Administrative Breaches and Patent Validity

The Federal Court recently held, in Apotex Inc. v. Pfizer Inc. et al., 2016 FC 136, that there was no legal basis to invalidate an issued patent due to non-patent of an administrative fee while the application was pending. This result arose regarding a patent where an incorrect final fee was paid many years earlier during the patent pendency.

Through out the patent process, multiple fees are required by specific deadlines. These fees include annual maintenance fees, examination fees, and final fees at the time the application is granted. The Patent Act and Patent Rules set out requirements for each of these and leaves little room for exceptions.

In Dutch Industries, a 2003 decision of the Federal Court of Appeal held that a patent application on which ‘small entity’ payments had been incorrectly made rather than large entities was deemed abandoned. The Court held that there was no provision within the Patent Act to accept ‘top up’ payments even in the event of ‘innocent errors’.

Several developments happened since 2003 to address fee payment issues. Immediately following Dutch Industries the Patent Act was amended to include provisions to temporarily allow top-up payments during a one year grace period (see Section 78.61(1) of the Act). A significant number of patent fees were topped up during this period. My data suggests that fees on at least 10,000 patent or applications were supplemented or ‘topped up’ during this one year period and over $5 million in top up fees paid.

A couple of years later, the Patent Rules were amended as they relate to fees for small entities, including provisions that allow for extensions of time for payment of large entities fees “if the Commissioner is satisfied that the circumstances justify the extension” (see Section 26(3) and 26.1 of the Rules).

In the recently Federal Court decision, an incorrect fee was paid on patent at issue while it was pending as an application. The final fee, paid once the application was allowed, had been paid on a small entity basis. The application was then granted as a patent. Years later, during the one year grace period discussed above, the patent agent for the owner attempted to pay a ‘top up’ fee but due to a series of events, the fee was not paid.

The question facing the court was whether the failure to pay the correct final fee was sufficient to invalidate the patent. The Court concluded at paragraph 94 that once the application was granted, administrative irregularities while it was an application could not be challenged.

There is no compelling policy reason why a failure to pay the full final fee on a patent application should invalidate a subsequently issued valid patent.

I find that there is therefore no legal basis to invalidate the 132 Patent due to the non-payment of the administrative fee.

The primary basis for this conclusion was the 2011 decision of the Federal Court of Appeal in Corlac Inc v Weatherford Canada Inc., 2011 FCA 228 which in the relevant portion focused on statements made by an applicant to the patent office during prosecution. The court distinguished the “dichotomy” or “demarcation point” between a patent application and patent:

To be clear, the concept of abandonment in paragraph 73(1)(a) operates during the prosecution of the application for a patent. Its operation is extinguished once the patent issues.

While the recent decision in Apotex Inc. v. Pfizer Inc. et al., 2016 FC 136 provides greater certainty to patent owners, who now avoid a careful review of the full history of the patent application, it does raise questions both about the specific ‘top up’ fees at issue but more generally about administrative fees during the patent process.

The effect of this decision appears to be to remove all consequences for failure to pay ‘top up’ fees during the one year grace period established after Dutch Industries, or perhaps even any large entity fees. If a small entity fee was incorrectly paid, the patent was granted and no top up was paid during the grace period, the patent is likely immune from challenge on this basis, according this decision.

Through the entire patent process, both while pending as an application and after grant, annual maintenance fees are paid, each of which can be paid on a small or large entity basis. If an incorrect fee is paid after grant, then potentially the entire patent is invalid. Why should there be this sharp demarcation between applications and granted patents for what is in practice an almost identical fee payment process? These questions will have to be addressed in future decisions.