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Federal Court’s Jurisdiction Over Contractual Intellectual Property Issues

The Federal Court of Appeal has clarified the Federal Court’s jurisdiction over contractual ownership issues as part of patent proceedings. Ownership of patents is often intertwined with the identification of inventors, assignments of patent rights and license agreements. The Federal Court hears most intellectual property cases in Canada and more certainty on the Court’s jurisdiction in this area is welcome.

As a statutory court, the Federal Court shares jurisdiction with the superior courts in certain areas and has exclusive jurisdiction on other matters. As it relates to intellectual property, the Federal Courts Act, Section 20 identifies areas of exclusive and concurrent jurisdiction (see my earlier column, “Where Should You Launch Your Intellectual Property Case?”). Making findings on contractual matters are not listed in the Federal Courts Act.

In the recent decision of Salt Canada Inc. v Baker, the appellant sought an order from the Court directing the Canadian Patent Office to change the records of ownership of a patent. While this order is within the Federal Court’s exclusive jurisdiction under Section 20(1)(b) of the Federal Courts Act and Section 52 of the Patent Act the basis for the order required contractual interpretation.

The appellant relied on an agreement in which ownership of the patent at issue passed to Baker but according to the agreement, ownership in the patent reverted if certain royalties were not paid.

The lower court decision had held that the Federal Court did not have jurisdiction to interpret the contractual terms of the agreement, concluding (at paragraph 24) “The interpretation of these agreements is clearly a matter of contract, rather than patent law, and for this reason alone I find that the Court lacks jurisdiction to determine the question of whether the Applicant does or does not own the Canadian Patent.”

The Federal Court of Appeal in Salt Canada Inc. v. Baker, 2020 FCA 127, reversed, holding, where “contracts arise within its jurisdiction, the Federal Courts are empowered to resolve these disputes just as any other court does, and they do so all the time.” In making this holding, the Federal Court of Appeal rejected a line of cases that asked whether a case was primarily a case in contract where the patent issues were ancillary.

The Federal Court of Appeal relied on the Federal Court’s general competence to interpret contracts as part of the jurisdiction it has been granted, stating, “A cursory review of appellate decisions rendered in the past few years reveals a docket teeming with questions of contractual interpretation.”

The Court also recognized the inefficiencies for the court system and litigants if proceedings were required in both a superior court, to interpret a contract, followed by the Federal Court, to obtain relief exclusive to the Federal Court such as to update patent office records. The Court stated that the Federal Courts system “was not meant to complicate Canadian law, requiring parties to litigate in two sets of courts instead of one.”

While the Salt Canada decision related to an application to vary the records at the Patent Office, contractual ownership issues also arise in infringement proceedings, where a defendant argues that it has rights, such as pursuant to an assignment or license, to the asserted rights, and therefore cannot infringe. The Federal Court of Appeal’s reasoning would likely apply to these scenarios as well.

For example, in an earlier decided Farmobile, LLC v Farmers Edge Inc., 2018 FC 1269, the Federal Court considered a motion to strike pleadings outside the Court’s jurisdiction. The Court allowed a defendant to plead ownership of a patent pursuant to a contract as a defence, but struck a counterclaim seeking to vary the patent office records based on the same agreement. The Court held that a pleading of non-infringement of patent based on ownership was within the Court’s jurisdiction as being part of patent law. On the other hand, the Court held that the defendant’s counterclaim based on the same contractual agreement should be struck on the basis that “while relief is being sought pursuant to section 52 of the Patent Act, the pleading is nevertheless framed in contract”. The Court recognized the inconvenience with this result which, “could result in the Defendant having to commence a second proceeding in a provincial superior court to enforce its contract claims.”

It is likely that the result would have been different if this motion had been argued after the Court of Appeal’s Salt Canada decision rejected the approach applied in Farmobile.

The Federal Court of Appeal’s decision in Salt Canada on the jurisdiction of the Court to consider contractual issues surrounding patent recognizes both the practicalities of litigation and avoiding duplicative litigation, but also that intellectual property rights are frequently defined through contractual relationships.

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