The Canadian Intellectual Property Office (CIPO) is in the process of developing proposals for inclusion in the current phase of the Intellectual Property Law Improvement Bill that, if and when enacted would result in amendments to the Patent Act. The stated purposes of the proposals are to align the Patent Act with Canada’s international obligations under the Patent Law Treaty and Patent Cooperation Treaty, to support and advance ecommerce, Techsource renewal, and to increase administrative efficiency. To further the same purposes, CIPO is also recommending numerous changes to the Patent Rules. Because of the largely technical nature of the proposed changes to the Rules, and space constraints here, we restrict our summary to proposed changes to the Act. The full text of the proposals can be accessed from CIPO’s web site located at http://strategis.ic.gc.ca/sc_mrksv/cipo. We would be please to discuss potential ramifications of these proposed amendments to your current of potential future interests.

CIPO wishes to accelerate procedures and reduce administrative burdens by amending the Act to simplify assignment and licensing registration procedures, remove obligations for documents to be filed to establish an applicant’s right to file an application, clarify requirements for naming of inventors. Specific proposals are as follows.

Plant breeders’ rights are an internationally sanctioned form of intellectual property. The UPOV Convention (International Convention for the Protection of New Varieties of Plants) was designed to overcome two perceived hurdles to the granting of patents for plant varieties. First, traditional plant-breeding methods (e.g., absent the application recombinant DNA technologies) were thought to lack an inventive step. Second, traditional plant breeders could not satisfy disclosure requirements of patent statutes, which required inventors to describe their inventions sufficiently to enable a person skilled in the art of the invention to reproduce it. In addition to specifying certain "plant breeders’ rights," the UPOV Convention agreement requires signatory nations to provide: (i) national treatment (foreigners being accorded the same rights under relevant domestic legislation as nationals); (ii) right of foreign priority (recognition of foreign priority based on the filing date of a first application within a member nation); and (iii) independent jurisdiction (a scheme for acquisition of rights in a signatory country by application in that country). Canada signed the UPOV Convention agreement in 1978, but did not accede to its terms until 1991, when a federal statute, the Plant Breeders’ Rights Act, came into force. The Act is intended to encourage plant breeding in Canada, provide Canadian producers with improved access to foreign varieties, and facilitate protection of Canadian-bred varieties in other countries. It provides a scheme for registering new varieties of stipulated categories of plants, and grants to registrants, for a term of 18 years from the date of registration, exclusive rights to:

• sell and produce in Canada for the purpose of selling, propagating material (e.g., seed, whole plants, and vegetative propagating material) as such (i.e., for the purpose of propagating);
• repeatedly use propagating material of the variety to commercially produce another variety, if such repeated use is required for that purpose;
• where the new variety is a plant variety to which ornamental plants or parts thereof normally marketed for purposes other than propagation belong, use any such plants or part commercially as propagating material for the production of ornamental plants or cut flowers; and
• authorize such acts conditionally or unconditionally.

Under the Act, a new variety eligible for registration must been be homogeneous and must stably express, during repeated reproduction or propagation, at least one identifiable characteristic that clearly distinguishes it from all other varieties known at the date of application. Furthermore, to be eligible for registration, neither the breeder nor his, her, or its legal representative must have sold or concurred in the sale of the new variety before the date of the application.

Notably and deliberately (pursuant to the UPOV Convention), the above-stated rights of registrants contain two important limitations that distinguish plant breeders’ rights from the rights accorded a patent holder. These are commonly called the "farmers’ exception" and the "breeders’ exception." By limiting the sole right of a registrant to selling and producing in Canada propagating material for the purpose of propagating, farmers are thereby not restrained from producing in Canada propagating material for other purposes (e.g., feeding, processing, or reseeding). By limiting the sole right of a registrant to repeatedly using propagating material to produce another variety, if such repeated use is required for that purpose, other plant breeders are not restrained from incorporating traits of the protected variety in new varieties through single crosses. The scheme is administered by the Plant Breeders’ Rights Office under the direction of the Commissioner of that Office. The Plant Breeders’ Rights Office forms part of the Canadian Food Inspection Agency.

In an application for registration of a new plant variety, a plant breeder must propose a variety name or designation (in the terminology of the Plant Breeders’ Rights Act, a "denomination") that is to be applied in commercial transactions after registration and involving the variety. The Commissioner of the Plant Breeder’s Rights Office must approve a proposed denomination and, after issuance of a grant of plant breeders’ rights, a variety can be sold only in association with the registration denomination. However, for marketing or other purposes, breeders may wish to alter a denomination, and a denomination can be changed, but only with the Commissioner’s approval. The Act has rarely been the subject of judicial comment or interpretation but in University of Saskatchewan v. Canada (Commission of the Plant Breeders’ Rights Office), [2001] 11 C.P.R. (4^th) 348 (F.C.T.D.) the Federal Court of Canada was required to adjudicate in a case where the Commissioner refused the request of a plant breeders’ rights holder to change a variety denomination.

Briefly, the circumstances were as follows:

1. The University of Saskatchewan applied for and received a grant of plant breeders’ rights in respect of a variety of two-rowed malting barley. The University proposed, and the Commissioner accepted the breeder’s development/testing designation (TR133) as the variety’s denomination.
2. After registration, the University adopted another name (CDC Lager) for the purposes of marketing the variety, but erred by failing to request a change of denomination.
3. When several important Japanese customers objected to the CDC Lager name because it was closely associated with a Japanese brewing company, the University adopted yet another name for use in association with the variety (CDC Kendall), but again failed to get the Commissioner’s approval for a change of denomination.

The Commissioner learned of sales of TR133-denominated barley under another denomination and advised the University that they were in breach of the Plant Breeders’ Rights Act, and that they should advise "…license holders that all sales, including advertising material, of propagating material of the variety must cease immediately under any other denomination except TR133…" and further that the variety registered under the Seeds Act as CDC Kendall "…may not be sold as ‘TR133’ until the variety name is changed under the Seeds Regulations"; and "the circumstance that allow for a name change are where the approved denomination is not the denomination proposed by the holder [of plant breeders’ rights] or where additional information becomes available after the grant … that justifies a change of denomination …" The University admitted its errors, explained the circumstances of the errors, advised that failure to change the denomination would cause a great deal of confusion because the variety had become widely known and promoted in Canada as CDC Kendall, and requested a denomination change, from TR133 to CDC Kendall. The Commissioner refused the University’s request to change the denomination, asserting that the legislation provides a formalized process of registration including public notice of proposed denominations, to avoid confusion and provide certainty to the industry and that the legislation was meant require applicants to choose a marketable denomination in the first instance and to restrict the ability of a registrant to change a denomination. The Commissioner also asserted that she must apply her discretion only to maintain certainty and reliability in the register and can rectify other problems only in limited circumstances, specifically, only when she becomes aware of previous rights granted under the same denomination; and the University’s reasons for a denomination change were insufficient.

Clearly, by requiring that the Commissioner approve any change in denomination, the statute afforded her the right to exercise some discretion in approving or denying changes. Therefore, the main issues before the court were (i) the standard of review that the court would hold the exercise of that discretion to, and (ii) whether or not the Commissioner had exercised her discretion in accordance with that standard. Traditionally, Canadian courts have considered that discretionary decisions of statutorily empowered persons or bodies should be interfered with only on limited grounds, such as lack of jurisdiction, bad-faith, the exercise of discretion for an improper purpose, and reliance on irrelevant considerations. Sometimes a general doctrine of "unreasonableness" has been applied. Generally, however, the courts have maintained a respectful deference to the discretionary decisions of administrative authorities, in recognition of the intention of legislatures in enabling such discretion, and have of been loath to interfere lightly.

With respect to the scope of the Commissioner’s lawful authority to approve a denomination change, the Federal Court found that the Commissioner’s interpretation was too restrictive, there was nothing in the relevant legislation precluding her from correcting the type of mistake presented to her by the University, and the virtual ban on denomination changes she advocated went too far. Provisions of the Plant Breeders’ Rights Regulations requiring a $100 fee for processing a denomination change were pointed to as being instructive. The judge observed that:

If no circumstances exist to justify a denomination change other that the mistake of the Commissioner in granting plant breeders’ rights under a previously registered denomination, then charging a fee to the innocent rights-holder is absurd. The Commissioner’s mistake, if any, is not a processing cost which should be passed on to an innocent party. Therefore, there must be circumstances under which a denomination change can be initiated by the rights-holder, otherwise [the said $100 fee] is superfluous.

Was the Commissioner’s decision reasonable? The court held that it was not. Specifically, the Commissioner failed to take into account the cost and other severe consequences that the University would face in the absence of a denomination change, particularly in view of the goals of the legislation (to stimulate plant breeding in Canada by according such rights etc.), and the generally beneficial and inexpensive alternative. The court observed that "it was difficult to see how the purposes of the Act are furthered by refusing to acknowledge the marketing realities of the brewing industry … the Commissioner had the authority to determine when the consequence of [the University’s] mistake justify a change of denomination." As a result, the Commissioner’s decision was quashed.

In the last issue of this newsletter we brought to your attention how failure to pay strict attention to certain formal requirements of the Patent Act and Patent Regulations can materially prejudice the interests of patent holders and applicants. A recent decision of the Federal Court of Canada (Trial Division) reminds patent applicants, holders, and their transferees, that establishing and recording inventorship correctly is more than a formal requirement. Misrepresentation in this regard can cause a patent to be held void for material insufficiency.

In 671905 Alberta Inc. et al. v. Q’Max Solutions Inc. (2001), 14 C.P.R. (4^th) 129, the plaintiffs were, sequentially, the owners of a patent on an invert emulsion drilling mud that comprised a hydrated nitrogen-containing complex salt instead of the traditional calcium chloride or sodium chloride. Application of the nitrogen-containing complex salt provided certain environmental advantages. The ownership interest of the plaintiff 671905 Alberta Inc. was acquired pursuant to an assignment from two other corporations that, in turn, were assignees of the inventors named in the patent. M-I Drilling Fluids Canada Inc. was assigned the patent from 671905 Alberta Inc. The defendant (Q’Max Solutions Inc.) manufactured and sold an invert drilling mud made using ammonium calcium nitrate decahydrate. The plaintiffs sued Q’Max, alleging infringement of their patent, and the defendant counterclaimed, alleging that the patent was invalid on a number of grounds. The nitrogenous salt used in the defendant’s drilling mud was determined to infringe the plaintiff’s patent. The plaintiffs were successful on all grounds but one but, as a result, the patent was held to be invalid, the plaintiff’s claims were dismissed, and the defendant’s counterclaim was allowed. The finding of invalidity was based solely on a material misrepresentation in the petition for a patent; it was held that the two named inventors were not the true inventors.

The patent issued in the names of two corporations that derived their interests by assignment from the named inventors. The two named inventors were, at the relevant times, the principals of yet another corporation ("FOFS"). One of the named inventors testified that the impetus for development of a more environmentally friendly drilling mud based on a nitrogenous salt was his, and that he instructed a laboratory manager employed by FOFS in the work undertaken by that manager to develop the invention. The court found that the testimony of the laboratory manager was more credible. The laboratory manager asserted that he, without inventive input from his superiors at FOFS (the named inventors) identified the potential application of nitrogenous salts in drilling muds, performed the necessary research, and designed and supervised field testing. The named inventor also testified that he and the other named inventor, being principals of FOFS, equated themselves with that corporation and, in argument, the plaintiffs raised doctrine supporting the principle that fruits of the efforts of an employee become the property of his employer. The court quickly disposed of that argument however. Legally, the laboratory manager was not an employee of the named inventors; he was an employee of FOFS, notwithstanding the interests of the named inventors in that corporation. Hence there was no chain of title (from the true inventor, the laboratory manager) that could ground rights in the plaintiffs to sue on the patent. Furthermore, the patent was held to be void ab initio by reason of a material misrepresentation in the petition.

Applicants who misrepresent true inventorship may prejudice their own rights, but they might also be seen to be the authors of their own misfortune. The message of Q’Max is really more significant for transferees of patent rights. The losers in Q’Max were the true inventor and the plaintiffs, several-times-removed assignees of the patent. This case drives home the critical importance of undertaking sufficient due diligence when negotiating the transfer of patent rights; and carefully drafting patent assignment and license agreement to assure that transferees are is sufficiently protected from determinations of insufficiency traceable to matters that are, or were, in the control of transferors.