In our December 30, 2004 bulletin (no. IPB2004-5, located at http://www.torys.com/publications/pdf/IPB2004-5.pdf), we described the small entity fee debacle highlighted by the decision in Barton No-Till Disk Inc. v. Dutch Industries, and we reported that the federal government had introduced amendments to the Patent Act (in Bill C-29) to allow patent holders to retroactively correct the situation. Bill C-29 has now been passed and will be proclaimed into force on February 1, 2006. Patent holders will have one year from the date of proclamation (i.e., until February 1, 2007) to correct small entity designations for the applications or patents. Patent holders that do not make corrections within this period risk having their patents invalidated if a claim to small entity status is determined to be incorrect.
In the Dutch Industries case, the Federal Court of Appeal invalidated the patent because small entity fees (instead of large entity fees) were erroneously paid when the patent application was filed. The Court further held that the subsequent payment of top-up fees to the Commissioner of Patents failed to rectify the error because the Commissioner has no jurisdiction to accept top-up payments after the deadlines set out in the Patent Act. On appeal, the Court clarified that small or large entity status is determinedonly once—when the patent application is filed.
The Bill C-29 amendments to the Patent Act are a retroactive measure to remedy the Dutch Industries problem. The amendments will permit patent holders who should have paid large entity fees but who erroneously paid small entity fees to pay the difference between the two fees until February 1, 2007.
If this top-up payment is properly made, it will have the effect of the large entity fee having been paid on the day when the small entity fee was erroneously paid. This is so "regardless of whether an action or other proceeding relating to the patent or patent application in respect of which the fee was payable has been commenced or decided." Accordingly, if a patent application was abandoned or if the validity of a patent was challenged on the basis of erroneous payment of fees as a small entity, these proceedings would be closed and any decisions based on erroneous payment of fees as a small entity would presumably be nullified.
This retroactive corrective measure will apply to all patents and patent applications regardless of their filing date, including those filed before October 1, 1989 under the old Patent Act.
Patent holders and applicants should review their Canadian portfolios to determine if they claimed small entity status at the time of filing and if they properly qualified as a small entity at the time. If there is any doubt about their status, or if they did not fall within the definition of "small entity" at the filing date, they should pay the appropriate top-up fees within the correction period. Businesses should focus particularly on any transfers or licenses of, or any legal obligations to transfer or license, any rights in inventions prior to the application filing date. The need for such attention arises because the transfer or licensing of rights in an invention from a small entity to a large entity, or a legal obligation to do so, will result in a change in status.
Top-up fees must be paid for all payments that were made claiming small entity status, such as the filing fee, all maintenance fees, the request for examination fee and the final fee. For prospective patent applicants in Canada, the safest course continues to be to declare large entity status and pay the higher fees at the time of filing.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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