Are Patent Trolls Really Not a Problem in Canada?

Introduction

Earlier this semester, I took a two-week intensive seminar titled Comparative Intellectual Property. One of the topics we covered which I found the most interesting was patent trolls. Patent trolls are entities who do not invent or develop anything, and whose business model consists instead of buying and asserting patents against legitimate companies [1]. In the United States, they are generally considered to be a massive problem, as they impede innovation and cost defendants and licensees billions in dollars, mostly in settlements, every year [2].

Since, in the seminar, we discussed patent trolling mainly in the American context, I considered writing my final paper for that course on patent trolling in Canada. But as I began researching, I found that very little has been written on the topic; not nearly enough to write a paper on. Though I chose another topic for that course, I thought I would revisit this issue now and ask: are patent trolls really not a perceived (or real) problem in Canada? 

Where is the Concern? 

The last time patent trolling was seriously discussed in the Canadian media was in 2018, when the Government of Canada introduced a national Intellectual Property Strategy [3]. At the time, patent trolls were described as “foreign predators” since they are based primarily in the United States [4]. Since then, however, the media has remained notably quiet on this issue. 

The new Intellectual Property Strategy included proposed legislation that would have required patent infringement claims against Canadian companies to be litigated in Canada [5]. But this does not appear to have materialized: today, the Government of Canada warns that “Canadian companies can still be sued in any US district for patent infringement” [6]. Six years later, the government proposes more modest amendments of “establishing minimum requirements for the use of patent demand letters to discourage the sending of deceptive and/or vague letters and to reduce costs for the recipient in assessing the merits of the allegations” [7].

Overall, neither the government—who has not prioritized patent trolling legislation—nor the media—who has not addressed the issue in years—appear to view patent trolling in Canada as a cause for concern. This is in stark contrast to the situation in the United States. But is this lack of concern in Canada justified? 

Does Patent Trolling Occur in Canada?  

The answer to the question above is complicated. 

On one hand, patent trolling is definitely not as common in Canada as it is in other jurisdictions, most notably the United States. Canada is not a typical venue for this type of patent litigation [8], and Canadian firms have historically not been threatened by patent trolls to the extent American firms have [9]. This can be explained by a number of factors: Canada has a smaller intellectual property market and a legal system where lower damages are awarded, which means that patent trolls can expect to collect “substantially smaller” settlements in Canada; unlike in the United States, costs are awarded against the losing party in Canada; and, also unlike in the United States, jury trials are not available for patent infringement lawsuits in Canada [10]. 

On the other hand, patent trolling does not have to be common in Canada for Canadian companies and consumers to be impacted by it. As discussed earlier, American patent trolls can still begin lawsuits against Canadian companies in the United States: one of the most infamous examples of this was when BlackBerry Limited (then known as Research in Motion) paid US$612.5 million after being threatened with an injunction by a patent troll in 2005 [11]. On the consumer side, patent trolling anywhere in the world raises the costs of products and services, as companies pass on their increased costs to their customers [12].

In sum, while patent trolling is evidently nowhere near as big a problem in Canada as it is in the United States, it may still be something worth thinking about. 

Should More be Done? 

Although patent trolling may not be a pressing issue in Canada at the moment, it might nonetheless be prudent to think about what can be done in the event that trolls become more prominent. After all, most measures (especially legislative ones) take a while to implement, and it is hardly ever a bad idea to be proactive about potential risks.

One potential avenue is for Canadian firms themselves to take a stand against patent trolls. This is precisely what Shopify is currently doing, having recently launched a lawsuit in Texas that it hopes will “identify who is funding patent trolls in cases lodged against the company” [13]. Since “people funding lawsuits pursued by patent trolls often “hide cowardly in the shadows,’” Shopify hopes this lawsuit will expose conflicts of interest and reduce patent trolls’ leverage in settlement negotiations [14]. Most importantly, fighting back instead of settling will reduce the effectiveness of patent trolls’ business method and lessen incentives for them to pursue baseless allegations. 

But, given the prohibitive cost of patent litigation and the fact that small firms who cannot afford it are often the target of patent trolls [15], it is really up to the government to make changes to the patent system that will help Canadian companies. Much has already been written about this topic in the American context, and many of the proposed solutions south of the border would help prevent Canada from ever becoming a safe haven for patent trolls. 

Possible legislative options include compensating patent troll victims for damages caused by invalid patents [16], creating an equitable defence of “fair use” in patent infringement cases [17], and eliminating patents’ presumption of validity in infringement lawsuits in order to make litigation more expensive and difficult for patent trolls [18].

Thinking about such options now, before patent trolling becomes a significant problem in Canada, should give the government and other stakeholders more time to ensure that any changes to the patent law system do not do more harm than good. 

Conclusion

Despite the situation in the United States, patent trolling is not currently an issue that is seriously harming the Canadian patent economy. One cannot therefore blame the government for its lack of action in this area. But it is never unwise to be proactive about problems that may arise in the future; keeping the American experience in mind, it might be worth exploring options to ensure that patent trolls never become a burden in Canada.

 

Sources

[1] Brian T Yeh, “An Overview of the ‘Patent Trolls’ Debate” (16 April 2013), online: Congressional Research Service <sgp.fas.org/crs/misc/R42668.pdf> at 1. 

[2] Ibid at 2.

[3] Government of Canada, “Government of Canada launches Intellectual Property Strategy” (26 April 2018), online: Government of Canada <tinyurl.com/5d8vvc8p>.

[4] Chris Hall, “SWAT teams and patent trolls: inside Ottawa’s IP plan to promote Canadian innovators” (26 April 2018), online: CBC News <cbc.ca/news/politics/innovation-patent-trolls-ip-strategy-1.4635151>. 

[5] Ibid.

[6] Government of Canada, “Choice of venue for patent litigation in the United States” (2 June 2022), online: Government of Canada <tinyurl.com/rvnnx4da>.

[7] Government of Canada, “Intellectual Property Strategy” (5 September 2023), online: Government of Canada <ised-isde.canada.ca/site/intellectual-property-strategy/en>. 

[8] George Addy & Erica Douglas, “Mind the Gap: Economic Costs and Innovation Perils in the Space Between Patent and Competition Law” (1 July 2012), online: SSRN <papers.ssrn.com/sol3/papers.cfm?abstract_id=2208654> at 9.

[9] Adam Bobker, “Are Trolls Moving North to Canada?” (3 March 2014), online: Bereskin & Parr <bereskinparr.com/files/file/docs/IP%20Report%20Spring%20Ad%20-%20Mar%202014.pdf>.

[10] Ibid.

[11] Nancy Gallini & Aidan Hollis, “To Sell or Scale Up: Canada’s Patent Strategy in a Knowledge Economy” (27 August 2019), online: Institute for Research on Public Policy <tinyurl.com/sr4emcn4 > at 14.

[12] Addy & Douglas, supra note 8 at 9.

[13] Tara Deschamps, “Shopify launches fight against ‘patent trolls’ and their funders, files Texas lawsuit” (7 June 2023), online: BNN Bloomberg <tinyurl.com/47ehyhrk>.

[14] Ibid.

[15] James Bessen & Michael J Meurer, “The Direct Costs from NPE Disputes” (25 June 2012), online: SSRN <papers.ssrn.com/sol3/papers.cfm?abstract_id=2091210> at 389.

[16] Katya A Zakharov, “Of Patents and Cobras: Exposing the Problem of Patent Asymmetry” (31 October 2017), online: SSRN <papers.ssrn.com/sol3/papers.cfm?abstract_id=3061976>.

[17] Victoria E Luxardo, “Towards a Solution to the Problem of Illegitimate Patent Enforcement Practices in the United States: An Equitable Affirmative Defence of ‘Fair Use’ in Patent” (2006) 20:2 Emory Int’l L Rev 791.

[18] Yeh, supra note 1 at 18.