The Adoption and Existence of the American Doctrine of Patent Exhaustion in Canada

My participation in the Harold G Fox IP Moot was an opportunity for me to learn far more than just patent law. I entered the moot with a notion that the Canadian and American legal systems were so economically, socially, and fundamentally different in principle, that we would seldom find ourselves in a position where we wanted to follow the lead of our southern neighbours. Our moot problem tackled that notion head on, asking half of us to advocate for legal integration, and the other to fight against it. Thanks to the arguments we made vying for the adoption of the American doctrine of patent exhaustion, I learned that Canadian patent law can, and should, take guidance from our American counterparts, in spite of my false preconceptions about the mutual exclusivity of our legal systems.  

The doctrine at issue, patent exhaustion, is best defined by a recent American Supreme Court case called Impression Products v Lexmark. At paragraph 4, the Court stated that “…patent exhaustion is uniform and automatic. Once a patentee decides to sell – whether on its own or through a licensee – that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license.” In brief, the doctrine states that selling an article without imposing contractual limitations on that sale means you can no longer control what the buyer does with what you’ve sold them.

What we found was that this principle has been implicitly adopted into Canadian law for over 20 years. In Eli Lilly and Co. v Novopharm Ltd., the Supreme Court of Canada stated that after a patented article is sold, the patent owner, “no longer has any right with respect to the article.” Purchasers can alienate articles freely, “without fear of infringing his vendor’s patent,” This means the exclusive intellectual property rights of each owner are exhausted at the time of sale. The Court also accepted the principle that restrictions need to be expressly stated. Without restrictions, you have no rights to the item you sell. Paragraph 9 of the decision outlines that in order to enforce restrictions placed on a sold article, you need to put explicit contractual limitations on that sale.

In 2013, the Federal Court in Distrimedic Inc. v Dispill Inc. affirmed at paragraph 226 of that decision what was suggested in Eli Lilly, but from the purchaser’s perspective, that purchasers of patented devices are presumed to hold the right to use them “without restriction.” This decision stated the same principle applied to vendors, but reinforced the purchaser’s perspective on the same topic.

But if the doctrine is already implicit in Canadian law, why should we be interested in explicitly adopting it? There are three real and relevant reasons that we should want to. First, in terms of the history of intellectual property law, what we often forget is that the fundamental tenets of property law naturally extend to intellectual property. Historically, the law has resisted limiting the free alienation of chattel. Conditions that prohibited this were considered void, since reducing alienation decreases economic freedom. Without adopting the doctrine of patent exhaustion, buyers would need to worry that their activities would infringe upon the rights of those from who they bought their products.

Second, there are economic benefits to adopting the doctrine. It will promote industry in Canada, and failing to clarify the applicability of the doctrine would disadvantage Canadians relative to their American counterparts where the doctrine does exist. If buyers are concerned that there will be hidden, enforceable limitations on what they can do with the products they buy, they will likely buy those products in the States where the doctrine of patent exhaustion applies. Finally, we do extensive business with the US, and it makes far more sense for this system to work as a two-way-street. Even now, in the face of COVID-19, we’re choosing to keep our trade routes open even though the passage of most non-Canadians has been banned.

Finally, adopting the doctrine would discourage the exhaustion of our judicial resources in jurisdictional disputes. Even though the Supreme Court has never used the term “patent exhaustion” explicitly in judgements that refer to its principles, the truth is that the doctrine is already in Canada. Recognizing that will reduce the risk of international disputes arising based on the unrestricted use of legally purchased articles.

Ultimately, the moot was a lesson in both patents and perspective. I thought I would simply get a few extra credits this year, but I wound up having my mind opened to the state of the law in our neighbouring nation. Canada and the USA share the longest unguarded border in the world, and we are deeply connected both socially and economically. In spite of our proximal connection, our nations differ in some significant social, political, and economic ways. I realized that I had assumed American IP law was going to be equally hard to reconcile. As I prepare to begin my own career, I am glad I learned to give American intellectual property law the attention and deference it deserves. Thanks to this moot, I will look at American law with enthusiasm instead of reticence, which in turn will make me a better lawyer no matter what country my clients are from.   

Written by Emily Papsin, a second year JD Candidate at Osgoode Hall Law School. Emily is also a Clinic Fellow at IP Osgoode Innovation Clinic.

 

Leave a reply

Your email address will not be published. Required fields are marked *

3 × two =