"Small Entity" Status Continues to Wreak Havoc – But the End is in Sight 

publication 

Summer 2005 - (Intellectual Property Brief Summer 2005)

Intellectual Property Brief Summer 2005

The Canadian patent regime, like many others, provides a 50% reduction in fees to eligible sole inventors, small companies and universities. Those who qualify for the fee reduction are called "small entities," a term defined in the Patent Rules. Small entity status was considered in Barton No-Till and Flexi-Coil v. Dutch Industries (2003), 24 C.P.R. (4th) 157 (F.C.A.), reversing in part, 14 C.P.R. (4th) 499 (F.C.T.D.), in which it was decided that the entity status of an applicant was determined once and for all when the applicant first "engaged" the patent regime.

The draconian consequences of failing to correctly determine the entity status of a client at the outset were made apparent in two fairly recent cases. Johnson & Johnson Inc. et al. v. Boston Scientific Ltd. 2004 F.C. 1672 (F.C.) was an action for infringement of three patents relating to medical stents. Boston Scientific brought a motion for summary judgment that the patents were void, based on the payment of the incorrect filing (and other) fees for the applications from which the patents issued. The Court found that the applicant was not a "small entity" when its applications were filed. Consequently, the applications had been abandoned 12 months after they were filed, due to the payment of insufficient filing fees, and had not been reinstated within 12 months thereafter. As a result, those applications were irrevocably abandoned and the patents issuing from them were found to be invalid.

Johnson & Johnson et al. v. Arterial Vascular Engineering Canada, Inc. et al. 2004 F.C. 1673 (F.C.) was another action for infringement of four patents, three of which were the same as those found to be invalid in Johnson & Johnson Inc. et al. v. Boston Scientific Ltd. The court reached the same conclusion and granted the defendants' motion for summary judgment of invalidity with respect to the three patents for which insufficient filing fees had been paid.

In August 2004, the Federal government announced that it would introduce legislation to retroactively permit the correction of the under-payment of filing, maintenance and other fees, based on a misapprehension of entity status. Bill C-29, "An Act to Amend the Patent Act" will provide a 12-month period, after its coming into force, within which to correct any previously made deficient fee payment. The relevant section is:

78.6 (1) If, before the day on which this section comes into force, a person has paid a prescribed fee applicable to a small entity, within the meaning of the Patent Rules as they read at the time of payment, but should have paid the prescribed fee applicable to an entity other than a small entity and a payment equivalent to the difference between the two amounts is submitted to the Commissioner in accordance with subsection (2) either before or no later than twelve months after that day, the payment is deemed to have been paid on the day on which the prescribed fee was paid, regardless of whether an action or other proceeding relating to the patent or patent application in respect of which the fee was payable has been commenced or decided.

(2) Any person who submits a payment to the Commissioner in accordance with subsection (1) is required to provide information with respect to the service or proceeding in respect of which the fee was paid and the patent or application in respect of which the fee was paid.

(3) A payment submitted in accordance with subsection (1) shall not be refunded.

(4) No action or proceeding for any compensation or damages lies against Her Majesty in right of Canada in respect of any direct or indirect consequence resulting from the application of this section.

(5) For greater certainty, this section also applies to applications for patents mentioned in sections 78.1 and 78.4.

On May 5, 2005, Bill C-29 received Royal Assent. It is anticipated that Section 78.6 will come into force on a date that coincides with the introduction of amendments to the Patent Rules to clarify the definition of "small entity" and the date of entity determination. It is therefore incumbent on all patent owners to review their patent portfolios for any patents or applications for which small-entity fees may erroneously have been paid, in order that they be in a position to take advantage of the effect of Bill C-29, when it comes into force.

Given the potential loss of patent rights that may occur if insufficient fees are paid, Lang Michener will continue to recommend to its clients that large-entity fees be paid until the definition of "small entity" is clarified.

This article appeared in Intellectual Property Brief Summer 2005.