Gowlings Lafleur Henderson patent lawyer Kent Ledwell. (Darren Brown, OBJ)

A controversial piece of American legislation could dramatically change the way Canadian high-tech firms do business, local experts say.

But it's not clear, they add, whether Ottawa companies are giving the U.S. Patent Reform Act of 2005 the attention it deserves. The legislation, which promises the most comprehensive changes to U.S. patent law in over 50 years, is in the midst of becoming law.

Jennifer Markey, a senior vice-president with Ottawa Semiconductor Insights, says the act will deliver to Canadian companies the same chill that was felt when the U.S. Sarbanes-Oxley Act (SOX) became law a few years ago. That act introduced stringent reporting and accountability rules for any company that trades on an American stock exchange. Since SOX holds chief executives and financial officers of public companies personally liable if there are any instances of misreporting, some argue the act has successfully put a chill on many a Canadian company's decision to go public.

If it becomes law in its present form, the Patent Reform Act should give Canadian companies equal reason for pause and reflection, says Ms. Markey.

"But it's not worrying people the way it should," she says.

It's imperative that companies on this side of the border be wary of the act's provisions since filing for patent protection in the U.S. is critical if a firm wants to be a major North American player, adds Kent Ledwell, a local partner at lawfirm Gowling Lafleur Henderson.

The proposed law enhances a patent examiners' ability to decide whether an applicant has acted in good faith or, in the words of the act, fulfilled their "duty of candor." This duty includes telling the examiners about the most recent and relevant disclosures related to the company's invention. Previously determined by the court, the decision of whether the applicant acted in good faith would now fall on the patent examiner.

"So you could have a patent examiner search your website, find a white paper that you hadn't disclosed to them, and start the wheels in motion regarding the good faith issue," says Mr. Ledwell. "The act allows for penalties in the order of US$1 million for each separate act and US$5 million for particularly egregious misconduct."

Mr. Ledwell calls this "a scary provision," especially if your company files a large number of patent applications a year.

"Now the patent examiner could have the power to blow the whistle. (Before), our advice to clients was that they should always take this duty of candor very seriously, but the risk is even higher now for things to go awry."

Trolling for trolls

When the Patent Reform Act was first introduced by Congressman Lamar Smith (R-TX) in June, Mr. Smith said the bill would "eliminate legal gamesmanship from the current system that rewards lawsuit abuses over creativity."

Yet Mr. Ledwell sees no hard evidence of the act protecting small Canadian companies against legal battles triggered by so-called "patent trolls."

Ms Markey defines a patent troll as a company that make an arguably illegitimate business of snapping up intellectual property – often from the ashes of failed companies – and making patent applications without actually advancing the technology. Rather, the troll's sole purpose is to sue any infringers and reap the rewards of a settlement.

Some argue that Waterloo-based Research In Motion Ltd. recently fell into this trap when it was sued by U.S.-based NTP Inc. RIM settled by agreeing to pay $450 million. Critics argue that NTP was a shell company that only existed in a filing cabinet.

It appears that through the Patent Reform Act's new post-grant opposition system, an attempt was made by U.S. legislators to protect legitimate companies from patent trolling, says Mr. Ledwell.

A post-grant opposition occurs when a company disputes the granting of a patent to a competitor.

"But I can't see people exploiting that in a huge way because the downside is just too great," he says. "The bill in its original form says that if you ask for a post-grant opposition and you lose, then you can't take the same arguments to a court. You file (the post-grant opposition with the patent office), and you live and die by the (patent office's) decision. I can't see people wanting to go that route because it's not a flexible enough tool. The courts are still more flexible when trying to invalidate a patent. So the way you attack a patent troll won't change that much."

However, Max Wood, partner and patent agent at Ogilvy Renault's Ottawa office, says there are some provisions in the act that could "clip the wings" of alleged patent trolls such as Jerome Lemelson. The American's foundation is believed to have gleaned over US$1 billion in revenue through trolling while never introducing a single piece of technology to the market.

A new provision in the Patent Reform Act gives the patent commissioner control over whether a continuing application can be filed, which could put a stop to the activities of Mr. Lemelson and others, explains Mr. Wood.

"Continuation has really been the heart and soul of Lemelson ... because he would have some rudimentary idea about where he thought technology was going. He would file a basic application that wasn't really that enabling, but would at least give a framework for new developments in technology. Then they would continue to file continuations and just craft the claims as new products were developed (by other companies)."

Another good thing that comes from the Patent Reform Act is the money companies stand to save over the long term. If passed in its present form, the bill would allow companies to further harmonize their IP strategies, says Mr. Ledwell. The act makes a concerted effort to better match U.S. patent law with that of other developed countries, he says, so companies that hold patents in several jurisdictions will require fewer resources to develop and protect their IP.

By Scott Foster

Special to the Ottawa Business Journal