Canada: Major Changes Coming To Canadian Patent Law
Patents and Industrial Design Bulletin

On October 30, 2018, the federal government proposed a number of important amendments to the Patent Act as part of the proposed Budget Implementation Act, 2018, No. 2. These changes follow from the national IP Strategy announced earlier this year to better protect intellectual property and promote innovation in Canada.

This bulletin looks at four of the most significant proposed changes to Canadian patent law: (1) creating a rule of "file wrapper estoppel" which will hold patentees to statements made during patent prosecution; (2) creating a regulatory regime for demand letters based on alleged patent infringement; (3) expanding the "experimental use" defence to patent infringement; and (4) expanding prior use rights for businesses who used patented technology before the filing date of the patent.¹

File Wrapper Estoppel Comes to Canada

Under the proposed changes, written representations made to the Patent Office by patent applicants during the patent application process will become admissible evidence of claims construction. Specifically, these representations can be used to rebut any representation made by the patentee during litigation. These amendments overrule a Supreme Court decision and long-standing case law which had prohibited reliance on the patent prosecution history to interpret a patent. The proposed new rules will bring Canada in line with the US practice relating to file wrapper estoppel in patent litigation.

While the proposed changes have not yet come into force, current patent applicants preparing and prosecuting applications should be aware of this proposed change as any representations made now will be admissible in future proceedings, once the changes are implemented.

New Regime for Demand Letters

There are currently no specific provisions governing demand letters sent by patent holders alleging infringement of their patent. In practice, the increasing number of demand letters sent by non-practicing entities (NPEs, also colloquially known as patent trolls) has prompted the creation of a regulatory framework in Canada which will govern all patent demand letters.

Under the proposed changes, all demand letters received by Canadian entities will be subject to formal requirements prescribed by regulation, regardless of whether the patent asserted is a Canadian or foreign patent. These requirements, as currently drafted, will also apply to anyone who, even from outside Canada, sends a demand letter to a Canadian resident or entity.  Foreign NPEs would therefore be well-advised to be aware of the requirements once they have been finalised by regulation.

The regime provides for a private right of action in the event of non-compliance. Recipients of letters that do not follow prescribed requirements will be entitled to seek relief before the Federal Court including damages, punitive damages, an injunction, declaratory relief and an award of costs. Corporate directors and officers who authorize or participate in the sending of non-conforming letters may be held liable should they fail to remedy the defects in a reasonable time after having been advised of both the defects and requirements, but can avoid liability should they succeed in establishing their due diligence to ensure compliance with the prescribed requirements.

The form and requirements for written demand letters, as well as the factors the Court may consider in finding liability, or whether due diligence has been exercised, are all to be fixed by regulation. No information is yet available regarding the content of the proposed regulations or timeline for releasing a draft. 

Non-Infringement for Experimentation

Currently, the Patent Act includes safe-harbour exceptions to infringement that include exceptions for so-called "regulatory use" and non-commercial experimental use. The regulatory use exception permits a person to make, use or sell a patented invention for the purposes of developing and making submissions of information required for regulatory approval under either Canadian or international law, while the experimental use exception permits private acts of experimentation that are limited to non-commercial scale or purposes.

Under the proposed changes, the experimental use exception will be expanded in a new provision that will protect "an act for the purposes of experimentation related to the subject matter of a patent". This is broader than acts directed only to regulatory approvals or limited to non-commercial uses. Courts will have the authority to determine whether an act amounts to experimentation, but the factors and surrounding circumstances the Court can or cannot consider in making those determinations are to be fixed by regulation.

Once again, no information is yet available on the content of the proposed regulations or timeline for releasing draft regulations. 

Expanding Non-Infringement for Prior Users

At present, the Patent Act permits those who have purchased, constructed, or acquired a product covered by a patent before its claim date, to use and sell to others the product without incurring liability for patent infringement. This is a limited exception which applies mainly to physical objects, and only if they were produced or acquired prior to the claim date.

Under the proposed changes this exception will be expanded in several ways. Among the changes, prior users will be able to avail themselves of the exception for use prior to the date of publication of the patent, as opposed to the current legislation where prior use extends only to use which began before the claim date. The exception will also apply to a wider range of activities, including services, rather than being limited to physical products, and will apply to subsequent resales and uses after an initial transfer by the prior user. Further, the proposed regime will allow prior use rights, where conducted as part of a business, to be transferrable along with the business itself. 

However, the regime has also been narrowed in certain respects. Prior use rights are now conditional on the use having been in good faith, and the user having not relied on information knowingly obtained from the patentee, whether directly or indirectly.

Users seeking to benefit from these exceptions are advised to maintain good records of their technology use and business transfer activities, in the event of a subsequent challenge.

These proposed changes to the Patent Act are being put forth together with changes to other Canadian IP legislation in a hurried fashion (see Fasken IP bulletins on proposed changes to the Trade-marks Act, Copyright Act and Insolvency legislation). Because they are part of an omnibus budget bill, they are expected to pass quickly. But the devil is in the details. Much of what is being changed requires the adoption of regulations which will set out the precise rules that will set out the mechanics governing these amendments. The process of drafting regulations, consultation with stakeholders and final adoption is expected to take at least 12 to 24 months after passage of the budget bill. However, patent holders and users can anticipate further consultation from the government on any proposed regulations so should be both aware of the proposed changes and be prepared to comment on any proposed regulatory drafts.

Footnote

1 This bulletin is not intended to describe all proposed changes to the Patent Act.  The complete proposed amendments to the Patent Act are found in the Budget Implementation Act, 2018 and can be consulted 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.