Industry Canada proposes regulation for 'patent trolls'

In 2000, Canadian tech giant Research in Motion (now BlackBerry) went before a Virginia court to defend itself for enabling wireless transmission of emails. RIM sought to show that wireless email was a concept within the public domain, but a jury ruled that NTP held a valid patent and, during a lengthy appeal process, RIM settled for $612.5 million in 2006.

Since then, patent trolling has also become a concept widely recognized in the public domain — and apparently much despised by the Canadian federal government, which is seeking to arm the Competition Bureau to fend off any potential proliferation of trolls in this country.

A briefing paper written by Industry Canada suggests trolling was a $29-billion industry in the United States in 2011, in which non-operating companies used US courts and patents of varying merit to extract licence fees or cash settlements from companies worldwide. The same paper says there has been no significant trolling activity in Canada, but adds that may be changing.

“Patent litigation is risky, disruptive and expensive, regardless of the merits,” and operating companies receiving demand letters from patent trolls therefore tend to settle rather than fight, the Industry Canada paper says.

To make trolling more difficult in Canada, the paper sets out potential measures such as: specifying detailed information requirements for demand letters; establishing a public database of demand letters; requiring disclosure of all parties with financial interests in patent suits; giving the Federal Court jurisdiction over patent cases, with power to issue interlocutory injunctions, forestalling trolls from forum shopping in other jurisdictions; and incorporating these measures into the
Competition Act.

Paul Horbal, with
Bereskin & Parr LLP in Toronto, observes that the Competition Act is not a framework that intellectual property lawyers routinely work within, while Davit Akman, of Gowling Lafleur Henderson LLP, is more pointed. “I have difficulty seeing a patent asserting entity (PAE) sending demand letters seeking to enforce its patent rights as a competition law issue,” Akman says.

He says he prefers the term PAE to the more pejorative “troll.” He adds that some observers point to the quality of patents being granted in the US as a significant part of the problem, but he questions the role of competition law in addressing that issue.  “To my knowledge, there is no evidence of a patent quality issue in Canada and, even if there were, I don’t think we should be using competition law to solve patent law issues.”

Several factors, Akman says, mitigate against aggressive activity in Canada by patent asserting entities. PAEs, he says, are constrained by the loser-pay rule concerning court costs in Canada, which acts to dissuade people from launching dubious suits. The much smaller size of the Canadian market means that damage awards will tend to be considerably smaller here, making infringement claims less attractive. And Akman adds that Canada has far fewer business-methods patents, which tend to be less clearly defined and therefore more open to infringement claims.

Horbal says that, in the US, patent trials can be heard by juries, while in Canada they cannot and this also acts to limit damages in this country. Additionally, he says, Canadian courts have always been loath to grant injunctions preventing defendants from producing products using disputed technologies and placing pressure on them to settle quickly. “That’s a very big club and (Canadian) courts are aware of that,” Hobal says. “You have to show serious, serious consequences” before a judge will grant an injunction, he says.

All of which, they both say, is why Canada does not have, and is unlikely to develop, a patent trolling industry similar to the one in the US.

The Competition Bureau is widely expected to address patent law in the upcoming second stage of its process to update
Intellectual Property Enforcement Guidelines. But Akman says that legislative and policy reforms proposed by Industry Canada last year reportedly encountered opposition from business leaders, who were concerned that the proposed patent reforms could do more harm than good. Akman says he shares that sentiment, noting that measures commonly proposed for curbing PAE activity raise concerns about weakening patent rights.