Patent Trolls in Canada?

Recently, there has been a renewed discussion about Patent Assertion Entities, also known as non-practicing entitles (NPEs), or colloquially, patent trolls. In early June, President Obama announced new initiatives to combat what he called, Patent Assertion Entities, which “don’t actually produce anything themselves,” and instead develop a business model “to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”

The U.S. president made a number of recommendations to congress for legislative changes and announced executive actions to address these Patent Assertion Entities. The recommendations included legislative changes to permit judges to award costs against unsuccessful plaintiffs and provide protection to end users of products from patent infringement lawsuits.

In May, the state of Vermont enacted legislation directed to “bad faith assertion of patent infringement” which included factors a court may consider to determine if a patent claim is abusive. It will remain to be seen whether the law survives constitutional challenges on the basis that the law pre-empted by federal patent law but it does show frustration with some types of patent infringement actions.

The factors the Vermont legislation suggests should be considered by the Court include:

• the lack of specific information about the allegedly infringing product or service;
• an unreasonable demand for money;
• the claims were without merit;
• the patent assertion is deceptive;
• a court has previously found the claims to be meritless;

So far, there have not been any recent changes in Canada directed specifically to patent assertion entities. The Federal Court, where most patent litigation takes place, has a couple of features that make Canadian patent litigation less appealing to typical patent assertion entities than in the United States: limited availability of interlocutory injunctions and cost awards to the successful party.

First, interlocutory injunctions in patent cases are rarely granted by the Federal Court. The Federal Court has often applied the ‘irreparable harm’ component of the RJR Macdonald test for an injunction strictly and has denied injunctions in many cases. A plaintiff that only licenses its intellectual property would likely have a difficult time arguing that the damages it has suffered cannot be compensated with money.

Because patent assertion entities often use the threat of an injunction to try to obtain license or royalties fees from the defendants, pushing off the risk of an injunction for several years until after a full trial reduces the immediate risk to a defendant. In other jurisdictions, a quick order enjoining a defendant from selling its product or offering its services can be a significant risk, leading to a higher willingness to pay the patent owner for a license.

Secondly, costs awards to the successful party provide a disincentive to a patentee if there is a risk they will lose the patent infringement action. A costs award after a trial can be over a $1 million dollars, a significant downside risk to the patentee in addition to its own legal fees if it is unsuccessful. In contrast, in many U.S. jurisdictions, the unsuccessful plaintiff may only have to pay its own legal fees, with no obligation to pay the successful defendants legal fees.

A defendant in a patent infringement action can request an order requiring a plaintiff to post a bond or security for a possible costs award if the defendant has few or no assets in Canada or is resident outside Canada. In the Federal Court, a motion for such an order can be made at any time, even immediately after a statement of claim has been served.

In Canada, a company called Dovden Investments has started about 28 patent infringement actions in the last twelve months amounting to about 35% of patent actions started during that period. A company suing on similar U.S. patents in the United States, ArrivalStar, has been called a troll by the Electronic Frontier Foundation for its patent infringement actions against municipal transit systems and organized a search for prior art against its patents. None of Dovden Investment’s patent infringement actions have gone to trial in Canada so far.

Because demand letters and pre-litigation negotiations rarely are made public, it is difficult to know how many patent assertion entities are active in Canada. Once litigation is started, particularly in the Federal Court with its online proceeding listings, patterns are more easily detected. In the last several years, with only around 50 patent infringement actions started per year, other than Dovden Investments, this type of patent litigation does not appear to have become a significant part of Canadian patent litigation landscape.