringement by bolder parties while benefit-ing from the deterrent value the mark has on more cautious parties.


Application to Invalidation of Other Intellectual Property Rights

The use of Judicial Review as a backdoor defence against infringement, and a defendant to an infringement proceeding only becoming “directly affected” when infringement is claimed, may seem like a tempting option for defendants to investigate in response to patent or trade-mark infringement cases. Such a strategy, however, is not as promising as it seems.

The availability of Judicial Review is generally precluded when other forms of appeal or recourse are available. Official mark cases have been differentiated from patent cases in this regard . An “interested person” can bring an impeachment action against a patent after it is granted, and a party can seek to have an improperly granted trade-mark expunged from the Registrar.

The judicial review approach exists uniquely for official marks because there is no other apparent way to challenge the decision of the Registrar to advertise an official mark.


Conclusion

Although they are a part of the Trade-marks Act, official marks differ substantially from trade-marks in many respects. The protection created by the legislation is very broad and ill-defined, creating uncertainty both in the marketplace and in the courts.

While it has been settled in the courts that judicial review is the appropriate mechanism for contesting an official mark, the 27 year differential between the Registrar’s advertisement and the review in Princess is an example of the peculiar issues and considerations that can arise in these proceedings.

As public authorities are asserting their rights in the marketplace more aggressively, issues like this continue to highlight the shortcomings of the official marks regime. Accordingly, legislators may begin to question the policy basis for bestowing on public authorities the additional benefits an official mark – even if it may be warranted for government departments or offices, why do quasi-public organizations like the Canadian Standards Association require such a dramatic branding advantage in the market-place? Trade-marks could adequately protect the identifying marks of many public authorities without the complications and difficulties inherent in the official marks regime. Eliminating or limiting some aspects of the official marks system is a possible solution to the difficulties outlined above.

Victor is Dressed to Bill!

Coming up on Oct. 21: Precedent Magazine's annual "Dressed to Bill" fashion event (tagline: lawyers on the catwalk!)

This year featuring Gilbert's own Victor So!

Photos sure to follow, whether embarrassing or not ;)

Sana Halwani impressive as usual.

Congratulations Sana!!!

A big, belated congratulations to Sana Halwani, who managed the impressive feat of passing the Canadian Patent Agent exams on her first try!

By way of background, only 3-4% of first time writers of the patent agent exams pass, so Sana is in elite company (albeit this is typically where she can be found – look at her profile here).

Canadian courts confirm differential profits approach to Accounting of Profits cases

Just catching up on things. I wrote this for Lexology a little while ago. Thanks to Art Renaud for bringing these cases to my attention.

Two recent Federal Court of Canada cases held that when calculating an accounting of profits in patent cases the “differential profits” approach - comparing the profits actually made with those that would have been made using the best non-infringing option – must be applied. These decisions, combined with the Supreme Court of Canada’s decision in Monsanto v. Schmeiser, are important precedent for the application of the accounting of profits remedy in patent cases in Canada and the Commonwealth.


The two cases, both decided by Zinn J., are Monsanto v. Rivett, 2009 FC 317 and Monsanto v. Janssens, 2009 FC 318.

“Actual profits” vs. “differential profits”: what’s at stake?

The accounting of profits is the dominant monetary remedy for patent infringement in Canada. Unlike damages, which measures the amount of the remedy by the loss of the successful plaintiff, the accounting of profits award forces the defendant to disgorge the profits attributable to the infringement. In Commonwealth countries, successful patent plaintiffs often can choose the accounting of profits instead of a damages award, and in fact generally do so, for strategic reasons (it is easier to protect sensitive information in an accounting of profits inquiry than a damages inquiry) and/or because of an expectation that the accounting of profits award will be larger than a damages award.

There are two competing theories on how to calculate the size of an accounting of profits award:

• subtract costs from the gross revenue attributable to the infringement – the “actual profits” approach

• subtract the profits that would have been made using the best non-infringing option from the actual profits made – the “differential profits” approach

These have been much debated in the case-law since the accounting of profits remedy was revived in the early 1980s. Since the actual profits approach will usually generate a larger award on the facts in the cases where an accounting of profit has been sought, the plaintiffs typically support this approach, with the defendants proposing the differential profits approach.

Until 2004, the results in the cases were fairly one-sided, with several decisions explicitly rejecting the differential profits doctrine in favour of the actual profits doctrine, and no case clearly adopting the differential profits approach.

As a practical matter, these approaches can lead to very different sizes of award. For example, in the Schmeiser case, the application of the differential profits approach reduced the plaintiff’s monetary award to zero. In the Rivett and Janssens cases, the application of the differential profits approach decreased the plaintiff’s monetary awards by 69%.

Debate: the innocent infringer and the
Supreme Court of Canada decision in Schmeiser

The debate between the actual and differential profits approaches took a dramatic turn in 2004 in the Supreme Court of Canada case of Monsanto v. Schmeiser. In that case, the defendant Percy Schmeiser was found to have deliberately raised and sold a crop of genetically modified canola and liable for infringing a Monsanto patent. The trial judge awarded an accounting of profits, and using the actual profits approach awarded Monsanto $20,000. The Supreme Court instead applied the differential profits approach, finding that the defendant’s profits “were precisely what they would have been had they planted and harvested ordinary canola. … The appellants' profits arose solely from qualities of their crop that cannot be attributed to the invention." Hence, there was no difference between the defendant’s profits with and without the infringement, and the Supreme Court held that no profits at all were to be awarded.

Nevertheless, the Supreme Court’s treatment of the issue led to further debate. If the Supreme Court was mandating a causation based approach to the accounting of profits remedy resulting in the differential profits approach, this was the portion of the Schmeiser decision with the greatest practical impact. However, the section dealing with the accounting of profits remedy was a scant five paragraphs long, and did not discuss any of the twenty years of case law it was supposedly overruling. While many practitioners embraced the Schmeiser decision as making the differential profits approach as a new “rule of law”, others saw Schmeiser as a signal that the differential profits approach should be used when appropriate, but that courts were free to apply the actual profits or differential profits approach as appropriate based upon the facts and equities of the case before them.

Clouding the issue is the possibility that the Supreme Court was determined to issue a ruling applying the differential profits approach to accounting of profits for a reason not directly before the Court - the “innocent infringer” problem. With the patenting of genetically engineered crops arises the possibility of the “innocent infringer” – exemplified by a person who unknowingly cultivates genetically modified crops with a patented gene after seed blows onto their land. Since patent infringement does not require knowledge either of the patent or that the impugned acts might infringe a patent, the “innocent infringer” is still infringing a patent. Although the amount of damages in such a situation is likely to be small, under the actual profits approach to the accounting of profits the innocent infringer could be liable to disgorge the entire profits from the sale of the tainted crop.

Such a result seems unfair on its face, and led to calls in Canada by expert commissions for changes to patent law, including special innocent infringer exceptions and rules. In reply, legal experts (primarily Professor Norman Siebrasse of the University of New Brunswick) answered that such changes were unnecessary and counterproductive, since a proper application of well-established principles of causation in remedial awards from general tort law in the patent context would lead to the differential profits approach. Under a differential profits approach, the “innocent infringer” would not have gained any particular profits beyond the best non-infringing option (the use of unpatented seed), and any monetary award against an innocent infringer would be modest at best.

On the actual facts of the Schmeiser case, the defendant was not an innocent infringer. Nevertheless, the Schmeiser case did involve genetically modified plants, and the writings of Professor Siebrasse were specifically cited by the Supreme Court. It is certainly arguable that the Supreme Court only applied the differential profits test in response to concern over the innocent infringer problem, and did not intend that the differential profits approach should always be applied when calculating an accounting of profits.

The recent decisions of Zinn J. in Rivett and Janssens

This was the state of affairs until the cases of Monsanto v. Janssens and Monsanto v. Rivett, were released in March 2009. These cases, heard together before Zinn J. of the Federal Court, both were factually similar to the Schmeiser case: all of the defendants were found to have deliberately planted, harvested and sold genetically modified soybeans, thus infringing a Monsanto patent. The plaintiffs elected an accounting of profits remedy, and urged Zinn J. to apply an actual profits approach. The defendants took the position that, following Schmeiser, Zinn J. was bound to apply the differential profits approach.

Given the factual similarity between the Schmeiser, Janssens and Rivett cases, it is unsurprising that Zinn J. followed the Supreme Court’s lead and applied the differential profits approach.

What is more interesting, and a strong signal to the patent bar in general, is that Zinn J. was clearly of the view that the ruling in Schmeiser set a new legal rule, and the differential profits approach should be applied in all future accounting of profits cases.

Noting that the Supreme Court “relied heavily on and arguably adopts Professor Siebrasse’ analysis of an accounting of profits”, Zinn J. argued that the Supreme Court had established that a causal link must be found between the profits awarded and the invention that is protected. This causation requirement necessarily results in the application of the differential profits approach.

Zinn J. hastened to add that the differential profits approach could still be reconciled with much of the existing case law. In many cases, there was no “best non-infringing option”, resulting in the actual profit and differential profit approaches becoming identical. In other cases, the courts first calculated an amount using the actual profits method, but then performed an apportionment in an attempt to limit the award to the profits actually earned from the use of the invention – essentially, an attempt to reach a causation-based result without the benefit of a causation-tailored approach.

Zinn J. summarized the steps required under the differential profits approach as follows:

a) Is there a casual connection between the profits made and the infringement?’ if there is none, then there are no profits that require an accounting.

b) If there is a causal connection, then what were the profits made by the infringer as a result of the infringement? This amount I shall describe as the Gross profits of Infringement.

c) Is there a non-infringing option that the infringer could have used?

d) If there is no non-infringing option, then the Gross Profits of Infringement are to be paid over to the patentee.

e) If there is a non-infringing option, then what profit would the infringer have made, had he used that option? This amount I shall describe as the Gross Profit of Non-Infringement.

f) Where there was a non-infringing option available, the amount to be paid over to the patentee is the difference between the Gross Profits of Infringement and the Gross Profits of Non-Infringement. This sum is the profit that is directly attributable to and that results from the infringement of the invention.

Zinn J. then proceeded to apply this analysis in the cases at hand. In both cases, the application of the differential profits approach instead of the actual profits approach lowered the award by 69%. The defendants were ordered to disgorge $40,137 in the Rivett case and $11,363 in the Janssens case.

Existence of a non-infringing comparator

Zinn J. had little difficulty in finding that the appropriate non-infringing comparator was “soybean seed that has none of the plaintiff’s invention” – i.e. conventional soybean seed. He rejected the suggestion of the defendants that the comparator should be the price of buying seed from Monsanto and thus obtaining a license.

A difficulty arose as the evidence before the Court was that conventional soybean – i.e. soybean seed not containing the patented genes – was not available on the market, or at least not available at the local co-op. Arguing that the fundamental purpose of the accounting of profits remedy was to “discover the value that the invention has brought to the product”, Zinn J. held that the market availability of the best non-infringing option is not determinative. “If one uses a comparator only if it is actually physically available for use, but not when it exists but is physically unavailable, the fact that the resulting crop has a value apart from the invention will be ignored.”

The accounting of profits remedy going forward

It will be interesting to see if the clear adoption of the differential profits approach as a rule of law by Zinn J. will be followed in other courts, particularly in the United Kingdom and Australia.

In some quarters, the accounting of profits remedy has acquired a reputation as being more difficult to administer than a damages award. Since the accounting of profits award is an equitable remedy and its award is always in the discretion of the court, some courts have taken the position that the plaintiffs need to justify the choice of an accounting remedy instead of being given a free choice. While it may be appropriate for plaintiffs to provide the court with reasons why they should receive an accounting of profits award, the differential profits approach underlies the parallel nature (and difficulty) of the damages and accounting of profits awards. Damages seeks to return the plaintiff to the position they would occupy if there was no infringement; accounting of profits seeks to return the defendant to the position they would occupy if there was no infringement. There is no reason in principle why one remedy should be more difficult to apply than the other.

The adoption of the differential profits approach will often result in lower accounting of profits awards. However, plaintiffs often make their choice of remedies for reasons other than the size of the monetary award, and in some cases the differential profits approach will give a larger accounting of profits award than the actual profits approach. While we may see more damages cases coming out of patent cases in the Canadian courts, it is unlikely that the accounting of profits award will become unused. Successful plaintiffs will need to seriously consider their choice between the damages and accounting of profits remedies in light of these decisions.