Federal Court Can Now Interpret Contracts in Patent Ownership Disputes

Federal Court Can Now Interpret Contracts in Patent Ownership Disputes

Close-up photograph of a wooden judge's gavel.

Salt Canada Inc. v Baker (2020 FCA 127)

In a unanimous decision delivered on July 28, 2020, the Federal Court of Appeal (“FCA”) confirmed the Federal Court’s (“FC”) jurisdiction to hear contractual disputes involving patents. The decision comes after long-standing jurisprudence that prevented the FC from engaging in contract interpretation to determine patent ownership. This effectively forced patent litigants to split their claims into categories of contract law and patent law.

Background

In 2010, Dr. Markels, the owner of Patent No. 2,222,058 (“’058”), executed an agreement, assigning ownership to the respondent, Mr. Baker. The agreement, which was subject to ongoing royalty payments, named Mr. Baker as the owner of the Patent and incorporated a clause that would reverse ownership if the payments ceased. [paras 52-55] In 2015, Dr. Markels assigned his rights to the ’058 Patent to the appellant, SALT Canada Inc. (“SALT”). Since the payments came to an end, Dr. Markels agreed to take steps to remove Mr. Baker as the registered owner of the Patent. However, the Patent Office ultimately refused to record the reassignment as it was not executed by the listed owner. [paras 56-57] Following this refusal, SALT applied to the FC, seeking an order to  list SALT as the patent owner. [para 1]

The FC, however, rejected the application, holding that it did not have jurisdiction to determine contractual disputes. The Court cited Lawther v 424470 BC Ltd., [1995] FCJ No 549 and stated that where ownership of a patent hinges on the application and interpretation of contract law, the provincial courts govern. [paras 3-5] SALT appealed the decision and the FCA had a chance to once-and-for-all clarify the FC’s jurisdiction to interpret patent contracts.

Section 52 of the Patent Act

When it comes to patent law, Section 52 of the Patent Act (“Section 52”), confers power to the FC “to order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged.” Mr. Baker, however, submitted that SALT’s application was engaged in the interpretation of a contract, making it the exclusive jurisdiction of the provincial courts. [para 13]

While the FC accepted this argument, it relied on a trend in case law that applied a narrow interpretation of Section 52. The FCA disagreed and held that Section 52 must be construed in light of its purpose and context. The FCA stated that Section 52 gave power to the Federal Court, rather than the Patent Office, which reflected a need for judicial power and not a”rubber stamp”. [para. 9] In other words, Section 52 gave the FC the right to determine issues of patent title, which can involve many elements such as the interpretation of an agreement. [paras. 9-10]

The FCA further relied on the Supreme Court decision Clopay Corp v Metalix Ltd. (1960), 34 CPR 32, which stated that Section 52 was enacted to correct issues relating to title of records in the Patent Office. [para 11] The FCA held that the Federal Court could use these “very wide” powers to decide who has rights to a patent and correct the records in the Patent Office to reflect any changes. [para 12]

The Federal Court’s Dependence on Provincial Courts

The Court further held that the FC erred in relying on Lawther as it was incorrectly decided. [para 27] The Lawther decision would limit the FC’s jurisdiction based on whether a claim “primarily” involves a contract. It would also force the FC to depend on provincial courts in certain cases and require litigants to present their case in two courts. Not only would this unnecessarily burden parties, but it would also offend the purpose of Section 52 and would be counter to the principle of access to justice. [paras 31-32]

Further, in the course of exercising its jurisdiction, the FC often interprets agreements. Questions of contractual interpretation arise in patent infringement, administrative law, maritime law, privacy and access cases. [paras 16-20] The FC even has jurisdiction over tax appeals, which frequently involve interpreting agreements to determine the true nature of a transaction. Even though a patent ownership matter may involve interpreting a contract between private citizens, “as long as it’s done under a sphere of valid federal jurisdiction vested in the Federal Court” the FC should have jurisdiction. [para. 24] The FCA therefore reversed the FC’s decision and allowed SALT’s application, ordering the Patent Office to name SALT as the rightful owner. [para 62]

Commentary

Patent practitioners may now have the comfort of knowing they will no longer need to split their matter by first going to the provincial court to obtain a judgment on a contractual issue, before proceeding to FC for other patent issues. As Justice Stratas stated, “it is hard enough for many to pursue a case from beginning to end; why force them to do it twice? [para 38] Overall, this case confirms that the FC has complete jurisdiction over patent title issues, even those involving contracts. However, the FC still must interpret contracts according to the law of the jurisdiction which governs the contract. It will be interesting to see what happens when a contract purports to attorn both parties to courts of a given jurisdiction, which is a common clause in contracts. For more information on patent ownership, please contact a professional at PCK Intellectual Property.


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The contents of this article are provided for general information purposes only and do not constitute legal or other professional advice of any kind.

Close-up photograph of a wooden judge's gavel.