Patent ownership challenge leads to split decision by the FCA

In this split Federal Court of Appeal (FCA) decision,¹ the appellants' (Mud Engineering Inc. and An-Ming (Victor) Wu (Mud)) appealed a summary trial judgment by the Federal Court (FC), dismissing Mud's motion for a declaration of ownership and their underlying patent infringement action.² Stratas J.A., writing for the majority, dismissed Mud's appeal and provided guidance on patent ownership. The FCA also found that the issue of who bears the legal burden on the merits in a summary trial remains unsettled.

Background

Mud commenced a patent infringement action against the respondents (Secure Energy Services Inc. and Secure Energy (Drilling Services) Inc. (Secure). Mud asserted that Secure infringed two of their patents, on which Mud is the owner and Mr. Wu is the inventor (Disputed Patents). In defence, Secure pleaded that they owned the Disputed Patents for various reasons, including the fact that Mr. Wu had worked for Secure's predecessor, Marquis Fluids Inc.

Mud brought a motion for summary trial to resolve the issue of patent ownership. Both parties sought a declaration of ownership over the Disputed Patents. The ownership questions considered by the FC included: "What did Mr. Wu invent? When did he invent it? Was he working for Marquis (Secure) when he invented it or was he otherwise under an obligation to assign to Secure whatever he invented?"

The FC held that neither Mud nor Secure presented sufficient evidence to establish ownership. The FC accordingly dismissed Mud's patent infringement action.

Who owns the Disputed Patents?

The main issues identified by the FCA on appeal were: (i) whether the Disputed Patents belong to Mud, and (ii) if not, did Mud still have standing to sue Secure for infringement. Secure did not appeal the FC's decision rejecting their ownership of the Disputed Patents.

The FCA addressed Mud's and Secure's conflicting testimony on the ownership issue as follows:

• There is a prima facie statutory presumption of ownership and inventorship in a granted patent in subsection 43(2) of the Patent Act. The presumption is weak. In this case, the presumption worked in favour of Mud. This was not contested before the FCA.
• An evidentiary burden lies on the party contesting ownership. In this case, it fell to Secure to displace the presumption that Mud, through Mr. Wu, was the true owner. This was not contested before the FCA. Secure presented evidence to displace the presumption. Mud did not contest the fact that the presumption was displaced before the FCA.
• Once the presumption is displaced, the issue of ownership is to be decided on a balance of probabilities. As noted, the FC held that Mud did not present sufficient admissible and credible evidence to obtain a declaration of ownership and dismissed their underlying infringement action.

The FCA upheld the FC's decision and dismissed Mud's appeal explaining that it is not the proper role of the FCA to reweigh the evidence before the FC at the summary trial.

The FCA held that the FC's refusal to grant a declaration of ownership to either party - was not an absurd result. While the FC's decision binds the two parties against each other, the Disputed Patents may still be defended against third parties.

FCA confirms that the law remains unsettled on the burden of proof in summary trials

The FCA held that the issue of legal burden in summary trials remains open and has not been decided explicitly in considered reasons. The FCA unanimously held that ViiV Healthcare Company v. Gilead Sciences Canada, Inc. did not decide this issue. Stratas J.A. declined to comment further given the evidentiary record stating: "[i]n in my view, the issue of who bears the legal burden of proof in summary trials should await full submissions and thorough consideration in a case that calls for it."

FCA splits on whether Mud's patent infringement action should be dismissed

Stratas J.A. for the majority upheld the FC's decision to dismiss Mud's patent infringement action. Mud implicitly accepted that failing to establish ownership would result in their infringement action being dismissed. Absent a finding of ownership by Mud, they cannot maintain an infringement action. The majority disagreed that the presumption of validity in subsection 43(2) of the Patent Act prevents dismissal of the infringement action. The presumption was easily rebutted based on the evidence before the FC, which was not challenged. No longer having the benefit of the statutory presumption and having failed to establish ownership, Mud could no longer maintain their action.

Monaghan J.A. in dissent held that the FC erred in concluding that Mud had the onus of establishing that they own the Disputed Patents (an aspect of validity) in order to succeed on their summary trial motion, which led the FC to err in dismissing Mud's action for infringement. The FC did notfind that Mud is notthe owner or that Mr. Wu is notthe inventor; the FC only found that Mud did not present sufficient evidence to obtain a declaration of ownership.

Monaghan J.A. further held that Secure needed to prove ownership to advance their counterclaim but also to have Mud's action dismissed. As Secure did not succeed, this ended their attack. Rebutting the presumption of ownership was not sufficient to dismiss Mud's action for infringement, since Secure did not convince the FC that anyone else was the owner or inventor of the Disputed Patents. Mud remains as owner and Mr. Wu as inventor on the patent office records and the subsection 43(2) presumption of validity in the Patent Act continues to apply.

Conclusion

This case illustrates the importance of best practices concerning patent ownership and inventorship, such as maintaining records of invention / invention disclosure. Agreements in writing with employees should clearly address ownership of any intellectual property rights that might arise in the course of employment. In ownership challenges, parties need to present clear evidence underpinning the work that led to the disclosed inventions as well as choose individuals with firsthand knowledge to adduce the evidence.

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