Is the use of a competitor’s name in keyword advertising considered trade-mark infringement? 

The short answer is that in Canada, we still don’t know. The closest decision we have is from a recent lawsuit which deals with competing career colleges in Vancouver. Vancouver Career College (VCC) had an aggressive policy of buying up the keywords of competitors. In Private Career Training Institutions Agency v. Vancouver Career College (Burnaby) Inc., 2011 BCCA 69, the BC Court of Appeal has upheld a lower court decision  that the keyword advertising program of VCC was not misleading advertising.  Unfortunately, this is not a trade-mark decision, so it provides little guidance on the topic for business, since the lawsuit involved interpretation of a subsection of the BC Private Career Training Institutions Act.  Here, in deciding that consumers were not likely to be deceived, the court noted that the nature of the “product” will be relevant. Consumers spending several thousand dollars on career training courses are not likely to make snap decisions based on sponsored links; they are more likely to weigh their options carefully after going through a lengthy review and admissions application procedure. 

We still have to wait for a decision based in Canadian trade-mark law to provide useful business guidance in this area.

Related Reading:

• Google Adwords Update (from the IP Group at Field Law) 
• Google AdWords: Can’t Beat ‘Em?

US Update:

• Google Suffers Surprising Preliminary Loss in Keyword Advertising Case–Jurin v. Google  

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In our earlier posts, we reviewed the recent Uniloc decision in the US that effectively disposed of the 25% Rule of calculating patent damages. Has this rule been used in Canada?

To a certain extent, yes. Here are 2 leading cases: In Alliedsignal Inc. v. du Pont Canada Inc., 1998 CanLII 7464 (F.C.), the Court stated that a reasonable royalty for patented technology was between 25% and 33% of the plaintiff’s profits and applied a series of 13 factors that could tend to increase or decrease the royalty within the range. For example, if the parties to the litigation were direct competitors, that would tend to increase the royalty rate.

In Jay-Lor International Inc. v. Penta Farm Systems Ltd., 2007 FC 358 (CanLII), the anticipated profits approach was used, and the court assessed the 13 factors that were used in Alliedsignal.  This analysis was used to determine where the royalty should fall within the range of 25% to 33% of profits. These are part of the “hypothetical negotiation” that courts construct to determine the appropriate royalty. The factors include things such as:

• Exclusivity - whether the license would have been exclusive or not
• Territorial restrictions – whether the license would have been restricted geographically
• Risk of market success of the patented invention, whether it was a proven technology
• R&D – whether the inventor incurred high research and development costs to bring the product to market

Courts in the US have looked at similar factors.  The Uniloc decision in the US is likely to impact Canadian assessments of patent damages, but will not cause a significant change in the court’s approach.  The factors used by Canadian courts allow a measured, flexible approach, which won’t be up-ended by the demise of the 25% Rule in the US. 

Related Event: March 17, 2011 -  Field Law is hosting the Licensing Executives Society on the topic of “IP Valuation in 2011” presented by Robert Doran, KPMG. Link to Register

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While the Canadian “business method patent” debate continues by means of the Amazon appeal, the debate is also continuing in the US. South of the border, courts are applying the US Supreme Court’s reasoning in the infamous Bilski case.  A recent court decision out of Texas (a popular jurisdiction for patent infringement lawsuits, including cases against Canadian companies) has interpreted another business method patent claim.

H&R Block Tax Services, Inc. v. Jackson Hewitt Tax Service, Inc.[PDF], 6-08-cv-00037 (E.D. Tex., February 2, 2011) involved a dispute over a patent for an abstract intellectual concept – the processing of collateralized loans. You may recall Bilski also involved a method patent for financial services – in that case it was a risk management tool and the invention was ultimately found to be unpatentable. In this case, the court upheld the patent, even though it failed the machine-or-transformation test. In the US, the Supreme Court was clear that the machine-or-transformation test is not the exclusive or determinative test for patentability. Here, the business method claims were subject to meaningful and reasonable limitations which convinced the court that the invention was patentable. 

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How do we value IP?

In a patent infringement case, a plaintiff (the patent holder, whose patent is infringed) can get 2 types of remedies: either damages or an accounting of profits.  If the plaintiff proves infringement, then it can elect only one of these 2 remedies. While the goal of each remedy is the same, the underlying principles are very different:

Damages seek to compensate the plaintiff for losses suffered by the plaintiff as a result of the infringement. Whether the infringing party actually earned any profits is irrelevant.

On the other hand, an accounting of profits aims to calculate the profits that the infringer made through the improper use of the patented technology. The infringer disgorges those profits on the basis that the money rightly belongs to the plaintiff. The infringer is only required to disgorge those profits earned from the infringement of the plaintiff’s patent.

It’s up to the plaintiff to prove damages. Where the patent owner actually sells its patented product (as opposed to licensing the patent), it is entitled to the profits on the sales it would have made if the infringing product had not been on the market. Otherwise, the plaintiff is entitled to a “reasonable royalty”.  Which brings us to the critical question: what is a “reasonable royalty”? Many courts in Canada have calculated a reasonable royalty according to what the infringer would have paid if it had entered into a legitimate licensing agreement with the patent holder. Put another way: what rate would result from negotiations between a willing licensor and a willing licensee. This is where the difficult task of IP valuation really gets tricky.  In the US, the “25% Rule” was often used as a guide for determining the royalty that two parties would have hypothetically negotiated. That rule has been tossed by the US Federal Court of Appeal. Is that rule used in Canada?

In Part 3, we’ll examine that question and look at one of the leading cases in Canada.

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A reminder: The Annual TEC VenturePrize Business Plan Competition is still open. The submission deadline for registration for the VenturePrize Fast Growth Competition is February 24, 2011, 4:00 p.m.

Field Law is a proud sponsor. See this link for details.

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What is intellectual property worth?

It is notoriously difficult to ascertain damages for patent infringement.  In the US, the “25% Rule” has been used as a rule of thumb in countless cases and negotiations, as a way of determining fair compensation for infringement of a patent. The 25% Rule suggests that a licensee should pay a royalty rate equal to 25% of its expected profits for use of the licensed IP.  As recently as September, an article was published proclaiming “The 25% Rule Lives On“, IP Law 360, Sept. 8, 2010. In a decision that sent waves through the patent litigation world on January 4, 2011, the US Court of Appeals for the Federal Circuit in Uniloc USA, Inc. et al v Microsoft Corporation [PDF], has thrown out this rule as a method of measuring patent damages:

This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.

In Canada, a patent owner whose patent has been infringed may elect, as a remedy, either an accounting of profits or an award in damages. In next week’s post, we review this in more detail.

Related Event: March 17, 2011 -  The Licensing Executives Society – Meeting of the Calgary Chapter on the topic of “IP Valuation in 2011” presented by Robert Doran, KPMG. Link to Register

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Since 2009, developing countries (including Canada) have moved in the exact opposite direction – by fast-tracking cleantech patent applications to remain competitive in the international marketplace (See: Update: Green Technology Patents in Canada).

Prof. Guaragna argues that patent reform is unlikely to strip away patent rights in the near future, but “open-source” licensing can provide a solution that functions within the existing patent regime. Open source licensing is well known in the software industry, but is in its infancy in other fields such as climate change and life sciences.  Patent pooling can be used as an open source licensing tool:

• Patent pooling has been successful in commercial applications – for example the DVD licensing pool licenses the dozens of patents for DVD technology – DVD-ROM drives, players, decoders, and discs; a similar pool was established for RFID technology.  
• Patent pooling is typically voluntary but has also been put to effective use by the US government when it mandated pooling of aircraft patents in 1917 as the US entered the First World War.
• The Medicines Patent Pool has been established by the international community to deal with HIV treatment in the developing world.
• Can a CleanTech Patent Pool be next? The Eco-Patent Commons is the closest thing so far… but Canada is not a contributor.

Related Reading:

1. Open Source Resources
2. WIPO review of CleanTech patent pools [PDF]

This week, the Canadian Intellectual Property Office (CIPO) commenced a Patent Cooperation Treaty (PCT) – Patent Prosecution Highway (PPH) pilot project based on PCT work products established by CIPO as the International Searching Authority (ISA) and/or the International Preliminary Examining Authority (IPEA). The project formally began on January 31, 2011, and will run for a period of two years, ending on January 31, 2013.  The corresponding CIPO application must have entered national phase on or after January 31, 2011. During the pilot, CIPO will process PCT-PPH (CIPO ISA/IPEA) requests for advanced prosecution free of charge. For further information, contact the Field  IP Group.

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Who can get a monopoly on a particular word? Is it fair for someone to get a trade-mark for the word TEACHERS’? Under Canadian trade-mark law, there’s nothing stopping a company from obtaining a trade-mark over almost any word, as long as it meets the registration criteria. One of those criteria is that the word cannot be descriptive of the product or service that’s being provided. In Ontario Teachers’ Pension Plan Board v. Canada (Attorney General) 2011 FC 58, the Federal Court decided that the word TEACHERS’ is not registrable by the Ontario Teachers’ Pension Plan. The court decided that the word TEACHERS, describes an “intrinsic character of the administration, management and investment of a plan/fund for teachers” and so the word should be available for others to use. “Descriptive words,” the Court confirmed, “are the property of all and cannot be appropriated by one person for their exclusive use.” 

Lessons for business?

• Remember: This doesn’t mean that all adjectives are ineligible for registration. The word SWEET (TMA687821) is a registered trade-mark in Canada for “Plant nutrients and supplements namely plant food” because the word does not describe the character or quality of the product. However, the word SWEET for, say, candy or refined sugar would be clearly descriptive.
• If you are considering a new brand, get an advanced registrability search from a qualified trade-mark agent. They can advise on both the availaibility (whether someone else has an identical or similar mark) and registrability – including whether the mark is likely to be considered clearly descriptive or deceptively misdescriptive.

Related Reading: Generic Domain Names in Canada  

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