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The Federal Court of Appeal has ruled that section 78.6 of the Patent Act, which came into force earlier this year, is effective in addressing problems caused by the payment of certain fees associated with patents and patent applications as a small entity when the applicant in question was not, in fact, a small entity.

The Patent Rules provide two levels of payment for certain fees related to patents and patent applications: a smaller fee for a "small entity" and a regular fee for an entity that is not a small entity. The decision of the Federal Court of Appeal in Dutch Industries Ltd. v. Canada (Commissioner of Patent) ("Dutch Industries")[1] held that the payment of a fee as a small entity by a patentee or an applicant that did not in fact qualify for small entity status was equivalent to a failure to pay the fee. Where the error was not corrected within the 12-month period provided for in the Patent Rules, the result was the irretrievable abandonment of the application or lapse of the patent. This problem was discussed in our December 8, 2005 Bulletin entitled "Measures to Address Problems Arising from Past Small Entity Status Claims to Come into Force on February 1, 2006".

One of the parties caught by this problem was Johnson & Johnson Inc. After it had sued Boston Scientific Ltd. and Arterial Vascular Engineering Canada, Inc. and others for patent infringement, the respective defendants moved for summary judgment as against the three patents in each suit. The filing fees for the three patents had been paid as a small entity and thereafter topped up before issuance. On November 30, 2004, only three days before the bill adding section 78.6 to the Patent Act was introduced to Parliament, these summary judgment motions were granted.[2] Johnson & Johnson appealed.

Subsection 78.6(1) now provides that, if a fee was paid incorrectly as a small entity, and a top-up payment has already been made or is made hereafter in a timely fashion, the top-up payment will be deemed to have been made on the day of the original, incorrect, payment. It is as if the full fee was paid from the beginning.

On May 23, 2006, the Federal Court of Appeal considered section 78.6 and allowed the appeals from the lower court.[3] It dismissed the motions for summary judgment. The Court said:

[I]t is abundantly clear that Parliament intended subsection 78.6(1) to alleviate the effect of Dutch Industries retroactively if a top-up payment is made that meets the conditions stated in subsection 78.6(1).

The presumption that a statute does not have retroactive effect must yield to clear statutory language. Subsection 78.6(1) clearly establishes a deemed date of payment, with retroactive effect, even in cases where an action relating to the payment "has been commenced or decided".

Even if the summary judgments were granted on the basis of a legal analysis that was correct when it was done, the judgments cannot be permitted to stand in the face of subsection 78.6(1).

(original emphasis)

So, owners of patent rights can be confident that the statutory fix for the small entity problem identified in the Dutch Industries decision is effective, even if a court has already ruled that the patent in question is invalid. The Court also confirmed that top-up payments made in the past (during the time before the Dutch Industries decision, when the Canadian Intellectual Property Office ("CIPO") routinely accepted such top-up payments) can be relied upon to satisfy the requirements of section 78.6.

The main limitation of section 78.6 is that it applies only to incorrect payments made before February 1, 2006 that have been topped up by February 1, 2007. This means that section 78.6 cannot be relied upon to correct any payments made since February 1, 2006, nor will it apply to any top-up payments made after February 1, 2007. To address these situations, CIPO has recently published proposed amendments to the Patent Rules. These are aimed at, among other things, clarifying who is entitled to pay a fee as a small entity, and providing a mechanism for correcting erroneous claims of small entity status. The proposed amendments are available at the "Consultation and Discussion" page of CIPO's website.

One important limitation of the proposed amendments is that they will not have retroactive effect. Therefore, there will be a gap period from February 1, 2006 to the date the amendments come into force. There will be no mechanism for correcting any small entity payments made during this period.

It is expected that the amendments will come into force later this year, after the completion of the consultation process.

[1]. [2003] 4 F.C. 67, 2003 FCA 121

[2]. 2004 FC 1672

[3]. 2006 FCA 195

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.

© Ogilvy Renault LLP 2006 - All Rights Reserved

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