Defence of Prior Disclosure Needs Material Facts

Specialized Desanders Inc v Enercorp Sand Solutions Inc, 2018 FC 689

The Federal Court (“FC”) confirms that parties who want to amend their pleadings must be able to present material facts for their assertion – an important reminder for businesses in the adversarial field of patents.

The FC upheld Prothonotary Aylen’s (“the Prothonotary”) two Orders (“the Orders”), denying the respective motions of Enercorp Sand Solutions Inc (“Enercorp”) and Progress Energy Canada Ltd (“Progress”) to amend their respective Statements of Defence and Counterclaim to allege prior disclosure. The Prothonotary found that there was a lack of material facts to support their assertions. Mr. Justice Southcott of the FC concluded that the Prothonotary did not err in law and did not make a palpable and overriding error of fact or mixed fact and law in arriving at her decision to deny the Defendants’ motions. [1-2, 14]

Background

In April 2015, Specialized Desanders Inc (“SDI”) brought an infringement action against Enercorp and Progress, alleging an infringement on its Canadian Patent No. 2,407,554 related to a vessel and method for removing particulates from a fluid stream coming out of a gas well. [3] Mr. Hemstock, SDI’s representative, testified during examination for discovery that he hired Petrofield Industries (“Petrofield”) to build SDI a test unit in 2001. [4] Enercorp’s representative, Mr. Morin, met with the owner of Petrofield, Mr. Rollins, who informed Mr. Morin that he had records related to the first unit manufactured, including drawings and a Manufacturers Data Report (“MDR”). [6]

With this new information, the Defendants each brought a motion, seeking the following:

  1. To amend their respective Statements of Defence and Counterclaim to include an allegation that the patents within the action are invalid because they were publicly disclosed more than one year before the filing date, contrary to section 28.2(1)(a) of the Patent Act;
  2. If necessary, to further amend the pleadings to further particularize the allegation of prior disclosure; and
  3. Discovery of a third-party witness, Mr. Rollins. [1]

The Prothonotary relied on Canderel Ltd v Canada, [1994] 1 FC 3 [Canderel], Teva Canada Limited v Gilead Sciences Inc, 2016 FCA 176 [Teva] and Mancuso v Canada (National Health and Welfare), 2015 FCA 227, stating that amendments may be permitted if they are helpful to determine a real question in controversy. However, proposed amendments that have no reasonable prospect of success will not be accepted, and more importantly, there must be enough material facts to support the assertions. [12-13] In the end, the Prothonotary found that the Defendants’ proposed amendments had insufficient material facts for a defence of prior disclosure. The Prothonotary found that the proposed amendments would not withstand a motion to strike under Rule 221(1)(a) of the Federal Courts Rules (“the Rules”), and further found that the amendments were subject to being struck as frivolous and vexatious pursuant to Rule 221(1)(c) of the Rules. [14] With respect to the request to examine Mr. Rollins, the Prothonotary was not satisfied that Mr. Rollins had information on an issue in the action, pursuant to Rule 238 of the Rules. The Prothonotary therefore denied Enercorp’s and Progress’ motions to amend the pleadings. [16, 19]

Bare Assertions Without Material Facts

The main issue before the FC was to determine whether the Prothonotary erred in her conclusions. The Defendants argued the two appeals together before Justice Southcott. The Defendants contended that the Prothonotary erred in finding that they failed to plead sufficient material facts for their proposed prior disclosure amendment, specifying that she applied incorrect legal tests and erred in law in her analysis. [25] The FC disagreed and found that the Prothonotary applied the correct principles established in Canderel and Teva in relation to Rule 75 of the Rules. [26] The FC acknowledged that section 28.2(1)(a) of the Patent Act does not expressly set out the elements identified by the Prothonotary in her Orders; however, these elements have been established by the case law she cited. [30] The Defendants submitted that the Prothonotary erred in applying the same test under Rules 221(1)(a) and 221(1)(c)) of the Rules. The FC explained that given its findings under Rule 221(1)(a), the argument under 221(1)(c) is moot. Nonetheless, the FC confirmed that the Prothonotary did not make a legal error in her analysis, and that she correctly relied on kisikawpimootewin v Canada, 2004 FC 1426. [42-43]

The Defendants argued that the Prothonotary erred by failing to allow them to propose further amended versions of their proposed pleadings. To support their argument, they submitted a list of further amendments in their appeal to the FC. [45-46] Justice Southcott noted that the proposed further amendments were not presented to the Prothonotary, and further noted that the Prothonotary did consider the possibility of leave to further amend pleadings to resolve deficiencies but denied this because the Defendants were unable to articulate the material facts that they could allege if they had an opportunity to make the amendments. Justice Southcott found no error in this conclusion. [47-49] The Defendants contended that they were never asked to articulate further material facts that they could plead and asked the FC to review the recording of the hearing before the Prothonotary. The FC declined this request, noting that SDI did not have an opportunity to properly respond, and that Rule 364(2) of the Rules require the moving party’s motion to include portions of the transcripts on which they rely to be in the record. [51, 53]

Finally, the FC addressed the Defendants’ argument that the Prothonotary erred in denying the request for discovery of Mr. Rollins. As it upheld the Prothonotary’s decision, the FC explained there remains no foundation for discovery based on the prior disclosure defence. The FC adds that there is no basis to interfere with the Prothonotary’s decision on this point. [54-55]

Commentary

In this decision, the FC confirms that parties who seek a prior disclosure defence under section 28.2(1)(a) of the Patent Act must plead material facts in order to succeed. For instance, in this case, the Prothonotary noted the following was missing from the Defendants’ claims: “No 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”. [27] Indeed, this kind of information is required to avoid bald allegations which could escalate into significant and unnecessary delays in the court proceedings.

acquired distinctiveness