Caution With Patent Demand Letters

Pre-litigation steps of putting parties on notice of allegations of patent infringement are common in Canada. Avoiding the cost and time of litigation though early resolution can make such notice very worthwhile, but recent decisions highlight risks of make aggressive claims of patent infringement.

In amendments to the Patent Act made in 2018, new sections create a framework for regulating the contents of patent infringement demand letters, but as of the date of this article implementing regulations have not been introduced. Section 76.2 added in 2018, states, “Any written demand received by a person in Canada, that relates to an invention that is patented in Canada or elsewhere or that is protected by a certificate of supplementary protection in Canada or by analogous rights granted elsewhere, must comply with the prescribed requirements.” Various procedures are included if a demand letter does not comply – but currently there are no ‘prescribed requirements’.

Instead, aggrieved parties have relied on sections of the Trademarks Act prohibiting false and misleading statements, and related common law torts to challenge demand letters written by patentees which arguably overstate the patent rights or interfere with their commercial situation.

Section 7(a) of the Trademarks Act prohibits someone from making, “a false or misleading statement tending to discredit the business, goods or services of a competitor”. The Supreme Court of Canada in S&S Industries Inc v Rowell, [1966] SCR 419 held that this section did not contain an “express requirement that the false or misleading statements be made with knowledge of their falsity, or that they be made maliciously.”

In Fluid Energy Group Ltd. v. Exaltexx Inc., 2020 FC 81, the defendant in a patent infringement proceeding obtained an interim injunction against the plaintiff/patentee for writing to the defendant’s suppliers. The Court found there was a serious issue to be tried on whether a supplier of merely ‘a raw chemical’ could be infringing the patent at issue and whether the trucking company that was the shipping agent for the defendant ‘used’ the patent at issue. The Court considered but did not find that the defendant had met the onus regarding statements that the defendant had infringed the patent – the subject matter of the underlying patent dispute. The Court concluded:

“However, where allegations of infringement and threats of litigation are directed to third parties in an effort to effectively obtain in the marketplace what could not be obtained with an injunction, a reasonable basis for a subsection 7(a) claim may be made out.”

The Federal Court in Excalibre Oil Tools Ltd v. Advantage Products Inc., 2016 FC 1279 aff’d 2019 FCA 121 awarded damages in favour of a defendant where letters had been written to a defendant’s customers and the patents were found at trial to be invalid or not infringed. The Court wrote:

“It is important to distinguish between cease and desist letters that are informative and letters that are threatening. … Informative letters set out a patentee’s rights and provide information that will enable the recipient to understand what may constitute infringement. Threatening letters contain explicit or veiled threats that the recipient will be sued if they do not change a particular course of conduct.”

To be successful on a claim under 7(a), one must establish i) a false and misleading statement; ii) tending to discredit the business, wares or services of a competitor; and iii) resulting damages.

In addition to the content of the letters and whether they may be considered ‘false and misleading’, it is also worth to consider the possible response from the recipient of any demand letter. The recipient may respond with an impeachment action, under section 60 of the Patent Act seeking to invalidate the patent or seek a declaration of non-infringement. Similar procedures exist in the United States through Declaratory Judgment proceedings.

It is therefore important to fully consider the wording of any demand letter relating to patent infringement to reduce the risk of unintended consequences, such as being at the receiving end of allegations from the recipient of the letter.