The Growth of Canadian Intellectual Property Law and Practice
The year 2004 was a noteworthy one in Canadian intellectual property ("IP") litigation, with several developments to report in respect to both law and practice. The majority of IP disputes continue to be litigated within
Practice and Procedure
Adjustment to the Federal Court Structure
On July 2, 2003, the Courts Administration Service Act came into force, amending the Federal Court Act, R.S.C. 1985, c. F-7. Aside from amending the title of the latter statute to An Act Respecting the Federal Court of Appeal and the Federal Court ("Federal Courts Act"), two notable changes were made. First, the previously unitary Federal Court of Canada (with its trial division and appeal division) has been divided into two separate and distinct courts: (i) the federal court; and (ii) the Federal Court of Appeal.
Second, section 27 of the amended Federal Courts Act now provides authority to a judge of the Federal Court of Appeal to grant appellants from the federal court an extension of time to file their appeals. Previously, authority to extend the time for filing an appeal rested solely with the judges of the trial division.
On January 1, 2004, the Ontario Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, came into force, imposing a basic limitation period in the province of two years from the date on which a claim arose or ought to have been discovered. The new provincial limitation period will apply to IP disputes commenced in the Ontario Superior Court of Justice where the cause of action is based on a common law tort (e.g., passing off). It may also apply to an action in the
In the federal court, if a federal limitation period is prescribed, then it will be applied. If there is no federal limitation period to apply, then the court will apply the law of limitations applying in the province to which the dispute relates. If the dispute concerns two or more provinces, the Federal Courts Act provides for a six-year limitation period.
Despite the inviting words of the Federal Court Rules as to the availability of summary judgment,1 summary judgment continues to be elusive in IP matters involving any significant factual dispute.
In Trojan Technologies, Inc. v. Suntec Environmental Inc. (2004), 31 C.P.R. (4th) 241 (F.C.A.); rev'g 26 C.P.R. (4th) 417, the Federal Court of Appeal reversed a motion judge's decision to grant summary judgment to the plaintiff in a patent-infringement action. Expert affidavits had been placed before the judge on the issues of validity, construction and infringement. The expert evidence was contradictory. Both experts were cross-examined but neither was shaken. The judge considered that each party had put its best foot forward and he was able to decide the case on a hard look at all of the evidence before him. In granting summary judgment, the judge stated that he preferred the plaintiff's expert on each of the critical issues.
The court of appeal set aside the summary judgment, agreeing with the appellant that genuine issues for trial had been created by the conflicting expert evidence. While the motions judge resolved for himself all of the issues of credibility that were before him, that did not mean that credibility issues were not present. In the court of appeal's opinion, determinations as to the credibility of experts ought to be left to trial judges who will have the benefit of viva voce evidence.
The application of this decision will be observed closely, given the natural tendency for IP disputes to involve conflicting expert opinions on critical issues. An application for leave to appeal to the Supreme Court of Canada was filed in this case on August 30, 2004.
On the other end of the spectrum stands the case of Carbo Ceramics v. China Ceramics Proppant Ltd.,  F.C.J. No. 1286 (F.C.T.D.), aff'd  F.C.A. 283. A patent-infringement action concerning ceramic proppant (used in the oil and gas industry), the plaintiff applied for an interlocutory injunction to restrain the sale of the defendant's allegedly infringing product. All concerned agreed that the traditional three-part test of serious issue, irreparable harm and balance of convenience applied.
The typical stumbling block for interlocutory injunction applications is establishing that irreparable harm will result if the defendant is not enjoined. The trend in the federal court has been to require "clear and non-speculative evidence" of such harm, a difficult standard to meet. However, the plaintiff in Carbo was able to establish this element quite easily and on two separate grounds. First, because the defendant's evidence was unclear as to whether it would be able ultimately to satisfy any judgment at trial. Second, because the court agreed with the plaintiff that irreparable harm would result if the defendant was permitted to "springboard" into the market prior to the end of the plaintiff's patent term.
The defendant appealed to the Federal Court of Appeal, arguing that the hearing judge had pre-judged the case on its merits in order to find irreparable harm based on a theory of "spring-boarding." While the court of appeal considered the motion judge's language to have been "loose and unfortunate" at times, it refused to interfere with his decision.
A renewed interest in the concept of "spring-boarding" harm can be expected amongst IP rights-holders in
CCH Canadian v. The Law Society of
In March 2004, the Supreme Court of Canada delivered a landmark copyright decision in the case of The Law Society of Upper Canada v. CCH Canadian Ltd.,  1 S.C.R. 339. The case concerned a non-profit photocopying service offered by the Law Society's "Great Library," under which single copies of reported judicial decisions (published by the plaintiff law publishers) would be provided to requesting patrons for their research activities. The case resolved several fundamental yet unsettled aspects of Canadian copyright law, two of which were: (i) the applicable standard of "originality" in
On the first issue, the Supreme Court of Canada crafted a uniquely Canadian standard, refusing to align the country with either the
The Supreme Court of Canada determined ultimately that all of the Law Society's photocopying activities were protected by section 29 of the Copyright Act as fair dealing for the purpose of research. The Court emphasized that the concept of fair dealing was a "user right" entitled to a broad and purposive interpretation to ensure that research is not unduly restricted. The term "research" was given a broad definition and was held to include for-profit commercial research by lawyers. The concept of fair dealing was also found to be invokable by a research intermediaries (such as a law library) and not merely by researching end users.
The case concerned many additional issues, including the standard of infringement by "authorization" in relation to stand-alone photocopy machines in libraries and the meaning of a telecommunication of a work "to the public." By stressing the need to balance the rights of copyright owners and the rights of copyright users, the Supreme Court of Canada's decision has the potential to influence both domestic and international copyright litigation for years to come.
Liability of Internet Service Providers
In Society of Composers, Authors and Music Publishers of Canada v. Canadian Association of Internet Providers,  S.C.J. No. 44, the Supreme Court of Canada held that Internet service providers ("ISPs") are not liable for the payment of royalties for copyrighted music transmitted on the Internet. The Court concluded that ISPs that merely provide the means for material to be telecommunicated (including with the use of caching technology) are exempt from liability pursuant to paragraph 2.4(1)(b) of the Copyright Act.
On the question of jurisdiction over copyright issues on the Internet, the Court rejected the argument that only communications originating from a server that is located in
In February 2004, members of
The most controversial aspect of the decision was Justice Von Finckenstein's conclusion that the CRIA had failed to make out a prima facia case of infringement, suggesting that the downloading of music from the Internet for personal use is not an infringement under Canadian law (see section 80 of the Copyright Act). There was no evidence tendered to establish that the customers were doing otherwise, and failing such evidence, the court felt that privacy concerns outweighed any need for disclosure. Merely placing a song in a shared computer directory that could be accessed through a peer-to-peer network was not considered to amount to an infringing distribution or authorization to copy.
This decision is under appeal to the Federal Court of Appeal.
Accounting of Profits: Differential Approach
A divided panel of the Supreme Court of Canada rendered its decision in Monsanto Canada Inc. v. Schmeiser,  S.C.C. 34, a patent infringement action involving genetically- modified plant genes and cells marketed under the brand "Roundup Ready Canola." The majority judgment upheld the Federal Court of Appeal's decision as to the patent's validity and the defendant's infringement. However, the Supreme Court of Canada took a somewhat controversial approach to quantifying the amount owed to the plaintiff following its election of an accounting of the defendant's profits.
Both at trial and in the court of appeal, Monsanto had been awarded $19,832 in profits. However, using a "value based" or "differential" approach to calculating profits, the Supreme Court of Canada held that Monsanto was entitled to nothing on its claim of account. The figure of zero dollars was arrived at through a "comparison…between the defendant's profit attributable to the invention and his profit had he used the best non-infringing option." On the facts of the case, the Supreme Court of Canada concluded that farmer Schmeiser would have made precisely the same amount of profit had he planted and harvested non-infringing canola, and that he obtained no other agricultural advantage from his use of the plaintiff's patented plants.
It remains to be seen how large the issue of "best non-infringing alternative" will loom in future IP litigation where an accounting of profits is elected.
"Markman-Style" Hearings Less Likely in
In Realsearch Inc. v. Valon Kone Brunette Ltd. (2004), 31 C.P.R. (4th) 101 (F.C.A.), rev'g 27 C.P.R. (4th) 274, the Federal Court of Appeal struck a blow to the patent Bar's hopes of incorporating a Markman-styled application into Canadian practice. Realsearch was a patent infringement action in which the court was asked to construe the claims of the patent in question before trial pursuant to Rule 107 of the Federal Court Rules, which permits issues of law to be determined prior to trial. The application was allowed at first instance but rejected on appeal.
In denying the application for a Markman-styled hearing, the court of appeal was influenced by a number of concerns. In particular, while a Markman hearing is not subject to an interlocutory appeal in the
While the court of appeal did not rule out that a Rule 107 application might be appropriate in a more complicated case, it cautioned that a change to patent practice of this nature "might better be made the subject of some debate within the intellectual property bar, with a view to possibly submitting it for consideration to the court's rules committee."
Obviousness and Commercial Success
Nearly every defendant in a patent infringement action pleads that the plaintiff's patent is invalid for obviousness, in reply to which a plaintiff will often plead that non-obviousness can be established through the commercial success of its patented product.
In Dimplex North America Ltd. v. CFM Majestic Inc.,  F.C.J. No. 1549 (F.C.T.D.), the defendant's pleading of obviousness had an additional consequence. A judge of the federal court ruled that the defendant's pleading of obviousness put in issue, on the question of liability, the commercial success of the defendant's (allegedly) infringing product. Accordingly, and even though the parties had already agreed to a bifurcation order to separate the issues of liability and profits, the plaintiff was entitled to production of the defendant's sales documents to rebut the allegation that its patent was obvious.
This interesting decision may impact future patent pleadings and agreements to bifurcate.
Parliament to Deal with Unpaid Maintenance Fees
On August 8, 2003, the federal government announced its intention to amend the Patent Act to deal with the impact of Dutch Industries Ltd. v. Canada (Commissioner of Patents) on Canadian patent practice.2 In Dutch Industries, the Federal Court of Appeal affirmed the lower court's conclusion that the Commissioner of Patents is without authority to permit a patent owner to submit "top-up" payments for unpaid maintenance fees where "small entity" fees had been paid mistakenly instead of "large entity" fees. In such circumstances, s. 46(2) of the Patent Act automatically deems the underpayments to result in an expiration of the patent, a draconian result that has created a degree of uncertainty in Canadian practice.
Draft legislation to deal with this situation is expected to be in place early in 2005. It is anticipated that a mechanism will be provided for the retroactive correction of mistaken fee payments.
In Tommy Hilfiger Licensing v. International Clothiers Inc., 2004 F.C.A. 252, the Federal Court of Appeal addressed the issue of whether an intention to use a mark as a trademark is necessary to show infringement. In this case, the defendant sold shorts and shirts featuring crests that were similar to the Hilfiger crest design trademarks. The trial judge had held that there was no trademark infringement, because there was no evidence that the defendant intended to use the crest as a trademark to indicate source, as opposed to as a mere ornament. This decision was set aside by the Federal Court of Appeal, which concluded that the defendant's crest in fact served to indicate source (and consequently was used as a trademark) regardless of the defendant's intentions.
Registrability of Descriptive Design Marks
Can a registration issue for a design mark that includes a clearly descriptive element? Apparently contradictory conclusions have been reached in two recent cases in the federal court.
In Fiesta Barbeques Ltd. v. General Housewares Corp., 2003 F.C. 1021, an application for registration was made for a design mark with a flame image that incorporated the words "Grill Gear" for use in association with barbeque accessories. The registrar concluded that the mark was clearly descriptive of barbeque accessories when sounded, and was therefore ineligible for registration by operation of paragraph 12(1)(b) of the Trade-marks Act. This decision was reversed on appeal to the federal court, where Mr. Justice Russell held that the verbal (text) components of the proposed mark and the design elements were to be considered as a whole. On this approach, the design mark was considered to be sufficiently distinctive and non-descriptive to permit registration.
Subsequently, Mr. Justice Gibson rendered a contradictory decision in Best Canadian Motor Inns Ltd. v. Best Western International, 2004 F.C. 135. In this case, the applicant had applied for a design mark that incorporated the words "Best Canadian Motor Inns" for use in association with accommodation services. The registrar held that the design features were insufficient to render the mark registrable in light of the clearly descriptive nature of the mark when sounded. The registrar's decision was affirmed on appeal by Mr. Justice Gibson, who refused to adopt the approach taken in Fiesta Barbeques and gave effect to the plain language of the prohibition contained in paragraph 12(1)(b) of the Trade-marks Act.
This issue awaits appellate consideration and resolution.
The Supreme Court of Canada has agreed to hear an appeal from the Federal Court of Appeal's decision in Kirkbi AG. v. Ritvik Holdings Inc. 2003 F.C.A. 297. In Kirkbi, the court of appeal (in a 2-to-1 split) held that, for the purpose of a passing-off action under s. 7(b) of the Trade-marks Act, the distinguishing guise of the familiar Lego brand of building blocks (for which patent protection had expired) cannot function as a trademark. The indicia in question was held to be primarily functional and thus prohibited by the doctrine of functionality from being considered as a trademark. The doctrine of functionality is premised on the notion that it should not be possible to achieve the equivalent of a patent monopoly for functional elements through the guise of a trademark monopoly.
The Supreme Court of Canada's decision is expected to resolve the scope and limits of this controversial doctrine.
Anti-competitive Assignment of Patent Rights
In Eli Lilly and Co. v. Apotex (2004), 32 C.P.R. (4th) 195 (F.C.A.), an ongoing patent infringement action, the defendant had counterclaimed under s. 45 of the Competition Act to allege that the plaintiff and another entity ("S") had conspired or agreed to unduly lessen competition in the market for cefaclor (an antibiotic) when S assigned four of its process patents to the plaintiff, bringing Eli Lilly's total to eight in the field. It was claimed that this gave the plaintiff anti-competitive control over all of the commercially viable processes for making this antibiotic.
On plaintiff's motion to strike portions of the counterclaim, a judge relied on an earlier appellate decision in Molnlycke AB v. Kimberly-Clark of Canada Ltd. (1991), 36 C.P.R. (3d) 493 (F.C.A.) for the principle that the exercise of a monopoly right granted by the Patent Act could not found an anti-competition allegation under the Competition Act.
The motion judge was reversed by the court of appeal, which distinguished its own decision in Molnlycke. In Molnlycke, patent rights that had been exercised previously by only one entity were, after transfer, simply exercised by a different entity. On the facts of Eli Lilly, the patent rights that had been enjoyed previously by two entities (Eli Lilly and S) had been consolidated and were now held solely by the plaintiff. The court of appeal was not satisfied that Apotex's counterclaim under s. 45 of the Competition Act was without any chance of success (the applicable standard for striking pleadings), and so Apotex's counterclaim was reinstated.
Inquiry Into NOC Regulations Misuse Closed
Finally, on February 27, 2004, the Competition Bureau announced that its inquiry into alleged misuse by brand-name pharmaceutical companies of the NOC Regulations was closed.
The inquiry was opened following a public complaint, which alleged that brand-name companies were improperly adding patents to the patent list after generic companies had filed for approval of their drugs, all in an effort to delay the generics' entry into the marketplace. The bureau concluded that the Competition Act is not the appropriate vehicle for resolving "what amounts to a patent dispute between two firms." This approach appears to be consistent with policy statements found within the bureau's Intellectual Property Enforcement Guidelines to the effect that the Competition Act is not a substitute for infringement proceedings.
1 Rule 216(3) provides that the court may grant summary judgment, even where there is a genuine issue for trial, if the court is able "on the whole of the evidence to find the facts necessary to decide the questions of fact and law."
2 (2003), 24 C.P.R. (4th) 157 (F.C.A.), varying in part 14 C.P.R. (4th) 499 (F.C.T.D.), leave to appeal to S.C.C. has been refused.