Patent Newsletter - Spring 2012
June 12, 2012
In This Issue
- Do You Really Have an Enforceable License?
Philip C. Mendes da Costa discusses how the goal of bankruptcy law is at odds with the goal of intellectual property law during a bankruptcy or a restructuring.
- A New High Water Mark in the Awarding of Damages
Ken Bousfield discusses the award of punitive damages in Eurocopter v. Bell Helicopter.
- Dealing With Inventors Who Refuse to Cooperate or Disappear
Matthew Graff discusses best practices for how to handle an employee who is named as an inventor in a pending or soon-to-be-filed patent application and, due to a falling out with their employer, is either unwilling or unavailable to sign documents.
- Common Sense and Obviousness: Supporting Evidence is Required
Ken Bousfield discusses the problem when bald conclusory statements are used to argue that a claim is obvious.
Do You Really Have an Enforceable License?
During a bankruptcy or a restructuring, the goal of bankruptcy law is at odds with the goal of intellectual property law. Recent developments in bankruptcy law have sought to provide more certainty to licensees. However, there is still a lot of uncertainty.
Intellectual property laws are designed to promote the dissemination and implementation of new technology. On the other hand, bankruptcy law is designed to improve the recovery of funds to pay out debtors. Accordingly, a trustee in bankruptcy is generally entitled to walk away from a contract if the contract is onerous or if the trustee believes that the value of an asset may be increased by repudiating a contract.
A patent license may provide a licensee with a critical technology to enable a product to be manufactured or a process to be operated. A licensee may invest substantial amounts to build a plant or to develop and tool a product. The loss of the license may result in the now former licensee having to shut down a product line or even an entire plant and to accordingly lose its unamortized investment. For this reason the dissemination and implementation of technology via a patent license can be jeopardized if a trustee who takes over the operation of a licensor has the right to terminate a license agreement.
In 2009, the Canadian Bankruptcy and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA) were amended to address this issue. Section 65.11 of the BIA provides that a debtor, who has filed a proposal to restructure may disclaim any agreement. However any such disclaimer “does not effect [a licensee’s] right to use the intellectual property so long as [the licensee] continues to perform its obligations in relation to the use of the intellectual property." A similar provision was introduced to the CCAA. While this was an improvement, it does not apply to a receivership. Further, the debtor is relieved of its obligations, such as the provision of on-going maintenance support or allowing the licensee to have access to software upgrades. Accordingly, the value of the license may be significantly diminished since the licensee must continue to pay the full royalty rate or else lose the license.
In the United States, upon bankruptcy, a debtor licensor may elect to either preserve its obligations under a patent license agreement and continue on as if nothing had changed, or reject the license and seek relief from its obligations under the contract (§365(a) of the U.S. Bankruptcy Code). If the license is rejected by the licensor, the licensee will still have recourse under §365(n) to retain the license. However, this will not always guarantee the full set of rights under the original license agreement. For example, debtor-licensors are not required to continue future obligations which include maintenance, technical support, marketing, research and development. Furthermore, §365(n) only considers the rights of the licensee at the time of bankruptcy. Therefore, licensees may not be entitled to upgrades to the licensed technology made after that date, even if they were set out in the license. Finally, §365(n) does not protect trademarks, as the definition of “intellectual property” in the Code excludes trademarks.
The rights of a licensor upon bankruptcy vary from country to country. Further, the interplay of the laws of different countries can be quite complex as has occurred in the recent bankruptcy of Germany-based DRAM producer, Qimonda AG, which owns and had licensed many patents that were incorporated into standards set by JEDEC relating to DRAM chips. In this case, litigation is ongoing in both the United States (as it relates to the U.S. patents of Qimonda AG) and in Germany, the home of Qimonda AG. In the United States, the court held that the license of the U.S. patents was still enforceable since “deferring to German law, to the extent it allows cancellation of the U.S. patent licenses, would be manifestly contrary to U.S. public policy.” This decision is on appeal.
Concurrently, in German litigation, the regional court in Munich recently ruled that the rights licensed to Infineon Technologies AG have not lapsed as a result of Qimonda’s insolvency proceedings. In this case, the regional court was able to reach this conclusion by holding the license had been fully performed and therefore §103 of the German Insolvency Code that permitted cancellation of a license agreement did not apply. This decision could be appealed.
The Qimonda AG is not a normal case as it involved patents that relate to industry standards and therefore there are significant public policy considerations. Such considerations will not apply in most cases and therefore the outcome may be much more uncertain.
Philip C. Mendes da Costa, B.Sc. (Chem. Eng.), LL.B., is a partner with Bereskin & Parr LLP and is the head of the firm's Patent practice group. He can be reached in Toronto at 416.957.1695 or .
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A New High Water Mark in the Awarding of Damages
The Federal Court recently held in the Eurocopter v. Bell Helicopter1 that punitive damages can be awarded in relatively run-of-the-mill patent cases in Canada. The punitive damages holding is all the more remarkable given that none of the claims of the patent were held infringed by the defendant’s actual production design.
The defendant, Bell Helicopter, had developed a first design for a “moustache” landing gear for a helicopter. Upon receiving the Plaintiff Eurocopter’s statement of claim, Bell Helicopter redesigned the landing gear to a second design that was used in production. Although 21 units of the first design had been built by Bell Helicopter, those units were quarantined. None was ever delivered to a customer. The only units delivered to customers were units built according to the production design.
The earlier design was held to infringe. Although none of these units were ever sold or delivered, nonetheless, the court awarded punitive damages.
Under existing governing Supreme Court of Canada precedent:
Punitive damages may be awarded in situations where the defendant’s misconduct is so malicious, oppressive and high-handed that it offends the court’s sense of decency. Punitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff but rather to punish the defendant. It is the means by which the jury or judge expresses its outrage at the egregious conduct of the defendant.2
Punitive damages may be awarded where:
(a) ... there is a patent infringement and a willful breach of injunction following that ...3
(b) The defendant “may have intentionally hidden the fact that they were infringing the patent.
In this case, the court determined that Bell Helicopter had been wilfully blind as to the existence of the Eurocopter design and patent rights Eurocopter might have in that design. The court relied upon a “knew or should have known” standard in respect of the original design, and drew negative inferences on the basis of witnesses not called by the defendant, and privileged opinions not produced by the defendant. From these negative inferences the court held that “on the balance of probability, the Court finds that there is clear evidence of bad faith and egregious conduct on the part of Bell.” This appears to be a sharp divergence from previous case law.
The court also characterised some of the testimony given on behalf of the defendant, as “far from candid”4. It is not clear why this issue could not have been appropriately addressed by an appropriate award of costs. Punishment is not the job of the Patent Act. To award punitive damages of capricious size and scope, potentially far beyond the statutory penalties for perjury and contempt of court, without the protections of the criminal law, as an arbitrary penalty for suspected perjury, has not heretofore been the law in Canada.
While this is a decision of the Federal Court, it is hoped that the fact situation is unique and that lower courts will not start awarding punitive damages for patent infringement.
Ken Bousfield, B.A.Sc. (Mech. Eng.), LL.B., is a partner in Bereskin & Parr LLP's Mechanical & Industrial Processes practice group. Ken can be reached in Toronto at 416.957.1650 or .
1 Eurocopter v. Bell Helicopter 2012 FC 113
2 Hill v. Church of Scientology of Toronto (1995), 2 SCR 1130, at para. [196].
3 Lubrizol Corp. v. Imperial Oil Ltd. (1996), 67 CPR (3d) 1 (FCA), at 20.
4 p. 137, para. [428]
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Dealing With Inventors Who Refuse to Cooperate or Disappear
When employees have a falling out with their employers, concerns can arise if the employee is named as an inventor in a pending or soon-to-be-filed patent application and they are either unwilling to sign documents or unavailable. In some cases, former employees may attempt to use their refusal to sign as leverage in a dispute with the company, or as the basis for additional compensation. A similar issue may arise if an employee becomes seriously ill. Fortunately, there are mechanisms available within the patent system to deal with these situations.
In the United States, each inventor named in a patent application must sign a declaration when the patent application is filed (or soon after). Under the current law, however, it is possible for the owner (or other joint inventors) of a U.S. patent application to continue without an inventor’s signature. To proceed, a petition needs to be filed that sets out proof that the non-signing joint inventor (1) refuses to sign, or (2) cannot be found or reached after diligent effort.
Satisfactory proof that an inventor refuses to sign generally requires some sort of documentary evidence that the inventor received a full copy of the application papers and refused to sign the declaration. For example, if corresponding by email, a reply from the inventor saying “I received your email but I won’t sign anything until you pay me”, or something to that effect, can be sufficient. A supporting affidavit may also be submitted, for example, by a supervisor who makes contact with the former employee and asks them to sign the declaration.
On the other hand, the test for the second scenario tends to be judged according to lower standard. It must be shown that reasonable attempts were made to locate the person and ask the person to sign. For example, an excerpt from an online telephone directory showing the person’s current address, along with courier tracking information for a package containing the application papers and a statement that no reply from the inventor was received, can be acceptable. If an inventor is unable to sign for medical reasons, an affidavit from their doctor advising that they are not available to sign can also be used.
The petitions are examined by the Office of Petitions, which is a specialized section of the United States Patent and Trademark Office (USPTO), and must be accompanied by a small fee, the last known residential address of the non-signing inventor, and the declaration signed by the other inventors (if any). With some investigation work and appropriate documentation, most petitions are accepted, and no further contact with the non-signing inventor is necessary.
The recently enacted Leahy-Smith America Invents Act (AIA) is making sweeping changes to U.S. patent law. Among the changes, the AIA includes provisions aimed at simplifying the current declaration practice, which will be effective September 16, 2012, and will apply to any patent application filed on or after that date.
It should be borne in mind that the declaration is a procedural requirement in the U.S. and is distinct from the question of patent ownership. Companies should operate to ensure that they can prove ownership of their employees’ developments. It is recommended that employment agreements make it clear that ownership of all intellectual property developed in the course of employment vests with the company, and the employee is obligated to cooperate in the prosecution of patent applications, with this obligation surviving the employment relationship. Furthermore, as a matter of policy, employees should be directed to execute assignments as soon as practically possible, preferably on the filing date of a patent application, or even earlier when an invention submission form is initially presented.
Matthew J. Graff, B.A.Sc. (Matl. Eng.), LL.B., is an associate lawyer in Bereskin & Parr LLP's Mechanical & Industrial Processes practice group. He can be reached in Mississauga at 905.817.6107 or .
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Common Sense and Obviousness: Supporting Evidence is Required
Whether enforcing a patent or prosecuting a patent application, obviousness is often the key issue. The Patent Examiner (in the case of a patent application) or the Court (in the case of an issued patent) must determine if a claimed invention is obvious in view of the prior art and the knowledge and skill or persons of ordinary skill in that art. In Mintz v. Dietz & Watson the United States Court of Appeals for the Federal Circuit (the Federal Circuit) held that bald conclusory statements that a claimed invention is obvious in view of “common general knowledge”, are unacceptable unless supported by objective evidence.
An argument that a claimed invention is obvious is necessarily a fictional exercise based on hindsight. Obviousness is an issue neither of what was done, nor of what could have been done (all inventions could have been made before – but were not). Rather it is what that person skilled in the art would have done. In both Canada and the U.S., an obviousness analysis requires determination of:
(i) the level of skill and knowledge of a person of ordinary skill in the art.
(ii) the scope and content of the prior art.
(iii) the differences between the claimed invention and the prior art.
(iv) whether the differences over the prior art are obvious.1
In the end, step (iv) is still a subjective determination of whether a person of ordinary skill, would, in the light of the state of the art and of common general knowledge, have come directly and without difficulty to the claimed invention2.
It is easy, once the teaching of a claimed invention is known, to say, "I could have done that.” Before the assertion can be given any weight, one must have a satisfactory answer to the question, "Why didn't you?"3 In both the U.S. and Canada the courts guard against impermissible hindsight analyses by requiring that prior art be considered as if by a person not having knowledge of the claimed invention, without using the claimed invention as a road-map. An important part of that safeguard against impermissible hindsight analyses is the requirement that an Examiner or a judge provide a clearly articulated reason as to why it would be obvious to combine or modify the prior art to arrive at the claimed invention.
Applicants commonly face rejections that rely on conclusory assertions that “it would have been obvious to a person of ordinary skill in the art to ...” These assertions, generally symptomatic of impermissible hindsight analyses, are typically not supported by any evidence, and are often found in the context of a rejection made that the claimed feature missing from the art is “common general knowledge”, or is a matter of “design choice.” The lack of evidence is usually quite telling: if something is genuinely “common general knowledge” then there should be an abundance of sources for the Examiner to cite. The habit of relying upon unsupported conclusory statements has been harshly criticised by the Federal Circuit on previous occasions – see, for example, In Re Lee4 or In re Kahn5.
Mintz v. Dietz & Watson is a reaffirmation that bald conclusory statements cannot be the basis of a rejection for obviousness. The Mintz claims pertained to a sausage encasement that included an interlocking netting arrangement producing a checkerboard pattern on the surface of the meat. The trial judge relied on a “commons sense view” or “common sense approach” to hold that it was obvious to try a locking engagement.
On appeal, the Federal Circuit held mere recitation of the words “common sense”, without any support to be a clear error6. The Court stated:
Common sense is a shorthand label for knowledge so basic that it certainly lies within the skill set of an ordinary artisan. With little more than an invocation of the words common sense (without any record support showing that this knowledge would reside in the ordinarily skilled artisan), the district court over-reached in its determination of obviousness7.
The Court concluded that the trail judge erred by failing properly to consider the objective evidence of the patentee, and instead basing the decision on an unsupported conclusory statement.
In requiring that alleged “common sense” must be supported by an objective basis in evidence, the Mintz decision is a welcome relief.
Ken Bousfield, B.A.Sc. (Mech. Eng.), LL.B., is a partner in Bereskin & Parr LLP's Mechanical & Industrial Processes practice group. Ken can be reached in Toronto at 416.957.1650 or .
1 Graham v. John Deere Co. 383 US 1 (1966), sometimes referred to as the “Graham factors”.
2 Beloit Canada v. Valmet Oy, (1986) 8 CPR (3d) 289 (FCA per Hugesson) at 294.
3 Beloit Canada v. Valmet Oy, supra, at 295.
4 In re Lee, 277 F.3d 1338 (Fed. Cir. 2002),
5 In re Kahn, 441 F.3d 977 (Fed. Cir. 2006)
6 Mintz, page 8, lines 26 - 29
7 Mintz page 8, line 29 – page 9, line 4.
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