Canada: SEPs and FRAND – litigation, policy and latest developments

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In Canada, litigation of standards-essential patents (SEPs)will proceed like any other patent litigation, including in procedure, evidence, and remedies. Proof that a valid patent is infringed will presumptively entitle a patent owner to pursue a range of remedies under the Canadian Patent Act, including damages, reasonable royalties, and injunctions.

Legal framework

Canada’s legislative regime and case law do not distinguish between SEPs and other patents. Since 2018, the governing Canadian Patent Act has recognised the existence of SEPs, but does not define this term. The only SEP-specific requirement provided by statute (section 52.1) is that licensing commitments in respect of SEPs will bind the patentee and subsequent patentees (such as, for example, if an SEP is assigned or transferred to another licensor party). In all other respects, Canadian legislation presumptively treats SEPs the same as any other patent, including in the manner of commencing lawsuits, proof of infringement, and availability of remedies – in particular, permanent injunctions.

In general, in patent infringement actions, the burden of proving infringement falls to the patentee, while the defendant must prove invalidity. Infringement of an SEP may be pleaded by reference to a published standard, so long as there is a nexus to defined products that are alleged to be compliant or compatible with the standard.[1]

The Canadian Intellectual Property Office (which is generally responsible for examination of patents but not litigation) has signaled that it is aware of SEP frameworks in other jurisdictions.[2] However, there has yet to be any binding court decision that directly addresses the definition of an SEP, or FRAND requirements in patent infringement cases due to pre-trial settlements between litigants.[3] In Wheel Monitor, one of the rare Federal Court cases to comment on SEPs and section 52.1 of the Patent Act, the Court found that there is no regulatory or statutory regime defining what constitutes an SEP or an SEP licensing commitment, and that absent such regime the Federal Court has no independent jurisdiction to designate a patent as SEP.[4] Some Canadian judges have expressed views on SEPs and FRAND given the relevance of these issues in other jurisdictions but only as obiter dicta.

As a common law jurisdiction, Canadian courts do commonly refer to and cite authorities in other common law countries including the United Kingdom, Australia, and the United States. However, foreign judgments are not binding, and Canadian courts tend to prefer to create their own approaches with domestic legislation in mind. The absence of binding jurisprudence regarding SEPs and FRAND obligations in Canada provides considerable freedom of argument for litigants presently, and for parties to identify ‘best practices’ and ‘lessons learned’ from other jurisdictions where FRAND and SEP lawsuits have been played out.

Policy framework

SEPs have attracted some attention from policymakers in non-litigation contexts. Canada, like many jurisdictions, has a legislatively mandated Competition Bureau (the Bureau) that monitors and enforces against potentially anti-competitive behaviour. The Bureau has issued guidance on the application of competition law to SEPs and the rights of SEP-holders as part of its Intellectual Property Enforcement Guidelines (the Guidelines).[6]

In general, the Guidelines are permissive towards patent rights and provide that assertion of patents by an SEP-holder per se will not be considered anticompetitive. The Guidelines also address particular circumstances in which the Bureau may conclude that the seeking of an injunction by an SEP-holder would be appropriate, including:

  • when a prospective licensee refuses to pay a royalty that is determined to be FRAND by a court or arbitrator;
  • when a prospective licensee refuses to engage in licensing negotiations;
  • when a prospective licensee constructively refuses to negotiate (for example, by insisting on terms clearly outside the bounds of what could be considered FRAND terms); or
  • when a prospective licensee has no ability to pay damages (for example, a firm that is in bankruptcy).

The Guidelines are particularly concerned with gross anti-competitive conduct in relation to SEPs that goes beyond the mere exercise of patent rights, for example: ‘patent ambush, reneging on a license commitment or seeking an injunction against willing licensees after making a licensing commitment.’[7] Beyond these examples of anti-competitive conduct, the Guidelines emphasise that the Bureau is not a price regulator for licensing agreements. Further, while the Guidelines acknowledge the existence of FRAND agreements, they impose no requirements on their content or form.[8]

The intersection of SEPs and competition law, as well as certain economic torts, have been the subject of at least one class action lawsuit in Canada, where a British Columbia court certified a class proceeding and declined to strike a claim in relation to alleged price inflation and bundling of patent and product licenses, although to date no such allegations have been proven.[9]

Further policy developments are expected in the near future. Canadian policymakers’ aware of SEPs and they are increasingly important in the Canadian marketplace.

Remedies available for patent infringement

The Patent Act (section 57) allows a patentee to seek a permanent injunction in any action for infringement. In Canada, a permanent injunction is generally granted following a finding that a patent is valid and infringed on the basis of equity, as a matter of course.[10] Canadian law differs significantly in this respect from US patent law, where injunctions are increasingly the exception rather than the norm.

The Patent Act (section 55) provides that an infringer is liable for all damage sustained by the patentee by reason of infringement. This has typically been held by Canadian courts to include damages in the form of the lost profits of a patentee and/or reasonable royalties.  

In the case of patentees who do not practice the patented invention (or cannot prove lost sales), monetary damages will include, at a minimum, an award of reasonable royalties. Canadian law describes a reasonable royalty as that which the infringer would have had to pay if it ‘had come to be licensed under the Patent’. The calculation of reasonable royalties is premised on a hypothetical negotiation framework, with the goal of calculating the royalty rate that would result from a licence negotiation between a willing licensor and a willing licensee. Considerations include various commercial factors and accounting approaches, including the respective market positions of the parties, the litigants’ negotiation history, and evidence of actual comparable licence rates.

In addition to damages, Canadian law contemplates an accounting of the defendant’s profits, as an alternative monetary remedy to damages. Whereas the purpose of a damages award is to compensate the patentee (or any entity claiming under the patentee) for the loss suffered due to the infringement, an accounting of profits is a discretionary equitable remedy.  An accounting of profits disgorges the profits earned from the defendant’s infringement and awards them to the patentee. It is often seen as a unique Canadian remedy that provides a greater deterrent against infringement.[11] The Court may consider various practical consequences when exercising its discretion to award an accounting of profits, including the behaviour by litigants, and whether the patentee practices the invention.

The availability and extent of equitable remedies in Canadian litigation is a necessarily fact-specific exercise that differs in each case.

In Uponor AB v Heatlink Group, for example, the Federal Court of Canada held that an accounting of profits was not available to a patentee, despite infringement being clearly established.[12] The Court discussed the fact that the patentee had not commercialised their invention and had no plans to do so in the future.[13] The Court then held that the patentee had shown no equitable basis warranting their election of an accounting of profits over compensatory damages.[14] Notwithstanding these findings, the Court proceeded to award Uponor a permanent injunction, also considered an equitable remedy at law.

Following Uponor, the Federal Court of Appeal provided further comment on the issue of remedies when a patentee is a non-practicing entity. In Seedlings Life Science Ventures, LLC v Pfizer Canada ULC, the Court of Appeal held that the patent at issue was invalid but took the opportunity to comment on the Federal Court’s determination of remedial relief.[15] The Court of Appeal agreed that, while a failure to practice the invention may affect the availability of an accounting of profits, it did not agree with the weight afforded to this factor. The Court of Appeal wrote that affording too much weight to this factor would have a negative impact ‘on inventors who recognize that their specialty lies in inventing’ and as a result, failure to practice the invention should not be dispositive on its own.[16] The proper weight of this factor in the overall remedies assessment remains somewhat uncertain.

Most recently, in Rovi Guides Inc v BCE, after holding that all claims of the patent at issue were invalid, the Federal Court commented that neither an accounting for profits nor injunctive relief would have been available had infringement been established, due in part to the patentee’s conduct.[17] In regards to the availability of accounting for profits, the Court found  as a matter of fact that the patentee, Rovi, had used delay tactics in its patent application and infringement litigation which allowed it to create patent holdup, which the expert evidence noted could be used ‘to extract a larger unreasonable licensing fee.’[18] In regards to a permanent injunction, the Court stated that, contrary to Canadian norms, it would have adopted the US Supreme Court’s approach in eBay Inc v Merc-Exchange, LLC, 547 US 388 (2006) due to the presence of patent holdup.[19]  Rovi is currently under appeal and it is unclear whether these comments will be taken up by other judges or dismissed as non-binding precedent.

Strategic considerations for the Canadian market

It remains to be seen how the current Canadian legal framework will apply to infringement of SEPs.  The issuance of an injunction for F/RAND encumbered patents has not yet been addressed by Canadian Courts. Further, there is currently no jurisprudence addressing the negotiation and framework for calculation of F/RAND royalties, or the availability of accounting of profits for SEP-holders or F/RAND-encumbered patents.  

The availability of various remedial options in Canada, combined with the lack of F/RAND- or SEP-specific legal frameworks, makes Canada a flexible jurisdiction for patent infringement litigation.  From a strategic perspective, there are various ways in which the Canadian law as it relates to remedies overlaps with the assessment of F/RAND damages employed by other jurisdictions, depending on the facts of each case and the interests at issue; there are also various ways in which it can be distinguished. For example, there is significant overlap between the factors affecting the ‘reasonableness’ assessment for a reasonable royalty under Canadian law and that of F/RAND royalties in the SEP context. On the other hand, the reasonable royalty assessment in Canada has not been applied in the context of F/RAND damages nor has there any substantive assessment as to how F/RAND principles of fairness and non-discrimination differ or apply in the Canadian law of damages or equitable remedies.

A key strategic consideration for SEP litigation in Canada, both from a plaintiff and defendant perspective, will, therefore, be to understand how the key principles of the Canadian framework can be adapted or evolve to address the particular challenges posed by SEPs. It is possible that Canadian courts will consider F/RAND or F/RAND-like obligations and the parties’ conduct, as other jurisdictions have done, in determining how to assess or whether to grant certain remedies. Regardless of F/RAND considerations, however, the expectation under standard Canadian patent litigation procedure is that the Court will determine appropriate remedies in each case depending on the facts, conduct of the litigants, and scope of the remedies sought.  In this context, SEP holders who choose to litigate in Canada will have a unique opportunity to shape precedent setting case law.  


Footnotes

[1] Wi-Lan Inc v Apple Canada Inc 2022 FC 276 at paragraphs 1 & 8-9.

[2] Canadian Intellectual Property Office, IP Canada Report 2021, ‘The growth of standard essential patents.’

[3] Wi-Lan Inc v Apple Canada Inc 2022 FC 276 at paragraph 9.

[4] Wheel Monitor Inc v Cleral Inc et al, T-1686-18 (Decision of Associate Judge Milczynski, 2 September 2020)

[5] Canadian Competition Bureau, Intellectual Property Enforcement Guidelines 2023.

[6] Canadian Competition Bureau, Intellectual Property Enforcement Guidelines 2023, ‘S7.4 Collaborative Standard Setting and Standard Essential Patents’; It should be noted that the Guidelines are meant to afford transparency but do not curtail the Bureau’s investigatory discretion in any particular situation. The Guidelines do not restate the law and as such the ultimate resolution of issues will depend on the particular circumstances of each case.

[7] Canadian Competition Bureau, Intellectual Property Enforcement Guidelines 2023, ‘S7.4 Collaborative Standard Setting and Standard Essential Patents’ at paragraph 206.

[8] Canadian Competition Bureau, Intellectual Property Enforcement Guidelines 2023, ‘S7.4 Collaborative Standard Setting and Standard Essential Patents’ at paragraphs 203 and 205.

[9] Barroqueiro v Qualcomm Incorporated, 2023 BCSC 1662.

[10] Patent Act, RSC 1985, c P-4 sections 57 (1)a.

[11] For further detail on accounting of profits see, Nova Chemicals Corporation v Dow Chemicals Company, 2020 FCA 141 at paragraphs 20-28; Nova Chemicals Corp v Dow Chemical Co, 2022 SCC 43 at paragraph 43-49.

[12] Uponor AB v Heatlink Group, 2016 FC 320 at paragraph 304. [Uponor]

[13] Uponor AB v Heatlink Group, 2016 FC 320 at paragraph 301.

[14] Uponor AB v Heatlink Group, 2016 FC 320 at paragraph 304.

[15] Seedlings Life Science Ventures, LLC v Pfizer Canada ULC, 2021 FCA 154 at paragraph 75.

[16] Seedlings Life Science Ventures, LLC v Pfizer Canada ULC, 2021 FCA 154 at paragraph 78-80.

[17] Rovi Guides Inc v BCE Inc 2022 FC 1388 at paragraph 576-587. [Rovi]

[18] Rovi Guides Inc v BCE Inc 2022 FC 1388 at paragraphs 623-627.

[19] Rovi Guides Inc v BCE Inc 2022 FC 1388 at paragraphs 649-651.

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