November 1, 2001 By: Wing T. Yan
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A significant decision in a 2001 patent case means that, more than ever before, patent professionals need to be diligent about confirming their clients' status when sending out payment reminders for annual maintenance fees. They should be particularly careful to note any change in status and adjust the amount of the prescribed fees accordingly.

Legislative Requirements

In order to encourage patent holders to reappraise the economic values of their patents, the Patent Act requires that patent holders who wish to maintain their patents in force pay yearly maintenance fees. Similar requirements are in place for patent applications pending issuance.

The Patent Act provides that for all patent applications that were filed after October 1, 1989, and for patents issued on these applications, maintenance fees must be paid every year, starting on or before the second anniversary of the application filing date. These annual fees continue until the patent expires after twenty years.

For patents that were issued after October 1, 1989, but whose applications were filed before October 1, 1989, maintenance fees must also be paid every year, starting on or before the second anniversary of the patent issue date. These annual fees continue until the patent expires at the end of the seventeenth year.

Prescribed Government Maintenance Fees

Maintenance fees vary depending on how long a patent has been issued. Generally, the older the patent, the higher the fees.

The Patent Rules consistently provide for two types of payment for prescribed government maintenance fees: Small Entity and Large Entity. The amount paid by a Large Entity is usually double that paid by a Small Entity.

Definition of Small Entity

Small Entity is defined in Section 2 of the Patent Rules. Essentially, a Small Entity is either an individual investor or a business that employs 50 or employees or less, or a university. If a Small Entity is transferred or licensed, or is under a contractual or legal obligation to transfer or license any right in the invention to an entity that employs more than fifty (50) employees (except to a university), the status of a Small Entity will be changed. Specifically, if the Small Entity has knowledge that the invention will subsequently be transferred or licensed to an entity that employs more than 50 employees, it will lose its status as a Small Entity.

Maintenance Fee Payment Due Date

Maintenance fees must be paid on or before the starting date of the period covered, rather than before the expiry date of the period. Failure to pay maintenance fees on an application will result in the abandonment of the application. Likewise, failure to pay the prescribed maintenance fees for an issued patent will result in the patent being deemed lapsed. While reinstatement of a patent application is possible under the Patent Act, reviving a lapsed patent is not permitted.

At the same time, however, the Patent Act provides for late payment of maintenance fees. If accompanied with the necessary late payment fees, maintenance fees may still be paid within the grace period, which runs twelve months from the due date, as stipulated in the Patent Rules. The time limits for payment of maintenance fees cannot be extended.

Patent Office Standing Practice

By law, the Commissioner of Patents must accept maintenance fees that are paid within the one-year grace period mentioned above, as long as the party also pays prescribed late payment fees. However, it has been an accepted practice for the Commissioner of Patents to receive payback of fees when the status of the patent applicant or patent holder is changed from Small Entity to Large Entity, notwithstanding such fees were received out of time and beyond the twelve month grace period. The Commissioner also did not require payment of any patent application reinstatement fee, even though such fee is required in order for an abandoned patent application to be properly reinstated.

The Dutch Industries Ltd. vs. The Commissioner of Patents, Barton No-Till Disk Inc., and Flexi-Coil Ltd. Case

On August 13, 2001, Madame Justice Eleanor Dawson of the Federal Court Trial Division rendered the Dutch Industries decision. The Commissioner of Patents did not appear on the matter, but did file an affidavit as to the events that took place in the Patent Office. The facts of this case are not in dispute.

Barton holds a patent application and an issued patent to certain technologies that were licensed to Flexi-Coil Ltd. in 1994. Barton alleged that Dutch Industries infringed its licensed technologies. In defending itself, Dutch Industries challenged the validity of both Barton's patent application and the issued patent, on the grounds that proper maintenance fees had not been paid. The Patent Office records indicate that Barton had been paying the filing and maintenance fees until March, 2000 on a Small Entity basis. Because Flexi-Coil is a Large Entity, the Court concluded that Barton was not entitled to the benefits of a Small Entity. In an attempt to make a corrective payback payment, Barton advised the Commissioner of Patents in March, 2000 that it was not entitled to enjoy Small Entity status and paid back all of its outstanding arrears as a Large Entity.

After reviewing all the relevant sections of the Patent Act and Patent Rules, the Court held that Barton had not paid the required Large Entity fees within the time allowed. Consequently, the Court deemed that the patent application had been abandoned at the date when the proper maintenance fee was not paid. By the same token, the issued patent was deemed to have lapsed at the date when the required maintenance fee was due but not paid.

Since Barton attempted neither to reinstate the abandoned application within the twelvemonth grace period nor to revive the lapsed patent within the grace period, both the application and the patent were rendered abandoned and lapsed by the Court. Notwithstanding the fact that the additional payback maintenance fees were accepted by the Commissioner of Patents, the Court held that it was an improper exercise of the Commissioner's discretion, and not within his jurisdiction.

Bob Kallio of Furman & Kallio in Saskatoon acted as counsel for Dutch Industries Ltd. Mr. Kallio's sense is that the decision should not come as a surprise to patent professionals: "This was the first time a court has had an opportunity to review the matter of entity status and maintenance fees. Future notices to clients verifying their entry status will likely be voiced in stronger terms because the Court has confirmed that rights will be lost. As far as future patent litigation goes, it is likely that checking the entity status and maintenance fee payment history will become standard procedure in order to discern whether this "Dutch Defence" can be applied."

Post Dutch Industries – A Change In Patent Office Practice

On September 24, 2001, the Canadian Patent Office issued an official notice stating that, as a result of the Dutch Industries decision, the Office Awill not accept any corrective payments which are submitted after a due date, unless the appropriate actions are taken as required by Legislation, e.g., a reinstatement or late fee in the correct amount is submitted within the prescribed period.

The notice applies to "all corrective payments, whether they are submitted to compensate for incorrectly having paid Small Entity fees, or submitting less than the required fee, for having sent an NSF cheque, for rejected credit card transactions or because of a lack of funds in a deposit account."

Clearly, for all intents and purposes, the payback practice is no longer accepted.

A Message for All Practitioners, Patent Applicants, and Patent Holders

In view of the Dutch Industries decision, it is strongly recommended that the status of patent applicants and patent holders be regularly reviewed and brought up to date, particularly in the event that the subject of the patent is being licensed or even in contemplation of a licensing arrangement.

The Dutch Industries case is currently being appealed.

© Wing Yan, 2001. Wing Yan leads the Intellectual Property Group at Nelligan O'Brien Payne LLP in Ottawa.

[This article is reprinted with permission and first appeared in the November 2001 issue of The Lawyers Weekly.]

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.