Kobold Corporation v. NCS Multistage Inc.

Kobold Corporation v. NCS Multistage Inc.
Court (s) Database
Federal Court Decisions
Date
2022-01-07
Neutral citation
2021 FC 1437
File numbers
T-451-20
Notes
A correction was made on August 29, 2023
Reported Decision
Decision Content
Date: 20220107
Docket: T-451-20
Citation: 2021 FC 1437
Ottawa, Ontario, January 7, 2022
PRESENT: The Honourable Mr. Justice Zinn
BETWEEN:
KOBOLD CORPORATION,
KOBOLD COMPLETIONS INC.,
AND 2039974 ALBERTA LTD.
Plaintiffs/
Defendants by Counterclaim
and
NCS MULTISTAGE INC.
Defendant/
Plaintiff by Counterclaim
PUBLIC JUDGMENT AND REASONS
(Confidential Judgment and Reasons were issued December 17, 2021)
I. Introduction [1] The Plaintiffs [Kobold] and the Defendant [NCS] are both in the business of providing equipment to the oil and gas industry for hydraulic fracturing, commonly known as fracking. In this action, Kobold claim that NCS has infringed and is infringing Canadian Patent No. 2,919,561 [the ‘561 Patent] with four of its proprietary tools used in fracking.
[2] NCS moves for summary judgment on all of the claims raised in the pleadings pursuant to Rule 213 of the Federal Courts Rules, SOR/98-106. NCS asks to have the action resolved based on its defence of prior use pursuant to section 56 of the Patent Act, RSC 1985, c P-4. If successful, it says it will drop its counterclaim.
[3] In these Reasons I shall first describe (1) the fracking process, (2) the ‘561 Patent, (3) the NCS tools or devices at issue, and (4) the evidence of Kobold’s expert witness, Dr. Fleckenstein. After that, I shall analyze and discuss the issues involved in the matter, being (1) whether the matter is appropriate for summary judgment, (2) the proper interpretation of section 56 of the Patent Act, (3) the construction of the ‘561 Patent, (4) whether the NCS products or activities infringe the ‘561 Patent, and (5) whether NCS can rely on section 56 of the Patent Act as a defence to the action.
II. Facts A. Fracking [4] Fracking is a method of extracting oil and natural gas. It was explained in some detail at paragraphs 27 to 37 of the affidavit of the Plaintiff’s expert, Dr. William W. Fleckenstein. This explanation is not challenged and indeed accords with the description offered by counsel for NCS. I will summarize it.
[5] Hydrocarbons such as oil and natural gas are contained in formations below the earth’s surface. In order to access these hydrocarbons and bring them to the surface, a well is drilled. The formation may require additional treatment, such as hydraulic fracturing, in order to stimulate the extraction of the hydrocarbons. This typically involves pumping large volumes of fluid at high pressure into the well.
[6] After drilling vertically, horizontal drilling may be required to allow the formation to be stimulated in multiple stages, typically starting from the toe of the horizontal lateral, the point furthest from the vertical portion of the well, and working back to the heel.
[7] This litigation concerns the bottomhole assembly [BHA], a tool used to prepare a well for production. The BHA is run down the well until it reaches a zone of interest (i.e. the area underneath a formation from which the operator wishes to extract oil or gas). An element of the BHA known as a packer is used to seal the well so that fluid cannot pass beyond it.
[8] The packer has anchors that it uses to attach itself to the wall of the well. The packers at issue in this litigation also have an element made of an elastomeric material. An elastomeric material is one that can be stretched. The elastomeric element is squeezed until it expands outward enough to seal the well, preventing fluids from flowing beyond the zone of interest. This squeezing is done by anchoring the packer and then continuing to push the BHA further into the hole. The anchor keeps some elements of the packer in place while others continue to move. Those moving elements push the elastomeric element into the non-moving elements, compressing it.
[9] Once the packer is set, sealing the well, the fracking fluid is injected into the well. The high pressure of the fluid further compresses the elastomeric element and assists in blocking off the downhole portion of the well.
[10] There are various ways for the fluid to enter the formation. In some cases, the pressure of the fluid is used to cut through the wall of the well at the zone of interest, creating permanent holes in the well lining. In other cases, ports are installed in the well casing. The BHA opens these ports to allow fluid to pass through. In some cases, the ports can be closed when the packer is unset.
[11] After the injection is complete, the packer must be unset by contracting the elastomeric element and disengaging the anchors. However, after injecting the fluid, there is a large difference in the pressures above and below the packer. These pressures need to be equalized before unsetting the BHA. The most common ways to do this in the prior art are by placing a valve, called an equalization valve, on the sealing element, or by having a passageway through the centre of the tool that allows fluid to pass through, equalizing pressure. The ‘561 Patent discloses a new method of equalizing pressure by pulling on the sealing element.
[12] Once the packer is unset, the BHA can be moved to the next zone of interest. In cases where permanent holes are created or where the ports cannot be closed, the completion must take place starting from the toe end of the well and moving towards the heel. Otherwise, the fluid would exit through the previously opened holes, causing a loss of pressure. If the ports can be closed, this is not a concern. Therefore, an advantage of closable ports is the ability to frack zones of interest in any order and to re-frack previously fracked zones.
B. The ‘561 Patent [13] The inventive concept of the ‘561 Patent is a new way of equalizing pressure in the BHA by pulling on the sealing element. In so doing, the sealing element can be disengaged from the wall of the well, creating an annular (i.e. ring shaped) passageway on the outside of the sealing element for fluid to flow through.
[14] Independent claim 1 of the ‘561 Patent reads as follows:
1. A method for completing a wellbore comprising:
running a completion tool, having a resealable packer therein, into the wellbore, the resealable packer having
an annular elastomeric sealing element;
an anchor for anchoring the sealing element into the wellbore; and
a mandrel and a housing, the mandrel being axially and telescopically moveable within the housing, the elastomeric sealing element being positioned circumferentially about the mandrel and connected at least a pull end thereof;
locating the sealing element below a zone of interest in the wellbore;
axially compressing the elastomeric sealing element into sealing engagement with the wellbore and actuating the anchor by moving the mandrel axially toward the housing;
treating the zone of interest above the compressed elastomeric sealing element, creating a pressure differential across the sealing element, and thereafter;
applying axial tension to the pull end of the elastomeric sealing element for radially retracting at least the pull end thereof by moving the mandrel axially away from the housing for forming an annular passageway between the elastomeric sealing element and wellbore, allowing pressure thereabove to equalize with pressure therebelow, for releasing the packer from sealing engagement with the wellbore.
[15] Much of the method described in this claim is a recitation of the known prior art, which has been discussed above. The novel aspects involve pulling on the sealing element to create an annular passageway.
[16] The method of claim 1 makes use of a resealable packer (i.e. a packer that can be used multiple times). The packer has an elastomeric sealing element, an anchor, and a mandrel and housing. A mandrel is a slightly tapered cylinder. In the packer in claim 1, the mandrel is contained within a housing. The mandrel can move telescopically within the housing, that is to say, it can move back and forth along the axis of the housing like a telescope being opened or closed.
[17] The elastomeric sealing element is connected to the mandrel. This connection exists at least at the “pull end” of the sealing element. This is defined in the specification as the end at which the sealing element is eventually pulled to decompress it.
[18] The packer is positioned near a zone of interest. The mandrel is then pushed into the housing which engages the anchor and compresses the sealing element, sealing the well. Fracking fluid is injected and a pressure differential forms.
[19] After injecting the fluid, the mandrel is pulled away from the housing. Because the mandrel is connected to the sealing element, it pulls on it, which causes it to decompress, forming an annular passageway for fluid to flow through and allowing the pressure to equalize.
[20] Independent claim 9 is similar to claim 1. It claims a method of equalizing pressure above and below a sealing element of a packer. In effect, it describes the final step in claim 1. However, unlike in claim 1, the pull end of the sealing element is described as being “secured” to the mandrel rather than being “connected” to it.
[21] Independent claim 12 is virtually identical to claim 9. However, rather than being a method for equalizing pressure, it is a method for protecting the sealing element. The specification of the ‘561 Patent indicates that debris can build up in the wellbore during fracking. The ‘561 Patent claims that creating an annular passageway around the sealing element can reduce the risk of this debris damaging the sealing element. As with claim 9, the pull end of the sealing element in claim 12 is described as being “secured” to the mandrel.
[22] Independent claim 15 is for a pressure equalization tool. It is largely equivalent to claim 9, the pressure equalization method. However, in claim 15, as in claim 1, the mandrel and the pull end of the sealing element are described as being “connected” to each other rather than “secured.”
[23] Most of the dependent claims are not relevant for this matter. However, four dependent claims are of interest: Claims 8, 11, 14, and 29 are dependent on claims 1, 9, 12, and 15, respectively. In claims 8 and 29, there is a ring “secured” to the uphole end of the sealing element (i.e. the end closest to the entrance of the well). This ring is attached to the mandrel by threads. In the case of claim 8, the ring is described as being “connected” to the mandrel by threads, while claim 29 it is described as being “operatively connected.” In claims 11 and 14 the pull end of the sealing element is described as being “secured” to the mandrel by threads.
[24] Most of the figures in the ‘561 Patent show embodiments in which the sealing element is attached to a ring, with the ring being attached to the mandrel by threads. However, in addition to examples in which the mandrel is attached to the ring by threads, there is also an example that operates by way of “co-operating shoulders” on the mandrel and the ring. These shoulders can be seen in Figure 8 of the ‘561 Patent (elements 86 and 88).
[25] When the mandrel is pushed telescopically into the housing, the space between the shoulders increases. When the mandrel is pulled back out, the mandrel is able to move for some distance without the ring moving. Eventually however, the shoulders push against each other and pulling the mandrel further will also cause the ring to move in the same direction. The effect of this is that there is some distance for which the mandrel can move without the ring also moving. In the case of a threaded connection, the mandrel and the ring always move together.
C. NCS’s Devices [26] NCS builds and operates a number of BHAs. The four BHAs at issue in this litigation are known as the Mongoose, Shift Frac Close [SFC], Shift Frac Close 2 [SFC 2], and Innovus. The Innovus BHA is also referred to as the Shift Frac Close 3 in some of the materials.
[27] The evidence is that each of these BHAs uses as part of its packer assembly a device named the Blue Bullet. Each is used in conjunction with an equalization value which releases the fluid pressure and unsets the packer.
[28] According to Ryan Redecopp, an employee of NCS, NCS has been using the Blue Bullet packer element in its BHAs since 2012. Mr. Redecopp says that the Blue Bullet element was tested in the field in 2012 and since then has been used in all of the NCS’s BHAs that require the use of a compression set packer.
[29] While the Blue Bullet element has been used in NCS’s BHAs since 2012, variants of this device have been developed over time, including a “scalloped” Blue Bullet element.
[30] The Mongoose BHA has been in use since 2012. The evidence of the dates of first use of the other BHAs is unclear, but appear to have been subsequent to the Mongoose.
[31] At the hearing, Kobold admitted that NCS can continue to manufacture and use the 2012 Mongoose (presumably because of section 56 of the Patent Act), but says that what NCS cannot do is expand into new commercial products, such as the other three BHAs.
D. The Fleckenstein Affidavit [32] As noted, Kobold filed the affidavit of Dr. William Fleckenstein, their expert in this proceeding. A motion by NCS to file a reply expert affidavit was dismissed: see Kobold Corporation v NCS Multistage Inc, 2021 FC 742. Dr. Fleckenstein is a registered engineer in the state of California and a professor at the Colorado School of Mines in Petroleum Engineering. He is also a principal at a petroleum engineering consulting firm.
[33] In his affidavit, Dr. Fleckenstein construes the claims of the ‘561 Patent, discusses the differences in structure and function of the various BHAs of NCS, and determines whether any of the four packer assemblies that he reviewed, or their use in a completion tool, fall within the scope of the independent claims of the ‘561 Patent.
[34] Dr. Fleckenstein’s construction of the ‘561 Patent’s claims is largely uncontroversial except on a single point. Much of his construction has already been summarized above. The major point of contention regarding Dr. Fleckenstein’s construction is with respect to the terms “secured” and “connected.”
[35] At paragraphs 52 to 65 of his affidavit, Dr. Fleckenstein defines several terms in the ‘561 Patent as, in his opinion, they would be understood by the person ordinarily skilled in the art. “Connected” and “secured” are defined by Dr. Fleckenstein as follows:
[0055] Connected – two or more elements that are in some way linked together. This is a broad term that does not specify or limit the type of connection between the elements.
[…]
[0057] Secured – two elements that are attached together to allow a force to be transmitted from one structure to the next, and to allow co-movement of the two elements.
[36] As an example of elements that may be connected but not secured, one can imagine two objects joined by a loose rope. While they are connected, moving one object will not necessarily move the other, unless the movement is so great as to cause the rope to become fully extended. This is in contrast with two objects connected by a rigid metal bar. Any movement of one object will always cause the other object to move with it. Dr. Fleckenstein would describe the objects connected by a rigid bar as secured to one another.
[37] The distinction between “connected” and “secured” is relevant, as claims 1 and 15 describe the mandrel and the sealing element as being “connected” to each other, while claims 9 and 12 describe the sealing element being “secured” to the mandrel.
[38] In Dr. Fleckenstein’s opinion, devices in which the sealing element is connected to the mandrel by threading (as in Figures 1-7 of the ‘561 Patent) are both connected and secured. However, devices which operate by way of co-operating shoulders are connected but not secured, as the mandrel can be moved, at least for some distance, without moving the sealing ring.
[39] Dr. Fleckenstein notes in his claim construction that the claims of the ‘561 Patent make no mention of an equalization valve. In his opinion, the presence of an equalization valve is not mutually exclusive with the claims of the ‘561 Patent. A device falling under the claims of the ‘561 Patent could include an equalization valve to further increase the speed at which equalization occurs. Dr. Fleckenstein notes that a major drawback of equalization valves is that they have limited cross-sectional area, which affects equalization time. Using both an equalization valve and the methods disclosed in the ‘561 Patent would reduce this time, leading to less expense on a wellsite.
[40] Dr. Fleckenstein engages in a thorough analysis of the Mongoose, SFC, SFC 2, and Innovus packer assemblies. He finds the following as the major differences between NCS’s packer assemblies:
the Innovus BHA has an additional set screw to secure and attach the ring on the Blue Bullet (which is attached to the sealing element) to the mandrel, allowing for co-movement of the mandrel and the sealing element;
the SFC 2 BHA has a split ring on the mandrel to more directly connect the Blue Bullet element to the mandrel;
the Innovus BHA has a mechanical locator incorporated into the packer housing, while in the other BHAs this is a separate component;
the Innovus BHA has a number of new components, including a secondary housing, which appear to be designed to maintain the locator in a specific location;
the SFC packer has drilled holes in the mandrel and cone of the SFC packer as compared to the Mongoose packer;
the SFC 2 packer has additional drilled holes in the mandrel, set screws, an O-ring, and a backup ring that are not present in the SFC packer;
the Mongoose packer does not have dual-setting functionality (tension and compression);
the Mongoose packer has a slip retaining ring, while the other packers do not;
the Mongoose packer has a one-piece mandrel while the other packers have a two-piece mandrel; and
the SFC and SFC 2 packers have two-piece cones, while the Mongoose and Innovus packers have one-piece cones.
[41] In Dr. Fleckenstein’s opinion, all four of NCS’s BHAs fall under claims 1 and 15 of the ‘561 Patent. However, only the Innovus BHA infringes claims 9 and 12. This is because all of NCS’s BHAs operate by way of co-operating shoulders and therefore the sealing element is not “secured” to the mandrel. However, in the case of the Innovus, there is a set screw running from the sealing ring to the mandrel, which secures them, despite the co-operating shoulders.
[42] Central to the infringement analysis for the Mongoose, SFC, and SFC 2 BHAs is the fact that NCS’s standard operating procedures [SOPs] call for the operator to disengage the BHA by pulling it out of the hole and continuing to pull. Dr. Fleckenstein acknowledges that pulling the BHA out of the hole opens the equalization valve, which begins the process of pressure equalization. However, once the equalization valve is fully opened, pulling continues, which, according to Dr. Fleckenstein, would cause the sealing element to be pulled, creating an annular passageway allowing for further equalization.
[43] The SOPs indicate that the BHA is to be pulled no faster than | feet per minute. Dr. Fleckenstein indicates that the equalization valves on the Mongoose and SFC BHAs can move for | inches before further pulling would pull on the sealing element. At the maximum speed of | feet per minute, this would take || seconds. In the case of the SFC 2 BHA, there are multiple possible configurations so it is unclear how much the BHA can be pulled out of the hole before the sealing element is pulled.
[44] In the case of the Innovus BHA, in Dr. Fleckenstein’s opinion, pulling on the sealing element would begin as soon as the BHA is pulled out of the hole, as the sealing element is secured to the mandrel by the set screw.
[45] NCS takes issue with some of the assertions of Dr. Fleckenstein regarding its products.
[46] NCS submits that Dr. Fleckenstein is mistaken that in the Innovus BHA the Blue Bullet is secured to the mandrel by a set screw. This is particularly relevant because Kobold asserts that this constitutes a substantial change between the Innovus, which was released after the claim date, and the BHAs that pre-date the claim date.
[47] NCS notes that Dr. Fleckenstein agreed that the dimensions of the Innovus packer are essentially the same as the other packers and he agreed that those packers move as a result of the cooperating shoulders. NCS submits that if the dimensions are the same, then the cooperating shoulders of the Innovus packers are what causes the Blue Bullet to move with the mandrel, not the set screw.
[48] NCS further submits that the set screw does not even touch the mandrel. It says that the set screw is used, like set screws present on the other packers, to prevent unthreading of the equalization valve. It says that the set screw passes through a hole in the mandrel and does not touch it.
[49] NCS presented a CAD drawing of the Innovus around the set screw to Dr. Fleckenstein to demonstrate that the screw does not touch the mandrel. This CAD drawing was a zoomed in version of another drawing. Rather than accepting that this drawing shows that the set screw does not touch the mandrel, Dr. Fleckenstein suggested that the drawing was inaccurate.
[50] NCS takes issue with Dr. Fleckenstein’s assertion that, using its devices, equalization could take some time. NCS points to the evidence of its affiant, Mr. Redecopp, who has used the devices and says that equalization occurs within a few seconds of the equalization valve being opened. NCS submits that Dr. Fleckenstein’s comments on equalization time take into account the bleed off time, when the equalization valve is not open and no pulling has occurred.
[51] NCS points to a chart showing pressure on either end of the BHA over time. It shows a relatively slow decrease in pressure at the uphole end with no change in pressure at the downhole end, and then a sudden change in pressure on both ends to equilibrium. NCS submits that the initial decrease uphole is due to bleeding off pressure ahead of opening the equalization valve and the later rapid drop is due to the valve being opened. It notes that this data is supported by Mr. Redecopp’s evidence on cross-examination that equalization only takes a couple of seconds.
III. Analysis [52] This summary judgment motion shall be analyzed and discussed under the following headings:
Is this matter appropriate for summary judgment or summary trial?
What is the proper interpretation of section 56 of the Patent Act?
What is the proper construction of the claims of the ‘561 Patent?
Do the NCS products or activities infringe the ‘561 Patent?
Can NCS rely on section 56 of the Patent Act as a defence to any infringement?
[53] This is the first judicial interpretation of section 56 of the Patent Act, and the first occasion the Court has had to consider it as a defence to a patent infringement action.
A. Is this matter appropriate for summary judgment or summary trial? [54] NCS correctly notes that the purpose of summary judgment is to provide a proportionate, cost-effective, and timely dispute resolution: Hryniak v Mauldin, 2014 SCC 7 at paras 1-2. It further notes that summary judgment provides a mechanism to ensure a fair balance between expediency and a just resolution of disputes: Canmar Foods Ltd v TA Foods Ltd, 2021 FCA 7 at para 23.
[55] NCS submits that, win or lose, this motion will simplify the underlying action. If it is successful, the action is resolved; if Kobold are successful, then the defence of prior use need not be considered at trial.
[56] Rule 215 of the Federal Courts Rules provides this Court with clear direction on a summary judgment motion.
[57] The Court must grant summary judgment if it is satisfied that there is no genuine issue for trial: Rule 215(1). Where the only genuine issue for trial is a question of law, the Court may determine the question and grant summary judgment accordingly: Rule 215(2)(b). If the Court is satisfied that there is a genuine issue for trial, the Court may still determine that issue by way of summary trial or dismiss the motion in whole or in part, and order that the action or the issues in the action not disposed of by summary judgment proceed to trial or that the action be conducted as a specially managed proceeding: Rule 215(3).
[58] The burden of establishing that there is no genuine issue for trial is heavy and summary judgment should be granted only in the clearest of cases: see Watson v Canada (Indian and Northern Affairs), 2017 FC 321 at para 22. The Federal Court of Appeal has instructed that the proper test is whether the case is so doubtful that it does not deserve consideration by the trier of fact: see Premakumaran v Canada, 2006 FCA 213 at para 8. It has also instructed that the motions judge can only make findings of fact or law where the relevant evidence is available on the record and does not involve a serious question of fact or law which turns on the drawing of inferences: see Apotex Inc v Merck & Co, 2002 FCA 210 at para 49.
[59] The current version of the Rules with respect to summary trial were adopted from the British Columbia rules for summary trials. In Louis Vuitton Malletier SA v Singga Enterprises (Canada) Inc, 2011 FC 776 at paragraphs 95-96, this Court considered the British Columbia jurisprudence on summary trials and found that:
the onus of proof is the same as at trial, that being the party asserting the claim or defence must prove it on a balance of probabilities;
on a summary trial motion, the judge can find the facts as they would upon a trial;
the judge should give judgment unless doing so would be unjust, regardless of complexity or conflicting evidence; and
in determining whether summary trial is appropriate, the judge should consider factors such as the amount involved, the complexity of the matter, its urgency, any prejudice likely to arise by reason of delay, the cost of taking the case forward to a conventional trial in relation to the amount involved, the course of the proceedings, and any other matters that arise for consideration.
[60] For the reasons set out in detail below, I have concluded that some, but not all, aspects of this claim and defence are suitable for summary judgment.
[61] The proper interpretation of section 56 of Patent Act is a discrete question of law that can be resolved without reference to any of the factual issues at play. It is an issue suitable for summary judgment.
[62] Furthermore, it is appropriate to construe the claims of the ‘561 Patent on this summary judgment motion. There is evidence in the form of Dr. Fleckenstein’s affidavit to assist in resolving this issue.
[63] It has often been observed that in Canada, the construction of the claims of a patent is a question of law to be determined by the trial judge. The judge is to determine what a person skilled in the art of the patent would have understood the claim to mean at the relevant date. Expert evidence can assist the trial judge, but the proper interpretation is ultimately left to the judge: see Western Electric Co v Baldwin International Radio, [1934] SCR 570 at 572-573; Halford v Seed Hawk Inc, 2001 FCT 1154 at para 24; GlaxoSmithKline v Pharmascience Inc, 2011 FC 239 at para 86.
[64] As will be seen below, there are areas of the claim and defence that I have concluded cannot be determined on the evidence before the Court and therefore must be left to be determined at a trial.
B. What is the proper interpretation of section 56 of the Patent Act? (1) Legislative History of Section 56 of the Patent Act [65] Section 56 of the Patent Act, as it currently reads, came into effect on December 13, 2018. It is reproduced in full at Annex A. This provision applies only in respect of an action or proceeding in respect of a patent issued on the basis of an application whose filing date is on or after October 1, 1989, and that is commenced on or after October 29, 2018. The amended provision came into effect by virtue of the Budget Implementation Act, 2018, No 2, SC 2018, c 27 [Budget Implementation Act], which is an omnibus statute modifying a number of statutes.
[66] Subsections (1), (6) and (9) of section 56 of the Patent Act are at play in this litigation. They read as follows:
56 (1) Subject to subsection (2), if — before the claim date of a claim in a patent — a person, in good faith, committed an act that would otherwise constitute an infringement of the patent in respect of that claim, or made serious and effective preparations to commit such an act, it is not an infringement of the patent or any certificate of supplementary protection that sets out the patent, in respect of that claim, if the person commits the same act on or after that claim date.
[…]
(6) Subject to subsection (7), the use of an article is not an infringement of a patent or any certificate of supplementary protection that sets out the patent, in respect of a claim, if the article was acquired, directly or indirectly, from a person who, before the claim date of that claim, in good faith, made or sold, or made serious and effective preparations to make or sell, an article that is substantially the same as the one used, for that use.
[…]
(9) Subject to subsection (10), the use of a service is not an infringement of a patent in respect of a claim if the service is provided by a person who, before the claim date of that claim, in good faith, provided, or made serious and effective preparations to provide, a service that is substantially the same as the one used, for that use.
56 (1) Sous réserve du paragraphe (2), si une personne, avant la date d’une revendication se rapportant à un brevet et de bonne foi, a commis un acte qui par ailleurs constituerait une contrefaçon du brevet relativement à la revendication, ou a fait de bonne foi des préparatifs effectifs et sérieux en vue de commettre un tel acte, l’acte ne constitue pas une contrefaçon du brevet ou de tout certificat de protection supplémentaire qui mentionne le brevet, relativement à cette revendication, si cette personne commet le même acte à compter de cette date.
[…]
(6) Sous réserve du paragraphe (7), l’utilisation d’un article ne constitue pas une contrefaçon de brevet ou de tout certificat de protection supplémentaire qui mentionne le brevet, relativement à une revendication, si l’article est acquis, directement ou autrement, d’une personne qui, avant la date de la revendication, a de bonne foi fabriqué ou vendu — ou a fait de bonne foi des préparatifs effectifs et sérieux en vue de fabriquer ou de vendre — un article, qui est sensiblement le même que celui utilisé, pour cette utilisation.
[…]
(9) Sous réserve du paragraphe
(10), l’utilisation d’un service ne constitue pas une contrefaçon de brevet relativement à une revendication si le service a été fourni par une personne qui, avant la date de la revendication, a de bonne foi fourni — ou a fait de bonne foi des préparatifs effectifs et sérieux en vue de fournir — un service, qui est sensiblement le même que celui utilisé, pour cette utilisation.
[67] Prior to this amendment, the only substantive defence in section 56 was subsection 56(1) which then read as follows:
56 (1) Every person who, before the claim date of a claim in a patent has purchased, constructed or acquired the subject matter defined by the claim, has the right to use and sell to others the specific article, machine, manufacture or composition of matter patented and so purchased, constructed or acquired without being liable to the patentee or the legal representatives of the patentee for so doing.
56 (1) Quiconque, avant la date de revendication d’une demande de brevet, achète, exécute ou acquiert l’objet que définit la revendication peut utiliser et vendre l’article, la machine, l’objet manufacturé ou la composition de matières brevetés ainsi achetés, exécutés ou acquis avant cette date sans encourir de responsabilité envers le breveté ou ses représentants légaux.
[68] The summary of the Budget Implementation Act, which is included in the statute as a preamble, specifically notes that:
Subdivision A of Division 7 of Part 4 amends the Patent Act in order to:
[…]
(c) expand the rights of a person in respect of a claim in a patent who meets the requirements to be considered a prior user;
La sous-section A de la section 7 de la partie 4 modifie la Loi sur les brevets afin :
[…]
c) d’étendre les droits, à l’égard d’une revendication se rapportant à un brevet, de toute personne qui satisfait aux conditions lui permettant d’être considérée comme un utilisateur antérieur;
[69] From this, it can be seen that the current version of section 56 is to be read as granting more expansive rights than the previous version. Aside from this, there is no guidance on the intention of the legislators to be obtained from any Parliamentary debate or committee review.
[70] The current version of subsection 56(1) differs in three key ways from the former.
[71] First, the previous version granted a prior user the right to use and sell a patented article, machine, manufacture, or composition of matter. In this respect, it was limited to physical inventions and did not cover patented methods. The current version grants a prior user the right to commit an “act” that would have otherwise constituted infringement. This is significantly broader and covers a wider set of circumstances than simply the sale or use of a physical product. The new statutory language includes the use of a patented process as a prior use. NCS submits, and I agree, that the word “act” in subsection 56(1) should be read in light of section 42 of the Patent Act, which speaks to a patent granting exclusive rights to “making, constructing and using the invention and selling it to others to be used.” These are the acts protected by subsection 56(1).
[72] Second, the previous English version of subsection 56(1) limited the protection to the sale or use of the “specific” physical manifestation of the invention. While the French version did not say this explicitly, it should be interpreted in this manner in order to be consistent with the English version. The current version of subsection 56(1), in both languages, instead protects the commission of “the same act” (“le même acte”) that would have constituted infringement.
[73] Finally, the current version of subsection 56(1) grants protection not only to persons who committed an infringing act prior to the claim date, but also to those who “made serious and effective preparations to commit such an act.” There is no such language in the previous version.
[74] In Merck & Co, Inc v Apotex Inc, 2006 FCA 323 [Merck], the Federal Court of Appeal applied former subsection 56(1) narrowly. In Merck, the defendant Apotex purchased batches of Lisinopril, the subject of the plaintiff’s patent, from Delmar. The contract of purchase was drafted so that title in the product would only pass to Apotex upon Apotex being satisfied that the product batches met Apotex’s requirements. The Federal Court of Appeal found at paragraphs 81 and 82 that Apotex did not have prior user’s rights:
[…] Apotex cannot be said to have purchased or acquired the Delmar batches until they obtained title to them. If the Delmar batches were of a finished product, title would have passed to Apotex and Apotex could then claim the statutory benefit. However, that is not the case here. At trial, Dr. Dickinson, President of Delmar, testified that they were not satisfied that the Delmar batches met the description of the lisinopril Apotex sought to purchase. The lisinopril had not yet been isolated as a solid and still had to undergo purification steps followed by drying before it could be released as a finished product. These steps were eventually undertaken but it was not until October 23, 1990, and November 7, 1990, that the Delmar batches were packaged and ready for delivery.
As a result, title could not pass to Apotex until the product was in a deliverable state (i.e. October 23, 1990, and November 7, 1990). By that time, the ʹ350 patent was already granted to Merck (October 16, 1990) and Apotex’s right to reap the benefit of section 56 was already extinguished.
[75] The inclusion of “serious and effective preparations” in subsection 56(1) was likely designed to override the outcome in Merck. Under the new provisions, it is likely that a court would have found that serious and effective preparations had been made given that Apotex had ordered the Lisinopril and production had commenced but had not been completed.
[76] Subsections 56(6) and 56(9) deal with the use of a purchased article or service. They appear designed to extend prior user rights to third parties. There are no corresponding provisions in the previous version of the Patent Act.
(2) The Parties’ Submissions on Section 56 of the Patent Act [77] Kobold and NCS differ on the standard of similarity subsection 56(1) of the Patent Act requires. What does “the same act” in that subsection mean?
[78] NCS submits that it means the same or substantially the same. Kobold submit that it means identical or nearly identical. This is not a mere semantic dispute. The resolution of this issue of interpretation guides how different, if at all, the act subsequent to the issuance of the patent can be from the act prior and still obtain the protection of subsection 56(1).
[79] Both parties directed the Court to English jurisprudence interpreting its legislative provision providing for a prior use defence. The British provision is subsection 64(1) of the United Kingdom’s Patents Act 1977 [the UK Act] which provides as follows:
64 (1) Where a patent is granted for an invention, a person who in the United Kingdom before the priority date of the invention –
(a) does in good faith an act which would constitute an infringement of the patent if it were in force, or
(b) makes in good faith effective and serious preparations to do such an act,
has the right to continue to do the act or, as the case may be, to do the act, notwithstanding the grant of the patent; but this right does not extend to granting a licence to another person to do the act.
[80] One immediately notices that the UK legislation refers to doing “the act” after the patent issues; whereas the Canadian Act speaks to doing “the same act on or after that claim date.” [emphasis added]
[81] In Lubrizol Corporation v Esso Petroleum Co Ltd, [1997] RPC 195 (Eng CA) at 216, the Court of Appeal interpreted “the act” in the UK statute to mean “substantially the same act”:
In deciding whether the activity is substantially the same all the circumstances must be considered. Both technical and commercial matters must be taken into account. That is important in a case such as the present where there are inherent minor variations in starting materials or the like. If the protected act has to be exactly the same (whatever that may mean) as the prior act then the protection given by the section would be illusory. The section is intended to give a practical protection to enable a man to continue doing what in substance he was doing before.
[emphasis added]
[82] NCS submits that the UK Act is similar to the Canadian Act and therefore English jurisprudence is informative on how to interpret the Canadian Act. It submits, based on judicial interpretation of the UK Act, that the Canadian Act should be interpreted to mean that a prior user can commit “substantially the same act” without infringing the patent. As noted above, it also submits that “an act” should be taken to mean any action that would infringe a patent, namely making, constructing, and using the invention, or selling it to others to be used.
[83] NCS further submits that because subsection 56(1) limits its application to “a