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The Federal Government has set a date for the coming into force of its response to the problem of owners of patents and patent applications paying certain associated fees as a "small entity" when they should not have paid such fees as a small entity. These payments have been characterized by the Canadian Intellectual Property Office ("CIPO") and are referred to herein as "incorrect". By Order dated October 25, 2005,[i] the Governor General in Council has fixed February 1, 2006 as the day on which new section 78.6 of the Patent Act will come into force.

The problem of incorrect payments arises because certain fees payable in respect of patents and patent applications (including fees for filing, requesting examination, maintenance and issuance) are lower for small entities. The definition of a "small entity" is set out in the Patent Rules, but it has been described as ambiguous in several respects.

The problem came to light following decisions of the Federal Court[ii] and the Federal Court of Appeal[iii] in Dutch Industries Ltd. v. Canada (Commissioner of Patents) ("Dutch Industries"). In that case, the owner of a patent application had paid maintenance fees as a small entity when it did not satisfy the definition of "small entity". The Court determined that this was equivalent to a failure to pay the fee and the application was deemed abandoned. Because abandonment had occurred more than 12 months before, the application could not be reinstated.

Until Dutch Industries, CIPO accepted top-up payments where a small entity fee had been paid incorrectly. Because such top-up payments (which make up the difference between the regular fee and the fee for a small entity) were routinely accepted by CIPO over a long period of time and they appeared to cure any problems concerning incorrect payment, there was little concern that paying fees as a small entity could result in the loss of patent rights.

CIPO's practice of accepting top-up payments ended with Dutch Industries. The effect of Dutch Industries was that large numbers of patents and patent applications in respect of which fees had been paid as a small entity were vulnerable to challenge.

A wrinkle was added in the appeal decision in Dutch Industries. The Federal Court of Appeal ruled that status as a small entity or not is determined only once, "when the patent regime is first engaged (generally, when submitting a patent application)." The result of this ruling was that a company that was not a small entity at the time the patent application was filed, but that became a small entity thereafter, was not entitled to begin making reduced payments. This came as a surprise to many. The Court of Appeal ruling thereby added a new group of parties adversely affected by Dutch Industries.

Parliament's response was to add section 78.6 to the Patent Act. Essentially, this new section provides a framework for retroactive recognition of top-up payments made in the past. It also permits additional top-up payments for a limited time. The section provides that if a fee was paid incorrectly as a small entity before the section comes into force on February 1, 2006, then a top-up payment made either before that date or no later than twelve months thereafter will be deemed to have been made on the day of the original, incorrect, payment. It will be as if the full fee had been paid from the beginning.

Because the last day to make a top-up payment under this section will be February 1, 2007 and because there are so many patents and patent applications potentially affected by this problem, steps should be taken without delay to identify patents and patent applications in respect of which a fee was paid as a small entity, and then to determine whether any top-up payments are required. This process has been ongoing at Ogilvy Renault for some time. CIPO has recently added information to its website concerning fees that have been paid in respect of patents and patent applications. Another relevant aspect of this legislation is found in subsection 78.6(4) which absolves the Government of any liability "in respect of any direct or indirect consequence resulting from the application of this section."

Since section 78.6 relates only to incorrect payments made before February 1, 2006, it does not address concerns about the risks associated with paying a fee as a small entity after that date. As things stand, the definition of "small entity" remains ambiguous and the consequences of an incorrect fee payment remain draconian. Some Government representatives have indicated that there are plans to amend the Patent Rules to clarify the definition of "small entity", to specify when the determination of small entity status is to be made, and to alter the effect of an incorrect fee payment as a small entity. The hope was that these amendments would come into force at the same time as section 78.6 of the Act in order to avoid a gap in the corrective measures. However, CIPO now indicates that the amendments will not be ready for February 1, 2006.

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.

[i].     P.C. 2005-1871
[ii].    [2002] 1 F.C. 325
[iii].    [2003] 4 F.C. 67

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