Intellectual Property

The Cassels Brock Report - February 2012

Published: 02/02/2012

By Bernice Karn, John McKeown, Stephen I. Selznick

In This Issue

1. New Domain Names
2. A Trade-Mark Registration for Trade Dress
3. MARCHÉ EXPRESS
4. We Were Just One Click Away for Supreme Court of Canada Review
5. “Intrusion Upon Seclusion” – The Tort Whose Time has Come?
6. An Equitable Interest in a Patent

New Domain Names

By John McKeown

January 12, 2012 marked the official start of the much debated program by the Internet Corporation for Assigned Names and Numbers (ICANN) to open up the domain name system. Will the date go down in the history of the Internet? What does it mean to brand owners?

Background

When ICANN was created in 1998, the generic Top-Level Domain space was limited to eight generic Top-Level Domains (gTLDs). Later in 2000 and 2004, a limited number of additional gTLDs were introduced to expand the number to 22 gTLDs.

At its June 2008 meeting, ICANN voted unanimously to modify the domain name system to permit an unlimited number of gTDLs. Under the new regime, anyone may apply for and, subject to ICANN approval, administer a new gTLD. Applicants can select a domain name that is most appropriate for, or perhaps the most marketable to, their customers. The new regime has the potential to create a multitude of new gTLDs

ICANN states that its new gTLD Program will create more choice for Internet users, empower innovation, stimulate economic activity, and generate new business opportunities around the world. Brand owners’ views are more critical since they may be obliged to obtain registrations for defensive purposes and incur expenses relating to monitoring a significantly increased number of potential abuses.

The Timeline

The application window opened January 12, 2012 and applications can be submitted now. The initial application window closes on April 12, 2012. The initial evaluation is expected to be completed for all applications in a period of approximately five months.

At the conclusion of the current round there will be a succession of rounds during which applicants may apply for new gTLDs in accordance with terms and conditions set by ICANN. ICANN’s stated goal is to launch subsequent rounds as quickly as possible. The exact timing will be based on experience gained and changes required after the initial round is completed. ICANN’s stated goal is for the next application round to begin within one year of the close of the application submission period for the initial round.

Potential Impact

The jury is out concerning the impact of the new gTLDs. One view is that with 100 million .com names in use it will be very difficult to change the current system. ICANN and others believe that new gTLDs are a platform of innovation. No one can predict what kinds of new products and services might be developed and no one knows what the new gTLDs will bring.

Brand Owners

Some brand owners have or will apply for new gTLDs in the current round, but many others have adopted a wait-and-see attitude. It is difficult to be dogmatic about the best approach since each brand owner’s situation is different. However, it is clear that all brand owners should monitor developments very carefully.

At least two types of monitoring are required. First, the activities taking place in the marketplace need to be monitored. A brand owner should closely follow the activities of its competitors as there may be situations where the use of a new gTLD can potentially give raise to a competitive advantage.

Second, brand owners should monitor applications for new gTLDs and consider initiating dispute resolution procedures if their legal rights are infringed. To receive consideration, an application for a new gTLD must be submitted electronically through the online application system. ICANN will post on its website all applications considered complete and ready for evaluation as soon as practicable after the close of the application submission period. The objection filing period will open after ICANN posts the list of complete applications and will be open for approximately seven months.

Objectors must file their formal objections directly with dispute resolution service providers (DRSPs), not with ICANN. The process provides a path for formal objections during the evaluation of an application and allows a party with standing to have its objection considered before a panel of qualified experts

Comment

Brand owners need to watch how things develop in this area and take appropriate steps to avoid being put in a competitively disadvantageous position, to the extent it is possible to do so. In addition, they need to ensure that the legal rights related to their brand names are not negatively impacted.
 

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A Trade-Mark Registration for Trade Dress

By John McKeown

A recent decision of the Federal Court involved an interesting claim for infringement of a trade-mark registration relating to a three dimensional trade dress representation of the interior of a restaurant.

The Facts

The Trade-Marks

The plaintiff owned a trade-mark registration incorporating the design of the three-dimensional trade dress representation of the interior of its SYMPOSIUM CAFÉ consisting of four components: 
 

1. interior walls and columns having the appearance of being made of antique cracked stone;
    
2. a prominent reproduction of the “School of Athens” fresco painted by the renaissance artist Raphael;
    
3. a circular mahogany bar consisting of two levels, the upper level functioning as a display area and the lower level functioning as a counter area; and
    
4. a circular floor tile pattern extending around the circular bar.

This mark was used as the principal trade dress at all of the plaintiff’s restaurants.

A copy of the design from the registration is reproduced below.

                             
 
The plaintiff also owned additional trade-marks relating to its SYMPOSIUM CAFÉ. The majority of these marks related to the design presentation of the name of the restaurant and various other word marks.

The plaintiff promoted its restaurants as a place where people could meet for food, drink and discussion. In addition to directly operating at a number of locations, the plaintiff franchised its restaurant concept.

The Settlement

In 2001, when the plaintiff was experiencing financial difficulties, a dispute occurred with the first defendant relating to monies borrowed. In 2003, a settlement was concluded which resulted in the transfer to the first defendant of two restaurants located in the city of Toronto.

The first defendant was at liberty to sell those locations either within or outside the existing franchise system. The first defendant sold the restaurants to the second defendant. The sales agreement between the defendants included a covenant which provided that if the second defendant decided not to join the franchise system, it would remove all signage identifying it with the plaintiff’s restaurant concept.

The Claim

The plaintiff invited the second defendant to join the franchised group, but it chose not to and instead adopted CAFÉ MIRAGE as the new name for the two restaurants using the existing premises and fixtures and signage similar in general appearance to that used by the plaintiff.

Issues arose concerning the removal of signage and other related matters and eventually the plaintiff brought proceedings for infringement of its trade-marks and passing off, among other things. At the trial the plaintiff presented evidence which emphasized that its trade dress made its restaurants unique and differenced them from other restaurants. They also presented evidence of some confusion.

Trade-Mark Infringement

The defendants argued that the plaintiff had acquiesced to its use for the trade-marks since they had consented to such use pursuant to the original settlement with the first defendant.

The trial judge agreed that the first defendant was entitled to transfer its rights to the second defendant. However, this did not include the right to use the trade-marks outside the plaintiff’s franchise system and the defence was not made out.

The trial judge found that the prominent feature of the plaintiff’s three-dimensional trade-mark was the “School of Athens” fresco coupled with antique marble wall patterns, circular display counter and tiles with trade-mark names and expressions associated with the plaintiff’s services. While the individual components were not particularly distinctive, the entire trade dress did satisfy the requirement for distinctiveness.

The defendants had maintained the prominent display of “School of Athens” artwork, antique, wall patterns, circular display, counter and floor tiles and had continued to use these elements. In addition, these elements were used in signage and menus.

The judge concluded that since the average restaurant customer in somewhat of a hurry would, on first impression, consider the CAFÉ MIRAGE to be associated with the plaintiff’s restaurants, they would be confused by the defendants’ use of the plaintiff’s trade-marks. As a result, it was found that the defendants were infringing the plaintiff’s trade-marks.

Remedies

The plaintiff was granted an award of damages as well as an injunction. The “School of Athens” fresco was the most dominant and critical component of the plaintiff’s three-dimensional trade-mark. It embodied the plaintiff’s thematic concept of a meeting place for discussion and exchange of ideas and was prominently featured in all the plaintiff’s restaurants. As a result, the defendants were enjoined from displaying the “School of Athens” artwork in any of its restaurants and in any signage, posters, Internet websites or otherwise.

Comment

The idea of obtaining a trade-mark registration for the trade dress of a restaurant is interesting but the defendants did not attack the validity of the registration. This is an issue that will have to be considered on another occasion.
 

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MARCHÉ EXPRESS

By John McKeown

A judge of the Federal Court recently refused to interfere with a decision made by the Trade-mark Opposition Board (the “Board”).

The Opposition

Exxon Mobil Corporation filed an application for the trade-mark MARCHÉ EXPRESS in association with convenience store and fast food services offered at gasoline stations.

Mövenpick Holding AG owns a registration for the trade-mark MARCHÉ for use in association of the operation of a restaurant. Mövenpick opposed the Exxon’s mark on the basis that:

        (a) it was clearly descriptive of convenience stores,

        (b) it was confusing with Mövenpick’s MARCHÉ trade-mark,

        (c) Exxon had not used the mark in association with the applied for services since July 19, 2001 as claimed in the application.

A hearing officer of the Trade-marks Opposition Board dismissed all three grounds of the opposition and allowed the application. Mövenpick appealed from the decision. Both parties took advantage of the ability to file additional evidence that was not before the Board.

On appeal the Board’s expertise should be given deference. In the absence of additional evidence, decisions of the Board are reviewed on the standard of reasonableness. But if additional evidence is adduced that would have materially affected the Board’s findings of fact or the exercise of discretion, the judge hearing the appeal must come to his or her own conclusion as to the correctness of the Board’s decision

Clearly Descriptive

A trade-mark must not clearly describe the character or quality of the services with which it is used. The hearing officer concluded that the proposed mark was not clearly descriptive in the English language of convenience stores.

The evidence before the Board established that the word “Marché” was used by other traders to describe convenience stores, but that the combined words did not have a precise meaning with respect to the character of convenience store services.

As a result, it was concluded that at most the mark suggested the ease of purchasing items at a convenience store which could save a consumer some time, but was not clearly descriptive in either the French or English language.

It is well established that the word “clearly” in this context means “easy to understand, self-evident or plain” and preserves the registrability of suggestive trade-marks. The Trade-marks Act (the "Act") only prohibits the registration of marks that are clearly descriptive. Courts have consistently recognized that a trade-mark is registrable even though it is suggestive or even descriptive. Courts also permit the skilful allusion to a characteristic of the wares or services in issue.

On the appeal both parties filed the affidavits from linguists relating to the meaning of the words in issue. Exxon also filed the affidavit of a marketing expert who interpreted the meaning of the applied-for mark on the basis of Gestalt principles. The judge said this evidence added little to the debate and would not have persuaded the hearing officer to change her mind. The objective was to assess the meaning of the words “marché express” in the French language as perceived on first impression by the reasonable everyday user of the services. Expert evidence mainly consisting of a discussion of rules of grammar, semantics and linguistic constructions was unnecessary and not particularly helpful.

The judge found that this evidence was consistent with the Board’s decision and added nothing that would have persuaded the hearing officer to change her mind. As a result this ground for appeal was dismissed.

Confusion

Exxon had established that it had been operating convenience stores and offering fast food services since July 2001 in association with the trade-mark MARCHÉ EXPRESS. More than sixty stores were operating in the province of Quebec and one in Ottawa.

The hearing officer found that Mövenpick’s mark possessed some measure of inherent distinctiveness when used in association with the operation of the restaurant. The trade-mark MARCHÉ EXPRESS possessed less inherent distinctiveness as “Marché” was highly suggestive of the services. However, based on Exxon’s evidence she was satisfied that this mark had become known to some extent. The same could not be said concerning Mövenpick’s mark because evidence filed by it to show use was very vague.

The hearing officer found that in considering the nature of the respective businesses and trade, the words of the application and the registration govern not the actual use. The actual use was not completely irrelevant but should not be considered to the exclusion of potential uses described in the application. The evidence established that Exxon’s convenience stores at gasoline stations sold a variety of items such as cigarettes, candy bars, salty snacks and fast food items such as sandwiches, donuts, coffee and soft drinks. As a result she concluded that it was unlikely that the trades would overlap because Exxon’s services were not fast food restaurant services. However, the services did not contain such a limitation and did not prevent Exxon from operating fast food restaurants at gasoline stations.

The final circumstance considered was that the trade-mark MARCHÉ was commonly used in the food industry which suggested that consumers were accustomed to seeing the word in the marketplace and that they would be likely to pay more attention to other features of the marks presented to them. As a result, the hearing officer dismissed this ground of opposition.

On appeal, the judge said that although a substantial amount of new evidence, including a survey, was submitted, the evidence only served to bolster the decision of the Board. The judge also said that decision of the hearing officer should be given great weight and the conclusion of an official whose daily task involves the reaching of conclusions on this and related matters under the Act should not be set aside lightly. As a result, this ground of appeal was dismissed.

The Date of First Use

Section 30 of the Act requires an application to state the date from which the trade-mark was used in Canada. Non-compliance can be raised as a substantive ground of opposition. The only evidence before the Board was an affidavit filed on behalf of Exxon by an individual who was not personally present at the initial opening but relied on business records to state the date of first use. The hearing officer accepted this evidence.

On appeal, Mövenpick did not file any additional evidence on this issue. Exxon filed an additional affidavit once again based on business records. Mövenpick argued that this evidence was hearsay and inadmissible.

The judge referred to the fact that the Act provides that on an appeal a judge may exercise the same discretion as was available to the Board. Canadian courts have held that administrative tribunals are not restricted by the rules of evidence applicable to court proceedings in the absence of a specific statutory direction. As a result, the judge found that the Board was entitled to rely on hearsay where it had probative value and refused to take a more technical approach. This ground of appeal was therefore dismissed.

Comment

The decision illustrates two important issues. First, the weight to be given to a decision of the Board will be a significant issue in any appeal to the Federal Court particularly when combined with the standard of review. There are a number of variables and the standard of deference will not apply in some cases.

Second, anyone applying for a trade-mark needs to ensure that the date of first use is accurate and ideally can be substantiated for all of the wares and services in issue.

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We Were Just One Click Away for Supreme Court of Canada Review

By Stephen I. Selznick

The Ongoing Discussion on the Scope of Patentable Subject Matter in Canada

We have been following with interest developments in the scope of patentable subject matter both here and in the US (see Recent Developments on the Scope of Patentable Subject Matter in the July 15, 2010 edition of The Cassels Brock Report and Revisiting Recent Developments on the Scope of Patentable Subject Matter in our November 30, 2010 issue of The Cassels Brock Report. This debate brings to the foreground the difficulty in attempts to box in the definition of what sorts of intangible methods and process, such as business methods, constitute legitimate patentable subject matter. The exercise is not purely an academic one. In an increasingly competitive and borderless global economy defined by the rapidity of technological innovation, it is imperative to understand the safe harbour of patent monopoly available to those who commit significant investment in new and novel business paradigms, and in the research and development that accompanies that endeavour. In turn, it becomes increasing important for a vibrant competitive marketplace, and ultimately for the consumer, to know where the fences are placed between the green pastures of effective competition and the barren lands of infringing activity.

As we commented in the November 30, 2010 edition of The Cassels Brock Report, on October 14, 2010 the Federal Court of Canada set aside the Commissioner of Patents refusal of the Amazon.com one-click patent application¹. To recap, the Federal Court reaffirmed the requirement that there be a practical application for an invention, thus distinguishing legitimate patentable subject matter from unpatentable schemes, abstract scientific theorem or disembodied ideas. In doing so, the Court specifically rejected the Commissioner of Patents’ interpretation that an assessment of patentable “art” required an assessment of the physicality of an invention and its technological nature. The Court took an expansive approach, noting that the previous case law must not be interpreted to restrict the patentability of practical applications which might, in light of today’s technology, consist of a slightly less conventional “change in character”, or effect that change through a machine such as a computer.

The Commissioner of Patents appealed, and on November 24, 2011² the Federal Court of Appeal set aside the lower court decision, but only to amend the lower court’s direction concerning re-examination of the Amazon.com patent application in accordance with instructions set out in that lower decision. The Federal Court of Appeal substituted its own direction that the Commissioner of Patents re-examine the patent application on an expedited basis in a manner consistent with the Federal Court of Appeal’s reasons, and with a mind open to the possibility that a novel business method may be an essential element of a valid patent claim. In the view of the appellate court, it was not appropriate for the lower court to undertake its own purposive construction of the Amazon.com one-click patent claims on the basis of the available record in the case, and instead the court should have referred the construction of the patent claims back to the Commissioner of Patents.

The Federal Court of Appeal agreed with the lower court that because a patent cannot be granted for an abstract idea, it is implicit in the definition of “invention” that patentable subject matter must be something with physical existence or something that manifests a discernible effect or change. The Federal Court of Appeal also concurred in the lower court’s view that this must not be interpreted to restrict the patentability of practical applications which might, in light of today’s technology, consist of a slightly less conventional “change in character”, or effect that through a machine such as a computer. However, the Federal Court of Appeal was not prepared to interpret that a “physicality requirement” can be met merely by the fact that a claimed invention has a practical application. According to the Federal Court of Appeal, a business method that is not itself patentable subject matter because it is solely an abstract idea does not automatically become patentable subject matter merely because it has a practical embodiment or a practical application. The appellate court commented that it was arguable that on a purposive construction, the Amazon.com business method claims might not be saved by their practical application since the business method - itself an abstract idea – is realized by programming it into a computer by means of a formula or algorithm, which is also an abstract idea. Purposive clams construction by the Commissioner of Patents will, in the view of the Federal Court of Appeal, ensure that the Commissioner is alive to the possibility that a patent claim may be expressed in language that is deliberately or inadvertently deceptive and that what appears on its face to be a claim for an “art” or a “process” may, on a proper construction, be a claim for a mathematical formula, and therefore not patentable subject.

On December 23, 2011, and following expedited re-examination, the Commissioner of Patents approved the Amazon.com one-click patent application and issued a Notice of Allowance. No doubt the patent will use in short order.

The upside for Amazon.com is that after a long and hard fought battle it will ultimately receive the monopoly for the one-click invention that it has pursued so diligently since 1998. The downside for the rest of us is continued uncertainty in what looks to be an ever more subjective assessment of the boundary line between patentable subject matter and mere abstract ideas and theorem. Given the issuance of a Notice of Allowance for the Amazon.com one-click patent application, we will not have the benefit of a Supreme Court of Canada review and analysis of the business methods patentability issue any time soon. As well, the Commissioner of Patents has not published an analysis of exactly how the Commissioner came to the conclusion that the Amazon.com one-click patent claims now satisfy the “physicality” requirement on a purposive construction.

We will wait then to see how the law unfolds and places refinements on the Federal Court of Appeal’s reasoning in the Amazon.com case, one case at a time. We also look forward to any additional or amended patent examination guidelines that the Commissioner of Patents may chose to publish as a heads-up on Patent Office Practice in this regard.


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¹ Amazon.com, Inc. v. The Attorney General of Canada and The Commissioner of Patents 2010 FC 1011

² Amazon.com, Inc. v. The Attorney General of Canada and The Commissioner of Patents 2011 FCA 328

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“Intrusion Upon Seclusion” – The Tort Whose Time has Come?

By Bernice Karn

It’s not every day that new common law is created, but on January 18 of this year the Ontario Court of Appeal gave Canadian privacy lawyers something to get excited about by creating a new tort called “intrusion upon seclusion” in the case of Jones v. Tsige, 2012 ONCA 32 (“Jones”). Will this new law unleash a firestorm of privacy litigation or is it just a bespoke remedy fashioned for one extreme situation? Time will tell, but it’s worth discussing as it seems to cap over 125 years of debate in this province on the issue.

Practitioners and academics have long debated about whether the common law in Canada recognizes the tort of invasion of privacy. The cases that have gone before the courts have tended to be coupled with other claims such as defamation or trespass. With some exceptions, the factual thread among those cases has often been outrageous behaviour against a plaintiff who has suffered some type of distress but not necessarily any significant monetary damages.

Given the behaviour in some of these cases, the courts have expressed sympathy for the affected parties and have not been willing to rule out that the tort existed. For example, in the case of Capan v. Capan, O.J. No. 1361 (H.C.J.) the plaintiff commenced an action against her husband for damages for continuing mental and physical harassment and invasion of privacy because the husband allegedly stalked the plaintiff during a separation, harassed her with persistent telephone calls at home and at her work place, and forced his way into her apartment. The court stated (at paras. 14-15): 

What is complained of here is, in its very essence, an abuse of personal rights to privacy and to freedom from harassment. … [I]t has not been demonstrated that the rights referred to will not be recognized by our courts nor that their infringement will not found a cause of action. In my view, it would not be right, on a motion of this kind, for the court to deprive itself of the opportunity to determine, after hearing the evidence, whether such right exists and whether it should be protected.

Similarly, in the 1981 case of Saccone v. Orr, 34 O.R. (2d) 317 (Co. Ct.), which may well be the first case to officially recognize a common law right to privacy, the court found an invasion of privacy where the defendant recorded and played back a private telephone conversation at a municipal council meeting.

Other cases in which the court was prepared to recognize the tort have included the following types of fact situations:

More recently, in the case of Somwar v. McDonald’s Restaurants of Canada Ltd., 2006 CanLII 202 (Ont S.C.), behaviour that did not seem to rise to the level of outrageousness of earlier cases still led the court to conclude that, on an interlocutory motion to dismiss the claim, it was not prepared to rule out the tort of invasion of privacy. The court stated at paragraph 31 of the judgment:

Even if the plaintiff's claim for invasion of privacy were classified as "novel" (which, in any event, is not a proper basis for dismissing it) the foregoing analysis leads me to conclude that the time has come to recognize invasion of privacy as a tort in its own right. It therefore follows that it is neither plain nor obvious that the plaintiff's action cannot succeed on the basis that he has not pleaded a reasonable cause of action.

Is there no statutory law that could apply in this situation? Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”) governs the collection, use and disclosure of personal information in the course of commercial activities. PIPEDA imposes various obligations on organizations dealing with personal information, most notably in the areas of obtaining consent, limiting uses and disclosures, and safeguarding the information collected. PIPEDA has its faults, but it does provide a general framework of rules for the treatment of personal information in commerce. However, is PIPEDA useful to someone whose privacy has been invaded by another person for motives that are not commercial? Not really. This is where the Ontario Court of Appeal has come to the rescue.

In Jones, both parties worked for the Bank of Montreal. Jones was the former spouse of an individual with whom Tsige was involved in a relationship. Jones and Tsige did not work together or even know each other. Jones maintained her personal banking arrangements at that bank and contrary to bank policy and common sense, Tsige accessed Jones’ personal financial records at the bank 174 times over a period of 4 years, ostensibly because of a financial dispute that Tsige was having with Jones’ ex-husband, an assertion that Jones disputed, given the duration and frequency of the prying. Although Tsige apologized and offered financial compensation, Jones was not deterred in her quest for a satisfactory resolution and, although a motions judge dismissed her claim for a summary judgement because the common law in Ontario did not recognize a tort of invasion of privacy, the Court of Appeal found that, on the facts of this case, it was time to make new law and give this plaintiff a remedy.

The court drew upon case law from the US, the Commonwealth and Canada and decided to adopt a US concept known as “intrusion upon seclusion” as the appropriate remedy. This tort seems to be a narrower concept than “invasion of privacy” generally, as it is only one of the four torts delineated by Professor Prosser in his 1960 work Privacy [(1960), 48 Cal. L.R. 383], which the Court of Appeal cited with approval. The four torts described by Prosser were:

Clearly on the facts of this case, the Court of Appeal only needed to consider the first tort. So, what does one need to show in Ontario to maintain an action for “intrusion upon seclusion”? The court in Jones enunciated three specific requirements:

Implicitly acknowledging the difficulty in these cases that the plaintiff often cannot show any actual damages, the court also stated at paragraph 71 that “proof of harm to a recognized economic interest is not an element of the cause of action.” However, due to the intangible nature of this interest, the court said that damages “will ordinarily be measured by a modest conventional sum” (Jones, paragraph 71). In Jones, the court awarded $10,000 in damages and stated that the damages for this tort generally should range up to $20,000 to “mark the wrong that has been done” (Jones, paragraph 87).

So, does this case change much? Will it create an avalanche of privacy litigation or is it merely an aberration designed to provide a remedy in a particularly extreme fact situation? Justice Sharpe was careful to limit its application. At paragraph 72 of the judgement he stated:

These elements make it clear that recognizing this cause of action will not open the floodgates. A claim for intrusion upon seclusion will only arise for deliberate and significant invasions of personal privacy. Claims from individuals who are sensitive or unusually concerned about their privacy are excluded: it is only intrusions into matters such as one’s financial or health records, sexual practices and orientation, employment, diary or private correspondence that, viewed objectively on the reasonable person standard, can be described as highly offensive.

He also noted that this right to privacy is not absolute; there could be competing claims such as freedom of expression or freedom of the press. Many claims for right to privacy will have to be reconciled with and even yield to such competing claims.

In this writer’s opinion, Jones will serve as a reminder to us all that we need to act as responsible adults. Snooping into the private affairs of others is not just bad manners and reprehensible behaviour, it’s now actionable. While the power and ease of technology today may from time to time tempt individuals to look into the affairs of others, the best advice still comes from that sage Ann Landers who used to say: “Make somebody happy today, and mind your own business.”

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An Equitable Interest in a Patent

By John McKeown

A recent decision of the Ontario Superior Court of Justice found that an unregistered interest in a patent was not binding on a purchaser for value without notice.

The Facts

The applicant was the inventor of an invention relating to a method of inhibiting green mould in mushrooms. The inventor asserted that he had reached an agreement with his corporate employer. Under the agreement, the employer would own the sole right to the patent in North America and the inventor would have the patent rights in the balance of the world.

The inventor’s evidence was that in late 2008 he told his employer that he intended to leave the company and return to the Netherlands. As a result, the agreement concerning patent ownership rights was negotiated which allowed the inventor to exploit the invention in Europe and other places.

The corporate employer applied for protection under the Companies’ Creditors Arrangement Act (CCAA) in late December of 2008. Subsequently, a sale process was commenced in the CCAA proceedings and a third party agreed to purchase the employer’s business including all of its intellectual property. The purchase was completed and a vesting order obtained from the court vesting all the purchased assets in the purchaser.

After the vesting order was issued, the inventor stepped forward and asserted his rights in the patent outside North America. The purchaser questioned the validity of the alleged agreement and said that it had acquired the patent rights in question in good faith for value without notice of any rights of the inventor.

It was clear that prior to the closing of the purchase, the purchaser and its advisors conducted due diligence regarding the business to be acquired, including a review of information relating to the patent. All of the information provided was consistent with the employer corporation owning the patent in question and at no time prior to closing was the purchaser aware of the inventor’s claims. Subsequent to the closing, an impasse arose relating to the continued prosecution of an international patent application filed under the Patent Cooperation Treaty by the employer corporation.

The Proceedings

The inventor brought an application for a declaration that he was the owner of the patent rights outside of North America for the invention in issue. The judge who heard the application said there were too many contested factual issues to determine, at that stage, whether or not there was a binding agreement between the inventor and his corporate employer. However, the judge determined, on the assumption there was a binding agreement as claimed by the inventor, whether there were any grounds available to support a declaration of the rights asserted.

The judge said that the inventor was asserting an equitable assignment of rights relating to the patent, since on his evidence there was only an agreement to assign rather than a completed assignment. In equity an assignee of a patent takes title subject to the equities. As a result, a subsequent purchaser of a patent who has knowledge of a prior equitable assignment takes title subject to that equitable interest. But an assignee who purchases a patent for valuable consideration without notice of a prior equitable assignment takes title free and clear of it.

The Canadian Patent Act makes provision for the registration of assignments of rights in patents and provides that every assignment affecting a patent is void against a subsequent assignee unless the assignment is registered before the registration of the instrument under which the subsequent assignee claims. However, the judge determined that this provision did not apply to patent rights outside North America.

As a result the court decided in favour of the purchaser since it had acquired the patent rights in good faith without notice of the inventor’s rights and free and clear of any interest the inventor might have.

Comment

The decision seems fair since on its facts only the inventor had the opportunity to bring his rights to the attention of the purchaser prior to the closing. Presumably this could have been done by seeking to have an assignment signed or making a claim in the CCAA proceedings. There was no evidence that this had been done.
 

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