Watering down class actions? Not really?

December 1, 2006

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March 20, 2023

Clear skies overhead, patent marking protects well, innovation blooms

“Clear skies overhead, patent marking protects well, innovation blooms.” “Patent marking” is the practice of labelling a product to provide notification that it is protected by one or more patents. From a public perspective, it serves three related purposes: avoiding innocent infringement; encouraging patentees to give notice to the public and aiding the public to identify whether an article is indeed patented. (Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1998, p. 1443). From a patent holder’s perspective, patent marking puts the public on notice that the product is protected by one or more patents, which can deter potential infringers from copying the invention without permission. Additionally, it can help establish that an infringer had knowledge of the patent, which can be important in determining damages in an infringement lawsuit. Indeed, in some jurisdictions, and in particular the United States, proper patent marking serves as notice to an infringer, thereby allowing a patent owner, when suing an infringer, to demonstrate earlier infringement, which may result in higher monetary damages in a patent infringement lawsuit. The ability to establish higher potential damages may also provide for an improved negotiation position in discussions vis-à-vis a settlement or a potential sale. As such, patentees who make, offer for sale, sell, or import any article covered by a patent would be well advised to mark a patented article. Patentees should also require their licensees to do the same and monitor licensee products to ensure the licensee complies with the marking requirements. United States Current U.S. case law suggests that marking should only be required when a commercial product is covered by a product (apparatus/system) claim. In cases where there are only method and/or process claims in a patent, the courts have generally indicated that there is no marking requirement. Properly marking patented products at an early stage can have a significant positive impact on the calculation of damages, since such calculation takes into account damages accrued only after an infringer received either “constructive” or “actual” notice of the alleged infringement. This can be done by physically affixing a notice to the product if possible, or by including the notice in packaging or advertising materials. The notice should typically include the word “patent” or the abbreviation “pat.” and the number(s) of the applicable patent(s). Marking can also help enhance damages for past infringement, as the patent statute provides for enhanced damages and attorney fees in cases where an infringer has actual notice of the patent. Not marking or incorrectly marking a product directly affects available remedies. Indeed, the patent marking statute 35 U.S. Code § 287 provides that a patent owner is required to mark their products that are covered by one or more patents with the appropriate patent numbers: “… by fixing thereon the word “patent” or the abbreviation “pat.”, together with the number of the patent … or when, from the character of the article, this can not be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice. …” Although patent marking is not required by law, 35 U.S. Code § 287 further encourages patent holders to give public notice of a patented article through physical application of the patent number to the article by providing: “… In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.” It is worth noting that marking a product with a patent that does not cover the product, without the consent of the owner or marking the product as patent pending when there is no patent pending may create liability for false patent marking. As a result, ensuring patent marking is accurate is an important feature of any patent marking practice. Marking a product with an expired patent, however, is not considered false patent marking thanks to amendments made to the marking statute in 2011. Also of note, once marked, a patent owner’s marking must be “substantially consistent and continuous.” (Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1998, p. 1446) Virtual Patent Marking The patent marking statute additionally provides that notice to the public may be given that a product is patented: “…by fixing thereon the word “patent” or the abbreviation “pat.” together with an address of a posting on the Internet, accessible to the public without charge for accessing the address, that associates the patented article with the number of the patent, or when, from the character of the article, this can not be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice.” A URL suitable for patent marking would reference a page which lists the patent(s) in question cross-referenced with at least one representative product and representative product numbers, for example. Images of the representative products are sometimes also included. A typical URL is www.widget.com/patents. Currently, it is not recommended to use other machine readable types of markings such as bar codes or QR codes. Europe The European Patent Convention (EPC) itself does not require marking. The EPC is also silent as to the ramifications of marking or not, and the question can really only be answered on a country-by-country basis. In the United Kingdom, for example, damages cannot be awarded or an order for accounting of profits cannot be made against an innocent infringer (see UK Patent Act, subsection 62(1)). Of note is that the onus is on the infringer to prove their innocence, i.e., that at the date of the infringing act they were not aware, and had no reasonable grounds for supposing, that the patent (or published application for a patent) existed. As such, correctly marked products that put the public on notice of the patent may be used as a barrier to an infringer attempting to claim ignorance of the existence of the patent. Of note is that the United Kingdom also provides for virtual patent marking, provided it is accessible to the public free of charge and it clearly associates the product with the number of the patent. In view of the above, however, marking products in Europe in order to put the public on notice of the patent or to establish that an infringer had knowledge of the patent may prove beneficial. Canada In Canada, patent marking is not required by law, meaning that it is not mandatory for a patent owner to mark their products or processes to indicate that they are protected by one or more patents, and the Supreme Court has confirmed that the fact that the public is notified by the marking of patented products should not be used to calculate damages. Regardless, there are some situations where a patent owner may choose to mark their products or processes in order to put the public on notice of the patent or to establish that an infringer had knowledge of the patent. However, care should be taken to ensure correct marking. Indeed, paragraph 75(1)(b) of the Patent Act provides that every person is guilty of an indictable offence and is liable to a fine of not more than?$200 or to imprisonment for a term of not more than three months, or to both, who with intent to deceive the public, offers for sale as patented in Canada any article that is not patented in Canada. Industrial Design In Canada, the law of marking related to industrial designs differs from that of patents. As seen above in regard to patents, marking effectively plays no role in the determination of compensation for infringement. With designs, however, marking can be a key factor in establishing monetary damages. Indeed, subsection 17(1) of the Industrial Design Act provides a defence to a finding of infringement in that, if the infringer can “establish” that they were not aware that the design was registered, the most the plaintiff can be awarded is an injunction. On the other hand, subsection 17(2) of the Industrial Design Act provides that if the plaintiff “establishes” that the articles or their packaging were marked to indicate that they are the subject of a registered industrial design, the infringer cannot take advantage of the defence of subsection 17(1) of the Industrial Design Act. The statute is particular, and it is important to mark items covered by the design correctly. In particular, the items must be marked with the capital letter “D” in a circle and the name, or common abbreviation, of the current owner of the design, for example ? Widget Ltd. Of note is that the design mark can be on the articles or the labels or packaging associated with the article. In summary, patent marking is an important aspect of patent law that allows the public to know that a product or process is protected by one or more patents, and also serves as a tool for patent owners to deter infringement, establish knowledge of the patent and collect damages for past infringement.

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March 16, 2023

Insurers: Two-headed hydras

On January 30, 2023, the Court of Appeal of Quebec rendered a decision in Commission scolaire De La Jonquière c. Intact Compagnie d’assurance.1 The key issues in this case are the potential for conflicts arising from liability insurance policies and the obligation to disclose documents where insurers’ duty to defend conflicts with their duty to indemnify insureds. The facts This case is part of a class action in which all Quebec school boards—now referred to as school service centres (SSCs)—were accused of violating the right to free elementary and secondary education. As part of this class action, the SSCs brought an action in warranty against their insurers, seeking compensation for any amount they may be required to pay. The insurers acknowledged their obligation to defend the appellants in the main proceedings; however, they argued that the claim was not covered by the insurance contract. Following negotiations, the parties to the class action reached a settlement. The action in warranty against the insurers is still pending. At the examination for discovery stage of the action in warranty, the insurers asked to obtain a copy of all communications exchanged between the appellants and their counsel since the beginning of the main proceedings. The SSCs objected to this request on the basis of professional secrecy and litigation privilege. The Court therefore had to rule on the merits of the objection. The trial Drawing on the decision in Domtar2, the Superior Court dismissed the SSCs’ objection, holding that they had waived their right to assert solicitor-client privilege regarding anything relating to the reasonableness of the settlement. It appears that the Court inferred this waiver from certain allegations made and from the disclosure of certain documents as part of the action in warranty. The Court concluded that the appellants had to provide the insurers with the documents, risk analyses, letters, exchanges with the appellants and expert opinions having related to the reasonableness of the settlement since the beginning of the main proceedings. However, according to the Court of Appeal, the Court failed to provide a framework for such disclosure of information and to grant the SSCs the right to raise new objections in relation to said documents. The appeal The Court of Appeal considered the conflicts that may arise from the dual responsibility of insurers: their duty to defend insureds and their duty to indemnify them. In this regard, it described liability insurers and their role as follows: [20] The liability insurer is effectively a two-headed hydra: A type of two-headed creature with a single corporate identity, but where one head handles the insured’s defence and the other protects the insurer’s financial interests by ensuring that it only pays out for covered losses.[21] Each head must base its decisions on the interest it is defending and the information available to it. The two heads must remain separate in order to give effect to the insurance contract. […] The risk of a conflict of interest is therefore very real, which is why the insurer must put measures in place to ensure that it complies with the coverage provided by the policy, while also ensuring the full and complete defence of the insured.] As for the ethical obligations of the lawyer mandated by the insurer to represent the insured, the Court stated that the lawyer becomes the insured’s counsel in all respects and owes the insured absolute loyalty. As such, the right to professional secrecy in the insured’s relationship with the lawyer can be set up against the insurer. That being said, the lawyer must report on the progress of the case to the head of the hydra handling the insured’s defence. The Court then stated that it was essential in this context that the information thus obtained be accessible only to that head, and that the insurer put in place the necessary measures to keep the two heads separate. The Court of Appeal found that the trial judge did not err in concluding that the SSCs were required to provide the evidence necessary to examine the reasonableness of the settlement reached with the insurers. However, in order to do so, an exemption mechanism could be implemented, giving the SSCs the possibility to object to the disclosure of certain information. The Court also confirmed that there was no basis for concluding that the appellants had waived solicitor-client or litigation privilege with respect to all of their exchanges with their counsel. This information must remain protected by professional secrecy and therefore cannot be disclosed to the person at the insurer’s office in charge of the compensation file. The same goes for the accounts for fees, reports, opinions and other documents sent to the person at the insurer’s office handling the defence, unless the insured waives this right. Conclusion This case highlights the conflicts that can arise from the duality of insurers’ responsibilities and the distinction between insurers’ obligation to defend insureds and their obligation to indemnify them. Although the Court ruled that evidence aimed at verifying the reasonableness of a settlement from a qualitative and quantitative standpoint should be disclosed, it concluded that certain information and documents that are strictly relevant to insureds’ defence need not be disclosed. In so doing, it reiterated insurers’ dual responsibility and the importance of keeping the two heads separate when an insurer agrees to take on an insured’s defence, but maintained its refusal to indemnify the insured. Commission scolaire De La Jonquière c. Intact Compagnie d’assurance, 2023 QCCA 124. Chubb Insurance company of Canada c. Domtar, 2017 QCCA 1004.

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February 2, 2023

TRADEMARKS IN CANADA: The Federal Court clarifies the concept of “bad faith”

In the decision Beijing Judian Restaurant Co. Ltd. v. Wei Meng, 2022 FC 743, rendered by the Honourable Angela Furlanetto on May 18, 2022, the Federal Court clarified what constitutes bad faith in trademark law. Prior to the decision, the concept of bad faith in relation to trademarks was interpreted rather cautiously in Canadian jurisprudence. Background Beijing Judian Restaurant Co. Ltd. (the “Applicant”) petitioned the Court to invalidate the registration of Respondent Wei Meng (the “Respondent”) for the trademark depicted below (the “Respondent’s Mark”), on the grounds that the registration was obtained in bad faith, and to strike the trademark from the Canadian Register of Trademarks, in accordance with subsection 57(1) and paragraph 18(1)(e) of the Trademarks Act (the “Act”). In support of its application, the Applicant filed two affidavits of its representatives, which set out the facts below. The Respondent did not cross-examine the Applicant on the affidavits, file any evidence, or appear at the hearing. The following facts are therefore undisputed. The facts Since 2005, the Applicant has been running a chain of restaurants in China and using, in connection with its restaurants, the mark below, as well as each of the components of this mark, alone or in combination (the “JU DIAN Marks”). The JU DIAN Marks are highly visible in China. They are featured in numerous advertisements promoting the Applicant’s restaurants and the JU DIAN Marks. The JU DIAN Marks and the Applicant’s chain of restaurants are therefore well known in that country. Moreover, in 2011 and 2013, respectively, the Applicant began promoting its restaurants in association with the JU DIAN Marks on the WEIBO and WECHAT platforms in an effort to target the Chinese population in and outside China. In 2015, the Applicant considered the possibility of bringing its chain of restaurants to Canada. The Applicant decided to open its first restaurants in Canada in the Vancouver and Toronto regions, as these have a large Chinese population that would likely be familiar with the Applicant’s chain of restaurants. The Applicant opened restaurants in Vancouver and Toronto in 2018, and a restaurant in Richmond, British Columbia, in 2019. The Applicant was however unaware that the Respondent had applied to register the Respondent’s Mark in Canada a few months earlier, on June 27, 2017, based on proposed use in association with restaurant services, among others. It appears that, during the same period, the Respondent had also applied to register in Canada several marks belonging to other Chinese restaurant chains. In April 2019, the Respondent visited the Applicant’s Vancouver restaurant and accused the Applicant of stealing his mark. A series of meetings and discussions between the parties ensued, during which the Respondent demanded that the Applicant pay him the sum of $1,500,000 to use the Respondent’s Mark without acquiring its ownership, and threatened to contact the Canada Revenue Agency if the Applicant did not cease using the mark. The Applicant refused to pay the Respondent any sum whatsoever and did not yield to his threats. In the meantime, the Respondent’s Mark was registered in Canada. In June 2019, the Applicant learned of an advertisement that the Respondent had posted on a British Columbia website. The advertisement was for the sale of the registration of the Respondent’s Mark. The Applicant contacted the Respondent anonymously to obtain more information on the offer. The Respondent offered the Applicant a trademark license at a cost of $100,000 per year, justifying the price by stating that the mark was already well known in China with the Applicant’s restaurants. The Applicant then sent the Respondent a formal notice demanding that he cease using the Applicant’s mark and abandon its registration in Canada. The Respondent refused to comply. The Applicant thus filed an application for invalidation and expungement of the registration. The law Although paragraph 18(1)(e) of the Act provides that a registration may be invalidated if the application for registration was filed in bad faith, the Federal Court noted in its decision that the Act contains no definition of the term “bad faith.” It pointed out that, because paragraph 18(1)(e) of the Act is relatively new, very little Canadian jurisprudence has examined what constitutes bad faith in trademark matters. In its decision, the Federal Court drew on various sources to determine whether the registration of the Respondent’s Mark could be invalidated on the basis of bad faith. First, the Court considered the observations of the Parliament of Canada regarding the adoption of the amendments to the Act, which state that: The amendments aim, notably, to hinder the registration of a trademark for the sole purpose of extracting value from preventing others from using it. The amendments would prevent the abusive use of the trademark regime, such as by applying for registration with the sole intention of seeking remuneration from the legitimate owner of a trademark. Second, the Court analyzed certain Canadian decisions rendered prior to the adoption of paragraph 18(1)(e) of the Act in matters of bad faith. It noted that Canadian jurisprudence had already invalidated trademark registrations on the basis of bad faith where the applicant had filed a series of applications for registration in Canada for well-known trademarks. Lastly, the Court reviewed decisions rendered in Europe and the United Kingdom. It concluded that in these jurisdictions, filing an application for registration of a trademark without intending to use it for a legitimate commercial purpose and with the sole intention of preventing a third party from entering the market or interfering with its business may constitute bad faith. The same is true where an applicant wishes to register a trademark for extortion purposes. The Court then analyzed the relevant date in order to assess bad faith under paragraph 18(1)(e) of the Act. It stated that while the relevant date is the date on which the application was filed, evidence subsequent to that date may be considered relevant if it helps to clarify the reasons why the application was filed. The Court held that the Applicant had the burden of establishing bad faith, which had to be proven on a balance of probabilities with clear and convincing evidence. The Court however specified that where the facts could only be known to the Respondent, circumstantial evidence and inferences from proven facts could be sufficient to establish the Respondent’s objectives at the time of the application’s filing. The facts show that, at the time the application was filed, the Respondent was aware of the Applicant’s restaurants in China and that the JU DIAN Marks had acquired a certain reputation, at the very least, among the Chinese population in British Columbia. The Court also concluded that it was highly unlikely that the Respondent had created a mark identical to that of the Applicant on his own, considering the originality of the mark. It was therefore more likely that the Respondent had wanted to register the same mark, knowing that it was associated with the Applicant’s restaurants in China, in order to benefit from its reputation. The Court nonetheless made the following clarification: filing an application for a trademark, even if it is identical to that of a third party, is insufficient to invalidate its registration, as there may be a legitimate basis to obtain a registered trademark in Canada for the same trademark that is registered and used by a third party elsewhere, where the third party’s trademark has no reputation in Canada. Thus, it is the intention to “abuse the trademark regime” or the bad faith of the owner that must be established on a balance of probabilities. The Court concluded that the Applicant’s evidence established that the Respondent had registered the trademark without a legitimate commercial purpose: The JU DIAN Marks are known in Canada, at least by the Chinese population in British Columbia. The Respondent acknowledged in his exchanges that the JU DIAN Marks are associated with the Applicant’s chain of restaurants and are well-known trademarks. The Respondent applied to register the Respondent’s Mark in Canada for the purpose of extorting money by leveraging the trademark’s reputation. The Respondent applied to register trademarks in Canada belonging to Chinese restaurant chains. The Court therefore held that the circumstances of the case constituted bad faith, but noted that in the United Kingdom, an inference of bad faith may be rebuttable where there is registration of a known trademark by an applicant who has no connection with the legitimate owner of the trademark. However, in the United Kingdom, where an applicant has engaged in a pattern of acquiring multiple such registrations, rebutting the inference of bad faith becomes significantly more difficult. In the absence of evidence from the Respondent to rebut the inference of bad faith created by the circumstantial evidence, the Court found that the evidence on file established the Respondent’s intent to use the registration for extortion purposes. The Court invalidated the registration of the Respondent’s Mark and ordered that the registration be expunged from the Register of Trademarks. What this means It appears from this decision that the Court’s analysis is largely factual and that the burden of establishing the intent of the owner of a given trademark at the time an application is filed may be difficult, especially where a foreign applicant’s trademark has no reputation in Canada.

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January 19, 2023

The Canada Emergency Wage Subsidy: The Canada Revenue Agency takes action

In response to the pandemic, the Canadian government launched in the spring of 2020 the Canada Emergency Wage Subsidy (the “CEWS”), a program that provides employers with a subsidy based on the remuneration paid to their employees and income they lost during the pandemic. Section 125.7 of the Income Tax Act (the “ITA”) sets out how the subsidy is to be calculated, and likely caused problems for those who had to interpret this ambiguous provision without supporting doctrine or jurisprudence. For instance, calculating the “qualifying revenue,” which is central to the CEWS calculation, involves many nuances. As an example, it requires that an entity’s revenue during qualifying periods be estimated and that certain items be excluded, such as “extraordinary items,” a term new to the ITA. The calculation of “eligible remuneration,” another important component of the CEWS calculation, also has a number of peculiarities, such as the inclusion of remuneration for related and managerial employees. The Canada Revenue Agency (“CRA”) now has taxpayer’s CEWS calculation in its sights. The CRA began auditing CEWS claims and issuing notices of assessment to taxpayers in an effort to reduce the amount of CEWS originally granted. With reductions in pre-pandemic period qualifying income or the inclusion of items that taxpayers had initially excluded in their qualifying period income, such assessments are likely to have a significant impact on the CEWS amounts to which taxpayers were entitled, especially for companies with a large number of employees. In specific cases, the CRA may also impose penalties which can be as high as 50% of the excess subsidy claimed. Although the time limit for amending CEWS claims has expired, submitting a fairness request to amend a previously filed claim may be possible in some circumstances. Moreover, when notices of assessment are issued, a notice of objection may be filed to contest the adjustments made by the CRA. It is important to keep all documentation related to the calculation of the “qualifying revenue,” your employees’ remuneration and any other accounting documents to support the CEWS amounts claimed. A proactive approach and early intervention in a CEWS audit will not only result in a more favourable outcome in a given case, but will also prevent many back-and-forths with the CRA. Lavery’s tax law team is familiar with the CEWS program and its intricacies, and can assist you should you be audited or should you receive a notice of assessment from the CRA.

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