On August 8, the government of Canada announced its intention to amend the Patent Act and Patent Regulations in order to address some of the issues raised by the recent Federal Court of Appeal decision in Dutch Industries Ltd. v. The Commissioner of Patents, Barton No-Till Disk Inc. and Flexi-Coil Ltd., [2003] F.C.J. No. 396. In that case, the court altered this country’s practice on payment of patent fees, especially maintenance fees.

In Canada, patent applicants are required to pay annual maintenance fees in order to maintain their applications and patents in good standing. These fees may be paid based on the entity status of the applicant. A “small entity” is defined as a university or a company with 50 or fewer employees that has no contractual or legal obligation to transfer or license any right to the invention to an entity having more than 50 employees. A“large entity” is any applicant that does not meet the small entity definition.

While the large entity rates are double the small entity rates, in absolute terms the difference in payment based on entity status is relatively minor. For example, at the time of filing an application a small entity presently pays a $150 filing fee whereas a large entity pays a $300 filing fee. For an application filed after Oct. 1, 1989, the first maintenance fee (due on the second anniversary of filing) is $50 for a small entity and $100 for a large entity. With a few rare exceptions, the greatest fee differential in any payment is a mere $200. On Aug. 13, 2001, the Trial Division of the Federal Court sent the patent field into turmoil when it ruled in the Dutch Industries case that not only could an incorrect fee payment based on entity status result in the invalidity of a patent or application if challenged, but also that there is no provision in the Patent Act that would allow the Canadian Intellectual Property Office (CIPO) to accept late payments for maintenance fees. This decision quickly put an end to the practice of “topping up” payments that were later determined to have been made incorrectly at the small entity rate, a practice which up until that point had been accepted by CIPO. In its place, Dutch Industries encouraged a new practice that would have applicants paying large entity fees irrespective of whether they actually qualified for the small entity reduction.

The result was chaos. Applicants and patentees, many of whom had perhaps considered the question of small entity status without the expectation of such dire consequences resulting from an error, were scrambling to determine whether their patents and patent applications were susceptible to attack based on a technicality. Those who had been unfortunate enough to try to top up payments — and actually make the small entity designation error a matter of public record — could only throw up their hands in frustration at the sudden vulnerability to a finding of invalidity for the sake of saving a few hundred dollars. In addition, at least one major insurer has since refused to cover claims based on the payment of maintenance fees. On March 7, the Federal Court of Appeal revisited the issue of entity status, adding yet another twist into the mix. According to the Federal Court of Appeal, entity status would be determined only once, when the applicant first engaged the patent system, typically at the time of filing a patent application. If at that time the status was claimed incorrectly as small entity, the result could be fatal to the application or patent. If the status of the applicant changed during the prosecution of the application, the applicant would still be obligated to pay fees in accordance with the entity status that had been determined at the time of filing.

The court of appeal decision has raised a serious problem in any application or patent where the applicant had filed as a large entity and subsequently, after becoming a small entity, started paying maintenance fees on the small entity scale. This was ostensibly perfectly permissible under the Patent Act until the court of appeal rendered its decision, but because the Patent Act precludes late payment of maintenance fees, any such application or patent that has passed the reinstatement period (one year from the failure to take the required action) is now vulnerable to a challenge as a direct result of the court of appeal decision.

With the proposed amendments to the Patent Act and Patent Regulations, Parliament plans to provide a mechanism to allow for the retroactive correction of fee payments that were made incorrectly at the small entity rate. It is unclear at this time what that mechanism will be and whether that mechanism or the timing of its implementation will be altered in any way based on the Supreme Court of Canada’s pending decision to grant or deny leave in the Dutch Industries case.

It is anticipated, however, that the amendments will also address both prior payment of fees by large entities at the small entity rate and prospective payments.

John Baker, President of the Intellectual Property Institute of Canada (IPIC), expects the amendments to be proposed in a separate Bill, rather than being included in an omnibus intellectual property amendment Bill. Presumably this reflects the government’s recognition that this is an urgent issue, which needs to be addressed expeditiously and without the delays typically encountered in approving multiple amendments to various intellectual property statutes.

How long this will actually take is unknown, but CIPO plans to commence consultations with the patent profession in the near future, to determine the most appropriate mechanism and its likely impact on applicants and patentees.

In the meantime, patent practitioners remain in a state of confusion as to how to advise many applicants and patentees about the effect of assignments of patent rights and the disposition of prior cases where the owner’s entity status may have been incorrectly determined at the outset.

Out of an abundance of caution, many firms are advising all clients to pay fees at large entity rates, regardless of whether the applicant or patentee may be entitled to small entity status.

David Tobin, Commissioner of Patents and CIPO’S Chief Executive Officer, is expected to speak to this issue at the Intellectual Property Institute of Canada’s annual general meeting in Halifax commencing September 18.

But as of the writing of this article, the extent to which proposed changes might bring relief to applicants and patentees, and some measure of comfort to patent practitioners, remains to be determined.

Mark Eisen and Angela Furlanetto practise intellectual property law with Dimock Stratton LLP in Toronto.

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