Anything but tired: the doctrine of exhaustion in Canada

Here's the Guest Editorial for the November 2015 issue of JIPLP, by editorial board member and Canadian academic Emir Crowne (Associate Professor, with Tenure, University of Windsor, Faculty of Law):

Anything but tired: the doctrine of exhaustion in Canada

With the recent US Supreme Court decisions in Kirtsaeng v John Wiley & Sons, 133 S. Ct. 1351 and Bowman v Monsanto, 569 U. S. ____ (2013) the doctrine of exhaustion has once again been revitalized. In its most basic formulation the doctrine stands for the proposition that the enforceability of the intellectual property rights embodied in a tangible object are extinguished, or ‘exhausted’, after its first sale. The rule, common law in origin, allows for the downstream re-sale of patented articles, trade mark adorned clothing, and textbooks without infringement. This brief editorial examines the common law and statutory footing of the doctrine in Canada (1), and encourages courts to ‘supplement’ their decisions and give the doctrine ‘wings’, as it were.

In Canada, the Copyright Act (2)  contains the only statutory footing for the doctrine. Even then it is quite limited. Section 3 of that Act sets out the exclusive rights of copyright holders and provides the following, inter alia:

“3. (1) For the purposes of this Act, “copyright”, in relation to a work, means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof, and includes the sole right …

(j) in the case of a work that is in the form of a tangible object, to sell or otherwise transfer ownership of the tangible object, as long as that ownership has never previously been transferred in or outside Canada with the authorization of the copyright owner, and to authorize any such acts.”

There are no express provisions in either the Patent Act (3) or the Trade-marks Act (4) that cover the doctrine, even in a limited sense. Even when one turns to the jurisprudence, although the doctrine is recognized, no decision specifically refers to the “exhaustion” of the intellectual property right in question.

Consider the indirect discussion of patent exhaustion by the Supreme Court of Canada (5) in Eli Lilly and Co. v Apotex.(6) Justice Iacobucci, writing for a unanimous court, stated:

“unless otherwise stipulated in the licence, a licensee is generally entitled to pass to a purchaser the right to use or resell the patented article without fear of infringing the patent.(7)

Likewise, in Consumers Distributing Co. v Seiko (8) the Supreme Court of Canada dealt with the parallel importation of watches. In allowing the appeal, the court affirmed that lawfully acquired goods may be re-sold without any recourse under the Trade-marks Act:

“the distribution of a trade marked product lawfully acquired is not, by itself, prohibited under the Trade Marks Act of Canada, or indeed at common law.”(9)

Yet again there was no explicit recognition that Seiko's rights had been exhausted.(10)

Even in the copyright context the Supreme Court of Canada has invoked the doctrine without giving it due regard. In Théberge v Galerie d'Art du Petit Champlain inc. (11) the court dealt with an art gallery making canvas copies of an artist's work from lawfully obtained cards, photolithographs and posters. A majority of the court cautioned against this “expansion” of the artist's economic rights, emphasizing the need to balance the economic interests of the copyright holder and the public.(12) The majority spent considerable attention on the process (13) not amounting to a “reproduction”. For instance, the Chief Justice (writing for the majority) asked the following:

“Did “reproduction” occur when the paper backing was peeled away? If the resulting film of inks had then been framed and suspended in front of a window like a piece of Tiffany glass, I would think the respondent could not complain. A purchaser has the right to cut up a poster into strips or divide it as he or she wishes. Division cannot logically be characterized as reproduction.” (14)

Building on her earlier remarks that

“The proper balance among these and other public policy objectives lies not only in recognizing the creator's rights but in giving due weight to their limited nature. In crassly economic terms it would be as inefficient to over compensate artists and authors for the right of reproduction as it would be self-defeating to undercompensate them. Once an authorized copy of a work is sold to a member of the public, it is generally for the purchaser, not the author, to determine what happens to it.

Excessive control by holders of copyrights and other forms of intellectual property may unduly limit the ability of the public domain to incorporate and embellish creative innovation in the long-term interests of society as a whole, or create practical obstacles to proper utilization …” (15)

Yet at no point in this narrative was the doctrine of exhaustion explicitly examined.(16)

Arguably it is this lack of clear judicial recognition that has stunted the development of the doctrine in Canada. It is time for Canadian Courts to explicitly apply the doctrine as it is a powerful instrument of trade and competition. It promotes the “balance” that is very much in vogue in the academic literature and the higher courts. The doctrine may be one of exhaustion, but its usage is far from cliché in Canada.

Footnotes 

1 See generally, de Beer, J. and Tomkowicz R., “Exhaustion in Canadian Intellectual Property Law”, (2009) 25 Canadian Intellectual Property Review 3; and Macklin, A. and Leger, J., “International Exhaustion of Industrial (Intellectual) Property Rights”, Report Q 156, AIPPI (available at: https://www.aippi.org/download/commitees/156/GR156canada.pdf).

2 R.S.C., 1985, c. C-42.

3 RSC 1985, c P-4.

4 RSC 1985, c T-13.

5 In Signalisation de Montreal Inc. v Services de Béton Uni­versels Ltée, [1992] F.C.J. No. 1151 the Federal Court of Appeal rationalized the doctrine by reference to an implied licence: “It is settled law that the purchaser of a patented article from a patentee acquires, at the same time, the right to use the article and the right to sell it, together with the same “right of use,” to another person. As long ago as 1871, this right was described as a “licence”…” (citing Betts v Willmott, (1871) L.R. 6 Ch. 239 at 245, per Lord Hatherley, L.C.).

6 [1998] 2 S.C.R. 129 [“Eli Lilly”].

7 Eli Lilly para 69 (emphasis added). The Supreme Court of Canada decision in Monsanto Canada Inc. v Schmeiser [2004] 1 S.C.R. 902 (concerning the cultivation of herbicide resistant canola containing patented genes and cells) is said to be a rejection of patent exhaustion (see de Beer, J. and Tomkowicz R, n 2 supra at 14). However, the underlined portion in Eli Lilly is instructive. Since Monsanto licensed its herbicide resistant seeds, it can hardly be said that its rights were either exhausted or fell foul of the dictum in Eli Lilly.

8 [1984] 1 S.C.R. 583.

9 Consumers Distributing Co. v Seiko Time Canada Ltd [1984] 1 S.C.R. 583. The court likened the situation to that of reselling a car: “The better analogy here would be to the buyer of a Chevrolet from an authorized dealer or source, who then sells the car without any status of dealership from the manufacturer. Assuming title to the car was lawfully acquired and that no misrepresentation of the condition of the vehicle and the right of warranty was made, would a duly authorized dealer of the manufacturer, or the manufacturer itself, or anyone else, have recourse to injunction to prevent such a sale of the Chevrolet? Clearly not, and the answer is the same whether the car be new or used.” (citing Morris Motors, Ltd v Lilley, [1959] 3 All E.R. 737).

10 Passing mention is also made in Coca-Cola Ltd. v Pardhan (c.o.b. as Universal Exporters), [1999] F.C.J. No. 484 (FCA) upholding an application to strike the appellant's statement of claim.

11 [2002] 2 S.C.R. 336 [“Théberge”].

12 Ibid. at paras 30–33.

13 “The appellants purchased on the open market a quantity of posters of the respondent's artistic works. They subjected these posters to a technique which involved spreading a special resin or laminating liquid across the face of a poster. The resin is designed to bond with the surface inks. After the applied coating is dried (or cured), the coated poster is submerged in a bath of solvent which loosens the paper substrate but leaves intact the fixed ink/resin layer, thus allowing the latter to be peeled off the former. The rear of the ink/resin layer is then coated with a suitable adhesive resin and transferred to a canvas substrate, which is then smoothed and finished.” (Théberge at para 35).

14 Ibid. at para. 37.

15 Ibid. at paras. 31 and 32.

16 For a similar omission see Euro-Excellence Inc. v Kraft Canada Inc. [2007] 3 S.C.R. 20 (concerning the parallel importation of chocolate bars). Here a majority of the court accepted that the copyright in the chocolate bars' labels and logos can be infringed through parallel imports. Justice Fish, in a separate concurring judgment, almost invites a discussion of the doctrine: “Without so deciding, I express grave doubt whether the law governing the protection of intellectual property rights in Canada can be transformed in this way into an instrument of trade control not contemplated by the Copyright Act.” (ibid., para. 56). Arguably, this is the closest the court gets in terms of doctrine per se.

FLIP-TOP not distinctive of Philip Morris, rules Federal Court of Canada

Authors: Emir Crowne and Adrian Werkowski (University of Windsor, Faculty of Law)

Philip Morris Products SA v Imperial Tobacco Canada Ltd, 2014 FC 1237, Federal Court of Canada, 18 December 2014

Journal of Intellectual Property Law & Practice (2015) doi: 10.1093/jiplp/jpv072, first published online: April 18, 2015

The Federal Court of Canada held that the term ‘FLIP-TOP’ was not distinctive of Philip Morris as it described a type of packaging and was not necessarily indicative of source.

Legal context

Section 38 of Canada's Trade-mark Act, R.S.C., 1985, c. T-13 sets out the grounds on which a proposed mark may be opposed. Subsection 38(2)(d) provides that a mark may be opposed where it is ‘not distinctive’.

Facts

Philip Morris applied to register ‘FLIP-TOP’ as a trade mark for tobacco and a variety of tobacco products. This mark had not yet been used and the Trade-marks Opposition Board found that it lacked distinctiveness because it described a type of packaging commonly used for tobacco products.

Philip Morris appealed the decision.

Analysis

A trade mark's lack of distinctiveness is not one of the grounds under which the Registrar may refuse an application (2014 FC 1237 at para 51 (discussing subsection 37(1) of the Act)). It is only after advertisement, and during the opposition stage, that non-distinctiveness may be raised under subsection 38(1)(d).

‘FLIP-TOP’ is a commonly used word in the tobacco industry and ‘is a defined word that refers to a container that has a lid that is easily flipped open’. By definition then, as a proposed mark the term lacked the requisite distinctiveness for the public to necessarily associate it with Philip Morris's products.

Although descriptiveness is related to distinctiveness, the two concepts were explicitly distinguished by the Court. At para 81 Justice Bédard emphasized that her analysis was confined to that of distinctiveness only:

I do not find it necessary to determine whether the term ‘flip-top’ is descriptive of an intrinsic quality of the wares themselves such as a feature, trait or characteristic. In the present context, the key consideration is not whether the mark describes an aspect of the product that is necessarily ‘intrinsic’, but whether the term is capable of identifying the source of the wares in light of the overall product and market.

Practical significance

Source identification is the main purpose of a trade mark. Proposed marks that are themselves a common term will necessarily lack the requisite distinctiveness for registrability. Allowing such marks to acquire distinctiveness, and a secondary meaning, through concerted marketing efforts and actual use, may have been the wiser course of action in this case, instead of having the mark snuffed out at first instance.

Dexilant not an ‘innovative drug’ under Canada's Food and Drug Regulations

Authors: Emir Crowne (Faculty of Law, Associate Professor, University of Windsor) and Lida Moazzam (Faculty of Law, Law student, University of Windsor)

Takeda Canada Inc v Canada (Health), 2013 FCA 13, 18 January 2013

Journal of Intellectual Property Law & Practice (2013) doi: 10.1093/jiplp/jpt067, first published online: May 24, 2013

A majority of the Federal Court of Appeal refused to list Takeda's acid reflux drug, Dexilant, as an ‘innovative drug’ under Canada's Food and Drug Regulations.

Legal context

Canada's data protection regime provides a degree of market exclusivity for ‘innovative drugs’ against generic competition. As stated by Justice Near in the Federal Court decision below:

Once deemed eligible for listing on the Register, an ‘innovative drug’ receives data protection consisting of two formal restrictions. Firstly, a generic drug manufacturer cannot file a submission based on a comparison to an ‘innovative drug’ within the first six years of the eight-year period after the drug has received a NOC (subsection C.08.004.01(3)(a)). Secondly, the Minister may not issue a NOC to the generic drug manufacturer before the end of the eight-year period (subsection C.08.004.01 (3)(b)). (2011 FC 1444 at para 12.)

Under s C.08.004.1(1) of Canada's Food and Drug Regulations, CRC c 870, an ‘innovative drug’ must ‘[contain] a medicinal ingredient not previously approved in a drug by the Minister’; and not ‘[be] a variation of a previously approved medicinal ingredient such as a salt, ester, enantiomer, solvate or polymorph.’

Facts

The medical ingredient in Dexilant is dexlansoprazole. The Minister, who had not previously approved dexlansoprazole in a drug product, refused to list Dexilant as an ‘innovative drug’ because the second limb of s C.08.004.1(1) of the Regulations had not been satisfied. As Justice Stratas noted in dissent at the Federal Court of Appeal: [

According to the Minister] DEXILANT was not an ‘innovative drug’ because its medicinal ingredient, dexlansoprazole is an enantiomer of lansoprazole. In her view, drugs containing any of the listed variations of a previously approved medicinal ingredient (here an enantiomer) can never be an ‘innovative drug’, regardless of the innovator's effort in developing the drug. Any drug containing a medicinal ingredient that is an enantiomer of a previously approved medicinal ingredient is automatically a ‘variation’. (ibid, para 17)

The Minister's refusal was upheld by Justice Near in the Federal Court (2011 FC 1444: application for judicial review dismissed).

Analysis

A majority of the Federal Court of Appeal agreed with the Minister's refusal. The term ‘variation’, as used in s C.08.004.1(1)(b), is sufficiently precise as to allow its ‘ordinary meaning’ to govern its interpretation. At para 122, Justice Dawson, writing for the majority, stated:

To aid in the interpretation of what constitutes a ‘variation’ five examples are cited in the definition of ‘innovative drug’. Salts, esters, enantiomers, solvates and polymorphs are listed as examples of molecular structures that are variations of a previously approved medicinal ingredient. The Governor in Council would have created an incoherent scheme if the enumerated examples of variations are, in some unarticulated circumstances, not variations. The interpretation that all of the listed examples are variations avoids such incoherence.

In his dissent, however, Justice Stratas argued that the wording of s C.08.004.1(1)(b) was ambiguous. The use of the phrase ‘such as’, according to him, was quite open-ended (ibid paras 49–52). According to Justice Stratas:

The more open meaning imported by the words ‘such as’ can be shown by an example. Suppose a particular regulation is aimed at reducing emissions that pollute. The regulation applies to ‘vehicles such as cars, trucks and buses’. Are all cars caught by the regulation? It may be that electric cars or hybrid cars are not covered by the regulation. Although they are literally ‘cars’, they may not be ‘vehicles’ for the purposes of the emissions regulation because they do not emit pollution or emit much less pollution than other cars. (ibid para 52)

The majority took a different approach. Substituting vehicle emissions with dog shedding, the majority noted that:

The New Shorter Oxford English Dictionary (1993 edition) defines the phrase ‘such as’ to mean ‘for example’. This is consistent with the common usage of the phrase. To illustrate, ‘I like dogs that do not shed, such as Kerry Blue and Soft Coated Wheaten terriers.’ Kerry Blue and Soft Coated Wheaten terriers are examples of non-shedding dogs. (ibid para 120).

The by-products of vehicles and canines aside, the majority then rely on the Regulatory Impact Analysis Statement (RIAS) (which accompanied the Regulations) to bolster their analysis. The RIAS states that:

The definition of ‘innovative drug’ specifically prohibits innovators from obtaining additional terms of data protection for variations of medicinal ingredients. The list of variations is not exhaustive, but rather meant to give examples of the types of variations not considered for protection. The exclusion of variations of a previously approved medicinal ingredient from the scope of protection was introduced to avoid the granting of an additional eight years of protection where an innovator seeks approval for a minor change to a drug. For other arguable variations not included in the list, such as metabolites, an assessment will be made as to whether or not approval is being sought primarily on the basis of previously submitted clinical data (i.e. without the support of new and significant clinical data) or not. This position is consistent with both NAFTA and TRIPS which only require the granting of protection for undisclosed data, the origination of which involved a considerable effort. (emphases added by the court) (ibid para 124)

According to the majority, the five enumerated substances in s C.08.004.1(1)(b) of the Regulations must therefore be considered variations of a previously approved medical ingredient (ibid para 125).

In his dissent, however, Justice Stratas would have adopted a more open-ended approach. Where the ‘controlling idea’ in s C.08.004.1(1)(b) is not whether the medicinal ingredient falls within the five categories of substance, but whether a medicinal ingredient is a ‘variation’ or not (ibid paras 57–59). What is a ‘variation’ would then depend on the circumstances surrounding the data submitted when seeking regulatory approval. Justice Stratas gives the example of an enantiomer that requires ‘little testing’ versus ‘much testing’. At para 68 he writes:

If the safety and efficacy of an enantiomer is established after only a little testing, there is a sense in which it is not all that different from the previously approved medicinal ingredient. If, on the other hand, much testing has to be done, there is a sense in which it is quite different or new when compared with the previously approved medicinal ingredient. These concepts—considerable effort in testing and difference/newness—ie at the heart of the concept of what is and is not a minor variation under subsection C.08.004.1(1).

Practical significance

The current data protection regime was enacted to implement Canada's obligations under the North American Free Trade Agreement (NAFTA) and the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS). NAFTA signatories are obligated to protect pharmaceuticals which utilize ‘new chemical entities’. The majority argue that these obligations required the Governor in Council to determine what constitutes ‘new chemical entities’ when crafting the Regulations. Any under inclusiveness of the regime must be remedied by the Governor in Council, and not the courts. At para 131 the majority states that

It was open to the Governor in Council to decide, as a matter of policy, that salts, esters, enantiomers, solvates and polymorphs were not sufficiently different to be ‘new chemical entities’. If, as the appellant argues, the data protection regulations are under inclusive, this is a matter for the Governor in Council to remedy. This Court ought not to thwart the decision of the Governor in Council as expressed in the definition of ‘innovative drug’ and in its rejection of the request by the innovative drug industry that data protection be extended to salts, esters, enantiomers, solvates and polymorphs.

In his dissent, Justice Stratas argues that the Minister's interpretation of s C.08.004.1(1)(b) as to make the five categories of substance mandatory and absolute examples of ‘variations’ will run counter to Canada's NAFTA and TRIPS obligations (ibid para 96). Instead, he refers to two particular aspects of TRIPS and NAFTA, which ensure that innovators get data protection only where the public will benefit: namely, ‘considerable effort’ and ‘new chemical entity’. He writes that:

Neither TRIPS nor NAFTA define these terms. However, the concept behind them can be seen from the foregoing analysis. Trivial efforts, such as perfunctory and simple testing, do not warrant protection. Similarly, engaging in considerable efforts to test enantiomers which differ little from a racemic mixture or each other in safety or efficacy—in every relevant sense, old chemical entities—does not warrant protection. In both cases, an innovator would receive the large reward of protection in circumstances where it incurred little risk. That is not what the TRIPS and NAFTA provisions are aimed at. Instead, they are aimed at altering the risk-reward equation for innovators, giving them an incentive to undertake considerable effort in circumstances where the safety and efficacy of a candidate drug are uncertain.

‘Considerable effort’ within the drug approval process, consistent with the purposes of the relevant provisions of TRIPS and NAFTA, must mean new and significant evidence bearing upon the safety and efficacy of the drug. ‘New chemical entity’ must mean that the medicinal ingredient in the drug is ‘new’ in the sense that it has qualities of safety and efficacy materially different from a previously approved medicinal ingredient. Both these meanings implement the purposes of the relevant provisions of TRIPS and NAFTA: they alter the risk-reward equation for innovators, create appropriate incentives, and ensure that data protection is afforded only where the risk undertaken merits it. (ibid paras 83 and 84).

In the end, the decision is unsatisfactory. The majority have embraced the Minister's literalist approach, at the expense of Justice Strata's more responsive and reflexive open-ended interpretation. Dexilant may settle one's stomach, but it has done quite the opposite to the jurisprudence.

An obvious ‘Comity of Errors’: Court admonishes motives of Applications Judge, but agrees with the result

Authors: Emir Crowne (Associate Professor, Faculty of Law; Barrister, Solicitor and Registered Trade-mark Agent, University of Windsor) and Niousha Ghomashchi (Law Student, Faculty of Law, University of Windsor)

Apotex Inc v Allergan Inc, 2012 FCA 308, Federal Court of Appeal, Canada, 23 November 2012

Journal of Intellectual Property Law & Practice (2013), doi: 10.1093/jiplp/jpt027, first published online: March 21, 2013

The Federal Court of Appeal upheld a prohibition order sought by Allergan preventing the Minister of Health from issuing a Notice of Compliance to Apotex but admonished the Applications Judge for granting the prohibition order simply to ‘further his desire to clarify the jurisprudence’ (Apotex, para 6).

Legal context

The initial proceeding before the Applications Judge (2012 FC 767) was brought under the Patented Medicines (Notice of Compliance) Regulations, SOR 93-133, this being a summary application for judicial review initiated by the applicant (the patent holder) who seeks to prohibit the Minister of Health from issuing a Notice of Compliance. Once the generic manufacturer has presented probative evidence supporting its allegations of anticipation and obviousness (in this instance), the burden of proof is on the applicant to establish, on a balance of probabilities, that those allegations are not justified.

Subsection 5(1) of the Regulations sets out the requirements for a ‘generic’ drug company (ie a ‘second person’) to obtain a notice of compliance from the Minister of Health for approval of its generic drug:

If a second person files a submission for a notice of compliance in respect of a drug and the submission directly or indirectly compares the drug with, or makes reference to, another drug marketed in Canada under a notice of compliance issued to a first person and in respect of which a patent list has been submitted, the second person shall, in the submission, with respect to each patent on the register in respect of the other drug,

a. state that the second person accepts that the notice of compliance will not issue until the patent expires; or

b. allege that 

i. the statement made by the first person under paragraph 4(4)(d) is false,

ii. the patent has expired,

iii. the patent is not valid, or

iv. no claim for the medicinal ingredient, no claim for the formulation, no claim for the dosage form and no claim for the use of the medicinal ingredient would be infringed by the second person making, constructing, using or selling the drug for which the submission is filed.

Subsection 6(1) then sets out how an ‘innovator’ drug company (ie a ‘first person’) must object to such allegations:

A first person may, within 45 days after being served with a notice of allegation under paragraph 5(3)(a), apply to a court for an order prohibiting the Minister from issuing a notice of compliance until after the expiration of a patent that is the subject of the notice of allegation.

Facts

Under the Regulations, Allergan sought an order prohibiting the Minister of Health from issuing a Notice of Compliance (NOC) to Apotex for its generic glaucoma medication until the expiry of Allergan's patent. In the Notice of Allegation, Apotex challenged the validity of Allergan's patent on the grounds of obviousness and anticipation.

Justice Hughes, the Applications Judge, held that Apotex's allegation of invalidity on the grounds of obviousness was justified (2012 FC 767 at para 189). However, in separate proceedings, involving the same patent, Justice Crampton (as he then was) held that:

Allergan has met its burden of establishing, on a balance of probabilities, that Sandoz's allegation that the '764 Patent is invalid on the ground of obviousness is not justified. (Allergan Inc and others v Canada (Minister of Health) and Sandoz Canada Inc, 2011 FC 1316 (‘Sandoz’), para 127).

In other words, if Justice Hughes found the allegations of obviousness justified it would run contrary to Justice Crampton's earlier finding. Therefore in the interests of judicial comity, Justice Hughes disregarded his own findings, and granted the prohibition order in favour of Allergan. At paras 189–94 he writes:

As is apparent, I would find on the evidence before me that Apotex's allegations as to obviousness are justified … 

That is, however, not the end of the matter.

I must consider the question of comity. Is the evidence and argument before me ‘different’ from or ‘better’ than the evidence and argument before Crampton J in Sandoz? There is no real way to measure ‘different’ or ‘better’. The evidence and argument is of the same kind. In some cases Crampton J had unrebutted evidence whereas I have rebutted evidence. The difference in the evidence and argument is more one of quality to the best that can be discerned from the record that I have, and this court not having the record as to what was before Crampton J.

If I were to dismiss this application on the basis that Allergan did not discharge its burden of proving that Apotex's allegations as to obviousness were not justified; then, within a matter of hours—if not days—the Minister would give Apotex a Notice of Compliance, and the issue as to whether the court should grant a prohibition order would be moot. The Court of Appeal, in all likelihood, would not hear an appeal.

I believe that there have been serious issues raised as to comity. The somewhat contradictory decisions of the Court of Appeal should be considered by that court and clear instruction given as to how, in an NOC context, previous decisions of a court on the same issues respecting the same patent, should be considered.

The only practical way to get the matter before the Court of Appeal is for me to grant the Order for prohibition in the likely expectation that Apotex will appeal.

Analysis

The Federal Court of Appeal strongly disapproved of this approach. Justice Noël, writing for a unanimous court, held that ‘it was not open to the Federal Court judge to grant the prohibition in order to further his desire to clarify the jurisprudence’ (2012 FCA 308 at para 6). The court nonetheless upheld the prohibition order. At paras 49 and 50 the court stated that:

it was not open to the Federal Court judge to issue a prohibition order for the purpose of having his concerns about the use of the doctrine of comity and the notion of abuse of process addressed by this court on appeal … unless the Federal Court judge could demonstrate that Crampton J.'s construction of the patent in order to determine the inventive concept was wrong or that distinct evidence adduced before him compelled him to reach a different conclusion, it would have been preferable for him to adhere to it.

The court added that claim construction must be conducted in light of the patent as a whole (para 72). Had the Applications Judge done a purposive and proper reading of the patent, he would have concluded that the improved safety profile formed part of the claimed invention (para 74).The court also found that the improved safety profile was not obvious to a person skilled in the art, as the invention was ‘the bi-product [sic] of an extensive, multi-centred, double masked, and randomized trial. There was nothing routine about this exercise and the manner in which the inventors came upon the improvement shows in the clearest possible way that it was not obvious to try’ (para 92).

Practical significance

Litigants and appellate courts should not bear the burden of satisfying a first instance judge's desire to clarify the jurisprudence. This distracts from the judicial function. As the Federal Court of Appeal noted:

… the parties were entitled to have their dispute settled on the merits and the Federal Court judge by issuing a formal judgment that was contrary to the conclusions that he reached on the merits, failed in his task. (para 49)

In addressing the issue of comity, a question which was at the heart of the Application Judge's unusual decision, the court emphasized that judicial comity (a horizontal application of stare decisis, if you like) generally applied to questions of law, but not to questions of fact:

In the Federal Court, Mactavish J. in Almrei (Re), 2009 FC 3, acknowledged this limitation as follows (para. 70):  

‘The principle of judicial comity might arise in the context of a ruling on a point of law but I did not consider myself bound by any factual findings made by my fellow judges in the earlier proceedings.’ (para 45) 

The rationale for this is that there can only be one correct interpretation of a question of law, whereas questions of fact may give rise to divergent findings (especially where the evidentiary base differs). The court was of the view that ‘decisions rendered by colleagues are persuasive and should be given considerable weight, a departure is authorized where a judge is convinced that the prior decision is wrong and can advance cogent reasons in support of this view’ (para 47). Accordingly, since the task of the Applications Judge in this case lay in identifying the inventive concept (a question of law), it was not open to him to depart from Justice Crampton's earlier decision unless that earlier construction was justifiably wrong or new evidence justified the departure. At paras 50–52, the court stated that:

… construing a patent in order to identify the inventive concept when it is not readily discernible for the claim itself requires looking at the whole of the patent (Sanofi, para. 77) and gives rise to a question of law (Western Electric Co. v Baldwin International Radio of Canada Ltd., [1934] S.C.R. 570, pp. 572-573 (S.C.C.); Weatherford Canada Ltd. v Corlac Inc., 2011 FCA 228, [2011] F.C.J. No. 1090, para. 24—and the authorities referred to in these passages). It follows that unless the Federal Court judge could demonstrate that Crampton J.'s construction of the patent in order to determine the inventive concept was wrong or that distinct evidence adduced before him compelled him to reach a different conclusion, it would have been preferable for him to adhere to it. 

The Federal Court judge did not identify any error nor did he rely on distinct evidence to explain his diverging view. He simply chose to construe the patent differently and held that the inventive concept did not extend to the improved safety profile which Crampton J. had included …

If this was the only reason why the Federal Court judge felt that he could disregard the opinion of his colleague, it does not justify his action. Construing a patent in order to identify the inventive concept is no less an exercise that leads to a determination of law because the document being construed is drafted by the patentee … The analogy which the Federal Court judge drew with a contract (ibidem) is no more helpful since all else being equal a contract should not be subjected to contradictory constructions any more than a patent, or a statute.

For a decision concerning the inventiveness of glaucoma treatment, the Applications Judge demonstrated his own short-sightedness in failing to see the bigger picture. As set out by the Court of Appeal, his concerns over comity could have been neatly addressed by questioning whether his divergence with Justice Crampton's earlier decision was one of law, or one of fact (and whether the divergence was justified.

Supreme Court of Canada voids Viagra patent for insufficient disclosure

Authors: Emir Crowne (Associate Professor, University of Windsor, Faculty of Law; Barrister and Solicitor, Law Society of Upper Canada) and Mohamed R. Hashim

Teva Canada Ltd v Pfizer Canada Inc, 2012 SCC 60, Supreme Court of Canada, 8 November 2012

Journal of Intellectual Property Law & Practice (2013) doi: 10.1093/jiplp/jps225, first published online: February 7, 2013

The Supreme Court of Canada unanimously ruled that Pfizer's patent for Viagra was void for insufficient disclosure.

Legal context

Subsection 6(1) of Canada's Patented Medicines (Notice of Compliance) Regulations, SOR 93-133 states that:

A first person may, within 45 days after being served with a notice of allegation under paragraph 5(3)(a), apply to a court for an order prohibiting the Minister from issuing a notice of compliance until after the expiration of a patent that is the subject of the notice of allegation. Section 2 of the Canadian Patent Act, RSC 1985 c P-4 defines an ‘invention’ as: any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter.

Subsection 27(3) adds the statutory requirements governing sufficiency:

The specification of an invention must

(a) correctly and fully describe the invention and its operation or use as contemplated by the inventor;

(b) set out clearly the various steps in a process, or the method of constructing, making, compounding or using a machine, manufacture or composition of matter, in such full, clear, concise and exact terms as to enable any person skilled in the art or science to which it pertains, or with which it is most closely connected, to make, construct, compound or use it;

(c) in the case of a machine, explain the principle of the machine and the best mode in which the inventor has contemplated the application of that principle; and

(d) in the case of a process, explain the necessary sequence, if any, of the various steps, so as to distinguish the invention from other inventions.

Facts

sildenafil 

In proceedings brought under the Patented Medicines (Notice of Compliance) Regulations, Pfizer sought an Order prohibiting the Minister of Health from issuing a Notice of Compliance to Novopharm (now, Teva) for its generic erectile dysfunction pill until the expiry of Pfizer's Viagra patent (Canadian patent no 2163446) in 2014. In the Notice of Allegation, Novopharm challenged the validity of Pfizer's patent on the grounds of obviousness, inutility and insufficient disclosure. In such proceedings the legal burden of proof is on the applicant (the patent holder) to establish, on a balance of probabilities, that the respondent's allegations of obviousness, inutility and insufficiency are not justified. In turn, the respondent's evidentiary burden is met by presenting a sufficient factual and legal basis to give those allegations an ‘air of reality’.

At the Federal Court, Justice Kelen allowed Pfizer's application, finding the allegations raised by Novopharm were not justified (2009 FC 638). As a result, the Minister of Health was prohibited from issuing the Notice of Compliance until the expiry of the patent (2009 FC 638, para 149).

At the Federal Court of Appeal, a unanimous court agreed with the trial judge and dismissed the appeal (2010 FCA 242). Writing for the court, Justice Nadon, found that the ‘invention’ at issue was found at claim 7 and properly disclosed in the specification. Further, since the utility of the invention was demonstrated (as opposed to being a sound prediction) there was no requirement for that basis to be disclosed in the specification (2010 FC 242, paras 82, 88, 90).

Analysis

Throughout the proceedings, Novopharm (now, Teva) maintained that the patent disclosed at least two different inventions, in contravention of the Patent Act which states that ‘[a] patent shall be granted for one invention only …’ (s 36 (1)). The first claim of the patent is said to cover 260 quintillion compounds (2009 FC 638, para 135), with either claim 6 or claim 7 specifically covering Viagra (sildenafil).

It was this ambiguity that led to the patent's downfall. Justice LeBel, writing for a unanimous court, held that: The disclosure in the specification would not have enabled the public “to make the same successful use of the invention as the inventor could at the time of his application”, because even if a skilled reader could have narrowed the effective compound down to the ones in Claim 6 and Claim 7, further testing would have been required to determine which of those two compounds was actually effective in treating ED [erectile dysfunction] (2012 SCC 60, para 74). The patent was therefore void for insufficient disclosure (ibid, para 87).

Practical significance

Patents are a bargain between the inventor and the State. Justice LeBel expressly noted that ‘patentees cannot be allowed to “game” the system’ (ibid, para 80). The inventor, through the specification, tells the State how the invention works. The State in turn grants a monopoly for such disclosure. That quid pro quo is at the heart of the modern patent system. As the Supreme Court noted in the decision:

… the logical consequence of a failure to properly disclose the invention and how it works would be to deem the patent in question invalid. This flows from the quid pro quo principle underpinning the Act. If there is no quid—proper disclosure—then there can be no quo—exclusive monopoly rights. (ibid, para 84) (see also Consolboard Inc v MacMillan Bloedel (Sask) Ltd (1981) 56 CPR (2d) 145)

Aside from re-affirming fundamental patent theory, the decision undoubtedly impacts claim drafting, cascading claims in particular. For instance, at para 72, the court held Pfizer accountable for not specifically disclosing sildenafil:

Recall that in this case Pfizer had conducted tests that demonstrated that sildenafil was effective in treating ED. None of the other compounds in Patent '446 had been shown to be effective in doing so. Therefore, the invention was the use of sildenafil for the treatment of ED. This had to be disclosed in order to meet the requirements set out in s. 27(3) of the Act.

The court then appears to signal that the error was committed by the addition of two specified compounds.

I would not make too much of the fact that Claim 1 included over 260 quintillion compounds. The practice of cascading claims—although it may, as in this case, result in claims that are overly broad—is a common one that does not necessarily interfere in every case with the public's right to disclosure. The skilled reader knows that, when a patent contains cascading claims, the useful claim will usually be the one at the end concerning an individual compound. The compounds that do not work are simply deemed invalid. In accordance with s. 58, any valid claim—in this case, Claim 7—survives despite the existence of invalid claims. However, the public's right to proper disclosure was denied in this case, since the claims ended with two individually claimed compounds, thereby obscuring the true invention. (ibid, para 80). A ‘strict’ interpretation of this jurisprudence might suggest a tightening of cascading claims. Instead of claiming several formulations of a compound, a single patent may need to be broken into multiple patents to avoid a sufficiency attack. Alternatively, on a ‘liberal’ reading, disclosures may increase in size with inventors disclosing ‘the kitchen sink’ in order to avoid an allegation of insufficient disclosure.

The decision will also likely give rise to one of the largest damages awards in Canadian patent history. This appeal arose from proceedings under the Patented Medicines (Notice of Compliance) Regulations, to which we must turn to assess the damages. The applicable sub-section states:

8. (1) If an application made under subsection 6(1) is withdrawn or discontinued by the first person or is dismissed by the court hearing the application or if an order preventing the Minister from issuing a notice of compliance, made pursuant to that subsection, is reversed on appeal, the first person is liable to the second person for any loss suffered during the period.

Because the court found that the allegations of were justified, this subsection of the Regulations is triggered. Indeed, in proceedings under the Regulations, the validity of a patent is not finally determined, but only the allegations. Applied to the case at bar, Pfizer (ie the ‘first person’), having lost to Novopharm (ie the ‘second person’), would be liable for damages in the amount that would financially restore Novopharm to the position it would have been in, had the proceedings not taken place. In other words, Pfizer will have to compensate Novopharm for lost sales that occurred ‘but for’ the proceedings.

While s 8 jurisprudence is still in its infancy, the recent CAD $ 215 million award in Apotex Inc v Sanofi-Aventis, T-1357-09 (released on 2 November 2012), for the four years that the drug ramipril (a blood pressure drug) was kept off the market, signals that the stakes are likely higher for a drug like sildenafil, which was denied entry into the market for about five years.

The Supreme Court of Canada has re-armed the arsenal of patent litigators. The traditional weapons of anticipation, obviousness, and inutility remain, but sufficiency of disclosure—a favourite concept of the patent doctrinalist—has again assumed prominence.

The editorial assistance of Niousha Ghomashchi is gratefully acknowledged, as is the funding provided by the Law Foundation of Ontario.

Business methods patentable in Canada according to Federal Court of Appeal

Author: Emir Crowne (Associate Professor, Faculty of Law, University of Windsor)

Commissioner of Patents v Amazon.com Inc., 2011 FCA 328, 24 November 2011

Journal of Intellectual Property Law & Practice (2012) doi: 10.1093/jiplp/jps006, first published online: January 30, 2012

The Canadian Federal Court of Appeal has held that business methods, when properly construed, can constitute patentable subject matter.

Legal context

Section 2 of the Canadian Patent Act, R.S.C. 1985, c. P-4 defines an ‘invention’ as

any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter.

Any invention under the Act must therefore fit within one of these five categories (or be an improvement of one of those five categories).

The only statutory exclusion found in the Act is sub-section 27(8), which provides that:

No patent shall be granted for any mere scientific principle or abstract theorem.

Facts

On 11 September 1998, Amazon.com filed an application for a ‘Method and System for Placing a Purchase Order via a Communications Network’. It claimed priority over two earlier US applications. The applicant sought a patent for a system of placing orders online using one click (commonly referred to as the ‘one-click patent’). Customers were identified using cookies that were stored locally on their computers; these identifiers were then used to obtain the customer's pre-recorded information from Amazon.com's database.

The Patent Examiner rejected the application, stating that all claims (1 through 75) were either obvious or directed towards non-statutory subject matter. The Patent Appeal Board recommended that the Examiner's findings on obviousness be overturned, but that the application still be denied on the grounds of subject matter eligibility. As is common practice, the Commissioner of Patents accepted those findings wholesale, and imported them into her decision verbatim [Re Kaphan Patent Application No. 2,246,933, 2009 LNCPAT 2; for a detailed discussion of the Commissioner's decision, see Crowne-Mohammed, E., ‘Canadian Patent Appeal Board denies Amazon.com's one-click patent application’, Journal of Intellectual Property Law & Practice, (2010) 5 (1): 5–8].

On appeal to the Federal Court (Amazon.com Inc. v Commissioner of Patents, 2010 FC 1011), Justice Phelan overturned the decision of the Commissioner, holding that business methods could constitute patentable subject matter [for a detailed discussion of the Federal Court's decision, see Crowne, E. and Arman, V., ‘Business methods patentable in Canada according to Federal Court’, Journal of Intellectual Property Law & Practice, (2011) 6 (2): 67–69].

Analysis

At the outset of its decision, the Federal Court of Appeal declared that the lower court's ‘directions amount[ed] to an order to the Commissioner to grant the patent’ (ibid., para 1). Instead, the Federal Court of Appeal held that a purposive construction of the claims at issue (which was a task for the Commissioner alone) might yield patentability. At para 63, which I have parsed into three elements for convenience, the court held that:

It is arguable that the patent claims in issue in this case could fail on the same reasoning, depending upon whether a purposive construction of the claims in issue leads to the conclusion that Schlumberger [denying the patentability of a computer and underlying mathematical formula used to interpret certain measurements obtained when drilling boreholes] cannot be distinguished because the only inventive aspect of the claimed invention is the algorithm—a mathematical formula—that is programmed into the computer to cause it to take the necessary steps to accomplish a one-click online purchase. 

On the other hand, it is also arguable that a purposive construction of the claims may lead to the conclusion that Schlumberger is distinguishable because a new one-click method of completing an online purchase is not the whole invention but only one of a number of essential elements in a novel combination. 

In my view, the task of purposive construction of the claims in this case should be undertaken anew by the Commissioner, with a mind open to the possibility that a novel business method may be an essential element of a valid patent claim (emphasis added).

The Commissioner's view in Re Kaphan Patent Application that patentable subject matter must be ‘scientific’ or ‘technological’ in nature was also expressly disapproved of by the Federal Court of Appeal. Justice Sharlow, writing for a unanimous court, found this requirement vague, highly subjective, and unpredictable. According to her, ‘this test should not be used as a stand-alone basis for distinguishing patentable from non-patentable subject matter’ (para 57). If, according to the court, the Commissioner's adoption of these terms was merely a convenient way to exclude things like fine art or works of art from patentable subject matter then that ‘point could have been made more plainly’ (para 58). In fact, earlier in her judgment at para 53, Justice Sharlow warned about straying too far from jurisprudential principles when speaking about patentable subject matter; she astutely warned that ‘[c]atch phrases, tag words and generalizations can take on a life of their own, diverting attention from the governing principles’.

Practical significance

Any refusal to grant a patent on subject matter eligibility grounds must be grounded in the Patent Act. The subject matter must fall outside the definition of invention set out in section 2 (or be excluded by sub-section 27(8)). At para 60, the Federal Court of Appeal rightly noted that ‘no Canadian jurisprudence determines conclusively that a business method cannot be patentable subject matter’. Their decision seemingly continues this tradition by recognizing that a business method may indeed be an essential element of a valid patent claim.

Greener pastures for Tucows

Author: Emir Aly Crowne (Associate Professor, University of Windsor, Faculty of Law; Barrister & Solicitor, Law Society of Upper Canada)

Tucows.Com Co. v Lojas Renner S.A., 2011 ONCA 548, Ontario Court of Appeal, Canada, 5 August 2011

Journal of Intellectual Property Law & Practice (2011), doi: 10.1093/jiplp/jpr165, first published online: October 12, 2011

The Ontario Court of Appeal has ruled that domain names constitute ‘personal property’ in Ontario, which therefore creates a real and substantial connection with the Province, allowing it to assume jurisdiction.

Legal context

Rule 17.02(a) of Ontario's Rules of Civil Procedure, R.R.O. 1990, Reg. 194 permits service outside Ontario without a court order with respect to real or personal property in Ontario. The rule states:

17.02 A party to a proceeding may, without a court order, be served outside Ontario with an originating process or notice of a reference where the proceeding against the party consists of a claim or claims,
Property in Ontario
(a) in respect of real or personal property in Ontario …

At first instance, the respondent, Renner, brought a motion under rule 17.06(1) of the Rules to set aside Tucows' statement of claim, and permanently stay Tucows' action for lack of jurisdiction. In turn, that rule states:

17.06(1) A party who has been served with an originating process outside Ontario may move, before delivering a defence, notice of intent to defend or notice of appearance,
(a) for an order setting aside the service and any order that authorized the service; or
(b) for an order staying the proceeding. R.R.O. 1990, Reg. 194, r. 17.06 (1).

Facts

Tucows purchased over 30,000 domain names from Mailbank Inc., including renner.com. The respondent held a registered trade mark for the word Renner and disputed Tucows' ownership of the domain name in the face of the registration.

Procedural history


Under the Uniform Domain Name Dispute Resolution Policy (‘UDRP’) adopted by Internet Corporation for Assigned Names and Numbers (ICANN, which assigns and manages domain names), Renner initiated dispute resolution proceedings against Tucows. Among the list of dispute resolution service providers under the UDRP, Renner selected the World Intellectual Property Organization (‘WIPO’) Arbitration and Mediation Center and initiated proceedings on 12 May 2009. In turn, Tucows was notified of the complaint on 22 May 2009.

On 10 June 2009, Tucows initiated an action in the Ontario Superior Court of Justice seeking the following declarations:

• that Tucows has rights or legitimate interests in respect of the domain name \renner.com;
  
• that the domain name renner.com has neither been registered nor is it being used in bad faith by Tucows; and
  
• that Renner is not entitled to the transfer of the domain name renner.com.

A day later, on 11 June 2009, Tucows asked WIPO to suspend or terminate the proceedings initiated by Renner in accordance with 18(a) of the UDRP Rules. Namely,

18. Effect of Court Proceedings
(a) In the event of any legal proceedings initiated prior to or during an administrative proceeding in respect of a domain-name dispute that is the subject of the complaint, the Panel shall have the discretion to decide whether to suspend or terminate the administrative proceeding, or to proceed to a decision. [Emphasis added by Ontario Court of Appeal]

In the Ontario Superior Court of Justice (2010 ONSC 5851), the motions judge set aside Tucows' statement of claim on the basis that there was no real and substantial connection between Renner and Ontario and as such rule 17.02 (permitting service outside Ontario without leave where ‘real or personal property in Ontario’ is involved) was not engaged.

Analysis

A unanimous Court of Appeal ruled that a domain name does constitute ‘personal property’ that is located ‘in Ontario’. According to the Court of Appeal:

[50] The dominant view emerging from international jurisprudence and academic commentary appears to be that domain names are a new type of intangible property. American jurisprudence treating domain names as intangible property includes Kremen v Cohen, 337 F.3d 1024 (9th Cir. 2003) … 

[52] Outside the United States, other common law jurisdictions have also treated domain names as intangible property. In OBG Ltd v Allan [2008] 1 A.C. 1 (H.L.), Lord Hoffmann for the majority observed at para. 101, ‘I have no difficulty with the proposition that a domain name may be intangible property, like a copyright or trademark’. In Satyam Infoway, the principal question raised on appeal before India's Supreme Court was whether, in the absence of specific legislation, internet domain names were subject to the legal norms applicable to other intellectual properties such as trademarks. It answered this question in the affirmative. In doing so the court held, at paras. 11–12, that a domain name can be said to be a word or name which is capable of distinguishing the subject of trade or service made available to potential users of the internet. Goodwill can be built up in connection with a domain name: para. 31. See also Hoath v Connect Internet Services Pty Ltd (2006), 229 A.L.R. 566 (N.S.W.S.C.), at pp. 594–95, where the court presumed a domain name was intangible property. 

[53] For the most part, academic commentators also agree that domain names should be considered a form of property. As an example, in ‘Bad Faith in Cyberspace: Grounding Domain Name Theory in Trademark, Property, and Restitution’ (2010) 23 Harv. J.L. & Tech. 447, Jacqueline D. Lipton comments at p. 473, ‘The attraction of the property theory is that it fits the way people routinely think about domain names.’ She suggests at p. 474 that a property model may be the preferable basis on which to ground domain name theory: 

[A property model] best accords with the way market participants relate to domain names. Even though a domain name is a form of contractual license from a registrar to a registrant, it results in a valuable asset that is freely traded on the open market and that is occasionally stolen by a bad faith actor. Even though a transfer of a domain name is, in reality, a de-registration from the original registrant and re-registration to the new registrant, it is now treated routinely as a seamless transfer, as if the name was being handed directly from the original registrant to the new registrant. Further, the acceptance of a property rights rationale for regulating generic domain names could take advantage of existing property-based laws such as theft and conversion, and simply extend them judicially to virtual property. 

See also Hancock, at pp. 191 and 205, in which the author acknowledges that in the United States domain names are generally treated as intangible property, but argues that domain names, although incorporeal, should be treated as tangible property with which they have more in common. (paras. 50, 52 and 53 footnotes omitted)

The Court acknowledged that most of the jurisprudence did not consider the issue in any depth (para. 55) and therefore sought to outline the elements of the property right in question. The Courts distils several elements that define ‘property’:

1. A bundle of rights (paras. 57–60);
   
2. Which affords the owner the right to exclude others (i.e. exclusivity) (para. 63); and
   
3. ‘must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.’ (quoting Lord Wilberforce in National Provincial Bank Ltd. v Ainsworth [1965] A.C. 1175 (H.L.)) (para. 64).

A domain name, according to the Court, satisfies all of these elements and is therefore personal property. It is located ‘in Ontario’ because the registrant (Tucows) is located in Ontario, as are its servers. There is thus a real and substantial connection with the Province of Ontario, such that it is appropriate for its courts to assume jurisdiction in the matter.

Practical significance

Tucows is a fairly well-known player in the domain name market. The decision effectively gives the Ontario courts jurisdiction over all domain names held by Tucows, on its servers in Toronto, in the event of a dispute. The decision follows on the heels of an earlier ruling by the Ontario Superior of Justice in South Simcoe Railway Heritage Corporation v Wakeford, 2011 ONSC 1234, 18 April 2011, that domain names possess proprietary rights. In an earlier Current Intelligence (‘Ontario Superior Court rules on ways to recover domain names’, Journal of Intellectual Property Law & Practice (2011) 6 (9): 612–613). I argued that this was a hasty approach that ignored the Supreme Court of Canada's guidance in R. v Stewart [1988] 1 S.C.R. 963 discussing theft of confidential information under the Criminal Code (as it stood at the time):

… that property must be capable of being taken or converted in a manner that results in the deprivation of the victim. Tangible things present no difficulty in this regard, as it is easy to conceive how they can be both taken and converted. On the other hand, pure intangibles, as they have no physical existence, can obviously only be converted, not taken. The ‘taking’ of an intangible could only occur where such intangible is embodied in a tangible object, for example a cheque, a share certificate or a list containing information. However, that would not result in the taking of the intangible per se, but rather of the physical object evidencing it.

Even by the Ontario Court of Appeal's own definition of ‘property’, it is debatable whether a domain name can be considered a form of property. Consider the requirement that property have some degree of permanence or stability. By tying the requirement of the property to the location of Tucows and its servers, the property rights in the domain name are far from permanent or stable. One need only copy the data on to a remote server and suddenly the permanence or stability of the right diminishes (or is destroyed completely). Even intangible forms of property like copyright, patents, and trade marks enjoy some measure of permanence or stability because they are territorially limited rights. A valid IP right in Canada cannot be enforced against persons in foreign jurisdictions without something ‘more’ (ie a corresponding territorial right in that foreign jurisdiction). Then there is the potential duplication ad infinitum of the alleged property rights in domain names if those servers are backed-up in a dozen or so jurisdictions, are property rights created in all of those jurisdictions, each with seemingly valid competing claims of jurisdiction.

Without a thorough analysis of the issue by the Supreme Court of Canada, everything becomes a property right—including email addresses, telephone numbers, and commonplace, descriptive domain names (like steamtrain.com in South Simcoe Railway)—and all of the attendant privileges, rights, and burdens that accompany that designation. Without something more, like parallel trade mark rights, domain names are merely contractual rights to use a given address for a limited period of time.

Ontario Superior Court rules on ways to recover domain names

Author: Emir Aly Crowne, Assistant Professor, Faculty of Law, University of Windsor Of Counsel, Heydary Hamilton PC

South Simcoe Railway Heritage Corporation v Wakeford, 2011 ONSC 1234, 18 April 2011

Journal of Intellectual Property Law & Practice (2011), doi: 10.1093/jiplp/jpr095, first published online: June 30, 2011

On a motion to strike out, the Ontario Superior Court of Justice recently considered whether a plaintiff's claims for breach of trust, detinue sur trover, wrongful conversion, or misappropriation of IP rights in recovering their domain name disclosed a reasonable cause of action.

Legal context

The Supreme Court of Canada in Hunt v Carey Canada Inc. 74 DLR (4th) 321 indicated that a pleading should only be struck out if it was ‘plain and obvious’ that the statement of claim disclosed no cause of action. In this case, the plaintiff pleaded breach of trust, detinue sur trover, wrongful conversion, or misappropriation of IP rights in seeking to recover a domain name (steamtrain.com). The question before the motions judge was whether any of those pleadings were time barred as the Limitations Act 2002, S.O. 2002, C.24 sets a general two-year window from the date on which a claim is discovered to bring an action.

Facts

The plaintiff is a non-profit corporation that operates a historic steam strain. At various times, the defendant had either been a volunteer or an officer of the plaintiff. In 1996, the defendant registered the domain name steamtrain.com for the plaintiff organization. In 2004, volunteers working on behalf of the plaintiff discovered that the defendant had altered details of the domain name registration. The registration details were again altered in 2005 as to become entirely private.

As this is a motion to strike certain pleadings in the statement of claim, the procedural history is almost non-existent, except that the motions judge indicated that the defendant allowed the plaintiff to use the domain name but reserved the right to revoke that permission at any time.

Analysis

The motions judge held that, since the plaintiffs became aware of the tortious claims in 2004, the limitation period expired in 2006. Accordingly, commencing the action on 19 March 2010 meant that the tort claims were barred by the Limitations Act. In relation to the claim for damages for breach of trust, the motions judge indicated that it was not plain and obvious that the limitation period had expired, or that the claim was otherwise untenable. These were matters of fixed fact and law that required a trial to resolve.

Practical significance

Statements of claim are drafted with a heavy and eager hand. Pleading detinue sur trover—which, until now, was unfamiliar even to this torts professor—for the recovery of a purely intangible domain name is imaginative, to say the least. Nonetheless, at para 24 of the judgment, the motions judge made some obiter remarks worthy of note:

Although this was not part of the moving party's motion, the final point argued by the parties was whether this court has jurisdiction to grant the declaration sought in the claim with respect to ownership of the domain name and the intellectual property rights, as well as a mandatory order directing the defendants to convey the domain name to the plaintiffs. While the plaintiff may be correct that this claim is not within the jurisdiction of the Uniform Domain Name Dispute Resolution Policy prescribed by the Internet Corporation for Assigned Names and Numbers, this court is not convinced that this aspect of the claim should be dismissed for want of jurisdiction pursuant to rule 21.01(3)(a). The actions of the defendants may have to be measured in relation to that statute, to which this court was not referred, that governs the ownership of domain names if such legislation exists. It may be that proprietary rights in a domain name, like copyright and trademark, is a creature of statute as opposed to tort and property law, but the appropriate material was not placed before this court to make a determination of the question at issue.

First, domain name dispute policies do not—and cannot—entirely oust the jurisdiction of the courts, if only for the simple reason that there is no privity between plaintiff and the contractual obligations of the defendant registrant and domain name registrar. Secondly, there is no legislation that governs the ‘ownership’ of domain names in Canada. Finally, the motions judge made an enormous assumption that there are indeed proprietary rights in domain names. One need only look at the Supreme Court of Canada decision in R. v Stewart [1988] 1 SCR 963, discussing theft of confidential information under the Criminal Code (as it stood at the time):

… that property must be capable of being taken or converted in a manner that results in the deprivation of the victim. Tangible things present no difficulty in this regard, as it is easy to conceive how they can be both taken and converted. On the other hand, pure intangibles, as they have no physical existence, can obviously only be converted, not taken. The “taking” of an intangible could only occur where such intangible is embodied in a tangible object, for example a cheque, a share certificate or a list containing information. However, that would not result in the taking of the intangible per se, but rather of the physical object evidencing it.

A ‘raw’ domain name of a commonplace and/or descriptive word, phrase, or item can no more assume proprietary interests than a telephone number or email address. If, however, that raw domain name, telephone number, or even email address is supplemented by parallel trade mark rights, its proprietary nature is undoubtedly strengthened.

Does listening to music excerpts online amount to fair dealing?

Authors: Emir Aly Crowne-Mohammed (University of Windsor, Faculty of Law, Windsor, ON, Canada) and Yonatan Rozenszajn (former Law Clerk, Federal Court, Canada)

Society of Composers, Authors and Music Publishers of Canada v Bell Canada, et al., 2010 FCA 123, 14 May 2010

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq089

In Canada the Federal Court of Appeal agrees with the Copyright Board that the fair dealing exception relating to ‘research’ is broad enough to cover 30-second ‘previews’ of songs online.

Legal context

Section 29 of Canada's Copyright Act, RSC 1985 provides (among other things) that ‘fair dealing for the purpose of research or private study does not infringe copyright’.

Facts

The Copyright Board, created under the Copyright Act, is ‘empowered to establish, either mandatorily or at the request of an interested party, the royalties to be paid for the use of copyrighted works, when the administration of such copyright is entrusted to a collective-administration society. The Board also has the right to supervise agreements between users and licensing bodies and issues licences when the copyright owner cannot be located’: Copyright Board of Canada: Our Mandate.

In 1995 the Society of Composers, Authors and Music Publishers (SOCAN), a collective society under the Copyright Act, which administers performing rights in Canada, applied to the Copyright Board for the approval of tariffs on musical works communicated over the internet. As part of this application, SOCAN called for a different (and higher) tariff rate for music downloads that offered 30-second previews (or less) versus downloads that were offered without previews.

A number of parties which included broadcasters, internet service providers (ISPs), and Apple Canada Inc. challenged one or more of the proposed tariffs on a number of grounds, but not on fair dealing. The Board on its own initiative raised the issue of whether offering previews of musical works online amounted to fair dealing for the purpose of research and was therefore not compensable by way of a tariff.

The first part of the Board's decision was released on 18 October 2007 (Collective Administration of Performing Rights and of Communication Rights (Re) Copyright Act, subsection 68(3) File: Public Performance of Musical Works Statement of Royalties to be Collected by SOCAN for the Communication to the public by Telecommunication, in Canada, of Musical or Dramatico-musical Works Tariff No. 22.A (internet – Online Music Services) 1996–2006 [2007] CBD No. 7). In this decision the Board concluded (among other things) that providers of online music previews were entitled to rely on the fair dealing provisions of the Copyright Act since listening to 30-second previews before deciding to permanently purchase a musical work should be regarded as a form of consumer research. SOCAN sought a judicial review of the decision by the Federal Court of Appeal.

Analysis

In deciding that the Board's reasoning was neither unreasonable nor in error, the Federal Court of Appeal adopted the ‘large and liberal’ approach to the research exemption under the Copyright Act's fair dealing exemptions as set out by the Chief Justice of the Supreme Court of Canada in CCH v Law Society of Upper Canada [2004] 1 SCR 339 at para. 51:

...‘Research’ must be given a large and liberal interpretation in order to ensure that users' rights are not unduly constrained. I agree with the Court of Appeal that research is not limited to non-commercial or private contexts.

That decision emphasized that the ‘fair dealing exception, like other exceptions in the Copyright Act, is a user's right. In order to maintain the proper balance between the rights of a copyright owner and users' interests, it must not be interpreted restrictively’ (para. 12). In keeping with this approach, the Federal Court of Appeal noted that the term ‘research’ as it was used in the Copyright Act, was not limited by qualifiers like ‘scientific’, ‘economic’ or ‘cultural’. Accordingly that term could be interpreted in a context-specific inquiry.

Given the nature of the ‘research’ involved in users listening to the 30-second clips or previews of songs online, the court felt that research be given its primary and ordinary meaning, this being the use of previews to help consumers in their search for a particular song as to ensure its authenticity and quality before purchasing it. In this context, ‘research’ included consumer research.

The court then examined whether a 30-second preview, or less, was fair. The Federal Court of Appeal agreed with the Copyright Board in holding that the amount of the dealing is presumptively fair, given the length of the complete work.

Practical significance

The Federal Court of Appeal ruling follows the clear guidance of the Chief Justice of the Supreme Court of Canada in CCH v Law Society of Upper Canada [2004] 1 SCR 339 and rightly expands the numbers of activities that may fall within the fair dealing exemption for research. Indeed, copyright law is often touted as a balance between users and creators. This decision goes beyond mere ‘lip service’ and empowers users with powerful rights – rights which become particularly relevant in the new digital economy.