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PATENTS - Pleadings - Amendment - Striking out - Lack of jurisdiction

Wednesday, March 10, 2021 @ 6:20 AM  

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Appeal by the plaintiff, McCain, from a Federal Court decision allowing in part its appeal from a Prothonotary’s order allowing the respondent to amend its defence and counterclaim in a patent infringement action. Appeal by Elea from the Federal Court’s decision refusing to strike the third-party claim. McCain alleged that the respondent Simplot’s use of a system that used a pulsed electric field (PEF) to reduce the resistance of frozen fruits and vegetables to cutting after they were cooked infringed McCain’s Patent. The Prothonotary granted Simplot leave to amend its statement of defence and counterclaim to introduce allegations that Simplot benefited from an implicit licence or from McCain’s alleged acquiescence, and to commence a third-party claim against Elea, the supplier of the PEF systems used by Simplot in the alleged infringement. Elea also sold PEF to McCain. Elea alleged McCain entered into this transaction with Elea knowing that it was also selling its PEF systems to third parties. The Federal Court limited the allegations in the defence and counterclaim but refused to strike the implicit licence and acquiescence allegations. McCain argued the implicit licence defence was not supported by the law on implied licences and that the factual allegations were inadequate and that Simplot  failed to plead certain necessary elements of an acquiescence defence, including facts that suggested that Elea was infringing the Patent, that McCain was aware of Elea’s mistaken belief, and that McCain did anything to encourage Elea to continue to infringe the Patent to its own detriment. Both appellants wanted the third-party claim struck as it was essentially based on a commercial contract and was therefore outside the jurisdiction of the Federal Court.

HELD: Elea’s appeal allowed. McCain’s appeal allowed in part. The third-party claim was struck. Simplot’s implicit licence and acquiescence defences were not struck. While Simplot’s implicit licence defence was light on details, Simplot might be able to benefit from an inference that there was some sort of arrangement or understanding between McCain and Elea amounting to a licence. Such an inference could be based on the allegation that McCain, knowing of Elea’s ongoing allegedly infringing activities, not only did nothing to stop it, but encouraged it by entering into a transaction with Elea to purchase the very PEF systems in dispute. If Simplot proved the existence of a licence from McCain permitting Elea to sell its PEF systems to third parties, Simplot would have at least a reasonable prospect of establishing that a sublicence to use those PEF systems as intended followed those sales. The factual allegations in support of Simplot’s implicit licence defence were sufficient to allow McCain to identify the transactions in issue. While it might prove difficult for Simplot to adduce evidence sufficient to establish an acquiescence defence, this defence had a reasonable prospect of success. Simplot had no reasonable prospect of establishing that it had standing to maintain the third-party claim based on the Patent Act as Simplot could not establish that it was a person claiming under the patentee. Simplot was clearly not the patentee. As an infringer, according to the theory of its third-party claim, Simplot derived no rights from the patentee, and could not reasonably be a person who fit the definition of a person claiming under the patentee. The Federal Court’s jurisdiction over the third-party claim could not be based on any of the Patent Act, the Federal Courts Act, or contract alone.

McCain Foods Ltd. v. J.R. Simplot Co., [2021] F.C.J. No. 37, Federal Court of Appeal, G.R. Locke, D.G. Near and A.L. Mactavish JJ.A., January 14, 2021. Digest No. TLD-March82021005