Federal Court decision interprets “prior use” defence to claims of patent infringement

In Kobold Corporation v. NCS Multistage Inc, 2021 FC 1437 the Federal Court provided the first judicial interpretation of the recently amended section 56 of the Patent Act, which codifies the “prior use” defence to claims of patent infringement.

What you need to know

• Section 56 creates separate exemptions for prior users themselves (subsection 56(1)) and for third parties who purchase wares or services from prior users (e.g., customers) (subsections 56(6) and 56(9)).
• Subsection 56(1) exempts only identical infringing acts to those committed prior to the claim date. This means that the activities undertaken by the prior user must be the same pre- and post-patent. For example, if a prior user only manufactured and used a given article before the claim date, the defence would not extend to the post-patent sale of the same article.
• However, the requirement for the act to be identical only extends to the aspects of the activity that are relevant to the patented invention; prior users are allowed to modify their later post-claim use in ways that are unrelated to the patent’s inventive concept and still benefit from subsection 56(1).
• Determining whether the 56(1) defence applies in a given case requires the Court to construe the relevant claims and may require a full analysis of infringement, which may prevent it from being adjudicated on an interlocutory basis.

The underlying dispute

The parties were both manufacturers of equipment used for fracking, a method of extracting oil and gas.

The plaintiff, Kobold, owned a patent related to a novel method of equalizing pressure in wellbores, which builds up during the fracking process. Kobold alleged that NCS infringed its patent with four of NCS’s proprietary fracking tools and commenced a claim for patent infringement.   

NCS brought a motion for summary judgment on the basis of a prior use defence under 56 of the Patent Act¹. NCS claimed that its use of the purportedly infringing element of its fracking equipment predated the patent’s claims and that its activities were therefore covered by subsection 56(1), as well as the third-party defences under subsections 56(6) and 56(9).

The Federal Court decision

Section 56 had been substantially amended in 2018 to alter the scope of the defences available to prior users of patented articles. Resolving the dispute required the Federal Court to interpret the new section 56 for the first time.

Subsection 56(1): The meaning of “same act”

Subsection 56(1) provides an exemption to infringement if a person who has committed an infringing act can establish that they either committed, or made serious and effective preparations to commit, the “same act” prior to the patent’s claim date. After considering the legislative history of the provision and the parties’ competing interpretations, the Court concluded that the phrase “same act” means an identical act, rather than merely a similar or related one. For example, prior manufacture of a patented article would exempt post-patent manufacture, but not post-patent sales. While identical infringing acts will always engage the protection of subsection 56(1), the Court further clarified that protection may also be afforded to modified or altered activities so long as the modifications are unrelated to the inventive concept of the patent (e.g., altering a prior use in accordance with the prior art).

With this guidance in mind, the Court provided a methodology for deciding whether subsection 56(1) applies:

• First, the Court should decide whether the acts performed before and after the claim date are “identical”. If so, the defence is invoked and there is no need to consider the issue of infringement. However, the Court clarified that only in the “clearest of cases” should the defence be applied on this basis alone.
• If the acts are not identical, the Court should then determine which (if any) of the prior user’s activities infringe the claims of the patent. If the post-claim acts do not infringe the patent, there is no need to rely on subsection 56(1). If the pre-claim acts do not infringe the patent, subsection 56(1) does not apply.
• Finally, if the post and pre-claim acts are not identical and both infringe the relevant claim, then the Court should determine whether the difference between the two acts relates to the inventive concept of the patent. If the difference is unrelated to the inventive concept of the patent then subsection 56(1) applies.

Despite outlining the relevant principles for its application, the Court refused to decide whether subsection 56(1) applied to NCS at the summary judgement motion. Having concluded at step one of its methodology that NCS’s newest three tools were not identical to the two it had produced prior to the relevant date, the Court held that it did not have a sufficient evidentiary record before it to decide the question of the infringement required by step two.

Subsections 56(6) and 56(9): Third party defence

The Court noted that subsections 56(6) and 56(9) provide a broader scope of protection than subsection 56(1); however, it did not examine these subsections in detail, as it found that NCS was not a third-party user.

NCS argued that it purchased the purportedly infringing element in its devices from another manufacturer and therefore was entitled to protection as a customer. However, in the absence of evidence to this effect, the Court inferred that, at best, NCS had outsourced the production of the element based on its own designs. Such outsourcing of production did not make NCS a third party within the meaning of those sections.

Conclusion

Kobold v. NCS resolves a number of potential issues relating to the application of the amended prior use defence set out in subsection 56(1), and proposes a methodology for future applications of the defence. In addition, the decision provides some clarification about who may be able to benefit from the third-party prior use defences, but further clarity on the application of those provisions will have to wait for an appropriate case.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2024 by Torys LLP.

All rights reserved.