Which Goes First: Litigation, or Re-examination?

Camso Inc. v. Soucy International Inc. 2016 FC 1116 Roy J
            2,822,562 / 2,388,294 / Track Assembly for an All-Terrain Vehicle

The question in this decision was whether re-examination of Camso’s ‘562 patent pursuant to s 48.1- 48.5 of the Patent Act should be stayed pending final judgment in an infringement action involving the same patent brought by Camso against Soucy. In this case, the arguments raised in re-examination, related to novelty and obviousness, were the same as those raised by Soucy in its invalidity counterclaim in the action [20], [48]. While Brouillette + Partners, the law firm which had filed the re-examination request, was not the same as Soucy’s litigation counsel [22], [57], Soucy and Brouillette + Partners were acting in concert and their interests were the same[27], [48], to the extent that Soucy’s litigation counsel appeared on this motion on behalf of Brouillette + Partners [22]. (There was no impropriety involved [23]. It seems that Soucy simply hired different firms to handle the re-examination and the litigation.)

Thus the question was really which forum was appropriate for litigating these issues, the Federal Court, or the re-examination board established by the Commissioner of Patents. In the result, Roy J granted the stay, thus giving priority to the judicial proceeding [29], [65].

The basic argument in favour of giving priority to the re-examination procedure is one of judicial economy, as the re-examination procedure is designed to be a “relatively summary and inexpensive alternative to a full blown impeachment process by litigation”: Prenbec Equipment v Timberblade 2010 FC 23 [46]; and similarly [27], [51]. The basic argument in favour of giving priority to the court action is that it allows for more complete evidence, as the evidence in a re-examination is limited to “patents, applications for patents open to public inspection and printed publications” (s 48.1(1); [4]). In other words, the re-examination process reduces cost by sacrificing accuracy.

The superior quality of the evidence in the action is the main reason given by Roy J for staying re-examination: [48], [50], [52], [53], [58], [62]. The difficulty with the judicial economy argument is that while it would simplify the litigation if certain claims were invalidated in the administrative proceeding, that simplification would not be in the interest of justice if they claims were wrongly invalidated on the basis of inferior evidence [58].

Both the result and the reasoning are consistent with Prenbec, in which de Montigny J stayed re-examination proceedings. In Prenbec, de Montigny J noted that “the invalidity arguments made by the defendants raise an issue of credibility that cannot be assessed by the Re-examination” [37], so the problem of an erroneously invalidating the patent was acute. Indeed, de Montigny J noted that the defendant in Prenbec had initiated the re-examination precisely in order to avoid having to deal with the issue of credibility [44]. Brouillette + Partners sought to distinguish Prenbec on the basis that it was confined to issues of credibility [28]. Roy J rejected this argument, noting, correctly in my view, that the principle in Prenbec was to prefer the proceeding with the better evidence [62], and the issue of credibility was simply the specific instantiation of that principle.

Taken together, Camso and Prenbec, suggest that the FC will be strongly inclined to stay a re-examination which raises the same questions as are raised in an action. Compare this with the US situation. Re-examination corresponds approximately to ex parte review in the US, and a similar question has arisen in the US both in that context and with respect to inter partes review. In the US, I believe it is not uncommon for the courts to give priority to the re-examination proceeding. However, there is an important difference in the legal context. If I understand correctly, in the US only the PTO has the ability to stay its own proceedings and it is generally disinclined to do so. The question before the US courts is therefore whether the court should stay the infringement action pending the outcome of the PTO proceeding. In Canada, in contrast, the Federal Court has the power under s 50 of the Federal Courts Act to itself stay the re-examination proceeding: Prenbec [21]-[25]. Thus in the US the question facing the courts is whether to allow potentially duplicative proceedings to both go ahead, whereas Canadian courts, given that they also control the own procedure, implicitly face the more palatable choice of which of the two proceedings should go ahead first. Thus it is understandable that the Canadian courts would prefer a single, comprehensive procedure, while at the same time the US courts prefer the simpler re-examination to go ahead in preference to allowing duplicative proceedings.

This decision does raise a couple of questions. First, if the defendant fails in its validity attack at trial, can it try again in re-examination? The proceedings are separate, so the question is whether the outcome of the litigation gives rise to an estoppel against the same party in interest in the re-examination, once the stay is lifted. Roy J raised the issue, but did not decide because it was not discussed [57]. (Note that in the US inter partes review gives rise to an estoppel in subsequent litigation, by statute, while ex parte review does not. The question here is the converse, and since the statute is silent, the answer would turn on general principles.)

Second, assuming there is no estoppel, what happens if the patentee prevails in the infringement action, then the re-examination proceeds once the stay is lifted, and the claims that were the basis for the infringement are invalidated? The effect of re-examination is to invalidate the claims ab initio (s 48.4(3)), so the defendant might in principle be subject to damages for having infringed claims that never existed. The patentee can appeal the re-examination (s 48.5) to the Federal Court, but the FC may have to show deference on the appeal [53],so it is possible in theory that the FC could hold that the patent is valid, and subsequently affirming a decision of the re-examination board that it is not. This problem will likely remain purely theoretical, but it will be an interesting conundrum if it does arise.