Canada: Pleading Amendments Alleging Prior Public Disclosure Refused Where Defendants Lack Material Facts

Last Updated: August 9 2018
Article by Leslie Caswell

In 2015, Specialized Desanders sued Dynacorp Fabricators (now Enercorp Sand Solutions) and Progress Energy Canada for infringement of Canadian Patent No, 2,407,544 generally related to a vessel used to remove particulate matter, particularly sand, from a fluid stream coming out of a gas well. The Defendants denied infringement and counterclaimed seeking to impeach the validity of the 544 Patent as well as two other patents owned by the patentee.

During the first round of discovery, the Defendants became aware that the Plaintiff had hired a fabricator to build a test desander unit and that this unit had been used at a wellsite more than one year before the filing date of the patent, contrary to paragraph 28.2(1)(a) of the Patent Act. The Defendants interviewed the owner of the wellsite and determined that he had records, including drawings and a Manufacturers Data Report relating to the test unit. The wellsite owner, on the advice of counsel, was not prepared to provide the documents to the Defendants without a Court order.

Prothonotary's Order below

The Defendants sought to amend their pleadings to include allegations that the claims were anticipated by this prior disclosure and to examine the wellsite operator. Prothonotary Aylen, citing Mancuso v. Canada, refused to allow the amendment (see unreported Orders, one for each Defendant, here and here) on the basis that the amendments failed to plead sufficient material facts to make out the anticipation argument, and that they therefore had no reasonable prospect of success holding:

[n]o supporting material facts are pleaded as to what information was made public, what elements of the claims at issue in each of the three patents were disclosed in the MDR or elsewhere, how it was disclosed, or how the alleged disclosure would have enabled a person skilled in the art to practice the invention claimed in the patents.

Further, it was no answer that the material facts were within the knowledge of Specialized Desanders. Citing v. Wulftec, Prothonotary Aylen held:

I am not satisfied that it is sufficient for Dynacorp to simply assert that it cannot provide further material facts as they are within the knowledge of SDI. Dynacorp must have a proper factual basis for asserting a prior use defence, absent which the defence is nothing more than a bald allegation designed to permit Dynacorp to engage in a fishing expedition on the examinations for discovery, which is improper.

Prothonotary Aylen further held that the proposed amendments were frivolous and vexations and subject to being struck under Rule 221(c), since the proposed pleading was deficient in material facts such that the patentee could not know how to answer. Since the Defendants were unable at the hearing of the motion to articulate any further material facts that it could plead, if granted leave to amend, Prothonotary Aylen refused to exercise her discretion to allow the amendments.

Having refused the proposed pleading amendments, Prothonotary Aylen found that there was no basis for discovering the wellsite owner and dismissed the Defendants motions.

Appeal before Justice Southcott

Justice Southcott upheld Prothonotary Aylen's Orders, holding that she made no error in concluding that the Defendants failed to plead sufficient material facts in the proposed amendment. Justice Southcott rejected the Defendant's argument that the Prothonotary had not appreciated that her Orders put the Defendants in an impossible position:

[37] In reaching this conclusion, I have also considered the Defendants' argument that that they are left in an impossible position, that they are not permitted to plead the prior disclosure defence without evidence to prove it, and they are not allowed to discover this evidence without first pleading the defence. They submit that the Prothonotary did not appreciate this dilemma. I find little merit to this argument. The Orders state that the Prothonotary is not satisfied that it is sufficient for the Defendants simply to assert that they cannot provide further material facts because they are within the knowledge of SDI. As such, the Prothonotary clearly understood and considered this argument by the Defendants but concluded that the Defendants were required to plead a factual basis for the defence. This does not represent a conclusion that the Defendants were required either to plead evidence or to have evidence, at the pleading stage, to support their allegations of fact.

On appeal, the Defendants took issue with the Prothonotary's finding that they could not articulate additional material facts when given the opportunity to do so and requested the Court review the audio recording of the earlier motion. Justice Southcott refused, citing Rule 364(2)(d), which provides that the moving party's motion record is to include any transcripts on which the party relies. Had the Defendants wanted to rely on what occurred at the hearing of the motion before the prothonotary, it was incumbent on the Defendants to include transcript of what occurred before her.

Justice Southcott also held that the Prothonotary had not erred in dismissing the Defendants request too examine the wellsite owner, since. absent the amendment, there was no foundation for discovery.

A copy of Justice Southcott's decision may be found here.

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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