“NO CHALLENGE” clauses called into question in Canada

“NO CHALLENGE” clauses called into question in Canada

“No challenge” clauses called into question in Canada –

Ontario Superior Court finds such clauses are not in the public interest, and should not be enforced

An interlocutory decision from the Ontario Superior Court could have far-reaching implications for IP licensing and the settlement of IP disputes in Canada.

Earlier this year, the Ontario Superior Court declined to issue an interlocutory injunction in Loops, LLC v. Maxill Inc., 2020 ONSC 971. The Court’s reasons for doing so could have a substantial impact in the area of “no challenge” clauses, contractual clauses often included in IP license agreements and in settlements of IP disputes.

“No challenge” clauses purport to bind one party to an agreement not to challenge the validity of the other party’s intellectual property rights. The clauses appear routinely in IP license agreements, (preventing the licensee from challenging the validity of the rights they are licensing), trademark co-existence agreements (preventing each party from challenging the validity of the other’s trademark registrations), and in many other contexts within the IP world. These clauses have received judicial consideration in other jurisdictions, particularly the United States, but to date the issue of whether “no challenge” clauses are enforceable has not been considered by the courts in Canada.

The history between the parties in this case is long, and rather complex. The parties, who are both in the business of toothbrushes, had previously settled a patent infringement dispute between them. As part of that settlement, Maxill agreed to a “no challenge” clause, namely, that it would not directly or indirectly assist any person in attacking the validity of Loops’ patents for the relevant invention, in any country.

After finalizing the agreement, Maxill set out to “design around” Loops’ patent, and released a new toothbrush product that it believed did not infringe. Loops disagreed, and commenced an action to enforce its settlement agreement with Maxill before the Ontario Superior Court. Loops also sued Maxill in the United States for infringement of its equivalent patent in that country.

In response to the US infringement action, Maxill denied that it infringes Loops’ US patent, and denied the patent’s validity. Importantly, Maxill did not seek an order cancelling Loops’ patent because of the alleged invalidity. It simply denied that it was infringing Loops’ patent, and denied that the patent was valid in any event. However, since Maxill had agreed to a “no challenge” clause in its settlement agreement with Loops, Loops sought an injunction from the Ontario Superior Court to prevent Maxill from denying the patent’s validity before the American courts.

The Court declined to issue the injunction for several reasons. The most significant of these was the Court’s finding that the “no challenge” clause in the Loops / Maxill settlement agreement is not reasonable in the public interest, and is not enforceable. The Court found that, to preclude a defence to patent infringement for the personal gain, profit or protection of one party to an agreement would run counter to the proper administration of justice, regardless of the consent of the other party to that agreement. In contracts that contain “no challenge” clauses, the price paid by one party is access to a potentially valid legal position that has potential to affect the public at large, since the patent claims can be enforced against any infringer so long as they are deemed valid. The Court found that this price was simply too high if public trust and confidence in the administration of justice are to be maintained.

Accordingly, the Court’s view appears to be that “no challenge” clauses should not be enforceable as a matter of law. This is a significant development in Canadian contract law, as no Canadian court had previously found such provisions to be unenforceable, and in practice, IP-related agreements such as settlements and licenses routinely include such clauses.

It is significant that Maxill only asserted invalidity as a “shield”, in defence of an infringement action, and not as a “sword”, seeking an order that the patent be cancelled. It means that the door may still be open for “no challenge” clauses that prohibit the use of validity challenges as a “sword”.

But for the moment, the view of Ontario’s primary trial court is clear. Contractual provisions limiting a party’s ability to assert invalidity as a defence to IP infringement are not in the public interest, and should not be enforceable.

Written by Jaimie M. Bordman

“NO CHALLENGE” clauses called into question in Canada

Some changes to canadian patent law

Changes to Late National Phase Entry

When filing a National Phase of a PCT application in Canada, you need to be aware of the following changes to the Patent Regulations for late entry:

  • If the International Filing Date is before October 30, 2019, the deadline for national entry is 30 months from the earliest priority date – or 42 months from the earliest priority date with payment of a $200 late entry fee (no change from current practice).
  • If the International Filing Date is after October 30, 2019, the deadline is still 30 months from the earliest priority date. However, there are new restrictions for late entry after the 30-month deadline and up to 42 months from the earliest priority date.  The applicant must now:
    • explicitly request reinstatement of rights
    • provide a statement that the reason for failure to enter the national phase by the 30-month deadline was unintentional
    • pay the $200 late fee

Our understanding is that the Canadian Patent Office will not require anything more than a statement that the failure to meet the 30-month deadline was unintentional – that is – no detailed reasons will be required.  Nevertheless, we recommend that if you have clients that wish to enter the national phase in Canada, you inform them that the 42-month late entry deadline should NOT be relied on or used to purposely extend the 30-month deadline.

Restoration of Priority

With the changes that came into effect on October 30, 2019 applicants may now restore the right of priority within 2 months of the filing date in Canada.  However, if the right of priority is restored during the International Phase, it will not be deemed restored in Canada unless the international filing date is on or after October 30, 2019.

“NO CHALLENGE” clauses called into question in Canada

Canadian patent law – adjusting to new practice.

Canadian Patent Law – Adjusting to New Practice.

Janice G. Kelland explains recent developments in Canadian Patent Law.

The 30th of October 2019 was a red-letter day for Canadian patent law. Amendments made to the Canadian Patent Act in 2014 and 2015, and the completely re-drafted Canadian Patent Rules registered in July 2019, came into force on that day, bringing substantial change to Canadian patent practice …

You can download the article by clicking HERE. Janice’s article has been published on pages 16-18 of The Patent Lawyer Annual 2020. The full publication can be accessed at this LINK.

New patent rules in Canada – october 30, 2019

New patent rules in Canada – october 30, 2019

New Patent Rules came into force in Canada effective October 30, 2019. Their purpose by and large is to more closely harmonize Canadian practice with international norms. Existing government fees remain unchanged, but some new ones have been added. There will continue to be no excess claims fees. Many of the changes will have a delayed effect, but others will be more immediate. Existing deadlines are not affected. Here are some of the more notable changes for you to consider:

1) Some Deadlines are now shorter

Requests for examination will now be due 4 years after the Canadian or international filing date instead of the current 5 years.

Responses to Office Actions will now be due 4 months after the Action date rather than the current 6 months. A 2-month extension will be available upon payment of a $200.00 fee. If no extension is requested, or if requested but no response is filed by the extended deadline, the current 12-month reinstatement period remains available as of right upon payment of a $200.00 fee. It is expected that most applicants wanting more time will elect to use the reinstatement period following the initial 4-month response deadline.

The Final Fee will be due 4 months from the date of the Notice of Allowance instead of the current 6 months. If the Final Fee is not paid by the due date, the 12-month period to reinstate as of right remains available on payment of a $200.00 reinstatement fee, but reinstatement will no longer return the application to examination.

2) Some Deadlines are now stricter

Under previous practice, maintenance and examination fees could be late paid within a 12-month reinstatement period as of right on payment of an additional reinstatement fee.

If a maintenance fee for a patent application is not paid by the due date, CIPO will now issue a notice requiring payment of the maintenance fee and a late fee before the later of 2 months from the date of the notice or 6 months from the missed due date. Importantly however, the application will not be deemed abandoned until the notice issues and the 2-month late period lapses, even if that occurs after the 6-month period has lapsed. Once an application is deemed abandoned, the applicant will have 12 months to petition for reinstatement on a showing that the circumstances leading to abandonment were unavoidable and clearly documented. It is expected that most petitions will fail.

In the case of an issued patent, if a maintenance fee is not paid by the due date, CIPO will issue a notice requiring payment of the maintenance fee and a late fee before the later of 2 months from the date of the notice or 6 months from the due date. If the fees are not paid, the patent will be deemed expired as of the missed due date. The patent owner will have 18 months from the missed due date to petition for reversal of the expiry on a showing that the circumstances leading to expiry were unavoidable and clearly documented. It is expected that most petitions will fail.

If the examination fee is not paid by the due date, CIPO will issue a notice requiring payment of the examination fee and a late fee by 2 months from the date of the notice. If the fees are not paid within the 2 months, the application will be deemed abandoned and will enter a 12-month reinstatement period. Reinstatement will be available as of right within 6 months from the missed due date upon payment of an additional $200.00 reinstatement fee. After the 6 months, the applicant must also petition for reinstatement on a showing that the circumstances leading to abandonment were unavoidable and clearly documented. It is expected that most petitions will fail.

Third parties now have rights that will allow them to infringe patents and patent applications when certain deadlines relating to requests for examination and maintenance fees are missed.

It is now more important to meet deadlines relating to maintenance fees and requests for examination.

3) Filing dates will be easier to obtain

Filing dates can now be obtained on weekends and holidays by filing applications electronically.

Paris and non-convention applications can be filed in languages other than English or French provided a translation is filed within 2 months of a request from CIPO for a translation. This does not apply to national phase entries, which must still be filed in English or French.

Paris and nonconvention applications can be filed without a filing fee provided the fee and a late fee are paid within 3 months of a filing fee notice.

4) Applications must be withdrawn from Allowance for amendment

Applications must now be withdrawn from allowance by payment of a $400.00 fee within 4 months from the date of the Notice of Allowance for amendments other than corrections to very obvious errors.

5) Annuity services may now pay maintenance fees on pending applications.

Previously, only the appointed agent could pay maintenance fees on pending applications. Under the new rules, any person authorized by the Applicant will be able to pay application maintenance fees, including an annuity service.

However, CIPO will continue to send late payment notices only to the appointed agent in the event the fee is not timely paid. Accordingly, we urge caution with respect to the use of alternative fee payment arrangements in light of the stricter deadlines and possible consequences for missed payments discussed above.

6) Recordal of transfers of rights easier

If a request to record a transfer of rights with respect to an application or patent is made by the applicant or patentee currently on of record at the Canadian Patent Office, documentation is no longer needed to support the request. A recordal certificate will be issued for the transfer and any documentation filed along with the request will be put on file at the Canadian Patent Office. However, as was the case under the former law, requests to record transfers of rights made by a transferee (the new owner of the rights) will require providing acceptable evidence of the transfer, such as a signed, witnessed assignment.

7) Certified copies of priority documents now required

Certified copies of priority documents must now be provided for Canadian direct filings and national entries of PCT applications. Failure to provide the copy within the required time will result in withdrawal of the priority request. Fortunately, if the priority document is available in the WIPO Digital Access Service (DAS), the Canadian Patent Office will be able to access the document electronically on provision of the access code. As well, if the priority document was filed in the Canadian Patent Office or was provided during the international phase of the corresponding PCT application, no further copy is needed.

If you have any questions about how the new Rules might affect your current or future patent applications, please do not hesitate to contact us.

“NO CHALLENGE” clauses called into question in Canada

Susan Beaubien appointed to canadian international trade tribunal (citt).

We are pleased to confirm that on February 8, 2019, Bill Morneau, Minister of Finance, announced the appointment of Susan Beaubien as a Permanent Member of the Canadian International Trade Tribunal (CITT), for a 5 year term commencing March 4, 2019. The CITT is recognized in Canada and around the world as a centre of excellence in the fair and timely adjudication of trade law matters.

The appointment was made on February 5, 2019 by Order in Council.

The CITT is an independent quasi-judicial adjudicative body reporting to Parliament through the Minister of Finance.

It conducts injury inquiries into dumping and subsidy complaints; hears appeals of decisions of the Canada Border Services Agency and the Canada Revenue Agency; inquires into complaints by potential suppliers concerning procurement by the federal government covered under various trade agreements; conducts safeguard inquiries; and provides advice to the Government and/or to the Minister of Finance on economic, trade and tariff issues.

Susan will be retiring from private practice and leaving Moffat & Co., effective March 1, 2019. We wish her all the best in her new career.