Failure to Pay the Large Entity Fee Does Not Invalidate a Granted Patent

Apotex Inc v Pfizer Inc 2016 FC 136 Diner J
            1,339,132 / latanoprost / XALATAN

Pharmacia Aktiebolag (Pfizer’s predecessor) paid a small-entity final fee prior to issuance of the 132 patent, when it should have paid the large entity fee [16]. Nor did it top-up the payment during the grace period provided by 78.6(1) [40]. This motion consequently addressed a single legal issue: does failure to pay the proper fee invalidate the granted patent? Diner J held that it does not.

The main authority relied on by Apotex to argue that the patent was invalid was Dutch Industries FCA 2003 FCA 121 var’g [2002] 1 FCR 325. Dutch Industries involved an application (904) and an issued patent (388) for which small entity fees had been paid, and the Commissioner had subsequently accepted large entity fees as a top-up after statutory deadlines had passed. The Federal Court held that the Commissioner did not have the authority to accept late payment and remanded to the Commissioner for redetermination on that basis, with the implication that the 904 application was abandoned and the 388 patent lapsed [FC 54]. The FCA affirmed that “the Commissioner lacks the authority to permit a deficient maintenance fee to be topped up after the date upon which the fee was due” [26] (though with some apparent criticism of the complexity of the regime and the harshness of the result [3]-[4]). However, the FCA held that the patentee was in fact a small entity at the time the patent was granted, and that status did not change, so the 388 patent was not invalid [47], though the 904 application was deemed to be abandoned because the patentee was a large entity while it was still pending [48]. Evidently as a response to Dutch Industries, 78.6(1) was enacted, providing for a grace period for top-up payments.

Pfizer relied primarily on Weatherford 2011 FCA 228, in which the court held that non-compliance with 73(1)(a) of the Act (requiring an applicant to reply in good faith to a requisition) cannot result in invalidation of a granted patent: “To be clear, the concept of abandonment in paragraph 73(1)(a) operates during the prosecution of the application for a patent. Its operation is extinguished once the patent issues” [150]. The FCA emphasized that “The jurisprudence distinguishes between an “application for a patent” and a “patent” and considers the issuance of the patent to be a demarcation point,” [145], and post-grant invalidation for misrepresentations is left to s 53(1) [149].

Diner J held that to the extent that there was any inconsistency between Weatherford and Dutch Industries, Weatherford was to be followed as clarifying the prior case law [66]. Moreover, Diner J recognized the force of the law and policy reflected in the Weatherford decision. In addition to relying on Weatherford itself, he reviewed the case law emphasizing the long-standing distinction between the application and post-grant status of patents [71], [77], [81]. As a matter of policy, Diner J emphasized the distinction between the substantive patent bargain – the patentee provides an invention which is in fact new, useful, inventive and properly disclosed in return for a limited period of exclusive rights [82] [86] – and administrative consdierations, aimed at the operation of CIPO and clearing the system of deadwood [83], [88]:

[87] Indeed, the non-compliance of a patent holder will either be rooted in administrative or substantive breaches of the statute. It is consequently the type of non-compliance that will ultimately determine whether the breach invalidates the patent: does the breach go to the substantive heart of the patent bargain, or rather administrative dealings with the Patent Office, such as fee for service payments? Breaches which go to the heart of the patent, namely those which require the inventor to pay the figurative hard coinage, can be fatal to issued patents. [original emphasis]

While Weatherford dealt with 73(1)(a), and the requirement to pay prescribed fees is found in 73(1)(f), Diner J noted that “[i]f one paragraph of a given section cannot invalidate an issued patent, the others cannot do so either, without some express direction otherwise” [74].

Diner J's reasoning strikes me as entirely persuasive, with a couple of caveats. 

One caveat is that the FCA in Weatherford distinguished Dutch Industries on the basis that “Canadian Patent Application No. 2,146,904 was deemed abandoned. No patent regarding that application had issued” [151]. While that is true, the FCA made no mention of the 388 patent; while that was granted, the FCA in Dutch Industries was clearly of the view that the same principle would have applied. It seems to me that there is actually a conflict between the two cases, even if Dutch Industries can be formally distinguished on the basis that no granted patent was held invalid. With that said, Weatherford is both more recent and substantively preferable, in my view, and in any event, regardless of how persuasive the distinction might be, it was the FCA's explanation of its own prior decision, and Diner J was certainly entitled to rely on it. An unpersuasive distinction is a way of over-ruling a prior decision sotto voce.

Another caveat is that there appears to be no sanction for failure to pay the top-up fees within the grace period. It might be suggested that in responding to Dutch Industries with the grace period in 78.6(1), the legislature was implicitly affirming that if the top-up payments were not made within that grace period the Dutch Industries rule would still apply. I don’t think this argument is strong enough to counter the Weatherford reasoning, but it does seem to me that the whole matter would be clarified if the act would provide an administrative penalty, such as triple fees, for an administrative failure. Any law that provides that provides a sanction that is disproportionate to the offence will make for an unsatisfactory jurisprudence.