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2004 Lexpert Article - Recent Development of Importance

Date

February 8, 2007

AUTHOR(s)

Marcus Klee
Jacob C. Glick


Intellectual property litigation is generally understood to comprise the provision of advice and representation, whether by way of negotiation, judicial proceedings, alternative dispute resolution, mediation or arbitration, in all matters relating to the enforcement or defence of patents, trademarks, copyrights, industrial designs, trade secrets and other such rights.

The practice of intellectual property ("IP") litigation involves the initiation, management and resolution of disputes related to IP. These disputes can arise in any number of different contexts and are heard not just in courts but in various alternative dispute resolution forums. IP litigation can affect the substantive rights of IP holders as courts expand and limit the scope of those rights. Similarly, the outcome of IP litigation can encourage government to amend IP legislation. Although 2003, in contrast to 2002, was not a "blockbuster" year in IP litigation, there have been some important developments.

Patents
Maintenance Fees
Under Canadian patent laws, a patent applicant or owner must pay annual maintenance fees to the government, commencing on the second anniversary of the filing date of the application, in order to keep the application or patent in good standing. Different fees are payable depending on the size of the entity that has applied for or owns the patent at the time the payment is due. For example, a "large entity" is required to pay a higher fee than a "small entity" (defined in Section 2 of the Patent Rules to include an individual, university or entity employing 50 or fewer employees). If such fees are not paid by the deadline specified in the Rules, the application or patent will be deemed abandoned.

Until 2001, it was the practice of the Commissioner of Patents to permit any deficiencies in maintenance fee payments to be cured by "top-up" payments. However, in Dutch Industries Ltd. v. Canada (Commissioner of Patents) (2001), 209 F.T.R. 260, the Federal Court held that the Commissioner did not have any authority under the Patent Act or Rules to accept such "top-up" payments.  As a result, patent applicants and owners ceased to take advantage of the "small entity" status provisions for fear that they could lose their patent rights if any error in the determination of their status or the prescribed fee was made.

On March 7, 2003, the Federal Court of Appeal in Dutch Industries Ltd. v. Canada (Commissioner of Patents), [2003] 4 F.C. 67 agreed with the lower court that late "top-up" fees could not correct errors in payment, but went on to hold that entity status is determined only once, when the patent application is filed, and thereafter fees are paid based on this initial determination. The applicable fee does not change, even though the entity may change in size, or license or assign its rights to a different-sized entity, during the life of the patent. However, where a large entity patent holder incorrectly pays a small entity fee on filing its application, top-up fees cannot correct the error and the patent will be deemed to have been abandoned.

Although, the Supreme Court of Canada denied Dutch Industries’ application for leave to appeal this decision, on August 8, 2003, in an effort to address the uncertainty created by the court decisions regarding maintenance fee payments and "top-ups," the Federal Government announced that it would clarify this issue by amending the Canadian Patent Act and Rules to provide for the retroactive correction of past fee payments.

On December 22, 2003, the government published its proposed legislation, which provides for a specific six month period during which “top-up” fees may be paid to retroactively correct any non-payment or underpayment of a maintenance fee. It also provides the government with authority to enact regulations relating to unpaid or incorrectly paid maintenance fees.  The public had until the end of March 2004 to submit comments on the proposed legislation.

Claim Construction
In Realsearch Inc. v. Valone Kone Brunette Ltd., (2003) 27 C.P.R. (4th) 274 (FCTD), the Federal Court ordered, for the first time in Canada, that the issue of patent claims construction could be severed from the remaining issues in the case and be dealt with first. In so doing, the court effectively adopted a U.S. procedure known as a "Markman hearing."

In Markman v. Westview Instruments, Inc., 52 F.3d 967; affirmed 116 S.Ct. 1384 (1996), the U.S. Supreme Court held that the issue of patent claim construction was not a question of fact, or mixed fact and law, but rather a question of law for the court to decide. Following Markman, many U.S. courts have determined the construction of patent claims in separate proceedings, prior to the issues of infringement or invalidity being addressed.

In his decision in Realsearch, Mr. Justice Noël held at paragraph 13, that "Without settlement, patent infringement actions in this court often take many years to be resolved. I believe that this suggested new procedure might give an opportunity to parties to speed up the litigation in such actions. If, early in the litigation, the claims are construed, the parties can possibly better determine the relative merits of their positions."

Notwithstanding Mr. Justice Noël's optimism, the U.S. experience demonstrates that Markman hearings can result in claim construction being carried out without the judge being presented with the full context of the action. Further, Markman hearings can potentially increase the cost of litigation by necessitating in effect two trials: first, a trial on claims construction, followed by a second trial on infringement and validity - both requiring expert testimony and related evidence. In any event, the Federal Court of Appeal kyboshed this innovation for the time being  when, in January 2004, it held that on its facts this was not a case necessitating a Markman Hearing.

Summary Judgment

In general, the Federal Court has been reluctant to grant summary judgment in patent infringement cases.  However, in July 2003 on a summary judgment motion in Trojan Technologies, Inc. v. Suntec Environmental Inc. (2003), 26 C.P.R. (4th) 417, which involved the evaluation of conflicting expert evidence on the issues of claim construction, validity and infringement, Mr. Justice Gibson of the Federal Court found the plaintiff’s patent for an ultraviolet water treatment system to be both valid and infringed. Whether this decision will open the door for summary judgment as method of resolving complex patent cases has yet to be determined. This decision was appealed by the defendant to the Federal Court of Appeal, which stayed portions of the Order pending its decision and, on the motion for a stay, held that a serious issue was raised by the lower court’s treatment of the conflicting expert evidence.

Legislative Initiatives
On September 25, 2003, with a view to implementing the World Trade Organization’s August 30, 2003 decision on the Agreement on Trade-Related Aspects of Intellectual Property and Public Health (the Doha Declaration), the federal government announced that it would amend the Patent Act to give generic pharmaceutical companies permission to manufacture certain patented medicines for export to developing countries facing grave public health problems, including HIV/AIDS, tuberculosis and malaria.

Shortly thereafter, on November 6, 2003, the government followed through on this initiative by introducing Bill C-56: An Act to Amend the Patent Act and the Food and Drugs Act, which provides for the grant of compulsory licences to Canadian drug manufacturers (including generic companies) for this purpose.  Although Bill C-56 died when parliament was prorogued on November 12, 2003, it was reintroduced on February 12, 2004 as Bill C-9: The Jean Chrétien Pledge to Africa Act, and was referred directly to the Standing Committee on Industry, Science and Technology.

In taking these steps, Canada has distinguished itself as one of the first countries in the developed world to respond to the increasing pressure from global health advocates and Stephen Lewis, the UN special envoy on HIV/AIDS in Africa, to improve access to pharmaceuticals by developing countries in health emergencies.  Intent upon making this initiative work and achieving vital public health and development goals while also respecting intellectual property rights that are critical to the development of new medicines, the federal government is continuing to consult Canada’s pharmaceutical industry and non-governmental organizations with respect to the proposed legislation. As the government proceeds, no doubt the rest of the world will be cautiously watching.

Patented Medicines (Notice of Compliance) Litigation
The Patented Medicines (Notice of Compliance) Regulations proclaimed pursuant to the Patent Act (the "Regulations") have become the basis of much litigation since they were first enacted in 1993. The purpose of the Regulations are, according to the Federal Court of Appeal, "to graft more effective patent protection onto the regime for the approval of new drugs on the basis of their safety and efficacy." These highly technical and somewhat opaque Regulations have become, due to the high financial stakes involved in the patenting and licensing of medicines, the subject of a significant amount of litigation. Some of the more notable cases in this area from 2003 include:

Pharmascience Inc. v. Canada (Minister of Health), 2003 F.C.A. 333. The Federal Court of Appeal upheld an order, pursuant to Section 6(7) of the Regulations, compelling Pharmascience, as the "second person," to produce portions of the Drug Master File ("DMF") filed with Health Canada by its offshore API supplier and cross-referenced by Pharmascience in support of its abbreviated new drug submission ("ANDS").

The court stated that the Minister's administrative practice of allowing a second person to cross-reference a third party's DMF in support of its ANDS had no legal significance under the Food and Drug Regulations. It concluded that the cross-referenced DMF was an integral part of the ANDS filed by the second person and was thus subject to disclosure under Section 6(7) of the Regulations. The court also observed that a disclosure order should not be made where it is demonstrated that the second person cannot comply, although the consequences of such a failure to produce the DMF are to be determined on a case-by-case basis.

Janssen-Ortho Inc. v. Canada (Minister of Health), 2003 F.C.T. 286. The main issue in this case was whether patent claims for a transdermal “patch” used to administer medicine were claims to "the medicine itself" under the Regulations such that the patent was eligible for listing on the Patent Register.

In coming to its decision in  Janssen-Ortho the Federal Court was faced with an inconsistent line of cases.  In Hoffmann-La Roche v. Nu-Pharm (1995), 67 C.P.R. (3d) 25 the Federal Court of Appeal interpreted "medicine" to include compositions of both active and inactive ingredients, finding a patent claiming a nasal spray and its container eligible for listing on the Patent Register.  However, in Novartis Pharmaceuticals Canada v. Minister of Health et al., 2002 F.C.T. 1042 and Glaxo Group Ltd. v. Novopharm Ltd. (1999), 87 C.P.R. (3d) 525 (F.C.A.), claims regarding a patch and an inhaler were held to be ineligible under the Regulations, as the patents at issue were directed to the form used to deliver the active ingredient rather than the active ingredient itself.

In Janssen-Ortho, although the Federal Court adopted the Court of Appeal's interpretation of "medicine," from Hoffmann-La Roche, it went on to interpret the Glaxo case as also requiring that the active and inactive ingredients be ingested into the body, concluding that the transdermal patch (which consisted of a combination of both active and inactive ingredients with several layers, including a release membrane and a drug reservoir) was not a "medicine." Janssen-Ortho has appealed the decision.

Whether the Federal Court of Appeal will resolve the apparent inconsistency in the existing jurisprudence in this area has yet to be determined.

Ferring Inc. v. Canada (Attorney General), 2003 F.C.A. 274. In this further case regarding the eligibility of patents for listing on the Patent Register, the Federal Court of Appeal reversed the motions judge who had distinguished Bristol Myers Squibb v. Attorney General of Canada (2001), 10 C.P.R. (4th) 318 (F.C.T.D.)("BMS"), as affirmed by the Federal Court of Appeal, on the basis that a supplemental new drug submission ("SNDS") for a change in the name of the medicine could support the listing of a patent when there was no existing patent list.

The Federal Court of Appeal held that there was no basis to distinguish Ferring from BMS, since in BMS the patent list had ceased to exist at the relevant date. The Federal Court of Appeal reaffirmed its holding in BMS that a first person cannot employ a strategy of filing an SNDS for a name change so as to overcome timing requirements under the regulations for filing a patent list. In September, 2003, Ferring Inc. filed an application for leave to appeal to the Supreme Court of Canada, however this application was dismissed on March 4, 2004.

Bristol-Myers Squibb Co. v. Canada (Attorney General), 2003 F.C.A. 180. In this case, the Federal Court of Appeal applied Section 5(1.1) of the regulations for the first time in quashing the notice of compliance issued to generic drug company Biolyse Pharma Corporation in respect of the drug paclitaxel. Biolyse had filed a new drug submission, as opposed to an abbreviated new drug submission, for paclitaxel and had made comparisons in its NDS to BMS's drug Taxol, though not for the purpose of establishing bioequivalence. The Minister of Health issued a notice of compliance. The Federal Court of Appeal held that Biolyse should have been required to serve a notice of allegation on BMS and relied on the "plain meaning" of Section 5(1.1) of the Regulations to support its decision.

Biolyse has filed an application for leave to appeal to the Supreme Court of Canada, which was granted on November 20, 2003. The hearing of the appeal has been tentatively set for October 13, 2004.

In their review of drug submissions, Health Canada's Office of Patented Medicines and Liaison has been strictly applying the Federal Court of Appeal’s decision, and will likely continue to do so unless or until the interpretation and application of Section 5(1.1) of the Regulations is addressed by an equivalent or higher court, or the Regulations are amended.

Eli Lilly Canada Inc. v. Canada (Minister of Health), 2003 F.C.A. 24. In a 2-to-1 split, the Federal Court of Appeal held that a patent containing claims to a pharmaceutical formulation of ceftazidime pentahydrate with amorphous lactose can be listed on the Patent Register even if the formulation being marketed by the patentee does not contain amorphous lactose and therefore does not make use of the invention claimed in the patent. In making this decision, the majority interpreted the words in Section 4(7)(b) of the Regulations as not requiring any relationship between the drug named in the notice of compliance and the patents that may be included on the patent list. This decision effectively overruled the previous decision in Warner-Lambert Canada Inc. v. Canada (Minister of Health), [2001] F.C.J. No. 801, in which the Federal Court interpreted the Regulations as requiring a product-specific patent list.

These decisions demonstrate a trend in decisions of the Federal Courts to prevent parties from using what they perceive as holes in the Regulations to circumvent Parliament's intention.

While the courts continued to address issues raised under the Regulations this past year, a House of Commons Standing Committee on Industry, Science and Technology undertook a review of the Patented Medicines (Notice of Compliance) Regulations. The committee held hearings in June 2003. The committee's report is highly anticipated by all players in the pharmaceutical industry.

Trademarks
Functionality
In July 2003, the Federal Court of Appeal, in a 2-to-1 split, in Kirkbi AG et al. v. Ritvik Holdings Inc., 2003 F.C.A. 297, dismissed the appeal brought by Kirkbi AG and Lego Canada Inc. against Mega Bloks Inc., holding that whether registered or unregistered, primarily functional marks are invalid. Kirkbi et al objected to Mega Bloks producing stackable brick toys that were interoperable with Lego-brand blocks.  Although its patents relating to their interlocking Lego-brand blocks had expired some time ago, Lego asserted that the shaping of the knob configuration of its products (the “LEGO indicia”) constitutes a distinguishing guise and thus a valid trademark. In dismissing Lego's appeal, the majority relied on the doctrine of functionality, the purpose of which is to ensure that one does not indirectly achieve the status of a patent holder through the guise of a trademark. Kirkbi and Lego have filed an application for leave to appeal to the Supreme Court of Canada.

Internet-sourced Evidence
The September decision of the Federal Court in ITV Technologies v. WIC Television, 2003 F.C. 1056 is notable because of the extent to which the court was presented with evidence sourced from the Internet. In addition to dealing with more than 1,000 pages of Internet printouts of various types, Madame Justice Tremblay-Lamer also had to deal with a request that witnesses be allowed to access the Internet during testimony. She held most of the Internet-sourced documents to be inadmissible for the truth of their contents. However, she did allow witnesses to access the Internet to view documents that had been produced at discovery. She also held that visiting a Web site during the trial was helpful to the court in demonstrating features like hyper linking and interactive streaming that could not have been realistically reproduced on paper. To get around the problem that Web sites or their contents may not be the same at trial as they were during the relevant period, she received evidence generated by the "Wayback Machine," available at archive.org. This case is a seminal one for lawyers wishing to make use of Internet-sourced evidence in advocacy situations.

In October 2003, WIC Television appealed the dismissal of its counterclaim for trademark infringement. As a result, the Federal Court of Appeal will have the opportunity to consider the admissibility and weight accorded to Internet-sourced evidence.

Copyright
File-sharing
This year saw the beleaguered recording industry in the United States take a new, aggressive tack in their efforts to stop file-sharing (i.e. piracy) on the Internet. Not only did they continue to sue the operators of peer-to-peer networks, using provisions of the U.S. Digital Millennium Copyright Act, they sought orders forcing Internet service providers ("ISPs") to identify users, whom they alleged were swapping copyright music online. After having successfully forced the ISPs to turn over the users' names, they launched numerous actions against individuals for copyright infringement. It is not clear whether this technique will successfully abate online infringement of musical works or whether it will simply lead to the development and deployment of new technologies designed to elude personal identification online.

In February 2004, the Canadian Recording Industry Association (“CRIA”) announced that it would follow suit and initiated infringement proceedings against Canadian uploaders of music.

Originality, Fair Dealing and Authorization
Having heard the appeal on November 10, 2003, the Supreme Court of Canada rendered its much anticipated decision in The Law Society of Upper Canada, et al. v. CCH Canadian Limited, et al. (the “CCH case”) on March 4, 2004. Overturning the ruling of the Federal Court of Appeal, the Supreme Court held that the Law Society of Upper Canada (“LSUC”) did not infringe copyright in certain legal publishers’ works by offering a photocopy service, nor had it authorized the infringement of such works by maintaining self-service photocopiers in its library.

In reasons written for a unanimous court, Chief Justice McLachlin held that although the publishers’ headnotes, case summaries, topical indices and compilations of reported judicial decisions all constitute “original” works protected by copyright, the photocopying of these documents by or for LSUC members amounts to fair dealing for the purpose of research or study and, therefore, falls within the fair dealing exception to infringement provided for in section 29 of the Copyright Act

Significantly, on the question of originality, the Court concluded that for a work to be original under the Copyright Act it must be the product of an author’s exercise of skill and judgment, but need not be creative in the sense of being novel or unique.  In so doing, the Court purports to reject both the U.S. “creativity” approach to originality and the “sweat of the brow” test of originality which had been adopted in some prior Canadian cases.  The extent to which the Court truly forged a middle-ground between these competing theories of originality will surely be the subject of academic propounding. 

On the question of fair dealing, the Supreme Court agreed with the lower court that the fair dealing defence could apply to research conducted for commercial purposes and was not limited to research undertaken in non-commercial or private contexts. Further, the Court applied the test used in the United States to assess “Fair Use” under US Copyright law.  Among other things, this means that US cases will be increasingly important to Canadian copyright lawyers in understanding what constitutes fair dealing. 

Finally, with regard to the authorization of infringement, the Court adopted the traditional Canadian approach in holding that a person does not “authorize” infringement by providing or allowing the mere use of equipment that could be used to infringe copyright, and that Courts should presume that a person who allows an activity does so only so far as it is in accordance with the law. On the facts, the Court found that that there was no evidence that the self-service photocopying machines in the library had been used illegally, and that the  posting of a notice above the photocopiers by the LSUC was not an acknowledgement that the machines would be used in an illegal manner. Furthermore, the LSUC lacked sufficient control over its patrons to lead one to conclude that it sanctioned or approved any infringement.

Viewed by some as a fair compromise between the proprietary rights of creators and the rights of users to access material, this decision will no doubt be the subject of academic debate and active litigation.  It will surely have broader implications outside the legal publishing industry; specifically, for Internet access and service providers, computer software and hardware manufacturers, content creators and aggregators of databases or compilations of data.

Upcoming
Another important copyright case which made its way to the Supreme Court of Canada this past year was Canadian Association of Internet Providers et al. v. Society of Composers, Authors and Music Publishers of Canada, et al. The Tariff 22 case, as it is known, involves the liability of Internet service providers (ISPs) for materials they transmit, over their networks, to their customers. This case will determine whether ISPs can avail themselves of the common carrier exemption in the Copyright Act or whether in transmitting data they can be said to be "communicating to the public." The case will also be precedent setting in regards to questions relating to jurisdiction online.

The Supreme Court of Canada heard the appeal on December 3, 2003, and is expected to render a decision in this case sometime later this year.

Procedure
Arbitration
Desputeaux v. Éditions Chouette (1987) Inc., 2003 S.C.C. 17 involved a dispute over the authorship of the cartoon character "Caillou," which, further to the terms of the licensing agreement at issue, was sent to arbitration. The unsuccessful party challenged the arbitrator's decision on the ground that the Copyright Act reserved exclusively for the courts the right to determine questions of authorship. The Supreme Court of Canada affirmed in March the "virtually unfettered autonomy" that parties to an arbitration agreement have in identifying the disputes that may be the subject of the arbitration proceeding - including questions of authorship under the Copyright Act.

Identifying Internet Users
In Loblaw Companies Ltd. v. Aliant Telecom Inc., 2003 N.B.Q.B. 215, Loblaw Companies Ltd. sought an order requiring Aliant and Yahoo! Canada to disclose the identity of a person whose e-mail account and IP address had been linked to the disclosure of confidential information. In granting the order, the court relied on the section of the New Brunswick rules of civil procedure that allows examination for discovery of a party prior to litigation, if that party may have information identifying an intended defendant.

Procedures such as this may become more commonplace as companies seek to identify Internet users whom they allege have wronged them. For example, the recording industry could use this tactic to uncover the identity of alleged file swappers in Canada. In fact, CRIA used a similar provision in the Federal Court Rules on a motion to compel Internet Access Providers to identify a number of their subscribers alleged by CRIA to be massive music uploaders.

RESEARCH

The major intellectual property litigation practices and practitioners are well known to each other. During the course of 2003 we contacted 231 respected practitioners in the field across Canada requesting they complete detailed questionnaires describing their practice and identify who in their opinion were the leading firms and practitioners. 139 were kind enough to do so, giving us a national response rate of 60.2%. The response rate in the key Ontario region is 60.6%, Quebec/Atlantic was 61.7%, and Western Canada was 57.1%.

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