Canada: Cross-Licensing Agreements Held To Not Trigger The Requirement To Send A Notice Of Allegation Under The PM(NOC) Regulations (Intellectual Property Weekly Abstracts Bulletin — Week Of October 17)

Last Updated: October 20 2016
Article by Chantal Saunders, Beverley Moore, Adrian J. Howard and Jillian Brenner

Most Read Contributor in Canada, November 2016

PATENT DECISIONS

Cross-licensing agreements held to not trigger the requirement to send a Notice of Allegation under the PM(NOC) Regulations

Teva Canada Limited v. Pfizer Canada Inc., 2016 FCA 248

The Federal Court of Appeal has overturned two decisions of the Federal Court, relating to the issuance of an NOC to a generic company who did not have to send a Notice of Allegation first because they had cross-licenced their submissions.

The appeals relate to the issuance of NOCs to Teva for an exemestane tablet, and to Hospira for infliximab. Teva's ANDS for its exemestane product was cross-referenced to another generic's NOC. For its part, Hospira had filed a NDS that cross-referenced Celltrion's NOC and certified that it had entered into a licensing agreement with respect to infliximab. Celltrion agreed to stop selling the product and Hospira agreed to sell a product that was identical in all ways to Celltrion's, but for the manufacturer's name.

Pfizer challenged the first NOC and the Federal Court set aside the decision to issue the NOC (2014 FC 1243, summarized here). Janssen challenged Hospira's NOC and the Federal Court set aside the NOC on consent without prejudice to any right of appeal.

The appeals were tasked with deciding two issues:

  1. What is the standard of review to be applied to a decision of the Minister of Health to issue a Notice of Compliance to a generic manufacturer in circumstances when the Minister determines that the generic's drug submission is administrative in nature so that it does not trigger the notice requirement found in section 5 of the PMNOC Regulations ?
  2. Did the Federal Court err when it decided that the Minister's decisions should be set aside? This, in turn, requires consideration of whether the Minister erred in issuing two Notices of Compliance (NOC) without requiring each applicant to notify the affected patentee that the applicant was seeking a NOC.

The standard of review that should have been applied was found to be reasonableness, not correctness. The Court of Appeal held that the Minister has exclusive jurisdiction to decide whether a drug submission filed by a second person makes a comparison with a Canadian reference product so as to require the second person to address a patent listed on the Patent Register. On that basis, where there is a discrete or special administrative regime in which the decision-maker has special expertise, that decision-maker is entitled to deference. Using this standard, the Minister's decisions were held to be reasonable.

This was because the regulation-making power in subsection 55.2(4) of the Patent Act is expressly limited to prevention of infringement by a generic manufacturer who takes advantage of the early working exception. Citing a prior decision, it was stated that the Minister must attempt to determine whether a listed patent was early worked before requiring a generic to address a listed patent. The Court of Appeal held it was reasonable for the Minister to conclude that neither Teva nor Hospira had early worked the patented invention.

Patent found not to be infringed following construction of the term "independently"

Cascade Corporation v. Kinshofer GmbH, 2016 FC 1117

Cascade is the owner of a Canadian patent related to a safety locking device for quick couplers and claims that Kinshofer have infringed or induced infringement of this patent through their sale of a product known as the X-LOCK coupler. The Federal Court disagreed, holding in a summary trial that the patent was not infringed.

A quick coupler was defined to be used to quickly attach and remove implements at the end of an excavator arm for earth movers. The dispute turned on claim construction, where the Court determined that the patent's claims are limited to couplers that have independent hydraulic circuits for operating the front pin and back pin locks. The Court held that Kinshofer's product employs a hydraulic circuit to release the front pin which does not operate independently of the back pin locking mechanism including its hydraulic components. Thus, Kinshofer's product does not infringe.

Plaintiff granted summary judgment for unpaid royalties

Arnold Hennessy Holdings Inc. v Flapperless Inc., 2016 ONSC 6341

The Ontario Court granted the Plaintiff's motion for summary judgment for payment of royalties owing under the licence agreement. The inventor, Arnold Hennessy, had assigned all of his personal right and interest in the patents and toilet tank technology which he had developed to the Plaintiff. The Plaintiff subsequently licensed the Defendant Company to commercialize the technology. The original agreement was amended in 2006 to provide that upon the incapacity or death of Arnold Hennessy, the intellectual property rights would become the sole and exclusive property of his nephew Philip Hennessy, the other named Defendant and current director and president of the Defendant Company. Before Arnold Hennessy's death, the Defendant Company reduced royalty payments to the Plaintiff by 50% following an oral agreement between Arnold and Philip Hennessy in late 2012. Arnold Hennessy died in 2014.

The Court considered various defences, including the impugned oral agreement. The Court was not prepared to accept Philip Hennessy's uncorroborated evidence that there was an oral agreement to vary the terms of the written agreements between the parties. As such, the Defendant Company was found liable for the unpaid royalties up until Arnold Hennessy's death. The Court found no basis to pierce the corporate veil to make Philip Hennessy personally liable for the Defendant Company's breach of contract. Furthermore, the Court refused to enjoin the transfer of the intellectual property to Philip upon the incapacity or death of Arnold, as was provided for in the 2006 amendments. The Court noted that the subsequent pursuit of remedies by the plaintiff did not have the effect of reversing what has already occurred.

COPYRIGHT DECISIONS

Court grants interlocutory injunction for pre-loaded set-top boxes

Bell Canada v. 1326030 Ontario Inc. (iTVBox.net), 2016 FC 612

The Court granted the motion for interlocutory injunction relief with respect to the emerging phenomenon in the Canadian market of pre-loaded "plug-and-play" set-top boxes. Set-top boxes are electronic devices that can be connected to any standard television set in order to provide additional functionalities to that television. The Defendants were individuals and businesses selling set-top boxes on which they have previously installed and configured a set of applications. The Plaintiffs submitted that these pre-installed applications could be used to access copyrighted content. Only one Defendant, Mr. Wesley doing business as MtlFreeTV.com, filed a record and appeared at the injunction hearing.

The Court was satisfied that the Plaintiffs established a strong prima facie case of copyright infringement and that an injunction would prevent irreparable harm without unduly inconveniencing the Defendants.

The Plaintiffs demonstrated that there was a serious issue to be tried, namely the prima facie copyright infringement pursuant to section 27 of the Copyright Act. Contrary to Mr. Wesley's argument, the Court found that the Defendants did not merely serve as a conduit, but rather, they deliberately encourage consumers and potential clients to circumvent authorized ways of accessing content both in the manner in which they promote their business, and by offering tutorials in how to add and use applications which rely on illegally obtained content. Further, the statutory defence provided in paragraph 2.4(1)(b) of the Copyright Act did not apply to the Defendants who went beyond selling a simple "means of telecommunication". The Court also found that the allegations of inducement to infringe constituted a serious issue to be determined at trial and not at the interlocutory stage.

The Court did not agree with the Plaintiffs' submission that they do not need to show irreparable harm in cases involving blatant copyright infringement, such as this one. However, the Court acknowledged that a strong finding on one prong of the tripartite injunction test, such as the serious issue above, may lower the threshold for the remaining factors. The Court was satisfied that the Plaintiffs established that they would suffer irreparable harm if this injunction were not granted. For example, the purchase of a pre-loaded set-top box provides the user with an incentive to permanently cancel their subscription to a distribution service such as those offered by some of the Plaintiffs. Further, the Court noted that the market for pre-loaded set-top boxes will keep growing if left unchecked and the Defendants, or any future defendants, are unlikely to have the financial resources required to compensate the Plaintiffs for their losses if they are ultimately successful.

The Court acknowledged that the Defendants' products display numerous legal applications. However, in the face of the prima facie copyright infringement, the Court found that the balance of convenience in this case favours the Plaintiffs. Further, the Court noted that the Defendants' businesses will not unduly suffer from being restricted to selling and advertising only legal, non-copyright-infringing applications until the decision on the merits.

Finally, the Court refused to approve an injunction of the type approved by the Supreme Court of Canada in MacMillan Bloedel Ltd v Simpson, [1996] 2 SCR 1048, which enjoined activities from all persons, including non-parties, having notice of the Court's Order. The Court concluded that this type of injunction would be overbroad in this case, preferring that any new co-Defendant will have fourteen days from the date they were added to bring a motion to challenge the issuance of the interlocutory injunction as it applies against them.

Proposed appeal fails to raise broader issues about the intersection of copyright and insolvency law

Nortel Networks Corporation (Re), 2016 ONCA 749

The Ontario Court of Appeal upheld a decision granting partial summary judgment to Nortel and dismissing SNMP Research's claim for disgorgement of profits attributable to the unauthorized transfer of SNMP's intellectual property (the "profit claim"). SNMP had licenced its software products to Nortel under an agreement providing that Nortel would keep the source code strictly confidential. During Companies' Creditor Arrangement Act ("CCAA") proceedings, some of SNMP's source code was transferred along with Nortel's assets. SNMP sued Nortel, and advanced its profit claim and a claim for breach of contract, copyright infringement and breach of confidence (the "damages claim"). The Court below found that while Nortel had infringed SNMP's copyright, SNMP failed to show that Nortel profited from the unauthorized transfer of SNMP's intellectual property. Rather, the evidence established that the companies buying assets knew they were not buying SNMP's software and would instead have to negotiate licencing fees with SNMP directly.

The Court of Appeal acknowledged that leave to appeal in CCAA proceedings is granted sparingly and only where there are serious and arguable grounds that are of real and significant interest to the parties. In determining whether leave should be granted, the Court considered four factors, including if the point on the proposed appeal is of significance to the practice. The Court disagreed with SNMP's submissions that the appeal raised broader issues about the intersection of copyright law and insolvency law. Instead, the supervising judge found that SNMP did not meet its burden under s. 35(2) of the Copyright Act to prove that Nortel derived revenues from its infringement of SNMP's copyright.

TRADEMARKS DECISIONS

Respondent's use of confusing mark prior to asserted use date in TM application did not predate actual use of the Mark by the Applicant

Times Group Corporation v. Time Development Group Inc., 2016 FC 1075

The Applicants, Times Group Corporation and Times Developments Inc. (collectively, Times), sought to have the Court declare that the Respondents, Time Development Group Inc. and Time Development Inc. (collectively, TDG), had infringed its trade names and mark.

Times has used the trade names TIMES GROUP CORPORATION and TIMES DEVELOPMENTS INC in the course of its business activities, and registered the trademark TIMES GROUP CORPORATION in 2014. TDG uses the trade name TIME DEVELOPMENT GROUP. The Court was satisfied that Times is entitled to the exclusive use of its registered mark, and that there is likely confusion between Times's mark and TDG's trade name.

The Court dismissed TDG's argument that Times' mark lacks distinctiveness because it is used by both applicants without evidence that the two companies are related or have a licensing arrangement. The caselaw cited did not support TDG's position, nor did Times assert that use of the mark by Times Group Corporation enures to the benefit of Times Developments Inc. or vice versa. Further, there was no evidence showing that both Applicants have used the registered mark.

The Court also dismissed TDG's second argument that its prior use of an allegedly confusing trade name should have disentitled Times from registering its mark. TDG's use of its trade name began in 2008, which was prior to the year asserted by Times in its trademark application (being 2011). The Court stated that it is the use of the trademark that confers on the owner the rights to that mark, including the exclusive right to use that mark and to register it. The evidence established that Times has used its trade names and mark since at least 2006, before TDG began using its trade name and Times' 2014 registration of its mark.

Finally, the Court held that the trade names were confusing. The dominant word in their mark and name, "Time" or "Times", are nearly identical. Notwithstanding the different presentations of the trade names, the Court concluded that the Times' mark clearly bears a strong resemblance to TDG's name. The Court also noted that the risk of confusion in the parties' target markets, the Chinese Canadian community, increased when the words are translated into Chinese characters. Therefore, the distinction between Times use of the plural form of "Time", versus TDG's use of the singular, disappears upon translation.

The Court granted the declaration in Times' favour and ordered that TDG refrain from using those trade names.

Returned matter for redetermination upholds Board's finding of confusion

Cathay Pacific Airways Limited v. Air Miles International Trading B.V., 2016 FC 1125

The present decision was a redetermination of Cathay Pacific's appeal from the Board's decision refusing to register its application to register five marks, including ASIA MILES. The Court of Appeal set aside the Federal Court's decision finding the Board's decision unreasonable (see 2015 FCA 253 that was previously summarized here; and 2014 FC 549 that was previously summarized here). The Court of Appeal held that the Federal Court erred in not considering Cathay's new evidence. Furthermore, while purporting to apply the reasonableness standard, the Federal Court applied a correctness standard.

In this redetermination, the Court concluded that a correctness standard of review should apply to findings of fact which were materially affected by the new evidence; other findings of fact remained subject to the reasonableness standard.

The Court dismissed the ground of opposition under section 30(a) of the Trade-marks Act. Air Miles' pleading under this ground was insufficient, given that it had not been pleaded in the statement of opposition. The Court concluded that the Board's failure to consider Cathay's insufficient pleading argument was unreasonable.

The Court also rejected the ground of opposition under section 30(b) of the Act. Cathay's new evidence filed would have materially affected the Board's decision on the use of the ASIA MILES marks by Cathay under licence. Reviewing the Board's decision on a correctness standard, the Court held that the evidence established use of the ASIA MILES Marks in Canada in connection with the services represented by the ASIA MILES Programme.

On the issue of whether there was a reasonable likelihood of confusion, the Court found that the Board's finding that the ASIA MILES Marks were not licensed affected its subsequent findings on likelihood of confusion under sections 6(5)(a), (b) and (e).

Cathay's ability to claim licensed use of its marks was found to have an overall favourable impact on its ability to demonstrate that there is no reasonable likelihood of confusion between the ASIA MILES mark and the AIR MILES mark. However, the Court concluded that the ASIA MILES mark was not sufficiently different from the AIR MILES mark for Cathay to be able to demonstrate that there was no reasonable likelihood of confusion. Furthermore, even if the Court applied a standard of correctness to the entirety of the Board's confusion analysis, the Court's conclusion would still be that the Board did not err in refusing Cathay's application.

Failure to provide invoices should have not been determinative in section 45 proceeding

Black & Decker Corporation v. Method Law Professional Corporation, 2016 FC 1109

The Court allowed Black & Decker's appeal of the Registrar's decision amending its PIRANHA trademark to delete use of the Mark in association with power saw blades. The Registrar accepted that Black & Decker had shown use of the Mark on the registered wares and made the wares available for purchase to Canadians. However, the Registrar concluded that there was no proof of sale, and therefore no actual use of the Mark in Canada in respect of power blade saws. In this application, Black & Decker provided new affidavit evidence, attaching Canadian sales invoices for power saw blades from the Relevant Period.

The Court concluded that the Registrar's decision was unreasonable based on the evidence originally presented at the hearing. The Court found that the evidence presented at the hearing showed that the Mark was indeed used in association with all the registered wares during the Relevant Period and that the Applicant's failure to provide invoices should not have been determinative. Rather, the Federal Court had previously recognized that it is not necessary to provide invoices in section 45 proceedings.

The Court noted that any ambiguity as to use should have been resolved in favour of the registered owner, given the evidence provided by Affidavit. The Court also concluded that the new evidence presented at the appeal clearly establishes use under the Trade-marks Act, without any ambiguity whatsoever.

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