Third Party Rights to Infringe

Over the last year the Canadian Government has added two new sections to the Patent Act that have created new exceptions to infringement. The first of these (section 56) was brought into force as part of an omnibus budget bill in December 2018. The second provision (section 55.11) came into force on October 30, 2019. The scope of these new exceptions, and the motivation for creating these exceptions are uncertain.

Section 56 - Acts before the Priority/Filing Date

The December 2018 amendments created an expanded version of a provision that has been in the Canadian Patent Act for decades.

The version of section 56 that existed prior to 1989, when Canada was a first to invent system with no publication of pending applications, provided an exemption to infringement to any person who before the issuance of a patent, had purchased, constructed or acquired any invention for which a patent is afterwards is obtained. This right however was limited to the right to use and sell to others the specific article, machine, manufacturer or composition of matter made prior to the date of grant.

This provision changed in 1989 when Canada became a first to file system and where applications are published 18 months after the earliest priority date. The amended section 56 provided the exception for any person who made, used, constructed or sold an invention before an application became published. The right however, was again limited to "the specific article, machine, manufacturer or composition of matter".

This provision was again amended in 1993 to limit the exception to the situation where the article had been made before the claim date (i.e. the priority or filing date). The right however was still restricted to the "specific article".

New Section 56

This state of affairs continued until December 2018. At that time, the current Section 56 was passed. Section 56(1) now reads as follows:

56(1) ….. if -- before the claim date … a person, in good faith, committed an act that would otherwise constitute an infringement of the patent in respect of that claim, or made serious and effective preparations to commit such an act, it is not an infringement of the patent or any certificate of supplementary protection that sets out the patent, in respect of that claim, if the person commits the same act on or after that claim date.

While this amended provision still requires that earlier acts be before the claim date, it has expanded the exception in a number of significant ways.

The first extension is that the exemption is no longer limited to the specific article. It now relates to "acts" and the exemption permits those persons who committed the act prior to the claim date to continue to commit the "same" act on or after the claim date. More problematically, the provision also exempts persons who made serious and effective preparations to commit such an act.

Interestingly, this section only provides an exemption for the same "act". Exactly what this includes is not clear. For instance, would it provide an exemption for the sale of an article, if no sales had taken place before the claim date. Under classic patent law, each separate act of manufacture, use or sale is a separate act of infringement. Thus, if the person only made a specific article, they may not have the right to sell that article. In a similar fashion, if the "act" was only to use the article in one manner, it is unlikely that they could employ the article for a different use. Thus in this aspect, the new section 56 could be more narrow than the older version of section 56.

In contrast with this interpretation, how does one then reconcile the language that the person may "commit the same act after the claim date"? Does this language mean the same type of act or only the exact same act?

Purchaser's Rights

In addition to the right given to the person who did the activity prior to the claim date, purchasers from that person or users of articles provided by that person also have an exemption. Section 56(3) permits the use of an article acquired from the exempt person and also permits re-sale of the article:

56(3) The use or sale of an article is not an infringement of a patent … if that article was acquired, directly or indirectly, from a person who, at the time they disposed of it, could sell it without infringing the patent or the certificate …

This provision however appears to be somewhat further expanded by subsection (6) for subsequent "use" of an article:

56(6) … the use of an article is not an infringement of a patent … if the article was acquired, directly or indirectly, from a person who, before the claim date of that claim, in good faith, made or sold, or made serious and effective preparations to make or sell, an article that is substantially the same as the one used, for that use.

This provision creates an ambiguity with section 56(1). In accordance with section 56(1), the person who did the act prior to the claim date may only do the "same act", though a purchaser from that person may use an article which is substantially the same. Considering that the prior user has no right to make an article which is substantially the same, one wonders how the purchaser can have a broader exemption that the vendor?

Moreover, these provisions only provide exemptions to the use or sale of articles purchased from the exempt persons, but only if the exempt person could sell the article without infringing the patent. Thus, if the earlier act did not include "sale", no rights would be extended to any purchaser. If the earlier act include the infringing act of sale, then it may extend to the purchaser, but even here it is limited to the same use.[1]

Reading these sub-sections together, seems to suggest that:

A person who did an act prior to the claim date, can later perform the same infringing act, but not a different infringing act, nor substantially the same act; and

If the earlier infringing act included the sale of an article, then a purchaser may use and resell the article purchased, so long as the article is the same or substantially the same and then only for the same use.

Transfer of Rights

In addition, new section 56 provides an ability to transfer this exception where there is a sale of the business or part of the business that committed the act or made the preparations to commit the act before the claim date. In this event, the prior user will lose the exemption.

Section 55.11 - Third Party Rights During Periods of Abandonment

In contrast, Section 55.11 is a brand new section that has no historical counterpart. Section 55.11 came into force on October 30, 2019. It has some similar provisions and language to section 56, however, it has a more complicated legislative history.

The first version of 55.11 was found in Chapter 39 of the 2014 Statutes of Canada. The Act that this section was tucked into was entitled, "The Economic Action Plan 2014 Act, No 2." This statute included a large number of amendments to many different statues, ranging from the Income Tax Act, the Criminal Code, Access to Information Act as well as some amendments to the Patent Act.

A minor amendment to the language occurred in 2015, again as part of another omnibus bill. In spite of Parliament having two shots to get the language of the section correct, a further amendment was made, this time as part of the December 2018 Budget bill. Consequently, the provision that came into force on October 30^th, is a consolidation of all three of these statutes.

Section 55.11 grants third party rights similar to those for section 56 at any time where an act was done by a third party during a "prescribed period" of abandonment. This section not only provides an exemption for an act done during a prescribed period that is established by the Patent Regulations, but also extends to an act done by persons who made a serious and effective preparations to commit that act. Consequently, not only would acts committed during a prescribed period of abandonment be exempt from an action of infringement but if one had either conducted that act or even made a serious and effective preparation for committing that act during a prescribed period, one could continue to do that act after the period.

Moreover, like section 56, there is an ability to transfer this exception where there is a sale of the business or part of the business that committed the act or made the preparations to commit the act.

Prescribed periods

Even though the legislation as drafted and passed applies to all types of abandonment, it can only apply where there is a "prescribed period" established by the Patent Regulations. In this regard, the Patent Regulations, which also came into force on October 30, 2019, only set out a prescribed period in three types of abandonment, namely a failure to pay maintenance fees (for both applications and issued patents) and a failure to request examination.

Thus, this new exemption does not apply to any other type of abandonment, and will be a moot issue so long as a Patentee requests examination and pays their maintenance fees on time.

Why make these changes?

The government has provided little guidance or explanation as to the reason for these amendments. The only suggestion as to the reason for the amendments is to bring Canada into compliance with the Patent Law Treaty. While this may be true for many of the other amendments that recently came into force, this specific change is not mandated by this Treaty.

In this regard, Article 12 of the Patent Law Treaty, provides that if there has been a loss of rights due to a failure to comply with a time limit to undertake a procedure before the Patent Office, then the patentee/applicant may be required to establish that due care was taken to avoid the missing the action. This article however does not require a signatory to provide for a loss of rights. Therefore, these third party rights are not inconsistent with the Patent Law Treaty, but neither are they mandated by it.

One explanation provided by officials in the Patent Office was that these new exceptions were included in response to "stakeholder" submissions. Who these stakeholders are and their rational is unknown.

Uncertainty as to what is now excluded

These new exceptions, while likely to be rare in application for Section 56, may perhaps be more frequent for section 55.11. Regardless, the exemptions are problematic as to how they may play out.

First of all, it is far from clear what the phrase "same act" means. As discussed above, presumably it means the same infringing act, in which case the exemption may not be excessively broad, e.g. "making" would not extend to "selling" or "using", unless it is captured by the "serious and effective preparation" language.

That said, does it apply to only the exact same act, or is it broader to include similar acts? For instance, if only 10 grams of a compound had been made, is the lot size limited to 10 grams? If the act is for a particular model of cell phone, can the exemption extend to the next newer model?

What does the phrase "made serious and effective preparations to commit such an act" mean? Would this extend to merely writing an idea down on paper that at some point far in the future one would practice or perform an act that would otherwise be an infringement or does the language require an actual investment of time and money?

What articles or services will be considered "substantially the same" for the purpose of sections 56(6) and (9) and section 55.11(7) and (9)?

The statute and the statements and commentaries from the Canadian Government are of no help in answering these questions.

Furthermore, there is also the concern relating to how does one properly establish or challenge whether or not the documentation that is produced in an infringement proceeding is legitimate. As has been established in some court cases, doctored/forged documents have been put forward in attempt to establish non infringement. It is far from clear to what extent Courts will be able to handle this exception considering that these earlier acts for the purposes of section 56, will presumably have been done in secret.

Policy Basis

Perhaps a more intriguing question is whether these new provisions signify a significant shift of the policy of the 1989 amendments to the Canadian Patent Act. One of the prime motivations of the shift to a first file system from a first to invent system was to encourage early disclosure of new inventions. New Section 56 now encourages parties to rely on trade secrets rather than letting the world know of their new developments and trying to file a patent quickly.

Consequently, one has to wonder what were the policy reasons behind this change.

Unfortunately, the answer is far from clear given the manner in which these provisions were passed (as part of large "budget" bills) and in the absence of appropriate statements explaining the reasons for the changes. That said, it may be that the Government borrowed from Europe.

European Provisions

The European Patent system provides an exemption from infringement for prior secret use of an invention. An example of this is section 64 of the UK Patent Act.

64.-- Right to continue use begun before priority date.

1. Where a patent is granted for an invention, a person who in the United Kingdom before the priority date of the invention--
   1. does in good faith an act which would constitute an infringement of the patent if it were in force, or
   2. makes in good faith effective and serious preparations to do such an act,
   3. has the right to continue to do the act or, as the case may be, to do the act, notwithstanding the grant of the patent; but this right does not extend to granting a licence to another person to do the act.
2. If the act was done, or the preparations were made, in the course of a business, the person entitled to the right conferred by subsection (1) may--
   1. authorise the doing of that act by any partners of his for the time being in that business, and
   2. assign that right, or transmit it on death (or in the case of a body corporate on its dissolution), to any person who acquires that part of the business in the course of which the act was done or the preparations were made.
3. Where a product is disposed of to another in exercise of the rights conferred by subsection (1) or (2), that other and any person claiming through him may deal with the product in the same way as if it had been disposed of by the registered proprietor of the patent."

While there are some close similarities between the section 56 of the Canadian Act and the UK Statue, there are some differences.

The first difference is that the drafting of the UK statue is much clearer than the Canadian statue.

Secondly, the UK statue does not include use of articles or services that are "substantially the same".

The similarities, however, do permit us to rely on the UK experience to assist in interpreting the new Canadian provisions. A good analysis of the UK experience is set out the CIPA Guide to the Patent Act commentary on Section 64.[2] In this analysis, the following observations are instructive:

The "Act"

A careful analysis of what is the "act" will be required.

First, the "act" must be an infringing act. An infringing act is doing something that falls within the scope of a claim. However, merely doing one act within the scope of a claim would not include all other acts within the claim. Thus, making one compound within a genus claim, should not provide an exemption to all compounds within the genus. In a similar fashion, making one formulation should not permit making any formulation within the scope of the patent.

More broadly, infringement can arise from making, using or selling. As noted above, if the infringing act is only the making, it probably would not extend to using or selling.

More problematic is whether the activity can go beyond what was actually used or contemplated prior to the priority date or during the period of abandonment. For instance, let's take the situation of a cell phone. Assume that a particular activity done in the period prior to the claim date or during a period of abandonment related to a specific model of a cell phone. While it appears that that same act could be continued after the claim date, it is an open question whether or not that same activity could be employed with a different model of the cell phone. Would the new model be considered the "same act" to what was done or contemplated during the earlier period, even though it is arguably the same type of infringing act?

Requirement that the Rights arise from an "Infringing Act"

A condition precedent to the ability to rely on these exemptions is that the "acts" would otherwise be regarded as infringing the patent. Falling outside of this category include:

acts done privately and for purposes which are not commercial;

acts done for experimental purposes;

acts done for regulatory approval; and,

acts done outside of Canada.

The last category is significant in that a Canadian patent can only be infringed by "acts" done in Canada. The territorial limits of Canadian patent law thus limits the effect of these new provisions.

"Good Faith" Requirement

It is unclear what "good faith" includes within its ambit. Good faith likely was intended to cover secret prior use done independently of the inventor's/applicant's work (Section 56).

Some acts would clearly be excluded, such as acts arising from information obtained from the inventor and carried out without the inventors consent, especially where the information was obtained illicitly. In this regard, subsection 56(5)[3] specifically excludes acts done based on information obtained directly or indirectly, from the applicant and where the person knew that the applicant was the source of the knowledge.

This last requirement of knowledge in section 56(5) is problematic in that a person may have obtained information from the inventor/applicant and then provided or instructed another to perform the act without advising as to the source. This disclosure may have been in violation of confidentiality or even done in the Canadian "grace period" (one year prior to the filing date) and thus not an anticipatory disclosure. In such circumstances, it does not seem fair to grant a third party the right to later infringe. The "good faith" requirement should come into play. Clearly in these circumstances, there can be no showing of good faith and this requirement should prevent such activity to permit an exclusion of infringement, even if section 56(5) does not.

Interestingly, there is no similar provision for acts done during periods of abandonment, thus suggesting that a third party who is aware of a published patent or application may freely copy. That said, there is still a "good faith" requirement under section 55.11. Does the inclusion of this requirement give rise to an obligation to establish detrimental reliance? Will an infringer have to establish that they were either completely innocent of knowledge of the patented rights or will they have to establish that they were aware of the abandonment and thus presumed that they were free to do the activities during that period? Without such an interpretation it is difficult to see the rationale for the exemption.

Serious and Effective Preparations

This language is equally unclear. How much activity is required to have been done to establish this requirement? It is suggested that significant evidence would be required. Also, it might be determined that "effective" means that the activity must have been enabled.

Summary

In summary, it is likely that section 56 will rarely be invoked as it must be established that the acts were done prior to the claim date. However, it seems more likely that infringers will try and avail themselves of section 55.11, especially for the provision that they can continue to do the same acts after the period. It is possible that infringers will try and show some activity during a period of abandonment and extend that limited use to avoid any liability for infringement.

Due to the draconian effect of section 55.11, it is strongly recommended that abandonments due to failure to pay maintenance fees and a failure to request examination be avoided.

If and when these provisions are raised in a litigation context, the litigation will be more complicated and create uncertainty, possibly for decades to come.

In conclusion, these two new provisions provide more complexity relating to enforcement of patent rights in Canada. It is far from clear where the demand for this change came from and there has been no discussion or public debate relating to the need for these provisions. The language that was employed to draft these provisions is unclear and leads to many more questions than answers as to how it will be applied.

---