Markwell Clarizio LLP

Litigating Patents in Canada Compared to the U.S.A.

Some commentators have said the Inter Partes Review process and various U.S. Supreme Court decisions have recently made enforcement of patent rights in the United States more challenging. As a result, some patentees have looked abroad to places like Europe (especially Germany) to enforce their patent rights. But what about Canada? Why should an American (or foreign) patentee consider enforcing its patent rights in Canada?

While there are many similarities between Canadian and U.S. patent litigation due to their shared roots in common law, there are also notable differences in their legal systems and patent laws. The following is a summary of the main similarities and differences between Canadian and U.S. patent litigation. The hope is that patentees can use this summary to inform their decisions about whether to litigate in Canada.

1.               Federal Court of Canada

Canada has a well-established and independent court system that operates at both the federal and provincial/territorial levels. Although the provincial/territorial courts have concurrent jurisdiction to hear patent infringement/validity cases, most cases are brought and tried in the Federal Court.

The Federal Court is a national court that is based in Ottawa, but it has offices and courtrooms in all major Canadian cities. It will also sit anywhere else in Canada where it is required. The Federal Court is a specialized court that hears matters involving federal law, including intellectual property, immigration, national security, tax and admiralty cases, and certain claims against the Federal government. The Federal Court does not hear criminal, family, personal injury, etc. cases. The Court has significant experience with patent matters. For example, it established a pilot project called “IP Chambers” that consists of about two dozen judges that are very familiar with intellectual property matters. In fact, six current Federal Court judges practiced IP litigation before their appointment to the Court.

Although the Federal Court has offices and courtrooms across the country, it is considered one court. There are no districts or circuits, and thus no forum or judge shopping. As a national court, the Federal Court’s decisions have nationwide effect, including any injunctions it grants.

All final decisions of the Federal Court are appealable to a three-judge panel of the Federal Court of Appeal as of right. A further appeal may be taken to the Supreme Court of Canada, but only with leave of that Court.

2.               There are no juries

All trials in the Federal Court are bench trials. Because most patent cases are heard by judges experienced with patents, the outcome of a complex patent case in Canada is generally more predictable.

3.               Pleadings

In Canadian patent cases, pleadings play a crucial role in shaping the issues that will be addressed during the litigation. Parties must set out in sufficient detail the causes of action and defenses they allege, together with the material facts supporting those allegations.

The plaintiff, typically the patentee and all “persons claiming under the patentee”, initiate the infringement action by filing and serving a Statement of Claim that outlines the allegations of infringement and the relief sought. The defendant, the alleged infringer, then responds by filing and serving a Statement of Defence in which they address each of the plaintiff’s allegations, either by admitting or denying them. The defendant may also raise affirmative defenses and/or bring a Counterclaim against the plaintiff (usually to invalidate the patent). In response to the Statement of Defence, the plaintiff may file a Reply, addressing any new issues raised by the defendant, and if there is a Counterclaim, defend it. The defendant may then file a Reply to the Defence to Counterclaim.

4.               Active case management

All patent cases in the Federal Court are actively managed by a “case management judge”. This allows for added flexibility over the regular court rules and ensures that cases proceed to trial in a fair and diligent fashion. The Federal Court tries to hear most patent cases within 30 to 42 months of filing where sophisticated parties are involved. Trials may be heard earlier where a party shows there is urgency.

5.               Narrower and more focused discovery

Documentary discovery is more limited than it typically is in the U.S. All relevant documents in the possession, power and control of the parties must be produced but relevancy is strictly based on the issues pleaded. It is not unusual where there is, or has been, litigation in the U.S. on a corresponding patent to produce a subset of those documents that were produced in U.S. litigation, thus significantly minimizing the costs of looking for, reviewing and producing relevant documents.

In addition, the scope of examinations for discovery in Canada (equivalent to depositions) is more limited compared to the U.S. because each party may examine only one representative of each opposing party. This representative is deemed to have the knowledge of the party (similar to a Rule 30(b)(6) witness). The named inventor(s) of the patent in suit, and any other assignor of the patent, may also be examined, but their evidence is not binding on the patentee unless there is agreement to that effect. Rarely, third parties or other fact witnesses may be examined for discovery, but only with leave of the court.

Experts are not examined prior to trial. The only examination of experts occurs when they are called to testify at trial.

6.               No Markman hearings

Canada does not allow the equivalent of Markman hearings. Instead, claim construction is decided by the trial judge at the same time as the infringement and validity issues. Typically, a party’s position on claim construction is not known until expert reports are exchanged several months before trial. Some judges may, at their discretion, request that the parties exchange claims charts setting out their respective views on how the claims ought to be construed.

Summary disposition by way of summary judgment or summary trials is available in Canada. Although these procedures were not widely used in patent cases in the past, the Federal Court has recently decided several cases summarily. In those cases, the Court was willing to construe the claims without requiring a full trial and to find there was either no infringement or that the patent was invalid.

7.               File wrapper estoppel

In December 2018, Canada’s Patent Act was amended to introduce a limited right to refer to the file wrapper for purposes of construing the claims. Until then, the law was clear that the claims of a patent could only be construed using the patent itself and the common general knowledge of the skilled person.

Now, statements made by the patentee during prosecution may be introduced into evidence by the defendant for the sole purpose of rebutting any arguments made by the patentee as to the construction of the claims.

8.               Inequitable conduct is typically not an issue

There is no ability in Canada to invalidate an issued patent based on a failure to disclose relevant prior art to the patent office. In fact, there is no positive duty on patent applicants to disclose relevant art. However, a patent may be invalidated where the patentee willfully made a material misrepresentation to the patent office for the purpose of misleading.

9.               Remedies

It is not unusual in patent infringement cases that the quantification of damages or profits is bifurcated from the liability issues and dealt with on a “reference” only if there is a finding of infringement.

a)  Injunctions

A preliminary injunction is difficult to get in a patent case in Canada because it is difficult for a patentee to prove that it will suffer irreparable harm prior to trial. Instead, courts have generally found that damages are an adequate remedy for patent infringement. The two main exceptions are where the defendant is not yet on the market, and where the patent is about to expire and the defendant is springboarding onto the market.

A permanent injunction after trial is almost always ordered, although sometimes on terms. In a very recent case, the Federal Court denied the successful patentee a permanent injunction because of significant public interest factors. It is also typical, as ancillary to the injunction, that infringing goods be ordered to be delivered up to the successful patentee or destroyed under oath.

In limited circumstances, the infringer may obtain an order staying the injunction pending an appeal if they successfully show they will suffer irreparable harm in the interim.

b.  Accounting of profits

A successful patentee is always entitled to claim its damages as a matter of law. In addition, the Federal Court has recently held that a patentee is generally entitled to elect to claim an accounting of the defendant’s profits, absent any compelling reasons to deny this remedy. However, an accounting of profits remains an equitable remedy granted at the discretion of the court.

The availability of the accounting of profits remedy is useful because it places the onus entirely on the defendant to prove its deductible costs and any apportionment. The patentee need only prove gross revenues made as a result of the infringement. Moreover, the patentee’s financial documents and information are not relevant and thus need not be produced for discovery. Also, there may be instances where the defendant’s profits are higher than the patentee’s damages, for example, where the defendant is a larger competitor, or the defendant made sales abroad of a product manufactured in Canada.

Recently, the accounting of profits remedy resulted in the highest monetary award for patent infringement in Canadian history: $644 million CAD plus interest.

c.  Calculating post-grant damages

The entitlement to and calculation of damages is similar to the U.S. system. The goal is to put the patentee back in the same position it would have been but for the infringement.

The patentee is entitled to lost profits in respect of all sales it would have made, and to a reasonable royalty rate for those sales it would not have made, such as where the patentee does not practice the invention. In some cases, damages for convoyed sales and price suppression may also be recovered. The availability of these heads of damages may be subject to other factors, such as the availability of a non-infringing alternative.

d.  Calculating pre-grant damages

The successful patentee may recover “reasonable compensation” for any acts that occurred between the publication date of the patent application and the patent’s issue date that would have infringed a claim of the patent. This compensation has been interpreted as a reasonable royalty rate.

There is a six-year limitation period for all monetary awards (profits and damages).

e.   No treble damages

Unlike the U.S., Canada does not allow treble damages for willful infringement. In a few cases, the Federal Court has awarded punitive damages in addition to compensatory damages, but this usually requires a finding of egregious or high-handed conduct, or callous disregard for the patentee’s patent rights.

10.            Cost consequences

The successful litigant in patent infringement actions is generally entitled to recover their “costs” of the litigation. Recently, the Federal Court has been awarding costs in the range of 25% to 50% of actual legal fees paid, plus all reasonably required disbursements (including experts’ fees).

11.            Other patent validity options are limited

The options available to challenge the validity of a patent, other than in court, are limited. The U.S. has a well-established post-grant review system, including inter partes review and post-grant review, allowing for challenges to the validity of patents. Canada does not have an equivalent system for post-grant proceedings with the same level of detail and complexity.

A re-examination procedure is available in Canada, but it is not popular because it is ex parte after the initial request is made, and it statistically favors patentees (likely because it is ex parte and the patentee has the ability to amend the claims). The Federal Court has on many occasions stayed re-examination proceedings in favor of parallel patent litigation because the litigation is generally more encompassing, is adversarial, and involves live testimony.

It is possible to reissue a patent if there is an error in the issued patent that occurred through accident, mistake or inadvertence and there was no intention to mislead. The application for reissue must be filed within 4 years of the patent’s issue date.

12.            Less expensive

All these differences, and others, explain why comparable patent litigation can be significantly less expensive in Canada than it is in the U.S.

As well, because of the pandemic, the Federal Court has allowed some examinations for discoveries and hearings to proceed by way of a video conferencing platform such as Zoom. Some judges have also allowed some witnesses to testify remotely at trial, especially if they would have to travel long distances. This has the effect of reducing costs even more.