1 August 2013Jurisdiction reportsVictoria Carrington

Maintenance fee misadventures - with a twist!

Troubling cases that impose serious liability and/or loss of rights emerge regularly in Canadian jurisprudence.

Few Canadian IP practitioners (even ‘trademark  people’!) would not remember the infamous Dutch Industries case (Dutch Industries Ltd v Commissioner of Patents 2003 FCJ 396 [FCA]) that was decided by the Federal Court of Appeal in 2003.

The validity of countless patents and patent applications was put in jeopardy by this decision which held, inter alia, that the Commissioner of Patents had no jurisdiction to accept corrective payments made by applicants to cure certain deficiencies in their maintenance  fee payments  (relating to small entity/large entity status—meaning that their applications could be irretrievably abandoned.

Dutch Industries was the 'shot heard round the Canadian patent world’ that mobilised the patent  profession into significant lobbying efforts which ultimately resulted in the government passing corrective legislation in 2006.

F. Hoffmann-La Roche AG v Canada (Commissioner of Patents) 2005 FCA 399 was another relatively draconian case  in which  the Federal Court of Appeal declined to grant relief to an applicant whose patent  application had lapsed for non-payment of the annual maintenance fees.

In doing so, it agreed with the decision of  the  court below which  acknowledged  that “the maintenance fee regime in Canada is complicated, the risk of innocent errors is great, and the failure to comply with the strict rule in subsection 46(2) has ‘catastrophic’ consequences”.

But these “catastrophic consequences” are not limited to Canada. Applicants can lose their rights even in jurisdictions that enjoy a comparatively lenient patent annuity regime, such as the US, and liability on the part of Canadian patent agents who are found responsible for the error will be imposed by Canadian courts.

The most recent Canadian decision dealing with maintenance fee misadventures, PreMD Inc v Ogilvy Renault LLP 2013 ONCA 412, came from the Ontario Court of Appeal on June 20. It relates to two US patents which lapsed when the Canadian law firm retained by the plaintiff to manage its worldwide patent portfolio  failed to pay the required maintenance fees. The plaintiff sued the firm for negligence, breach of contract,  breach of fiduciary duty and damages of $14,400,000. 

The defendant admitted its liability for negligence and breach of contract for failing to maintain the patents. The trial judge dismissed the plaintiff’s claims for breach of fiduciary duty and damages for loss of profits and loss of the value of its patents.

However, in addition to costs of $675,000, the judge awarded damages in the amount of approximately $1.2 million, characterised as a “cost recovery approach”, which included an amount equal to what the plaintiff had paid for the technology, together with amounts spent both on the lapsed patents before  the  plaintiff’s  knowledge  of  the  problem  and  subsequently  for (unsuccessful) attempts by both the plaintiff and US counsel to revive the patents and strengthen the plaintiff’s remaining US patent portfolio.

The plaintiff appealed against the dismissal of its claim for breach of fiduciary duty as well as the assessment of cost recovery damages. The defendant cross-appealed the damages, arguing that it covered the total cost of acquiring the technology worldwide instead of only in the US.

"In addition to costs of $675,000, the judge awarded damages in the amount of approximately $1.2 million, characterised as a "cost recovery approach."

Both the appeal and cross-appeal were dismissed. The appellate court agreed no breach of fiduciary duty had occurred for lack of evidence that anyone in the firm knew the patents had lapsed and had intentionally concealed this from the plaintiff.

It further agreed that  the  trial judge had calculated  the quantum of damages correctly, including holding the defendant liable for the plaintiff’s expenses incurred in a reasonable attempt to mitigate its loss.

The cross-appeal was also dismissed for lack of any evidence that the technology acquisition cost had been allocated across markets or countries. Awarding the entire amount was then the trial judge’s “call to make.”


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