Excalibre Oil Tools Ltd v Advantage Products Inc2016 FC 1279

Patentees who believe their patent has been infringed should be cautious not to send cease and desist letters that are threatening in nature. Sending letters which are threatening, rather than merely informative, may be found to violate the Trade-marks Act if the patent being enforced is later deemed invalid by a court.

In this case, the Federal Court (“FC”) found that each of the three torque anchor patents which Advantage Products Inc. (“API”) claimed were being infringed by Excalibre Oil Tools Ltd. (“Excalibre”) were either invalid, for obviousness or inutility, or were not infringed. [9-11] Furthermore, the FC found that API violated section 7(a) of the Trade-marks Act by making false or misleading statements tending to discredit the business, goods, or services of Excalibre, when it sent cease and desist letters to some of Excalibre’s customers. [12, 280]

API’s three patents at issue in this case, Canadian Patent No. 2,264,467 (“the ‘467 Patent”), Canadian Patent No. 2,373,734 (“the ‘734 Patent”), and Canadian Patent No. 2,386,026 (“the ‘026 Patent”), all relate to a torque anchor tool that is part of a pump system designed to extract oil from subterranean reservoirs. [6] API alleged that various products sold by Excalibre infringe their three patents, while Excalibre alleged that the three patents are invalid and that API violated section 7(a) of the Trade-marks Act. [4-5]

The ‘467 Patent: Valid But Not Infringed

Excalibre alleged that the ‘467 Patent was invalid on the grounds of inutility, arguing that the invention was not sufficiently reliable for oil well applications, as shown by evidence that it was not a commercial success. [215] The FC dismissed the commercial success argument, stating that utility is measured on a different threshold and that the test had been met based on the evidence before the court. [215] After construing the claims, the FC concluded that Excalibre’s products did not have the essential element of a casing-engaging wall, and as such, did not infringe the ‘467 Patent. [231]

The ‘734 Patent: Invalid for Obviousness

The FC summarily dismissed allegations that the ‘734 Patent was invalid on the grounds of anticipation. [233-234] When conducting the obviousness analysis, the FC determined the inventive step to be the addition of a spring mechanism to the anchor, however, it was concluded that this would have been obvious to a person of skill in the art (“POSITA”) and therefore the ‘734 Patent was invalid. [235, 244]

The ‘026 Patent: Invalid for Inutility and Not Infringed

The FC found that the ‘026 Patent disclosed a jaw that is rotatable around a hinge, but did not disclose the means of initiating rotating. [254] It concluded that a POSITA would not be able to make the tool work through routine testing and therefore invalid on the grounds of inutility. [258] The FC further stated that even if it was incorrect on it’s determination of invalidity, there was no infringement of the ‘026 Patent as none of Excalibre’s products have the essential element of a casing-engaging wall. [275]

API Violated Section 7(a) of the Trade-marks Act

Excalibre alleged that API violated section 7(a) of the Trade-marks Act by damaging Excalibre’s business relations through false and misleading statements. [4] The FC noted the test for section 7(a) requires the following elements to be established: (a) a false and misleading statement, (b) tending to discredit the business, wares or services of a competitor, and (c) resulting damages. [278] It further noted that it is settled law that the party making the statements is not required to have knowledge of the falsity or malice. [279]

The FC found that as none of Excalibre’s products infringed API’s patents, the cease and desist letters sent to some of Excalibre’s customers on behalf of API contained false and misleading statements. [280] It went on to clarify that not every assertion of a patent or other intellectual property that is subsequently held to be invalid will constitute a false and misleading statement under section 7(a). [281] The FC distinguished between cease and desist letters that are informative and letters that are threatening, explaining that informative letters set out a patentee’s rights and provide information about infringement, whereas threatening letters contain explicit or veiled threats of litigation. [282] It was found that the letters sent on behalf of API were clearly threatening and discredited Excalibre’s products. [284]

In regards to the final element of section 7(a), the FC stated it is settled law that evidence of actual or potential damage is necessary, as well as a causal link between the statements and damage suffered. [285-286] The FC found that there was an indisputable nexus arising between the impugned letters and the damage suffered by Excalibre. [287]