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Published online by Cambridge University Press: 07 November 2014
In recent years no form of property right has been subject to more serious criticism or evoked more strenuous defence than the right conferred by a patent of invention. In Canada, which has so far been a patent-dependent economy, i.e. utilizing largely imported patents, it has taken somewhat longer for the issues to be brought into sharp focus. Dr. Fox's paper serves as a rallying-point for the defence. As one of the leading authorities on Canadian patent law and as an outstanding industrialist of St. Catharines, Ontario, with practical experience in marketing patented articles on both the domestic and international markets, his views deserve respect. Any apparent presumption in taking issue with some of Dr. Fox's statements and conclusions is justified only by the fact that his subject was not confined to patents but raised implications respecting legal and economic aspects of monopolies and restraints of trade and respecting some general principles of public administration and enforcement of criminal and regulatory laws affecting business.
Dr. Fox suggests that the abuses of patents which have been the subject of much discussion and criticism in the United States and other countries with reference to the activities of domestic and international cartels cannot and do not occur in Canada. He claims that the remedies provided by the Canadian Patent Act, the Statute of Monopolies, and the Combines Investigation Act prevent such abuses from arising. He suggests that because these supposedly adequate remedies have only very rarely been invoked such abuses do not exist in Canada. His vigorous exposition of this theme is supplemented by well-deserved encomium of the Canadian patent system in its technical aspects and by a perhaps less deserved condemnation of all who suggest that patents, like corporations and other law-created instruments of trade and commerce, can sometimes be misused.
“Patents in Relation to Monopoly” by Dr. H. G. Fox, K.C., in this Journal, vol. XII, no. 3, Aug., 1946, pp. 328-42.
1 (1935) 125-6 Geo. V, c. 32.
2 (1624) 21 Jac. I, c. 3.
3 R.S.C, 1927, c. 26, as amended by 1935, c. 54; 1937, c. 23; and 1946, c. 44.
4 Board of Trade Departmental Committee on the Patents and Designs Acts, Second Interim Report (London, 1946), pp. 5–6.Google Scholar Dr. Fox's references are in the August, Journal, p. 331, note 9, pp. 335 and 336, notes 24-30 incl., p. 338, notes 33, 34, and 35.Google Scholar
5 Supra, p. 6. Dr. Fox's reference is at p. 338, note 35.
6 Final Report (Washington, 1941), p. 36.Google Scholar
7 In a patent “pool” title to the patents is transferred by the patentees to a jointly controlled corporation or other agency which then issues licences under all patents to all parties; in a cross-licensing arrangement the patentees retain title and mutually license each other.
8 (1935) 25-6 Geo. V, c. 32, ss. 64-71 incl.
9 Prior to 1935, the Patent Act (R.S.C., 1927, c. 150), enacted in 1923 contained compulsory licensing provisions more limited in scope. Section 40 provided that a patentee must satisfy the “reasonable requirements” of the public. Such requirements were not deemed satisfied (1) if any trade or industry were prejudiced or public demand were not reasonably met by reason of the patentee's failure to manufacture to an adequate extent and to supply on reasonable terms; or (2) if any trade or industry were prejudiced by conditions attached by the patentee to purchase or use. The Commissioner could order the patentee to produce at prices fixed by the Commissioner or could order grant of licences for “use” of the patented invention. Under Section 41 the Commissioner might on application order revocation of a patent if the Canadian market were supplied mainly by imports and if the patentee gave no adequate excuse for non-working in Canada.
10 Patents and Designs Act, (1907) 7 Edw. VII, c. 29, as amended by various acts up to and including (1942) 5 & 6 Geo. VI, c. 6.
11 Ex. No. 213 submitted by U.S. Patent Office to T.N.E.C. (supra, note 6) shows that in 1930-7 the average number of patents granted by Canada to foreigners was 90.3 per cent of all patents. According to Ex. No. 211, 66.5 per cent of Canadian patents during the same period were granted to citizens or residents of the United States. The evidence before the Canadian Senate Committee on the Patent Act of 1935 (note 12 below, p. 112) shows grants to non-residents from 1927 to 1934 averaged 88.7 per cent of all patents.
12 See discussions in Senate Committee on Banking and Commerce, Ottawa, 1935, re Bill to amend the Patent Act.
13 The language used does not in terms restrict the grant to licences to manufacture but such a restriction has apparently been imported by inference. See Re Cooperative Union, (1933) 50 R.P.C. 161. Also Dr.Fox, in his authoritative work on The Canadian Law and Practice Relating to Letters Patent for Inventions, 1937 ed., p. 353 Google Scholar writes as follows: “It being provided in Section 65(3) that patents are granted ‘to secure that new inventions shall so far as possible be worked on a commercial scale in Canada without delay,’ a license for the purpose of importation only will be refused. Nor will licenses for mere sale be granted as Section 65(3) is not concerned with distribution where no questions of manufacture are involved.”
14 Pp. 8-9 (supra, note 4).
15 P. 10. The provisions referred to are Section 27 (already referred to), Section 24 (Licences of right—of small importance), Section 38 (limiting types of licences—limited in scope), and Section 38A(3) (providing compulsory licence for food and medicine patents). Sections 24 and 38 have no counterparts in the Canadian Act. Section 40(3) of the Canadian Act corresponds to Section 38A(3). Paragraph 22 of the Report is quoted above—see note 4.
16 P. 333.
17 This statement is based on surmise and not on direct proof—and must be treated with caution. The evidence justifying the surmise is: (a) Expense and length of similar English proceedings—U.K. Departmental Committee Report, supra, para. 30 (note 14 above) and briefs before that Committee, e.g. note 27 below; (b) Annual Reports of Canadian Commissioner of Patents, 1935-1945, showing following particulars permitting inference that average proceeding is lengthy:
18 Supra, note 2.
19 Since French Civil Code and not English Common Law applies. See Fox, H. G., “Abuse of Monopoly” (Canadian Bar Review, vol. XXIII, 1945, p. 363)Google Scholar; also Adams v. Peel et al., (1850) 1 L.C.R. 130.
20 Biggar, O. M., Canadian Patent Law and Practice (Toronto, 1927), p. 1 Google Scholar; Fox, H. G., Canadian Law and Practice Relating to Letters Patent for Inventions (Toronto, 1937), pp. 8–9.Google Scholar
21 R.S.O., 1897, c. 323.
22 The Ontario Act may well be intra vires to the extent that it applies merely to monopolies or patents granted by royal prerogative other than patents of invention. It is submitted, however, that a court probably would not hold the Act valid to the degree that it might be applied to patents of invention. This opinion is reached despite great respect for the views to the contrary expressed by Dr. Fox at p. 371 of the article referred to in note 19 supra.
23 Mathew, J., in Wm. E. Peck & Co. v. Hindes Ltd. (1898) 5 R.P.C. 113 at p. 127.Google Scholar This case is referred to by Dr. Fox in the Journal article in notes 44 and 45, and is discussed by him at length in the article referred to in note 19, supra at pp. 363-72. I am respectfully unable to follow Dr. Fox's implied suggestion that comments by the judge, such as that quoted, may be dismissed as having no significance.
24 Philco Products Ltd. v. Thermionics Ltd. et al., (1940) 4 D.L.R. 1 and (1943) 3 D.L.R. 449. No suggestion that such a defence exists at all is found in Fox, Canadian Law and Practice Relating to Letters Patent for Inventions, supra, note 20; or Biggar, Canadian Patent Law and Practice, supra, note 20; or Robinson, C., “Defences in Infringement Actions under the Patent Act of 1923” (Canadian Bar Review, vol. V, 1927, p. 85).Google Scholar
25 Some evidence of such abuses is presented in Canada and International Cartels, Commissioner, Combines Investigation Act (Ottawa, 1946), pp. 45–53.Google Scholar Dr.Fox, criticizes this Report at pp. 334–8Google Scholar of his article. In view of my close association with the writers of that report (although I did not share in its preparation) I shall refrain from comment on Dr. Fox's references to it, other than to point out that he does not deal specifically with the criticisms set forth, and to state that I respectfully dissent from most of his statements and all of his conclusions about it (see his article, p. 335, line 7).
26 1946, c. 44, s. 9.
27 Dr. Fox refers at p. 335-6 to the brief submitted to the United Kingdom Committee on Patents by the Joint Chemical Committee. Dr. Fraser, a dissenting member of the Joint Chemical Committee, makes the following comments, after referring to the T.N.E.C. inquiries in the United States:
“It would be unreasonable to assume that when discovery upon oath regarding cartel agreements in U.S.A. disclosed so many abuses, similar discovery upon oath, if practicable, in this country would not disclose like abuses in agreements made with the same German firms, even though possibly to a somewhat lesser extent. In this connection attention may be drawn to the fact that in the pharmaceutical industry the British affiliates of leading German chemical firms did not manufacture any products in this country, even although their agreements with their parent companies theoretically gave them power to do so ….
“While such abuses of monopoly rights could theoretically have been prevented by invoking the provisions of Section 27 (Compulsory Licences) or of Section 38A of the Patents Act, British companies. were loath to embark upon such litigation knowing that their applications would be energetically resisted by powerful rivals, that the dispute would be lengthy and fairly expensive, and that the outcome was decidedly doubtful in view of a certain apparent reluctance by the Courts to grant compulsory licences, even in cases where to the ordinary industrialist it appeared that there had been a clearcut abuse of monopoly.”
A brief presented to the British Committee by Mr. A. Sugden of Boots Pure Drug Co. Limited contains the following:
“It is curious that the opponents of the new proposals have not, at any rate up to the present, made specific denials of real abuses of the present system—their case appears to be that the present system is framed to avoid them; that it provides a reasonable and adequate measure of safeguard and procedure, and consequently by inference these abuses do not or should not exist.
“The question of abuse must be considered in the cold light of actual experience. There is, no doubt, much further information yet to come, but upon the facts as we know them at present it is indisputable that the world plan of the German I.G. was conceived and brought into being by the protection obtained in all parts of the world through patents and trade marks by the use of each country's legislation guided by legal experts of these countries.”
28 P. 337.
29 The United States Patent System—A Survey (National Economic Problem Series no. 420, New York, 1946).Google Scholar
30 Idem p. 10.
31 Idem p. 21.
32 Idem p. 24.
33 Idem p. 8.
34 (1890) 26 Stat. 209 as amended. Section 4 specifically authorizes equity proceedings by the United States government to restrain violations. Either civil or criminal action or both may thus be instituted. Civil action, if successful is terminated by a decree, which is called a “consent decree” when not contested by the defendant.
35 The decree may cancel or modify patent licensing agreements, order dissolution of patent pools, etc., prescribe terms for future licences, etc. See, for example, decrees issued in: Hartford-Empire et al. v. U.S., (1945) 323 U.S. 386; U.S. v. Univis Lens Co. Inc. et at., 316 U.S. 241; U.S. v. Schroder's Son, consent decree, 1923 (simultaneous criminal action reported in part 252 U.S. 85); Ethyl Gasoline Corp. v. U.S., 309 U.S. 436; Standard Sanitary Mfg. Co. v. U.S. 226 U.S. 20; U.S. v. R.C.A. et al., consent decree, 1930, unreported; Interstate Circuit v. US. 306 U.S. 208; U.S. v. New Departure, 204 Fed. 107; U.S. v. United Shoe Mach. Corp., 258 U.S. 451; U.S. v. Masonite Corp. et al., 316 U.S. 265; International Business Machines Corp. v. U.S., 298 U.S. 131; U.S. v. Motion Picture Patents Co. 225 Fed. 800; U.S. v. Vehicular Parking Ltd. 56 F. Supp. 297 and 61 F. Supp. 656; U.S. v. National Lead Co. 66 U.S.P.Q. 141.
36 A relatively new development not found in early cases. See, for example: Hartford-Empire et al. v. U.S., supra; U.S. v. Vehicular Parking, supra; U.S. v. National Lead, supra; U.S. v. Aluminum Co. of America, consent decree, 1942, Civil Action No. 18-31, U.S.D.C., S.D.N.Y. Cf. also decrees asked in cases now pending, e.g., U.S. v. Libbey-Owens-Ford Glass Co. et al., complaint filed May 23, 1945, civil action No. 5239, U.S.D.C., N.D. Ohio.
37 Folk, G. E., Patents and Industrial Progress (New York, 1942), p. 357.Google Scholar Pp. 357-87 contain an appendix on “Patents and the Antitrust Laws.”
38 See cases cited in note 35 supra, and also: U.S. v. General Electric Co. 272 U.S. 476; Standard Oil Co. (Indiana) v. U.S., 283 U.S. 163; U.S. v. United Shoe Mach. Co., 247 U.S. 32; U.S. v. United States Gypsum Co., 53 F. Supp. 889. The cases cited above are limited to anti-trust actions by government. Full survey of the relationship of the United States patent and anti-trust laws requires study of numerous other cases arising between private individuals and of lengthy commentary in legal texts and periodicals. Two recent articles of interest are: “Integration of Anti-Trust and Patent Laws” (unsigned notes), Columbia Law Review, vol. XLV, 601–25Google Scholar; and Marcus, P., “Patents, Anti-Trust Law and Anti-Trust Judgments through Hartford-Empire” (Georgetown Law Journal, vol. XXXIV, 11, 1945, pp. 1–63).Google Scholar The Canadian courts have not yet had occasion (except partially and indirectly in Philco Products Ltd. v. Thermionics Ltd. et at., supra note 24) to consider the problem of integrating the Canadian patent and anti-trust laws and it remains to be seen whether they will follow the course of the United States Supreme Court or chart a new one.
39 Among the more outright statements is that of Black J. in Hartford-Empire et al. v. U.S., supra: “The history of this country has perhaps never witnessed a more completely successful tyranny over any field of industry than that accomplished by these appellants. They planned their monopolistic program on the basis of getting and keeping and using patents, which they dedicated to the destruction of free competition in the glass container industry.” Cf. Evans, Judge in Journal of the Patent Office Society, vol. XXVII, p. 311.Google Scholar “The stench arising from the Glass cases (Hartford-Empire) … would drive a starving bear from the garbage barrel.”