Canada: Court Should Have Declared IP Arbitrable

Last Updated: September 25 2006
Article by Barry Leon and Jana Stettner

Originally published in The Lawyers Weekly, September 15, 2006.

Canadian courts have, in numerous recent decisions, consistently reaffirmed their support for arbitration and indicated a strong judicial policy favouring arbitration. We’ve seen this support, along with corresponding deference to arbitral tribunals, in court decisions dealing with the jurisdiction of an arbitral tribunal to determine its own jurisdiction, 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 did hold in University of Toronto (Governing Council) v. John N. Harbinson Ltd. (2005), 78 O.R. (3d) 547 [Harbinson] that the parties’ particular dispute, which arose from a licence agreement covering two inventions, was arbitrable (see "Patent Act found to not cover IP dispute," in the Feb. 10 issue of The Lawyers Weekly). 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 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.

In 2003 the Supreme Court, in Desputeaux v. Éditions Chouette (1987) Inc., [2003] 1 S.C.R. 178 [Desputeaux], 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 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 the 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. It asked the court to determine that since under the Patent Act the 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.

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 patent issues. Subsection 20(1) gives the Federal Court exclusive original jurisdiction in cases of conflicting patent applications and in cases in which it is sought to impeach or annul any patent. Subsection 20(2) of the Act provides that in all other cases respecting patents, the Federal Court has concurrent jurisdiction with 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 were for breach of contract – particularly, breach of the warranty of inventorship – and that Harbinson Ltd. was neither claiming to be the inventor nor seeking relief under the Patent Act.

Although neither the outcome nor the analysis in Harbinson 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, they would be arbitrable between the parties: the asserted impediment to arbitration was no impediment at all.

The court would have been on solid ground in making that decision. In Desputeaux, the Supreme Court had considered whether s. 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, reversing the Quebec Court of Appeal, held that the purpose of s. 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 Parliament had intended to exclude arbitration of disputes in relation to the Copyright Act, it would have done so clearly.

According to the reasoning in Desputeaux, where the Federal Court and superior courts have concurrent jurisdiction and Parliament has not clearly excluded arbitration, disputes can also be determined by arbitration. Therefore, with respect to all patent law issues referred to in s. 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 proceedings to impeach or annul any patent, superior courts are not precluded from determining comparable issues between disputing parties, such as the validity of a patent. But only the Federal Court can make a decision in rem – that is, a decision binding beyond the disputing parties. The superior court’s decisions in those kinds of cases cannot result in patents being expunged and cannot bind non-parties.

On the basis of the Supreme Court’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.

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.

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