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25 June 2018
Canada has historically been a much less active jurisdiction for patent litigation compared to the United States, which can be explained in part by the simple fact that the US market is almost 10 times the size of the Canadian market. However, there are a few notable differences in the procedure and substantive law applied in both jurisdictions that have resulted in Canada becoming an increasingly attractive option for high-stakes patent litigation in recent years.
There is essentially no issue with forum shopping in Canada as the vast majority of patent infringement proceedings are brought before the Federal Court, a specialised and bilingual court of single, national jurisdiction across Canada. The jurisdiction of the Federal Court is limited by federal legislation to matters of intellectual property, immigration, admiralty and judicial review of decisions of federal governmental bodies and tribunals. As a result, a number of judges – including a few who were IP litigators before their appointment – hear a significant number of IP cases and have thus developed in-depth knowledge of the subject matter.
The Federal Court is said to be an "itinerant court". All judges are appointed and reside in Ottawa, but travel across Canada to sit in all major business centres such as Vancouver, Calgary, Toronto and Montreal. There are also no districts or circuits. As such, it makes no difference in practice where proceedings are initiated, on who the ultimate trial judge will be or where the trial will be held. A plaintiff could initiate proceedings in the Montreal office of the Federal Court against a party located in Toronto. The trial could eventually be heard in either city or, if the parties cannot agree, in a neutral location such as Ottawa. In all cases it will be the same judge, without any jury (as discussed below), who will decide on the matter and the decision (eg, a permanent injunction) will apply throughout Canada.
While the Federal Court has concurrent jurisdiction with the provincial courts over matters of infringement, the Federal Court has exclusive jurisdiction to hear patent impeachment proceedings (similar to US declaratory judgment actions). As such, irrespective of which party may start the proceeding, patent infringement and validity proceedings will usually end up in the same court in front of the same judge. Accordingly, there is typically little concern in sending cease and desist letters to infringers in Canada as it does not open the door to a potential defendant pre-emptively starting an impeachment proceeding in a more favourable jurisdiction.
The fact that most IP cases are heard by the Federal Court has enabled the court to develop procedural rules and practices that are specifically designed for complex patent litigation. For example, the Federal Court offers a robust case management system that allows for added flexibility over the rules and ensures that cases proceed to trial in a diligent fashion, similarly to the system in the United States with the difference that in Canada the case management judge is usually not the trial judge. In addition, the Federal Court will endeavour to hear IP cases within two years of filing where sophisticated parties are determined to bring the matter to the court expeditiously and request an early assignment of trial dates.
On the other hand, forum shopping has long been an issue for litigants in the United States where some districts and juries are known to be more or less patentee friendly than others and different circuits may apply different lines of case law. Until recently, one-third of all patent cases in the United States were brought before the Eastern District of Texas, the forum of choice for patentees. This was made possible by a 1990 Federal Circuit decision that gave a broad interpretation to the jurisdictional test of 'where the defendant resides' as essentially being anywhere a corporation makes sales. This resulted in parties rushing to court to be the first to file in the forum of choice and the parties wasting precious time and money challenging the jurisdiction of the court at the outset of the case.
However, forum shopping in the United States is likely to be more difficult following the 2017 Supreme Court decision in TC Heartland which overruled the 1990 Federal Circuit precedent and reinstated the standard established in a 1957 Supreme Court decision which held that a domestic corporation resides only in its state of incorporation. The number of patent cases filed in Delaware since then has doubled. This does not necessarily mean that litigants have stopped arguing over jurisdiction altogether and it is still open, in some cases, to the alleged infringer to bring pre-emptive proceedings for declaratory judgment.
While the Canadian legal system has a documentary and oral discovery process (unlike most European jurisdictions), it is usually much less invasive for the parties and therefore much less expensive than the discovery for a patent case in the United States. In the Federal Court, each party has a duty to disclose to the other party all relevant documents that it intends to rely on at trial or that could be detrimental to its own case. Although the Federal Court rules do not specifically provide for requests for production of additional documents, the practice has developed over the years to exchange such requests in advance of oral examinations for discovery to streamline the process. The exchange of documents is usually more focused in Canadian patent cases than it is in the United States, which results in fewer documents to be reviewed by the parties and their counsel.
Oral examinations for discovery (or depositions) are much more limited in Canada than they are in the United States. The general rule is that a party is entitled to depose only one representative of the other party and does not get to decide who that representative is (similar to Rule 30(b)(6) on corporate depositions). Exceptionally, a defendant in a patent case is also allowed to depose the inventors of the patent at issue but cannot use the depositions at trial unless the inventors are called to testify. The rules do not generally allow experts to be deposed as part of the discovery process. Moreover, the Federal Court has issued practice notices in recent years to limit the duration of depositions as well as refusals motions to compel parties to answer questions.
Another notable difference from the United States is that there is no jury trial for patent infringement cases in Canada. All factual and legal issues are decided by a single judge, usually at the same time – apart from questions of monetary compensation which are often bifurcated in IP cases to be determined only after a plaintiff has succeeded on the trial and liability is completed. The merits of having juries for civil cases has long been debated and could be the subject of a separate update in itself, but the outcome of a complex patent case may be more predictable when the trial is heard by a single experienced judge rather than a jury. There is also less fluctuation in Canada between the damages awarded by the trial judge and any subsequent revision by the Federal Court of Appeal as compared to damages awarded by juries in the United States which can sometimes be significantly reduced by the appellate court.
This also means judges that are not required to hold a pretrial hearing – referred to as a 'Markman hearing' in the United States – to construe the claims of the patent in advance of the trial, which can have both advantages and disadvantages. On the one hand, experts in Canadian patent cases are required to provide their opinion at trial on validity and infringement of the patents without knowing how the court will ultimately construe the patent. On the other hand, there can be benefits in having the judge decide all of the issues in a case having heard all of the factual and expert evidence presented by the parties. Although uncommon in the Federal Court in Canada, there is nevertheless the option for a party to bring a motion early in a proceeding for a determination of claim construction issues if an early preliminary ruling would be seen by the court as being appropriate under the circumstances.
Since 2012, it has become common for a defendant in a US patent infringement suit to initiate an inter partes review before the Patent Trial and Appeal Board (PTAB) to challenge the validity of the patent at issue, which is a cause of concern for patent owners contemplating litigation for many reasons. The burden on the petitioner to invalidate a patent is lower in the PTAB compared to the district courts as there is no presumption of validity and the claims of the patent are interpreted in the broadest reasonable sense without any consideration of infringement issues. In addition, district courts will often – but not always – stay the court proceedings pending resolution of the inter partes review, which takes between 12 and 18 months, resulting in increased costs, delays and uncertainties.
The Canadian Patent Act does provide for re-examination proceedings before the Canadian Patent Office, but the scope of the procedure is narrow compared to inter partes reviews and is therefore seldom used in practice, especially not in the context of litigation. The key difference is that re-examination in Canada is not inter partes; the requesting party is not involved in the proceedings beyond filing the initial request for re-examination. It cannot respond to the arguments and amended claims submitted by the patentee and cannot appeal the decision of the Re-examination Board. A re-examination is also limited to a consideration of prior art; the Re-examination Board cannot rely on any factual or expert evidence and will not consider invalidity attacks other than those based on prior art (ie, anticipation and obviousness). Lastly, a defendant in a pending patent infringement case cannot request re-examination to delay the court proceedings. The Federal Court can order a stay of the re-examination proceedings pending determination of the broader validity issues that are before the court based on a full consideration of the factual and expert evidence.
Statistically speaking, the Federal Court tends to be patentee friendly, especially when it comes to maintaining validity of patents. A 2009 study presented to the Intellectual Property Institute of Canada showed that patentees in Canada were successful in maintaining the validity of their non-pharma patents in approximately 65% of cases (compared to 52% in the United States and 42% in the United Kingdom). An analysis of the decisions reported since 2010 shows a slight decline in the validity success rate in Canada to approximately 60% (the overall success rate for validity and infringement combined being approximately 50%), but this rate is expected to increase in the next few years following the 2017 Supreme Court decision that struck down the so-called 'promise of the patent' doctrine. As previously reported, this judge-made doctrine that held patentees to a higher standard of utility was used to successfully attack several patents (especially pharmaceutical patents) over the past 10 years.
All these differences, and others, can explain why patent litigation is usually less expensive in Canada than it is in the United States and can be as fast if not faster, especially now that the Federal Court is prepared to hear patent cases within two years without any of the delays caused by inter partes review-type proceedings.
While damages awards have traditionally been lower in Canada (mostly because the extent of infringement is more limited in a smaller market), there have been substantial awards from Canadian courts in recent years. As explained in more detail in a related article, one major advantage of patent litigation in Canada is that the successful patentee can elect, in most cases, between a recovery of its damages (by way of either a reasonable royalty or lost profits damages or a combination of both) or an accounting of the infringer's unlawful profits. The latter option presents a number of tactical and procedural advantages, and is appealing in situations where the infringer has been successful or is selling Canadian-made infringing products in other jurisdictions in addition to Canada.
Patent litigation in Canada can be affordable, fast and patentee-friendly. Patent owners should consider this option, especially in situations where the infringing products are manufactured in Canada to be sold in the United States (eg, in the automotive industry). Even if not manufactured in Canada, in situations where the same infringing goods are sold in Canada and in the United States, resolving the matter in Canada, by way of either a settlement or favourable judgment, can often assist in solving the situation in the United States as businesses will not necessarily design different products for two closely related markets.
For further information on this topic please contact Steven Garland at Smart & Biggar/Fetherstonhaugh's Ottawa office by telephone (+1 613 232 2486) or email (firstname.lastname@example.org). Alternatively, contact Jean-Sébastien Dupont at Smart & Biggar/Fetherstonhaugh's Montreal office by telephone (+1 514 954 1500) or email (email@example.com). The Smart & Biggar/Fetherstonhaugh website can be accessed at www.smart-biggar.ca.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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