Canada: Choosing between Canada and the United States: Patent Law and Litigation

Published in Innovation and Invention Focus 2004, October 2004.

Business in the 21st century has gone global. Multinational companies must plan for, obtain and enforce large IP portfolios in every commercially significant jurisdiction. Owners of IP around the world have become aware of the importance, on the one hand, and the cost and annoyance, on the other, of having to enforce patent rights in many jurisdictions. Of course, in the era of globalization of both trade and information, it is not only IP owners who operate across borders. Sophisticated IP infringers can and often do operate in a variety of jurisdictions. Though their first target market is often the US, it is not long before they conclude that once established, it is easy and convenient to continue their infringing activities in Canada.

The burden of facing the same infringer and infringements in many jurisdictions can range from a minor irritant to a major threat. Depending on the seriousness of the multijurisdictional infringement and the danger it poses, an IP holder might want to sue in one or many jurisdictions. The size and importance of the US market means that litigation in the US is frequently seen as the first logical step. However, there may be situations in which opting to enforce a patent in Canada will be an attractive alternative. Although patent law itself is relatively similar, there are peculiar procedural and substantive differences between Canada and the US in the way litigation is conducted and decided. In many cases, Canadian law is actually friendlier to the IP holder, particularly with respect to claim construction, the intersection of patent and antitrust law and certain procedural advantages of the Canadian court system. However, there are also disadvantages, most notably the difficulty of obtaining interlocutory injunctions (similar to temporary restraining orders in the US) to prevent infringement before the trial of the action is complete.

The most important function of the court in a patent infringement action is to construe the claims and define the scope of the patent. Canada’s Supreme Court has laid out a road map for claim construction that involves a careful balancing of the two major interests: the patentee’s interest in preventing immaterial variants from eroding the patentee’s exclusivity (which suggests a broad construction of claims), and the public’s interest in certainty and predictability in the scope of a patent claim (which suggests a literal construction). In particular, the Court has indicated that patents in Canada are subject to a purposive construction, which involves reading not only the claims but also the patent specification to determine whether the inventor intended strict adherence to claim limitations. On the other hand, resort to extrinsic evidence, such as statements or admissions in the prosecution history, is not permitted. Standing in stark contrast with the US courts’ embrace of prosecution history estoppel, Binnie J, of the Supreme Court of Canada, (a former patent litigator) noted our reluctance to refer to a "file wrapper" (as it is called in Canada):

Purposive interpretation involves dividing the invention into its elements, and separating the essential from the non-essential, on the basis of the intent and purposes of the inventor, as viewed in the light of the knowledge of a person of ordinary skill in the art as of the date the patent is published. When the accused product contains all essential elements as set out in the patent claims, there is infringement, even if a non-essential element is varied or omitted.

Claim construction is a matter of law, though the court will receive expert evidence on the meaning of the terms used in a claim. The claims of a Canadian patent are only to be construed once, and by the trial judge as part of his or her decision on the merits of the case as a whole. Recently, the Federal Court of Appeal dismissed the first attempt by a party to bring a motion to have the Court determine the meaning of a claim before trial. The Court refused to engage in this Markman-type hearing largely on the basis that patent cases in Canada are tried by judges (not juries), and there is no need to construe the claim before conducting the rest of the case. The Court left no doubt about its view of importing Markman hearings into Canadian law, stating "preliminary points of law are too often treacherous short cuts. Their price can be … delay, anxiety and expense." It indicated that if Markman hearings are going to come to Canada, they should do so by legislation (ie, amendment to the procedural rules) rather than by judicial innovation.

Canadian law’s reliance on purposive interpretation, and the absence of prosecution history estoppel means that Canadian courts typically interpret patent claims more generously than their US counterparts. Broader interpretation of claims means Canada provides more protection for inventors, as a finding of infringement is more likely.

Though these differences in approach to claim construction may appear small, in some instances they may mean the difference between narrow and broad construction, and therefore between success and failure. Moreover, when it is important to signal a victory early as part of a multijurisdictional strategy, a successful Canadian trial judgment may be worth pursuing as an early, or indeed first, step against an international infringer.

Bringing an infringement claim in the US also comes with a number of risks that are either non-existent or minimal in Canada. In the US, a patentee is obligated to disclose to the Patent and Trademark Office (PTO) all prior art known to be material to patentability. An applicant who intentionally fails to do so has committed "fraud on the PTO" or engaged in "inequitable conduct", and the court may declare the patent invalid or unenforceable. The consequences of such a finding may be considerable, not only to the patent in suit, but arguably to subsequent improvement patents. It is true that in Canada a patent may be held void if the applicant makes an untrue material allegation. To void the patent, the impeaching party must establish that the untrue allegation was wilfully made for the purpose of misleading. However, the applicant has no obligation to disclose material prior art, and therefore patents cannot be invalidated on this basis.

In the US, the requirement to disclose material prior art may also result in antitrust liability. In Walker Process Equipment Inc v Food Machinery & Chemical Corp, the US Supreme Court held that the enforcement of a patent procured through fraud on the PTO can constitute a violation of antitrust law. Because there is no duty in Canada to disclose prior art, Canadian competition law would almost certainly not apply in such situations.

Antitrust liability in the US arises not only in the context of obtaining a patent, but also when enforcing one. Courts have found violations of antitrust law both by bad faith enforcement of a patent known to be invalid and by infringement suits by a plaintiff who knows there is no infringement. Although it might appear that these types of antitrust infringements should be easily avoidable, precisely what is and is not known within a large organization does not become apparent until litigation is commenced and discovery is taken. Moreover, the quality of a patent and the likelihood of infringement can vary tremendously among patents in a portfolio. It can be easy to lose sight of either one or both of these factors during the ongoing IP enforcement process. As a result, a patentee who commences an action in the US risks more than merely the loss of the patent – antitrust liability is a constant concern.

One of the reasons why antitrust law in the US has been expanded in this manner is that the short and broadly worded provisions of the Sherman Act have given the judiciary carte blanche to essentially create a common law of antitrust. Canada’s Competition Act, on the other hand, is much more specific in what it permits and what it proscribes. Though there are provisions relating to patents, they have not been used in reported litigation, and it seems extremely unlikely that they would be used to impose monetary liability on an IP plaintiff.

There are a number of procedural differences in patent litigation between the US and Canada. In the right circumstances, proceeding in Canada may offer distinct advantages to IP holders. The most notable difference is that in Canada patent cases are tried by judges, whereas in the US factual issues related to infringement and validity are often decided by juries. While a jury trial may be preferable in certain situations, in the case of patent litigation, the facts at issue are often technical in nature. It can therefore be a significant advantage to have a patent infringement claim decided by a judge, who will (typically) have more experience in dealing with these issues than six or 12 members of the public.

Though the jury issue has received much attention, the most significant difference between Canada and the US is the difference in the discovery process. The potentially astronomical cost of US discovery is a factor that motivates parties to settle, or greatly narrow, their cases. Canadian discovery, which is a more streamlined process, is much less expensive, in terms of both cost and time.

A unique feature of Canadian discovery is that it is subject to the implied undertaking rule. Counsel receiving information produced in documents or disclosed on discovery impliedly undertake to the court not to use that information for any purpose other than for the present litigation. A breach of the implied undertaking rule is punishable by contempt. For this reason, information obtained by discovery in Canadian litigation is not usable in other jurisdictions without leave of the Canadian court. This feature of Canadian discovery has its obvious disadvantages, but it also can be advantageous in preventing issues in Canadian litigation from becoming fodder for (eg antitrust) lawsuits in other jurisdictions.

The first question most clients ask when their IP is being infringed is ‘Can we make the infringers stop?’ In Canada, interlocutory injunctions are the rare exception. To obtain an injunction, a party must show that its case discloses a prima facie case on the merits (a low hurdle), that it will suffer irreparable harm if the sought injunction is not granted and that the balance of convenience favours the granting of an injunction pending trial. The standard of proof of irreparable harm is very difficult to satisfy: any harm that can be quantifiable or compensable by way of damages is not irreparable. Indeed, the courts have repeatedly indicated that the mere fact of patent infringement does not automatically mean there is irreparable harm. Moreover, a party seeking an injunction must undertake to pay the damages suffered by the defendant during the period between the injunction and the trial if the plaintiff fails to prove infringement at trial. As such, injunctions in Canada are rarely sought, and even more rarely obtained.

The potential monetary award that a plaintiff might collect from a patent infringement case is obviously a crucial consideration. The major differences between Canada and the US in this area relate to the availability of an accounting for profits, the availability of attorney’s fees and the consequences of misconduct.

Canada has a more flexible, and therefore potentially more lucrative, statutory regime for damages. In Canada, a plaintiff may elect either compensatory damages or an accounting of the infringer’s profits, though the court may deny the accounting for various reasons. In the US, the infringer’s profits may be considered evidence in establishing a reasonable royalty or the amount of damages, but cannot form the basis of the damage award in and of itself. This may make a significant difference, particularly in cases in which the plaintiff is not seriously harmed but the defendant’s infringing activities have resulted in significant profits. It also makes a significant difference to the deterrent value of a lawsuit. A defendant faced with the prospect of handing over all its profits may be less likely to engage in infringing activities and more likely to settle the case than run the risk of going to trial.

In Canada, costs are said to ordinarily follow the event, meaning that the successful party can usually expect to collect a portion of the attorney’s fees it paid to prosecute the action. Indeed, Canadian courts have little discretion to deny costs to a successful plaintiff unless he or she has been guilty of misconduct, omission or neglect. That said, the proportion of total costs recovered (particularly in the Federal Court of Canada) is fairly minimal. Conversely, in the US, the successful party in a patent suit does not collect attorney’s fees except in unusual cases such as a finding of unfairness or bad faith against the losing party, or the court finds that some other equitable consideration would make it grossly unjust that the prevailing party be left to bear its own counsel fees. The widespread availability of costs in Canada can be a significant advantage to a party that is confident of success. Conversely, it can be a serious deterrent to litigate more speculative enforcement cases.

Finally, under both Canadian and US law, damages may be increased as a result of the defendant’s misconduct. However, the method for determining this increased award differs. US courts may increase the damage award by up to three times the amount found or assessed if there has been wilful (ie deliberate) infringement wrongdoing or bad faith. In Canada, punitive damages can be awarded, as for any civil wrong, against a deliberate infringer who has behaved reprehensibly. However, an award of punitive damages is not guaranteed on a finding of wilful infringement, and the quantum of punitive damages in Canada will rarely, if ever, result in trebling the damages.

Strategic management of IP relates to every aspect of the IP regime. Just as strategic prosecution and licensing is crucial, strategic enforcement can help companies get the most bang for their litigation buck. One element of this strategy is a careful consideration of the available venues, and the advantages and disadvantages that they each provide. When a North American strategy is required, it would be a mistake to reflexively commence an action in the US without considering the advantages to suing the same infringer in Canada. In addition to construing claims more broadly, Canada has no existing doctrines of patent abuse or inequitable conduct. Moreover, there are no jury trials or Markman hearings and the damages received may be considerably higher.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.