Federal Court Denies Equitable Relief for Failure to Diligently Prosecute a Patent

The Federal Court recently found that patentees may be denied equitable remedies in a patent infringement action if they fail to diligently prosecute their patents. In certain circumstances, the failure to offer to license on “fair” terms may also impact entitlement to equitable remedies.

In Rovi Guides, Inc. v. Bell Canada, 2022 FC 1388, the Federal Court found that Rovi, the patent owner in a patent infringement action, ought not to be entitled to an accounting of profits or an injunction as, among other things, they were not diligent in prosecuting their patents, with one of its patents taking over 17 years to issue from filing. The Federal Court found Rovi’s patents invalid for obviousness, so its discussion on entitlement to remedies is obiter. However, the decision is nonetheless noteworthy as it shows a shift in approach from past jurisprudence that was generally indifferent to prosecution and licensing strategies. Patent owners should be mindful that delays in patent prosecution or aggressive licensing or settlement negotiations could result in a loss of equitable relief.

Entitlement to Equitable Relief

In a patent infringement action, a patentee may seek compensatory damages and royalties but may also seek equitable relief such as a permanent injunction, delivery up of any infringing articles or an accounting of profits (in lieu of damages). Although some equitable remedies, such as a permanent injunction and delivery up, are often awarded if there is a successful finding of infringement, a patentee is not automatically entitled to these remedies. The Court always maintains discretion to award equitable relief and can — and has — denied equitable relief where a patentee has had “unclean hands”. Even if equitable relief is denied, the patentee can still obtain compensatory relief in the form of damages for past infringement and ongoing royalties.

Freedom to Prosecute

Prior to the Rovi Guides decision, the Court’s mantra for prosecution as it relates to remedies was “what happens in the Patent Office, stays in the Patent Office.” Aside from making fraudulent allegations,¹ a patentee generally has the freedom to prosecute its patent as it sees fit within the confines of the Patent Office’s procedures.

Patentees are free to amend their claims in prosecution, including with a view to competitor products, assuming that all requirements for validity are met. Older versions of the claims are generally not relevant in subsequent patent infringement actions:²

I find it unnecessary to consider either the history of claims that were pending in these patent applications, or Camso’s motivation in amending them. … A patent applicant is perfectly entitled, and indeed is well-advised, to draft patent claims with an eye on competitors’ products. The limitation is that the applicant must respect all of the requirements for valid claims.³

In other words, while a competitor may be frustrated to learn that a patentee amended their claims during prosecution to encompass their products, a patentee may be fully entitled to do so provided that the amended claims are valid (e.g. subject-matter of the claims are disclosed by the specification, not obvious and not anticipated).

The Failure to Diligently Prosecute

In Rovi Guides, the Court found that Rovi effectively had “unclean hands” by failing to diligently prosecute its patents. Rovi’s four patents-in-issue took between 9 to 17.5 years to issue. The Court found that the prosecution delays resulted in mischief:

1. Rovi waited the maximum amount of time to request examination, failed to pay fees and allowed its applications to be abandoned before reinstating them (a common practice in Canadian patent prosecution);⁴
2. as a result of the delays, the patents issued after the defendants had launched their products and built their customer base;⁵ and
3. the delayed prosecution gave Rovi an advantage in licensing negotiations, since the claims asserted in the lawsuit did not exist until late in the prosecution history (and thus could be amended and tailored to the defendants’ products) and the defendants would incur additional costs in trying to work around the issued claims so as to not infringe.⁶

The Court appeared to be concerned with delays in prosecution attributable to the patentee’s actions (e.g. requests for extensions of time, failure to request examination promptly and reinstatement of abandoned applications) that could allow a patentee more time to amend its claims to encompass others’ products or services.

The actions taken by Rovi during its prosecution — such as seeking an extension of time to respond to an office action — are actions that many patentees routinely take during prosecution for legitimate purposes (e.g. for seeking uniformity with foreign patents, spreading out patent prosecution expenses, waiting to assess commercial value of the patent). The Court’s interpretation of Rovi’s actions in this proceeding appear to be coloured by the overall facts of the case.

Licensing in Good Faith

The Court also found that Rovi did not engage in good faith licensing negotiations and that also impacted the Court’s refusal to grant equitable relief.

Outside of standard-essential patents,⁷ patentees are typically free to license or refuse to license. Courts generally do not concern themselves with licensing and settlement negotiations when determining entitlement to equitable relief. Licences and settlements are usually without admission of liability or reasonableness of the terms.

In Rovi Guides, the defendants (Bell and Telus) used Microsoft’s Mediaroom software in its system. Microsoft had licences with Rovi, which extended to cover Microsoft’s users (i.e. Bell and Telus). In 2013, Ericsson acquired Microsoft’s Mediaroom business, but this acquisition caused Microsoft’s licences to expire. Despite negotiations, none of Bell, Telus or Ericsson ultimately obtained a new licence from Rovi.

The public version of the decision redacts most of the licensing discussions, but the reasons seem to suggest that: (a) Rovi insisted on a portfolio licence; and (b) Rovi demanded a greater licensing fee than the previous arrangement through Microsoft.

The Court held that Rovi ought to have resolved the licensing issues with Microsoft and Ericsson.⁸ Moreover, the Court held that, while Rovi had engaged in licensing discussions, Rovi did not negotiate licences in good faith, as it failed to focus on the asserted claims and engaged in an “ex-post negotiation” (i.e. negotiating a licence after the invention has been integrated into the defendants’ systems).⁹

Of note, many of the individual actions taken by Rovi during the negotiations are actions that other patentees take when licensing, e.g. intellectual property licences often do not automatically transfer upon a merger or acquisition and new licences may need to be negotiated and entered into. The fact that Rovi engaged in an arguably aggressive licensing strategy at the same time it was taking steps to extend prosecution of the patents-in-issue appeared to influence the Court.

A Solution to ‘Patent Holdup’ or a Denial of Rights?

In denying entitlement to equitable remedies due to Rovi’s perceived failure to diligently prosecute its patent applications and its licensing strategies, the Court appeared concerned with combating a perceived “patent holdup” problem — which occurs when a “patent owner takes advantage of the potential infringer’s reduced flexibility after they have launched a product and opportunistically tries to extract a larger unreasonable licensing fee, especially in using the threat of injunction.”¹⁰ In particular, the Court was concerned that granting equitable remedies in this case would “create an incentive for licensing entities to imitate Rovi’s conduct.”¹¹

The decision does not address the practical reasons why patentees may seek to extend out prosecution, or the risks they face if they do so. For example, many patentees extend out patent prosecution for a variety of reasons including to space out prosecution costs across various jurisdictions and to allow more time to assess whether the patent has commercial value to justify incurring further prosecution costs. Further, patentees are incentivized to have their patents issue quickly: they cannot sue for infringement until a patent issues and remedies for any infringement occurring pre-issuance are limited to “reasonable compensation”, i.e. reasonable royalty.¹²  

It is also unclear how often the perceived problem of “patent holdup” actually manifests, or whether the Court’s approach in Rovi Guides may have limited broader application. Of note, the Patent Act now provides third-party rights (including exceptions to infringement) during periods of prosecution abandonment¹³ and requires an applicant seeking reinstatement of an abandoned patent application to demonstrate they have taken “due care”.¹⁴ While these provisions were not in force during the prosecution of the patents-in-issue, it would seem that the risk of patentees abusing abandonment provisions going forward is reduced.

Ultimately, this case is a reminder that an accounting of profits and injunction are discretionary equitable remedies. Courts have significant discretion in identifying and addressing conduct that it finds abusive. Patentees should be mindful that the courts may scrutinize the file wrapper, licensing history and the patentee’s motivations when seeking equitable relief.