Indemnity Claims in Federal Court IP Disputes

As a statutory court, the Federal Court only has the jurisdiction provided to it under federal legislation, which includes shared and exclusive jurisdiction in the area of intellectual property. In 2020, the Federal Court of Appeal concluded that the court has jurisdiction to handle contractual issues touching on intellectual property. A recent reported decision has applied this to indemnity claims against third parties.

When determining liability for infringement of patent, trademark and copyright, the intention of the defendant is typically not relevant. A party that uses an infringing product may still be liable for patent infringement even if they merely bought the product from a third party. Similarly, a party that re-sells products that contain copyright protected material or marked with a trademark may be liable even if they received assurances of its legitimacy. Typically, parties try to protect themselves in these circumstances through contracts, and particularly indemnities and representations.

The Federal Courts Act states that, “The Federal Court has original jurisdiction in respect of any matter … in respect of which jurisdiction has been conferred by an Act of Parliament…” The Patent Act, Trademark Act, and Copyright Act, for example, provide jurisdiction for disputes over infringement of intellectual property and most intellectual property infringement disputes are heard in the Federal Court.

Disputes over intellectual property ownership and the scope of license agreements, where infringement is not being asserted, may be adjudicated in the provincial superior courts.

In Salt Canada Inc. v. Baker, 2020 FCA 127, the Federal Court of Appeal concluded that the Federal Court could interpret agreements and other instruments as part of its jurisdiction under the Patent Act to determine who should be reflected in the Patent Office as the owner of a patent under s. 52 of the Patent Act (see earlier column Federal Court’s Jurisdiction Over Contractual Intellectual Property Issues).

Recently, in Planit Software Ltd. v. Mr. Beaver Inc., 2022 FC 585, the court applied these ideas to claims for indemnity. The defendant sought to bring a third party claim against a vendor in a copyright infringement proceeding. The defendant was alleged to have infringed the plaintiff’s copyright in certain software. The defendant pleaded that it obtained the software, along with the equipment on which it ran, from a third party as part an asset purchase agreement. The third party was alleged to have made various representations about the software as well as supplied a software renewal key to the defendant.

The third party moved to strike the third party claim as being outside the court’s jurisdiction. The court agreed that claims by the defendant against the third party for damages for misrepresentation, lost profits and legal costs were outside the court’s jurisdiction and struck them.

However, the court did not strike the claims for contribution and indemnity against the third party. The court held that the third party claim for contribution and indemnity would all be grounded in the court’s jurisdiction under the Copyright Act:

A third party claim for contribution and indemnity would therefore allow the Court to determine the central issues in the proceeding: does Planit Software own copyright in the asserted works; were those rights infringed; who is responsible for the infringement; should compensation be paid; and who should pay it? In this context, the parties’ rights in respect of the third party claim would arise under, and be extensively governed by, a detailed statutory framework (the Copyright Act) sufficient to ground the jurisdiction of the Court. [references omitted]

This decision is only a motion to strike so there was no determination on the merits of the claims for indemnity.

It should be noted that in a 2021 decision, the Federal Court of Appeal also addressed a third party claim by a defendant against a supplier. In McCain Foods Limited v. J.R. Simplot Company, 2021 FCA 4, the third party claim was characterized whether the defendant was induced to infringe the plaintiff’s asserted patent by the third party. This third party claim was found to be untenable under patent law.

The Planit Software decision is potentially significant because as noted above, there is typically strict liability for infringement of intellectual property and a defendant may benefit from making a third claim against an indemnifier immediately as part of the Federal Court proceeding rather than pursuing their claims separately in the provincial superior court on based on their indemnity contract.