Canada: A Road Not Taken: Canadian Court Misses Opportunity To Confirm That Patent Disputes Are Arbitrable

Canadian courts have, in numerous recent decisions, consistently reaffirmed their support for arbitration and indicated a strong judicial policy favouring arbitration. This support, along with corresponding deference to arbitral tribunals, has been seen in court decisions dealing with Kompetenz-Kompetenz, the scope of arbitration clauses, recognition and enforcement of arbitral awards, and subject matter arbitrability.

Canadian courts have not specifically dealt with the arbitrability of one type of subject matter – namely, patent disputes. Recently, however, the Ontario Superior Court of Justice did hold in University of Toronto (Governing Council) v. John N. Harbinson Ltd.¹ that the parties’ particular dispute, which arose from a licence agreement covering two inventions, was arbitrable. Unfortunately the Court made its decision only on a contractual ground and not on the ground that patent disputes are arbitrable. While correct in the result, the Court did not take advantage of an opportunity that was open to it. On the basis of existing Canadian authority and the nature of the university’s jurisdictional challenge to the arbitral tribunal, the Court could have clearly stated that patent disputes in Canada are arbitrable between the parties as a matter of course.

In 2003 the Supreme Court of Canada, in Desputeaux v. Éditions Chouette (1987) Inc.,² had held that copyright disputes are arbitrable and provided guidance as to when disputes arising under statutory regimes, such as the patent regime, are arbitrable. But the Court in Harbinson made no reference to the Supreme Court’s decision in Desputeaux or to its reasoning, and stopped short of stating that patent disputes are arbitrable between the parties.

The dispute in Harbinson arose in the context of a licence granted by the University of Toronto to John N. Harbinson Ltd. (Harbinson Ltd.) to exploit two inventions involving the treatment of arboreal diseases. In the licence, the university warranted that one of its professors was the sole inventor of the invention and that to the best of its knowledge, the university owned these inventions. The licence provided that any dispute arising from it was to be settled by arbitration. Harbinson Ltd. claimed that the university had breached its warranty of inventorship, and sought to arbitrate this claim.

The university challenged the jurisdiction of the arbitral tribunal partly on the ground that Canada’s Patent Act required that the essence of Harbinson Ltd.’s claims be advanced before the courts or before administrative officials appointed under the Patent Act (that is, to the Office of the Commissioner). The tribunal rejected the university’s jurisdictional challenge.

The university then took its challenge to the Ontario Superior Court of Justice. It asked the Court to determine, among other things, that since under the Patent Act Canada’s Federal Court has exclusive jurisdiction in cases in which the plaintiff seeks to have a patent impeached or annulled, Harbinson Ltd.’s claim could not be decided by arbitration.

By way of background, it should be noted that Canada is a federal state, with twelve common law jurisdictions (nine provinces and three territories) and one civil law jurisdiction (Quebec). Each of these jurisdictions has its own court system, with the senior court in each jurisdiction being a "superior court". There is also the Federal Court. Certain areas of federal law and certain types of claims must (with exclusive jurisdiction) or may (with concurrent jurisdiction) be determined by the Federal Court. The ultimate court for appeals from all these courts is the Supreme Court of Canada.

The impediment to arbitration of patent disputes asserted by the university arose from sections of the Federal Courts Act that prescribe the jurisdiction of the courts to determine, among other things, patent issues. Section 20(1) of the Federal Courts Act gives the Federal Court exclusive original jurisdiction in cases of conflicting applications for any patent and in cases in which it is sought to impeach or annul any patent. Section 20(2) of the Federal Courts Act provides that in all other cases respecting patents, the Federal Court has concurrent jurisdiction with the provincial superior courts.

The Court dismissed the university’s jurisdictional challenge. It held that the dispute between Harbinson Ltd. and the university was arbitrable. But instead of doing so on the basis that patent disputes are arbitrable between the parties, the Court made its decision only on the basis that the claims being asserted by Harbinson Ltd. were breach of contract claims, in particular the alleged breach of the warranty of inventorship, and that Harbinson Ltd. was not claiming to be the inventor and was not seeking any relief under the Patent Act.

Although neither the outcome nor the analysis of the Court is wrong, the Court also could have based its decision on the arbitrability of patent disputes. It could have held that even if the university were correct that the disputes being raised were patent disputes between the university and Harbinson Ltd., they would be arbitrable between the parties: the asserted impediment to arbitration was no impediment at all. The Court could have stated simply and clearly that patent disputes in Canada are arbitrable between the parties.

The Court in Harbinson would have been on solid ground in doing so. In Desputeaux, the Supreme Court of Canada had considered whether section 37 of the Copyright Act – which provides that the Federal Court and provincial superior courts have concurrent jurisdiction to hear and determine all proceedings other than the prosecution of certain offences -- precludes issues of copyright ownership from being determined by arbitration. The Supreme Court, overturning the Quebec Court of Appeal’s decision, found that the purpose of section 37 was not to preclude copyright issues from being determined by arbitration by specifying that only the Federal Court and provincial courts had jurisdiction, but rather to identify the courts within the judicial system that have the requisite jurisdiction. The Supreme Court stated that if the Canadian Parliament had intended to exclude arbitration of disputes in relation to the Copyright Act, it would have done so clearly.

According to the reasoning of the Supreme Court, where the Federal Court and provincial superior courts have concurrent jurisdiction and Canada’s Parliament has not clearly excluded arbitration, disputes can also be determined by arbitration. Therefore, with respect to all patent law issues referred to in section 20 of the Federal Courts Act, where the Federal Court and provincial courts have concurrent jurisdiction, an arbitral tribunal would also have jurisdiction.

Even on patent matters where the Federal Court has exclusive jurisdiction, such as in conflicting applications for patents or where a party seeks to impeach or annul any patent, provincial superior courts are not precluded from determining comparable issues between disputing parties, such as the validity of a patent. It is just that only the Federal Court can make a decision in rem – that is, a decision binding beyond the disputing parties. The provincial superior court’s decisions in those kinds of cases cannot result in patents being expunged and cannot bind non-parties. But the court’s decisions bind the parties.

On the basis of the Supreme Court of Canada’s reasoning in Desputeaux, an arbitral tribunal has jurisdiction, just as a provincial superior court has jurisdiction, to make binding patent decisions between the parties. It is unfortunate that the Court in Harbinson did not take advantage of the opportunity to state simply and clearly that patent disputes in Canada are arbitrable between the parties.

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