T-697-74
Amoco Canada Petroleum Company Ltd.
(Plaintiff)
v.
Texaco Exploration Canada Ltd. (Defendant)
Trial Division, Walsh J.—Ottawa, August 7 and
13, 1975.
Patents—Practice—Motion to strike part of statement of
defence—Whether, assuming allegations true, it could provide
a "reasonable defence"—Federal Court Act, s. 20—Federal
Court Rule 419(1)(a)—Combines Investigation Act, R.S.C.
1970, c. C-23, s. 39—Patent Act, R.S.C. 1970, c. P-4, ss.
66-73.
In its statement of defence, defendant claimed that an asser
tion of right against Texaco Development Corporation was
equivalent to an assertion against itself, that all 3 patents in
question were for identical inventions and could not all be valid,
and that there was an agreement between plaintiff and two
other companies to unreasonably restrain trade by requiring a
royalty fee of defendant in relation to each of the patents.
Plaintiff moved to strike said part of the statement of defence.
Held, the paragraph is struck out. The issue must be decided
on the basis of whether, assuming all allegations are true, the
statement provides a "reasonable defence". There is no ques
tion of the title asserted by plaintiff to its patents having been
acquired illegally or as a result of a conspiracy, nor that the
proceedings are further steps by plaintiff in such a conspiracy.
Plaintiff does not, in order to establish its cause of action, have
to prove that it is a party to an illegal conspiracy on which the
cause rests. It rests merely on the ownership of plaintiff,
acquired free of conspiracy. There is no evidence of any agree
ment between plaintiff and holders of the other two patents
that plaintiff should proceed on behalf of all three. The fact
that none of the companies is willing to admit the invalidity of
its patent, and that defendant may be in triple jeopardy cannot
justify a refusal to permit any one of them to sue on its patent
which must be assumed valid until proven otherwise. No public
interest is involved; if defendant successfully avoids paying
royalties it will be in its interest only. As to whether plaintiff
has abused its right to sue, such abuse cannot be pleaded as a
defence under the Act. Nor can defendant apply section 63(2)
of the Patent Act. It merely deals with procedure for establish
ing priority of invention, and can not be used to deprive
plaintiff of its right to bring this action because it has not first
taken action against the other two companies. Finally, defend
ant's argument that plaintiff has delayed fails as well; it is not a
defence.
Pepsico Inc. v. The Registrar of Trade Marks [1976] 1
F.C. 202; Creaghan Estate v. The Queen [1972] F.C. 732;
RBM Equipment Ltd. v. Philips Electronics Industries
Ltd. [1973] F.C. 103; Philco Products Limited v. Therm-
ionics Limited [1940] S.C.R. 501, [1943] S.C.R. 396;
Massie & Renwick Limited v. Underwriters' Survey
Bureau Limited [1937] S.C.R. 267, [1940] S.C.R. 218
and Appliance Service Co. Ltd. v. Sarco Canada Ltd.
(1974) 14 C.P.R. (2d) 59, applied. Morton Salt Co. v. G.
S. Suppiger Co. 314 US 488 and United States v. Singer
Manufacturing Co. 374 US 174, distinguished.
MOTION.
COUNSEL:
R. S. Smart, Q.C., and A. R. Campbell for
plaintiff.
G. F. Henderson, Q.C., and K. H. E. Plumley
for defendant.
SOLICITORS:
Smart & Biggar, Ottawa, for plaintiff.
Gowling & Henderson, Ottawa, for
defendant.
The following are the reasons for order ren
dered in English by
WALSH J.: The plaintiff moves pursuant to Rule
419(1)(a) to strike out paragraph 12 of the state
ment of defence herein which paragraph reads as
follows:
12. The Plaintiff asserted the patent in suit against the
Defendant through its related company Texaco Development
Corporation in conjunction with the assertion of infringe
ment of Canadian Patent 762,753 (Koch) owned by Atlantic
Refining Company and Canadian Patent 761,263 (Mur-
phree) owned and issued to Esso Production Research Co.
knowing that all three said Canadian Patents aforesaid could
not be valid having regard to the identity of invention
claimed in each of them and the Plaintiff agreed with said
Atlantic Refining Company and Esso Production Research
Co. to require a royalty fee of the Defendant in relation to
each of the three said patents and by reason of the acts
herein pleaded aforesaid sought to unreasonably restrain
trade in Canada whereby this Court, in the exercise of its
discretion relating to the grant of relief requested by the
Plaintiff, ought to deprive the Plaintiff of any relief request
ed by the Plaintiff in this action.
For the purposes of a motion to strike under
Rule 419(1)(a), no evidence is admissible. The
issue must therefore be decided on the basis of
whether or not, on the assumption that all the
allegations in the said paragraph are true, it could
provide a "reasonable" defence. In the case of
Creaghan Estate v. The Queen', Mr. Justice
Pratte emphasized the significance of the word
"reasonable" in this section, stating at page 736:
Inasmuch as a motion to strike out a statement of claim is
made under Rule 419(1)(a), the Court is not called upon to
decide whether the allegations of the statement of claim,
assuming them to be true, disclose a cause of action, but
whether they disclose a reasonable cause of action.
Later on, on the same page, he equates this as
having an arguable case, however, stating:
... when a motion is made before this Court under Rule
419(1)(a), the Court merely has to decide whether the
plaintiff, assuming all the facts alleged in the statement of
claim are true, has an arguable case.
While these remarks were made with respect to
the striking out of a statement of claim, the same
principle would apply to the striking out of a single
paragraph thereof or of a single paragraph in a
statement of defence, as in the present case, if it
does not disclose an arguable defence. In the case
of Pepsico Inc. v. The Registrar of Trade Marks
[1976] 1 F.C. 202 Mr. Justice Heald referred to
the Creaghan case and stated [at page 211 ] that:
... the jurisprudence of this Court under Rule 419(1)(a)
providing for the striking out of a pleading on the ground
that it discloses no reasonable cause of action has relevance
to the words "substantial issue for decision" as used in
section 37(4) of the Trade Marks Act.
Despite the obvious difficulties which the
defendant would encounter in proving that an
assertion of right against Texaco Development
Corporation is equivalent to an assertion of right
against the present defendant, Texaco Exploration
Canada Ltd., that all three of the Canadian pat
ents aforesaid are for identical inventions and,
therefore, cannot all be valid, and that there was in
fact an agreement which sought to unreasonably
restrain trade in Canada between plaintiff, Atlan-
tic Refining Company, and Esso Production
Research Co. by requiring a royalty fee of the
defendant in relation to each of the three patents
in question, it is necessary for the purpose of this
motion to assume that all these facts are so and
decide whether, in this event, this plea would
[1972] F.C. 732.
constitute an arguable defence to the plaintiff's
action.
The plaintiff in support of its motion to strike
argues that it is evident that no agreement to pay
royalties in relation to each of the three said
patents was reached or the present proceedings
would not have been brought. It concedes however
that, if there was a conspiracy between the three
companies, this would exist at the time the
common intent was formed. It contends however
that, even if such a conspiracy existed, this is a
collateral matter having no connection with the
present proceedings in the absence of any allega
tion that the bringing of the present proceedings is
part of the conspiracy. It further contends that
there is no allegation that the alleged attempt to
require a royalty fee from the defendant in relation
to each of the said three patents at some undis
closed previous time related to the use by the
defendant of the process that was referred to in
Canadian Patent 763,247 or the re-issue Patent
894,605 referred to in paragraph 5, 6 and 7 of the
statement of claim. It further contends there is no
specific allegation by defendant that, as a result of
this allegedly unreasonable restraint of trade in
Canada, the plaintiff has lost its right to sue
defendant to restrain infringement of its patent.
Furthermore, it argues that the defence of conspir
acy appears in Part V of the Combines Investiga
tion Act 2 . Section 39 of this Act states:
39. Nothing in the Part shall be construed to deprive any
person of any civil right of action.
Part IV dealing with special remedies sets out in
section 29 the powers of the Federal Court where
patents are used to restrain trade and requires that
proceedings be brought "on an information exhib
ited by the Attorney General of Canada". If there
was any conspiracy therefore there is nothing in
the Combines Investigation Act which would
deprive the plaintiff of its rights to seek the relief
which it now seeks from the defendant arising of
alleged infringement of its said patents, nor could
the defendant itself invoke an alleged conspiracy
under the Combines Investigation Act by plaintiff
as a defence to said proceedings.
2 R.S.C. 1970, c. C-23.
The leading case on the subject is the judgment
of Thurlow J. in the case of RBM Equipment Ltd.
v. Philips Electronics Industries Ltd. 3 in which he
analyzed previous jurisprudence in the Supreme
Court in the cases of Philco Products Limited v.
Thermionics Limited 4 and Massie & Renwick
Limited v. Underwriters' Survey Bureau Limited 5 .
At page 109, he states:
There may possibly be circumstances where the existence of
an illegal conspiracy in restraint of trade may be an answer to
an action for the infringement of a design on the basis that no
cause of action can have its origin in fraud. However, the
authorities are clear that such a principle will apply to an
action for infringement only where the plaintiff must necessari
ly prove in order to establish his title to sue that he was a party
to an illegal conspiracy upon which his cause of action rests.
At page 116, he states:
I do not think it follows from anything in this passage, a
portion of which was cited by the learned trial judge in support
of his view of the law, that a defence to an infringement action
cannot be founded on illegality in the agreement or transaction
by which the title asserted by the plaintiff has been acquired or
in the purpose for which the agreement or transaction has been
entered into or carried out. Rather in my opinion the possibility
of a defence based on such illegality, as indicated in the earlier
decisions of the Supreme Court, remains open.
In the present case, there is no question of the title
asserted by the plaintiff to its patents having been
acquired illegally or as a result of any conspiracy
nor is there any indication that the present pro
ceedings brought by plaintiff as a result of alleged
infringement by the defendant of its patents are a
further step in the said conspiracy. It certainly
does not fall within the dictum of Duff C.J.C. in
Philco Products Limited v. Thermionics Limited
(supra), at page 503, in which he said:
If the plaintiff's title is founded upon an agreement which
amounts to a criminal conspiracy to which he is a party, and
which he must establish in order to prove his titlè, then he
cannot succeed.
nor within a similar statement by Duff C.J.C. in
Massie & Renwick Limited v. Underwriters'
Survey Bureau Limited (supra), at page 244:
3 [1973] F.C. 103.
4 [1940] S.C.R. 501, [1943] S.C.R. 396.
[1937] S.C.R. 265 and [1940] S.C.R. 218.
If the plaintiffs in an action for the infringement of copyright
are obliged, for the purpose of establishing the existence of,
and their title to, the copyright to rely upon an agreement,
and that agreement constitutes a criminal conspiracy, and
their title rests upon such agreement and upon acts which are
criminal acts by reason of their connection with such an
agreement, then I have on general principles great difficulty
in understanding how such an action could succeed.
In the case of Philco Products Limited v.
Thermionics Limited (supra), at page 503, Duff
C.J.C. also stated:
There is one principle upon which it is conceivable that the
defence discussed on the argument, if properly pleaded and
proved, might be available: ex dolo malo non oritur actio. This
principle is stated in the judgment of Buckley L.J. in Gordon v.
Chief Commissioner of Metropolitan Police ([1910] 2 K.B.
1080 at 1098) in these words:
It is certainly the law that the Court will refuse to enforce
an illegal contract or obligations arising out of an illegal
contract, and I agree that the doctrine is not confined to the
case of contract. A plaintiff who cannot establish his cause of
action without relying upon an illegal transaction must fail;
and none the less is this true if the defendant does not rely
upon the illegality. If the Court learns of the illegality, it will
refuse to lend its aid. The rule is founded not upon any
ground that either party can take advantage of the illegality,
as, for instance, the defendant by setting it up as a defence. It
is founded on public policy. Lord Mansfield in Holman v.
Johnson ((1775) 1 Cowp. 341 at 343) said "Ex dolo malo
non oritur actio. No Court will lend its aid to a man who
founds his cause of action upon an immoral or an illegal act."
The passage was quoted with approval by Lord Wright,
M.R., in Berg v. Sadler ((1937) 2 K.B. 158 at 166-7).
I do not see any reason why this principle is not applicable to
a case in which a plaintiff must necessarily, in order to establish
his cause of action, prove that he is a party to an illegal
conspiracy upon which his cause of action rests; nor can I
understand why the principle does not apply to an action for
infringement of a patent.
It is clear that that is not the situation in the
present case in which plaintiff does not, in order to
establish its cause of action, have to prove that it is
a party to an illegal conspiracy on which the cause
of action rests; on the contrary the action rests
merely on its ownership of its patent which was not
acquired as a result of any conspiracy.
In his argument counsel for defendant asserts
that paragraph 12 raises the issue of misuse by
plaintiff of its patent rather than a misuse of the
process of this Court or a contravention of the
Combines Investigation Act. He points out that by
virtue of section 20 of the Federal Court Act the
Trial Division has concurrent jurisdiction "in all
other cases in which a remedy is sought under the
authority of any Act of the Parliament of Canada
or at law or in equity 6 respecting any patent of
invention, copyright, trade mark or industrial
design" contends that a common law conspiracy
existed quite apart from the provisions of the
Combines Investigation Act and that the Court
should apply principles of equity. The defendant
relies on two American cases, the first being that
of Morton Salt Co. v. G. S. Suppiger Co.' in
which a company which owned a patent on a
machine for depositing salt tablets in the process
of canning made a practice of licensing canners to
use its machines only on the condition that the
tablets used with them be bought from its subsidi
ary. It was held that this use of the patent
monopoly to restrain competition in the marketing
of the unpatented tablets for use with the patented
machines is contrary to public policy. At page 490,
the judgment states that:
The- question we must decide is not necessarily whether
respondent has violated the Clayton Act, but whether a court
of equity will lend its aid to protect the patent monopoly
when respondent is using it as the effective means of restrain
ing competition with its sale of an unpatented article.
and, again, at page 492:
It is a principle of general application that courts, and
especially courts of equity, may appropriately withhold their
aid where the plaintiff is using the right asserted contrary to
the public interest.
The facts in that case are sufficiently different
from those in the present case as to make it of
little value as authority, save for the general prin
ciple that if plaintiff is using a right contrary to
the public interest the courts may withhold their
aid. The other American case referred to is that of
6 Emphasis mine.
7 314 US 488.
United States v. Singer Manufacturing Co.' in
which three parties agreed as to which one of them
would obtain the assignment of a patent in order to
assert same against the defendant. It was held that
even if there was no conspiracy a common purpose
was disclosed. This was a combines case however
and entirely different from the present situation
where there is no indication in the pleadings of any
agreement between plaintiff and the holders of the
other two patents to the effect that plaintiff should
proceed against defendant on behalf of all of them
for infringement of its patent; on the contrary, it
was pointed out in argument that Exxon, a com
pany associated with the owner of one of the other
patents has independently instituted proceedings in
this Court for alleged infringement of its patent.
The defendant contends that it is inequitable
and contrary to public interest to have three differ
ent patentees seek royalties from it in connection
with patents which, according to the allegation in
paragraph 12, are for the identical invention so
that at least two of them must be invalid. It argues
that as a matter of public policy the public has a
right to competition, which is undoubtedly so, and
that if the defendant had to pay royalties three
times over this would be contrary to public inter
est. This may well be so, but the fact of the matter
is that defendant will not have to pay royalties to
plaintiff and also to Atlantic Refining Company
and Esso Production Research Co. even though all
three of them may have, even in common concert
at one time, asserted their rights to such royalties.
It is evident that all three claim to be the owners
of the patents which the defendant is allegedly
using and the fact that none of the three is willing
to admit at this time that its patent for the process
in question is invalid, and that the defendant may
therefore be in triple jeopardy, cannot justify a
refusal to permit any one of them to sue on its
patent which must be presumed to be valid until
the contrary is found to be the case as a result of
an attack on the validity of same. Defendant can
make such an attack as a defence to an action
brought by any of the patentees and has in fact
done so in the present case in other paragraphs of
8 374 US 174.
its plea. If defendant is in triple jeopardy there
fore, it is only as a result of the possible multiplici
ty of actions, but this can be partially remedied by
having them heard at the same time, and can in
any event be compensated for by costs in the
actions in which the attack succeeds. The defend
ant concedes that each one of the patentees can
independently sue for infringement of its patent
but argues that, because the three of them made
an agreement that they should all seek royalties
from the defendant for the use of their patents,
which royalties the defendant has refused to pay,
this deprives any one of them to the right to sue
for infringement of its patent. Counsel for the
defendant does not deny that if his argument is
sustained that plaintiff has as a result of the
alleged conspiracy used its patents in such a
manner as to disentitle it to the relief sought, then
the same would also apply to the owners of the
other two patents, Atlantic Refining Company and
Esso Production Research Co. with the result that
the defendant would then be free to use these
patents or any one of them without paying any
royalties to anyone. It is evident that unless all
three patents are found to be invalid defendant
should be paying royalties for use of the invention
to one of the patentees, and I cannot conclude that
there is an issue of public interest involved, as if it
succeeded in avoiding the payment of royalties to
anyone it would appear that this would be in its
interest only.
In further answer to defendant's argument that
plaintiff has lost the right to sue on its patent,
having abused same as a result of the alleged
conspiracy with the owners of the other two pat
ents for the allegedly identical invention and that
once this is established all three patents become
unenforceable for all time by any of the said
owners, the plaintiff points out that sections 66-73
of the Patent Act 9 set out conditions concerning
abuse of patents, and orders for licences for their
use, and that the so-called abuse invoked by
defendant in the present case does not come within
any such sections. In any event, if a case of abuse
has been established, section 68 then sets out the
9 R.S.C. 1970, c. P-4.
powers which the Commissioner may exercise.
Provision is made for appeals from decisions of the
Commissioner to the Federal Court. None of these
sections purport to permit the defendant in an
action for infringement to plead as a defence abuse
by a plaintiff of its patent, and the public interest
is protected by the existence of these sections. See
Thermionics Limited v. Philco Products Limited 10
at page 249 where Maclean J. stated:
If different patentees should combine in such a way as to
offend against the intent and spirit of the relevant provisions
of the Combines Investigation Act, or the Criminal Code,
which is conceivable, then the procedure of attack would be
that set forth in such statutes, and not by way of a defence in
an action for infringement of a patent or patents and I do not
think that anything else was ever intended. Even if there
were established a combine or conspiracy relative to a par
ticular patented article it would not, I think, thereby follow
that the patented article might not be infringed, or that the
patent would thereby become invalid. That situation is not
contemplated by the Combines Investigation Act or the
Criminal Code, and it would seem unreasonable if they did.
The infringement of a patent is one thing, and whether
patentees have entered into a combine or conspiracy in
restraint of trade is another thing. My conclusion is that the
proposed amendments to the statement of defence cannot be
raised as defences in an infringement action, and must be
refused, and with costs to the plaintiffs.
This was upheld in the Supreme Court judgment
in the said case" where Duff C.J. stated at 407:
The illegal combination, assuming it to have been such, to
which these companies were parties, did not effect a forfeit
ure of the statutory rights under the patents. Assuming the
transactions between these companies and Thermionics Ltd.
were illegal and void, the patents were still vested in them
and they are, I think, entitled to enforce those rights.
This decision appears particularly applicable to the
facts of the present case.
The defendant also invokes section 63(2) of the
Patent Act respecting the rejection of an applica
tion for a patent by the Commissioner unless the
applicant in the time fixed by the Commissioner
10 [1941] Ex.C.R. 209.
11 [1943] S.C.R. 396.
commences an action to set aside a prior patent for
the invention which has already been issued under
the Act. This section merely deals however with
the procedure for establishing priority of invention.
It certainly cannot lead to the conclusion for which
defendant contends that the plaintiff, by failing to
itself take action to set aside the patents owned by
Atlantic Refining Company and Esso Production
Research Company for what is allegedly the same
invention, forfeited the right to bring the present
proceedings for infringement of its patent. This
argument really amounts to a further attack on the
validity of plaintiffs patent which issue is raised
by other paragraphs of the pleadings.
Defendant also raised the issue of delay by the
plaintiff in bringing the present proceedings but
this argument also must fail in connection with the
present motion to strike. It has been held that
delay in bringing proceedings after alleged
infringements of a plaintiffs patents by a defend
ant became known to it does not constitute a
defence, although such delay may prevent the
granting of an interlocutory injunction, or result in
the plaintiff being deprived of damages if it suc
ceeds in its action on the merits. See for example
Appliance Service Co. Ltd. v. Sarco Canada Ltd. ' 2
at page 77.
For all of the above reasons, I do not find that
paragraph 12 of the defendant's statement of
defence raises an arguable defence to the plain
tiffs action and, in the exercise of my discretion, I
order that it should therefore be struck by virtue of
the provisions of Rule 419(1)(a) with costs.
12 (1974) 14 C.P.R. (2d) 59.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.