Beginning in 2012, the Canadian government undertook an expansive review and update of many of Canada’s intellectual property (“IP“) statutes. The resulting changes have been well received by IP rights holders and Canada’s trading partners. One development, however, has been viewed by many such IP rights holders and trading partners as problematic. Canadian courts, starting in 2005, have invalidated patents on the basis that the inventions claimed therein do not have sufficient utility to be patentable. This increased utility requirement has been referred to as the “promise doctrine”. In essence it provides that where a patent specification is found to promise specific utility, that promised utility must be demonstrated or soundly predicted as of the Canadian filing date.

Not surprisingly, the promise doctrine has raised the ire of both patentees and Canada’s trading partners, particularly the U.S. government. [1] It has been alleged that this aspect of Canadian patent law is problematic because of its perceived heightened utility requirements, particularly for pharmaceutical patents.

U.S. based Eli Lilly and Co. (“Lilly”), whose Canadian patents directed to Zyprexa® and Strattera® have been invalidated under this doctrine, has challenged the “promise doctrine” under the North American Free Trade Agreement (“NAFTA”) claiming that it discriminates against pharmaceutical patents and contravenes Canada’s international commitments thereunder as well as Canada’s obligations under the Patent Cooperation Treaty. As any ruling in this proceeding will likely not be made until after 2016, pressure from inside and outside Canada to address this perceived increased utility requirements has been mounting.

While there has been recent retrenchment of some of the harsher aspects of the promise doctrine, those wishing to secure effective patent protection in Canada should be aware of the current boundaries of this doctrine and how to avoid its more draconian effects. Given that any legal impact of the decision coming out of Lilly’s NAFTA challenge will not be felt for years and given that the Canadian government has not to date provided a legislative solution, this article provides an update on the current boundaries of the promise doctrine and how Canadian applicants can consider how best to limit its impact.

I PROMISED WHAT? UTILITY UNDER CANADIAN LAW & “IMPLIED PROMISES”

Under the Canadian Patent Act, an invention typically need only have a “scintilla of utility” as of the filing date in order to be considered patentable.[2] The necessary utility can be either directly demonstrated in the specification itself or be “soundly predicted”[3] based on the written description of the invention found in the specification.[4] The one caveat to the scintilla requirement is where a patentee “promises” something more in the patent specification.[5] In that case, the patentee will be required to provide support in the patent specification for this promised utility; utility is to be measured against the promise.[6]  Since 2005, explicit and implicit promises of utility haven been found in a number of cases to invalidate Canadian patents directed to pharmaceutical related inventions, ultimately leading to Lilly’s NAFTA challenge.

In Eli Lilly v. Novopharm,[7] the Federal Court of Canada construed Canadian patent No. 2,041,113 (the “‘113 Patent”), relating to the antipsychotic agent olanzapine, as promising that “olanzapine is substantially better (‘marked superiority’) in the clinical treatment of schizophrenia (and related conditions) than other known antipsychotics, with a better side-effects profile, and a high level of activity at low doses.”[8] In its decision, the court stated that where a patented compound claims to be safe and effective in the treatment of a chronic condition, utility will be demonstrated if the patent discloses studies showing that the patented compound, when administered over the long-term, meets that promise.

Since schizophrenia is a chronic condition, the court considered whether, at the time of filing of the ‘113 Patent, there was enough evidence available to show that olanzapine would meet its promise when administered over the long-term. As of the Canadian filing date of the ‘113 Patent, Lilly had conducted animal studies, received results from healthy human volunteer studies, and preliminary clinical trials. The ‘113 Patent explicitly compared olanzapine favorably to two other compounds of the prior genus patent regarding a number of side-effect parameters. Despite this, the court held that utility had not been demonstrated, finding the evidence was not sufficient to show that olanzapine satisfied the promise that “it would provide markedly superior clinical treatment of schizophrenia with a better side effects profile than other known antipsychotics”[9] when administered over a long-term.

In Eli Lilly v. Teva[10], which involved the Canadian patent for atomoxetine, the Federal Court of Appeal confirmed a lower court’s decision that Lilly’s patent was invalid for lack of utility. There was no dispute at trial as to the nature of the explicit promise (i.e., the use of atomoxetine to “effectively treat humans with ADHD”[11]). Not only did the Court decide that there was a lack of evidence demonstrating the promised utility at Canadian filing date, but it was also held that there was no sound prediction of the promised utility as the clinical trial data relied upon by Lilly, as a factual foundation for the prediction, was not disclosed in the patent.

Pfizer Canada Inc. v. Apotex Inc.[12] involved the Canadian patent for latanoprost, a drug for the treatment of glaucoma or ocular hypertension. The patent in this case claimed to reduce intraocular pressure associated with glaucoma or ocular hypertension, without causing substantial ocular irritation. The specification included results from tests in both animals and healthy humans showing that the drug worked with minimal irritating side effects. However, no long-term studies had been performed at the time of the Canadian filing date. The Federal Court of Appeal held that because glaucoma is a chronic disease, the implied promise of the patent was “chronic use of the compound for a chronic medical condition”[13], even though the patent claims made no mention of the chronic nature of the condition or ongoing use of the drug. According to the court, the results obtained from single dose human studies completed at the date of filing of the patent could not be soundly predicted to apply to chronic use.[14]

THE NAFTA CHALLENGE & THE IMPACT OF THE “PLAVIX” DECISION

As a result of the invalidity proceedings for olanzapine (Zyprexa®) and atomoxetine (Strattera®), Lilly started in 2012 its NAFTA challenge claiming that the promise doctrine discriminates against pharmaceutical patents and contravenes Canada’s international commitments under NAFTA’s Chapter 11, which protects the investments of companies and foreign investors operating commercially in NAFTA’s signatory countries.[15] Lilly specifically alleged that the application of the promise doctrine by Canadian courts is “arbitrary” in its application and “discriminatory” in its effects[16] , and is therefore not in accordance with Canada’s commitments under NAFTA, as well as Chapter 17 which requires Canada to provide patents for inventions, in all fields of technology that are “new, result from an inventive step, and are capable of industrial application”.[17]

Concurrently with Lilly’s NAFTA, in Sanofi v. Apotex (the “PLAVIX Decision”)[18], the Federal Court of Appeal defined the “promise” as “the standard against which the utility of the invention described in the patent is measured”[19]. Significantly, the Court emphasized: (1) only if an inventor makes “an explicit promise of a specific result, then utility will be assessed by reference to the terms of the explicit promise”[20]; (2) as there is no obligation to disclose utility in a patent, one cannot assume every patent has an explicit promise; and (3) where there is no explicit promise, a “mere scintilla” of utility will suffice. In construing that Sanofi’s patent did not provide a “promise for use in humans”, the court held that it was incorrect to simply rely on inferences from the patent to find a promise.

As a result of the PLAVIX Decision, Canadian courts started to reconsider the nature and scope of the promise doctrine in Canada. In Pfizer v. Mylan,[21] for example, the court focused on statements in the specification to the effect that the selectivity of compounds “may indicate an ability to reduce the incidents of common NSAID-induced side effects” as showing that reduced side-effects were only a possibility and that there was no promise.[22]

In another decision post-PLAVIX Decision, the court in Bayer v. Cobalt Pharmaceuticals[23] cited a restrained approach to the promise of the patent and emphasized that “[c]ourts should not strive to defeat otherwise valid patents.”[24] In the court’s view, a list of advantages expected to be achieved is not promising a result to be achieved; a goal is not necessarily a promise.[25]

In Apotex v Pfizer,[26] the Federal Court of Appeal clearly enunciated the approach to be taken:

Where the validity of a patent is challenged on the basis of an alleged unfulfilled promise, the patent will be construed in favour of the patentee where it can reasonably be read by the skilled person as excluding this promise. [27]

As part of the analysis, the court started with the “principle that statements outside of the claim should not be presumed to be promises”.[28] Again, the court found that statements as to benefits were found to be mere advantages.

WHAT CAN BE DONE TO AVOID THE APPLICATION OF THE PROMISE DOCTRINE

The Canadian court decisions post the PLAVIX Decision may suggest an increasing reluctance to find implicit promises and a consequently increased utility requirement. By focusing on claim language in order to find the promise, rather than any stray phrases in the disclosure, Canadian courts may be moving away from a draconian application of the promise doctrine rule. Patentees and Canada’s trading partners should welcome this.

There still may be, however, cause for concern for patentees. Canadian courts may still look to inferred promises as a basis for invalidity in a post-PLAVIX world, as was the case in Alcon v. Cobalt Pharmaceuticals.[29] Until the Supreme Court of Canada or the tribunal in Lilly’s NAFTA challenge deals with issue, the promise doctrine may remain a live issue.

As a result, the application of the promise doctrine may create some uncertainty for the Canadian patent landscape. Despite this, Applicants should consider the following risk mitigation strategies when drafting patent applications that may be prosecuted in Canada.

• Canadian patent specification should avoid language that states or suggests any particular advantage with regard to the utility of the invention, unless specific support therefor is provided. Where such statements may be required (e.g. support for a sound prediction of utility), it should be made clear that such statements are not explicit or implicit promises of utility. This is particularly important where there is evidence required to soundly predict utility as, in some cases, advantages described have been considered promises of utility.
• To the extent utility is based on sound prediction, consider including as much information as possible in the application to support the factual basis and line of reasoning for the prediction (e.g., reference to the state of the art, hypotheses, descriptions of work done, tests and results).
• Avoid overstating advantages of the invention in cases where there is insufficient data to support such statements. Be aware of how advantages or discussions of possible applications may be construed as promises of the patent.

[1] For example, the Office of the United States Trade Representative (“USTR”) has included Canada in its Special 301 Report (see https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/april/ustr-releases-annual-special-301) as a country that allegedly provides insufficient protection of intellectual property rights. The promise doctrine has been specifically cited as a matter of serious concern (see page 66 of the 2015 Special 301 Report).

[2] Consolboard Inc. v. MacMillan Bloedel (Saskatchewan) Ltd., [1981] 1 S.C.R. 504 (S.C.C.).

[3] In the case of many inventions, particularly pharmaceutical or biotechnology related inventions, the patent application will have been filed before all clinical data has been established. In order to establish utility for those cases, the applicant must demonstrate that utility has been soundly predicted. Canadian courts have applied a three factor test to determine whether the invention meets this requirement: (a) there must be a factual basis for the prediction; (b) the inventor must have at the date of the patent application an articulable and sound line of reasoning from which the desired result can be inferred from the factual basis; and (c) there must be proper disclosure by full, clear and exact description of the nature of the invention and the manner in which it can be practiced.

[4] Apotex Inc. v. Wellcome Foundation Ltd. 2002 SCC 77, at para. 56.

[5] See, for example, Eli Lilly Canada Inc. v. Novopharm Ltd., 2010 FCA 197 (F.C.A.).

[6] See AstraZeneca Canada Inc. v. Apotex Inc. 2014 FC 638, at para. 90; see also Eli Lilly Canada Inc. v. Novopharm Ltd., at para. 76.

[7] 2011 FC 1288

[8] Ibid. at para. 124

[9] Ibid. at para. 210

[10] 2011 FCA 220

[11] Ibid. at para. 21

[12] 2011 FCA 236

[13] Ibid. at para. 29

[14] Ibid., at para. 49

[15] See http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/eli.aspx?lang=eng. On September 13, 2013, Lilly filed its Notice of Arbitration (see http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/disp-diff/eli-03.pdf) under NAFTA Chapter 11. Canada’s Statement of Defense (http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/eli-statement-declaration.aspx?lang=eng) was filed on June 30, 2014.

[16] Ibid. at para. 43.

[17] Ibid. at para. 7.

[18] 2013 FCA 186. The appeal to the Supreme Court of Canada was withdrawn the day before scheduled to be heard.

[19] Ibid. at para. 47.

[20] Ibid. at para. 49.

[21] 2014 FC 38. This decision is notable as the subject patent has been the subject of Federal Court decisions both pre- and post-PLAVIX Decision, with differing constructions of the patent’s promise. In pre-PLAVIX decision involving Canadian patent No. 2,177,576 (the “‘576 Patent”) directed to celecoxib (see 2007 FC 81), the court found that promise of ‘576 patent included “duality of treatment of inflammation and reduction of unwanted side effects”. In post-PLAVIX decision, Court adopted a different construction of promise of the patent and found that the patent made no promise of reduced side effects.

[22] Ibid. at para. 67.

[23] 2013 FC 1061

[24] Ibid., at para 93.

[25] Ibid., at para. 152

[26] 2014 FCA 250

[27] Ibid. at para. 66

[28] Ibid. at para. 77.

[29] 2014 FC 149. In Alcon, Canadian Patent No. 2,447,924 claimed solutions comprising olopatadine and an amount of polyvinylpyrrolidone (PVP) “sufficient to enhance the physical stability of the solution”, wherein the composition does not contain five listed excipients. The Court construed the specification to include the promise that PVP will enhance the physical stability of the relevant olopatadine solutions “but that the five excluded excipients will not do so” (at para. 61). While the specification taught that two of excluded excipients would not enhance stability of olopatadine solutions, the specification was silent concerning remaining excipients.

There has been much negative publicity about patenting computer-implemented inventions since the U.S. Supreme Court’s decision in Alice Corp. v CLS Bank Int’l (573 U.S. __ (2014)). In Alice, the Court struck down claims directed to a computer-implemented business method as not being eligible for a patent. The Supreme Court has long recognized that laws of nature, natural phenomena, and abstract ideas are not patent eligible. A major concern of the Court is that the claims not preempt others from using “basic tools of scientific and technological work.” (Association for Molecular Pathology v. Myriad Genetics 569 U.S., __ (2013)). The Court in Myriad set forth a two-step analysis to find in the claims an “inventive concept,” described as “an element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.’”

The claims at issue in Alice involved what the Court described as “the abstract idea of intermediated settlement.” The Court relied on a treatise from 1896 to support its conclusion that the concept of intermediated settlement was a long-standing and fundamental economic practice. Providing little guidance, however, the Court stated: “In any event, we need not labor to delimit the precise contours of the ‘abstract ideas’ category in this case.”

The Court gave only two useful clues to define an “inventive concept” that is “significantly more” than an abstract idea. These clues are that the claims at issue in Alice do not “purport to improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” The goal of this article is to provide more useful clues as to which computer-implemented inventions are patent eligible and which are not.

Recent Cases Illuminating the Alice Holding

In the aftermath of Alice, many patents directed to computer-implemented inventions have been invalided by district courts, often on motions to dismiss, before any claim construction has occurred. The U.S. Patent and Trademark Office (“USPTO”) also has been rejecting many more claims as patent ineligible in the wake of Alice. It will take quite a while before decisions of the district courts and the USPTO make their way to the Federal Circuit, from whom we can only hope for greater predictability. Nevertheless, there are already some cases at the district court level, and one by the Federal Circuit, in which patents have survived Alice determinations. These cases provide useful insights to guide ongoing patent preparation.

DDR Holdings, LLC v. Hotels.com L.P., No. 2013-1505 (Fed. Cir. 2014)

DDR Holdings involved claims directed to “generating a composite web page that combines certain visual elements of a ‘host’ website with content of a third-party merchant.” In attempting to determine whether an abstract idea was being claimed, the Federal Circuit listed some principles set forth by the Supreme Court: “We know that mathematical algorithms, including those executed on a generic computer, are abstract ideas. … We know that some fundamental economic and conventional business practices are also abstract ideas.“ The Federal Circuit listed a number of specific cases in which the claims were not patent eligible, all of which fall into the “business method” category. Concerning these cases, the Federal Circuit stated: “Although many of the claims recited various computer hardware elements, these claims in substance were directed to nothing more than the performance of an abstract business practice on the Internet or using a conventional computer. Such claims are not patent eligible.”

Turning to the claims at issue in DDR Holdings, the court noted that the claims did not include “a mathematical algorithm or a fundamental economic or longstanding commercial practice.” Importantly, the court stated: “Although the claims address a business challenge (retaining website visitors), it is a challenge particular to the Internet.” The court continued: “[T]hese claims stand apart because they do not merely recite the performance of some business practice known from the pre-Internet world along with the requirement to perform it on the Internet. Instead, the claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.”

The court cautioned that “not all claims purporting to address Internet-centric challenges are eligible for patent.” However, the claims that survived the patent eligibility challenge in DDR Holdings “specify how interactions with the Internet are manipulated to yield a desired result—a result that overrides the routine and conventional sequence of events ordinarily triggered by the click of a hyperlink.” These claims also do not preempt “every application of the idea of increasing sales by making two web pages look the same.”

Autoform Engineering GmbH v. Engineering Technology Associates, Inc., Case No. 10-14141 (E.D. Mich. 2014)

The claims related to software used to design tools for forming sheet metal parts.he defendant had alleged that the claims were directed to merely performing a mental process. However, in denying a motion for summary judgment, the court listed a number of limitations in the claims that narrowed the scope of the patent away from covering merely an abstract idea or reciting a mental process In particular, the court observed the following claim limitations as examples of specific features that were not mere mental steps: (1) smoothing an irregular component edge; (2) filling in a fill surface; (3) forming a smooth component edge; (4) where the fill surface runs into the predefined component geometry by a continuous tangent; (5) arranging sectional profiles along the smooth component edge; (6) avoiding an overlap or intersection condition between sectional profiles; (7) parameterizing the sectional profiles by the means of profile parameters; (8) the profile parameters being scalar values; (9) laterally interconnecting the sectional profiles by a continuous surface to form the geometry of the addendum zone of the tool; and (10) where the addendum zone complements the component geometry in the edge zone and runs into the component and the binder with a continuous tangent. Because of these claim features, the patent in question was found to cover more than merely an abstract idea.

Helios Software, LLC and Pearl Software, Inc., v. Spectorsoft Corporation, C.A. No. 12-081-LPS (D.Del. 2014)

The claims in question were directed to “remotely monitoring data associated with an Internet session and controlling network access.” The court upheld the patent eligibility of the claims, noting that no evidence was provided to show that the claims at issue were fundamental truths or principles that would preempt basic tools of research. The court pointed out that the defendant had failed to prove that the remote monitoring of data and controlling network access were “fundamental to the ubiquitous use of the Internet or computers generally.” The court also found that the claims satisfied the “machine or transformation test” because of meaningful limitations recited in the claims, including exchanging data over different Internet sessions to capture the content of an ongoing Internet communication session (i.e., real-time data capture and transmission). It was important to the court’s decision that a human alone could not perform the claim limitations, because the claimed method was tied to a machine.

Card Verification Solutions, LLC v. Citigroup Inc., No. 13 C 6339 (N.D. Ill. 2014)

The court held that there was a plausible reading of the claims under which they contained eligible subject matter. While the claims were directed to the abstract idea of verifying a transaction, they contained sufficient additional recitations to be considered patent eligible at the motion to dismiss stage. The court noted several relevant features. The claims included a limitation for a pseudorandom number and character generator, and a factual question remained as to whether a human could perform this limitation with pen and paper. By adding a new subset of numbers or characters to data, the claims were directed to more than merely manipulating, reorganizing or collecting data. Even though there was no physical transformation of matter, the claimed invention plausibly produced a concrete effect in the field of electronic communications.

USPTO Guidance and Examples

On December 16, 2014, USPTO published its 2014 Interim Guidance on Patent Subject Matter Eligibility (Fed. Reg. Vol. 79, 74618). The Guidance is based in part on the Alice decision, and lays out an analytical framework for use by patent examiners to determine whether a claim is directed to patent eligible subject matter. According to that framework, the examiner first determines whether a claim is “directed to a judicial exception” such as a law of nature, a natural phenomenon, or an abstract idea (the issue in Alice). Next, the examiner must identify how the judicial exception is recited in the claim. Finally, for method claims (the type most relevant to computer-implemented inventions), the examiner must determine whether or not the claim is directed to “significantly more” than the judicial exception (i.e., whether the claim recites significantly more than merely implementing an abstract idea on a computer). Only if it does is the claim directed to patent eligible subject matter, for purposes of patent examination.

The Guidance provides a number of sample analyses. Example 6 describes the Alice case. In that example, consistent with the Supreme Court holding, USPTO concludes that the claim does not recite significantly more than an abstract idea, because the steps performed are directed to mere electronic recordkeeping (including obtaining data, adjusting account balances, and issuing automated instructions), which is “one of the most basic functions of a computer.” The Guidance also reviews a number of past Supreme Court decisions and recent lower court decisions regarding abstract ideas. The following cases from the USPTO Guidance provided a holding of patent eligibility for computer-implemented inventions.

SiRF Technology v. ITC, 601 F.3d 1319 (Fed. Cir. 2010)

The claims at issue are directed to mathematical calculations of position using data obtained from a GPS receiver and signals generated by at least four satellites. Because the claim recites the use of a GPS receiver, which places a meaningful limit on the scope of the claim and plays a significant part in performing the method, the claim is directed to significantly more than the abstract idea behind the calculations and is patent eligible.

Research Corp. Tech. v. Microsoft Corp., 627 F.3d 859 (Fed. Cir. 2010)

The claims are directed to digital image halftoning, which allow computers to represent images with a limited number of colors or shades of gray. The method involves the use of algorithms and mathematical formulas (i.e., abstract ideas). However, the claims were considered patent eligible because, according to the Guidance, “[t]he invention presents functional and palpable applications in the field of computer technology with specific applications or improvements to technologies in the marketplace.”

Conclusion

Accordingly, when drafting patent applications for computer-implemented methods, some principles to keep in mind are:

• Control the definition of the “inventive concept” so as to include substantially more than computer implementation of an abstract idea
• Ensure that the claims have sufficient specificity to preclude preemption of any relevant abstract idea
• Improve the functioning of a computer itself, if applicable
• Effect an improvement in another technology or technical field, if applicable
• Where possible, draft claims that tie the claimed method to a machine that is more than a general purpose computer.

In Sri Lanka Intellectual Property is protected by the provisions of the Intellectual Property Act No 36 of 2003 which replaced the Code of Intellectual Property Act No. 52 of 1979. The 1979 Statute was based on the WIPO Model Law. Prior to the 1979 Statute the Sri Lankan law was governed by the Trademarks Ordinance No. 15 of 1925 which was based on the pre 1938 English Law. Prior to the Code of Intellectual Property Act No. 52 of 1979 there were several Statutes relating to Patents, Designs, such as the Trademark Ordinance, Merchandise Ordinance, and Designs Ordinance. One of the earliest Statutes was the Invention Ordinance No. 6 of 1859 which was replaced by the Inventions Ordinance No. 16 of 1892 which in turn was replaced by the Patents Ordinance No. 15 of 1906. The first Ordinance relating to the trademarks was Trademarks Ordinance No. 14 of 1888 which was replaced by the Trademark Ordinance No. 15 of 1925. The first law relating to Industrial Designs was the Designs Ordinance no. 7 of 1904. The first Copyright Law of Sri lanka was the Copyrights Ordinance of 1908. The Copyrights Ordinance No. 20 of 1912 supplemented the English Copyright Act of 1911. The Ceylon Independence Act 1947 made the English Copyright Act 1911 applicable in Sri Lanka after independence. Sri Lanka is also a party to several international treaties such as the Madrid Agreement for Repression of false or deceptive indication of source on goods, Nirobi Treaty for protection of Olympic symbol, the Patent Co-operation Treaty the Berne Convention for the Protection of Literary and Artistic Works, Universal Copyright Convention, The Convention establishing the World Intellectual Property Organisation, The Agreement on Trade related aspects of Intellectual Property Rights (the TRIPS Agreement) and the Trademark Law Treaty.

There is provision under the Statute for registrations of Patents, Industrial Designs and Trademarks. There is no provision relating to registration of Copyrights in Sri Lanka and the copyright holder would have to establish his rights. There is also no separate provision for registration of Geographical Indications in Sri Lanka although Geographical Indications are protected under the Intellectual Property No. 36 of 2003.

Article 41 of the TRIPS requires every WTO member contracting state to provide effective means of enforcing intellectual property rights. In compliance with this provision the Statute makes a provision for effective enforcement of Intellectual Property rights. , the foundation for a stringent enforcement mechanism is created by the Intellectual Property Act to provide effective protection to all categories of Intellectual Property Right holders.

The current system for enforcement entails a combination of judicial remedies both civil and criminal, administrative remedies and remedies at common law.

 

Judicial Remedies

The statutory mechanism for enforcement is mainly based on the Intellectual Property Act No 36 of 2003.

Civil action can be instituted before the Commercial High Court[1] of Sri Lanka to combat infringement or imminent infringement of Intellectual Property Rights under s 170, and to protect acts against Unfair Competition in relation to Intellectual Property under s 160 (7) of the Act.

The Act makes provision to obtain injunctive relief and claim damages for loss resulting from acts of infringement or unfair competition. In addition, court is vested with power to order the impounding[2], and disposal of infringing goods outside the channels of commerce[3] and grant such other relief the court deems just and equitable.

Provisional protection in the form of Enjoining Orders and Interim Injunctions exist to maintain the status quo and prevent further violations until conclusion of the main judicial proceedings[4].

Infringement of copyright and other registered intellectual property rights, willfully or knowingly, also constitute a criminal offence liable for conviction before the Magistrate Court under Chapter XXXVIII of the Intellectual Property Act. Sanctions if found guilty are in the form of imprisonment and fine, with a maximum penalty of rupees five hundred thousand or imprisonment for period of six months or both. Second or subsequent convictions will give rise to a penalty double the amount of such fine or period of imprisonment. Criminal sanctions are further imposed under s 475 of the Penal Code for misappropriation of property-marks.

To strongly deter illegal acts of counterfeiting s 186 (2) of the Act creates the sale, possession for sale or any purpose of trade or manufacture, goods or things to which any forged Mark or false trade description is applied, or any Mark so nearly resembling a registered Mark so as to be likely to mislead, is falsely applied, as an offence. Once convicted will be liable to a fine not exceeding rupees five hundred thousand or imprisonment for a term of two years or both, with double the sentence for each subsequent conviction.

Criminal proceedings can be instituted on these grounds before the Magistrate Court by the right holder, assignee or licensee, directly by way of a Private Plaint[5] or by a Plaint filed by the Police. A complaint can be lodged by the Intellectual Property Right holder with the Commercial Criminal Division of the CID who upon investigation may institute proceedings before the Magistrate Court.

A special Anti-Piracy and Counterfeit unit attached to the Criminal Investigation Department (CID) of the Sri Lanka Police was set up in 2010 for investigation and curtailment of piracy and counterfeiting.

Over the years the CID has taken active initiative to raid and prosecute considerable number of traders engaged in illegal reproduction of songs of popular local music groups and singers before Magistrate’s Courts for selling, possessing and displaying for sale counterfeit CD’s and DVD’s.

To curb software piracy the CID has conducted successful raids across the country. Notably in 2010 the CID raided a limited liability company suspected of infringing the intellectual property rights of the Business Software Alliance members, Adobe, Autodesk and Microsoft by using pirated and unlicensed software in the course of running its business. The joint raid which took place in Ratmalana and Horana involved the seizure and examination of over seventy computers installed with an estimate of over 120 copies of pirated software valued at an alleged amount of Sri Lanka Rupees Ten Million (Rs 10,000,000).

Similarly the same year a successful raid was conducted by the CID with the assistance of Perkins who has the largest population of diesel engines in Sri Lanka. A large quantity of 1,698 counterfeit Perkins oil filters, crank shafts etc were seized. The offenders appeared in court and thereafter pleaded guilty to the charges and were imposed with a fine. A large sum of money was paid to Perkins as compensation under the Intellectual Property Act by the accused. A second phase of raids was conducted by the CID, in Kurunegala, Matara and Hambantota and a quantity of 496 counterfeits were seized.

In 2012 the CID took action to minimize the circulation of counterfeit merchandise during the ICC World Twenty20 held in Sri Lanka. Series of raids were conducted on retailers in the Pettah and Boralesamuwa areas who were producing large quantities of fake team “event” shirts. The raids followed a complaint to the police filed by the ICC relating to the protection of registered trademarks and logos associated with the ICC World Twenty20 Sri Lanka 2012[6].

In 2013 a large scale computer retailer situated at a leading IT mall in Colombo was raided for selling branded laptop computers installed with suspected pirated software. A number of devices installed with suspected pirated software were taken into custody and were produced before court.

Up to 2013 a total of 102 cases on Intellectual Property Rights were filed before courts citing software piracy[7].

More recently the Police successfully conducted several raids against distributors, re-sellers and importers of counterfeit Microsoft certificates of authenticity (‘COA’). The raids led to the seizure of over 500 copies of counterfeit Microsoft Windows 7 COAs[8].

The largest ever raid carried out in Sri Lanka was upon a complaint made by Disney Enterprises Inc. A warehouse and two other retail shops were raided by the CID for selling and distributing pirated Disney Products in Colombo and several counterfeit stationery items with Disney characters including stickers, pencil cases, bags amounting to nearly 45,000 articles were seized[9].

While stringent enforcement of Intellectual Property Rights is clearly visible under the criminal law, a strong desire to increase public awareness as to infringement of Intellectual Property Rights has come to the fore. Publication of cautionary notices in the print media and reporting of raids in the media are some of the means adopted by the Sri Lanka Police to deter acts of infringement.

 

Administrative Remedies

Intellectual Property Act

In the realm of Copyright Infringement, s 22 (3) of the Intellectual Property Act entitles the right owner aggrieved by any infringement of his rights to make an application to the Director General of Intellectual Property. An inquiry will be conducted and the decision of the Director General shall be binding on all parties. An appeal can be preferred to the Commercial High Court against such decision.

In Trademark matters, s 111 (10) entitles any person to contest the registration of a Trademark by filing a Notice of Opposition based on s 103 (objective grounds) and s 104 (prior rights) of the Intellectual Property Act.

Under s 104 any registered owner of a Trademark with prior rights or owner of an unregistered mark having prior use or mark known in Sri Lanka can contest such registration.

A Notice of Opposition must be filed within the statutory period of opposition (three months from publication of the contested mark). Once received, the Director General shall issue notice to the Applicant of the contested mark to file Observations and thereafter fix an inter-parte inquiry before the Director General. This decision will be final and binding. An appeal can be preferred to the Commercial High Court.

This mechanism is beneficial to international brand owners in protection of their rights. Several opposition proceedings are instituted before the National IP Office each year, some of them proceed to the inquiry stage.

 

Customs Ordinance

The cross border protection of Intellectual Property Rights is predominantly governed by the Customs Ordinance No 83 of 1988.

To comply with the international obligations created by ratification of the Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods and the TRIPs Agreement new provisions were introduced by the Intellectual Property Act.

S 125 A of the Customs Ordinance prohibits importation and exportation of counterfeit trademark goods, pirated copyright goods and any other goods which contravene the provisions of the Intellectual Property Act. Violation shall entitle the customs authorities to forfeit the goods and dispose outside the channels of commerce.

Under s 125 B of the Ordinance[10] the owner of any registered trade mark or holder of copy right or any other Intellectual Property rights may make an application to the Director General of Customs requesting the Customs to suspend clearance of imported/exportation of goods that are suspected of being counterfeit or pirated. A prima facie case of infringement must be established to the satisfaction of the Director General of Customs.

If the Application for suspension is accepted the customs shall suspend the release of goods. The detention shall remain in force initially for a period of fourteen (14) days and extended at the option of the Director General of Customs[11]. If within a period of fourteen working days after the applicant has been served notice of the suspension, the Director General of Customs is not informed of the institution of court proceedings in respect of the release of any goods suspended the goods shall be released[12].

The Customs may on its own initiative suspend the clearance of importation or exportation of goods in respect of which it has acquired prima facie evidence, that an intellectual property right has been, or may be infringed.

To facilitate performance of this ex-officio action in enforcement of Intellectual Property Rights, the Customs Department has established an Intellectual Property Rights Enforcement Unit.

Intellectual Property Right holders who are desirous of safeguarding their rights could register with the aforesaid Unit of the Sri Lanka Customs Department by furnishing information and documentary evidence to establish Intellectual Property Right ownership. This registration process was introduced in 2010, 42 trademark owners have registered with the Customs from 2010 to 2012[13].

Remedies at Common Law

In recent times cease and desist letters have proved to be an effective and expedient means of combating minor Copyright and Trademark infr

[1] High Court of the Provinces (Special Provisions) Act No 10 of 1996, Section 2; Intellectual Property Act No 36 of 2003, Section 205

[2] Intellectual Property Act No 36 of 2003, Section 22(2) (a) (ii)

[3] Ibid., Section 22 (2) (c) (d) and 170 (3)

[4] Ibid., Section 170 (6); Judicature Act No 2 of 1978 (as amended), Section 54; Civil Procedure Code 12 of 1895 (as amended), Section 662-667

[5] Code of Criminal Procedure Act No 15 of 1979 (as amended), Section 136 (1) (a)

[6] http://www.icc-cricket.com/world-t20/news/2012/media-releases/74350/icc-move-against-counterfeit-merchandise

[7] http://www.sundaytimes.lk/130224/business-times/wipo-pledges-to-assist-sri-lankas-ipr-protection-initiatives-33793.html

[8] http://www.sundaytimes.lk/140406/business-times/police-seize-fake-microsoft-goods-in-raids-91205.html

[9] http://www.thesundayleader.lk/2013/09/29/largest-ever-fake-disney-raid-in-sri-lanka/

[10] Regulations published in Gazette Extraordinary No 1523/22 15^th November 2007

[11] Ibid., Article 4 and 5

[12] Ibid., Article 6

[13] http://www.sundaytimes.lk/130224/business-times/wipo-pledges-to-assist-sri-lankas-ipr-protection-initiatives-33793.html

Introduction

In the last few years Australia has developed something of a reputation as a world leader. In online copyright infringement that is. Despite having been one of the first countries to implement copyright reforms to provide for online protection – particularly through the implementation of the right of communication to the public – more recently the country has become a leader in allowing users to infringe those laws. And doing nothing about it.

In June 2014 the Attorney General called for an end to what was described as “a golden era for online piracy in Australia” describing Australia as the “worst offender of any country in the world”.[1] This remarkable turnaround from leader to laggard has been an embarrassment for a country with one of the best track records of law and order and has become very internationally visible through its Chairing of the UN Security Council.

This level of copyright infringement does not benefit anyone. Rightsholders are obviously affected. So are ISPs. As new online movie and TV streaming services arrive in Australia, they provide revenue opportunities for ISPs that partner with the services that would be seriously eroded by the competitive pressure of free infringing content that is readily available from pirate websites and services. Besides, why should some consumers do the right thing while others take without paying?

After a period of lack of political will to address the problem under previous governments, the new Attorney General has recognised that action is needed. He announced on 30 July 2014 that the new government would take steps to deal with the problem in a coordinated way.[2] There was a decided lack of opposition to the announcement from quarters that have previously resisted change.

The Attorney General and the Minister for Communications jointly issued a Discussion Paper that canvassed a number of options for copyright reform.[3] These proposals included changes to the authorisation liability provisions, the introduction of a no-fault site blocking regime similar to that operating in the UK and Europe and the possible extension of safe harbour laws. The Discussion Paper drew a wide range of responses from stakeholders. And one thing was clear: there was no serious debate that there was a problem that needed to be addressed and that it could be ignored no longer.

While it is not clear what if anything will happen with the safe harbour regime, there is more concrete action taking place in relation to the site blocking and authorisation proposals. It is the developments in these areas that this article will consider.

Site blocking

The introduction of site blocking legislation appears to be in progress. On 10 December 2014 the Attorney General and the Minister for Communications jointly announced that the government would be introducing laws for site blocking.

The Government will also amend the Copyright Act, to enable rights holders to apply for a court order requiring ISPs to block access to a website, operated outside of Australia, which provides access to infringing content.

Although no details of the site blocking proposal have yet been provided, some guidance was given in the Discussion Paper.

The Discussion Paper had proposed that a site blocking scheme closely following the form of s 97A of the Copyright Designs and Patents Act UK 1988 could be introduced. That provision has become a driver of impressive copyright enforcement action taken in the UK to cut off the means of access to notorious pirate websites. All without having to establish fault on the part of ISPs who carry the transmissions of their subscribers when accessing the pirate sites. Site blocking has an impressive record, with almost 40 websites having been blocked by the orders of the High Court. Early opposition from ISPs have given way to a more cooperative approach, with ISPs regularly consenting to such orders.

The jurisprudence has also become more sophisticated. Over time it has considered a range of issues, such as the degree of specificity of the injunctions, the proportionality between the orders and the identified infringing activity generated by the websites, the effectiveness of the orders, cost burden and other issues such as the interaction, if any, with human rights laws. The recent decision in Cartier v Sky [2014] suggests that site blocking has a great deal more potential than first thought, with Arnold J ordering site blocking to protect brand owners without relying on the copyright specific s 97A.

Is Australia ready for site blocking? There is a strong case for saying so. The provision would be consistent with the intent of the original update of copyright laws in 2000 to address the emergence of the internet. The then Attorney General described the intent of the laws as putting Australia “at the cutting edge of online copyright reform” and placing “Australia among the leaders in international developments in this area.” Site blocking would certainly do this. It would also be consistent with the general obligation on Australia under Art 41(1) of TRIPS[4] to ensure that it provides “effective action” against infringement of IPR.

The legal framework is also ready for site blocking legislation. Site blocking has been a recognised remedy under Australian Copyright law since the introduction of the safe harbour regime that was substantially imported from the US DMCA (which also provided for site blocking as a remedy) through the US Australia Free Trade Agreement signed in 2005.[5] The power to issue that form of site blocking order has never been exercised because no ISP has been able to successfully invoke the safe harbour defences that would trigger the availability of that remedy. The existing Copyright Act could accommodate an s 97A style provision, thereby carving out of existing fault based regime a new statutory basis for blocking orders, although it would probably be appropriate that the final form omit the references to ISP knowledge as the equivalent Irish laws have done.

Acceptance from stakeholders and the public is a key consideration, particularly with the fragmentation of power in the Senate due to minor parties. By this measure, there appears to be general acceptance that it is the least objectionable strategy for responding to online infringement. This is because it seeks to address the sources of infringement rather than the infringing users or the intermediaries. It is difficult to raise any sensible argument that Court supervised targeted site blocking limits the legitimate rights of internet users.

Authorisation liability

This leaves the issue of authorisation liability. This area of liability has been left in a state of paralysis following the decision of the High Court of Australia in the Roadshow Films v iiNet case in 2012.[6] Despite strong indications of an expectation that ISPs would take action when aware of internet infringements by users (in the explanatory documents of the government when the current regime was implemented in 2000), the Court found that an ISP with such knowledge was not obliged to act.

Attempts before and since the iiNet decision by rightsholders and ISPs to agree on an industry code of action to respond to copyright infringement (even with the involvement of government) have been unsuccessful. Without stronger government direction it looked as though there would be no movement on an industry code. A change of government provided the basis for a renewed push for the development of a code between rightsholders and ISPs.

The Discussion Paper identified both the need for change and suggested some amendments to the Copyright Act. Unfortunately the suggested amendments were widely criticised and the Minister for Communications acknowledged the universal criticism of the proposed form of amendments to the authorisation liability provisions. This appears to have caused the government to step back from any legislative changes despite the need for legislative changes to tackle online copyright infringement being identified by judges of the High Court in the iiNet case in 2012.[7]

Nevertheless, the Attorney General and the Minister for Communications have sought to make changes through the introduction of an industry code to which ISPs and rightsholders would be parties. Such a code was provided for in Australia’s copyright law (s 101(1A)(c)) but has never been implemented. This alternative course is now the focus of copyright developments in Australia.

The two Ministers have issued the rightsholders and ISPs with a strong direction to negotiate a code or face the prospect of the government making regulatory changes on its own initiative.[8] Precisely what those regulatory changes would be has yet to be announced. However they could take the form of a code that is capable of applying under the Copyright Act or the Telecommunications Act, or, conceivably, both. The advantage of the latter is that it would provide a level playing field for all ISPs, because it would be built into the existing regulatory scheme for ISPs with its regulator the Australian Communications and Media Authority (ACMA).

Conclusion

Although there is some way to go before either a site blocking regime is enacted or an industry code is agreed, the signs are there that they will be a part of a significant update of the Australian laws in relation toonline infringement. There is certainly a strong impetus for change amongst stakeholders. There is also a greater alignment of business interests in view of the revenue opportunities that would be secured by cutting of the lure of infringing content on pirate websites and services. But more importantly the international reputation of Australian IP laws is at stake. It is unlikely that the current Australian government will allow Australia to fall further behind its trading partners in Europe and Asia that either have or are looking to introduce similar reforms.

Michael Williams is a partner of Gilbert + Tobin and the head of its IP Group.

He has been at the forefront of copyright cases in Australia for over a decade, including running the iiNet case referred to in this article.

 

[1] http://www.smh.com.au/digital-life/digital-life-news/worlds-worst-pirates-and-their-parents-face-walking-the-plank-20140613-zs5pb.html.

[2] http://www.ag.gov.au/consultations/pages/onlinecopyrightinfringementpublicconsultation.aspx

[3] http://www.ag.gov.au/Consultations/Documents/Onlinecopyrightinfringement/FINAL%20-%20Online%20copyright%20infringement%20discussion%20paper%20-%20PDF.PDF

[4] The Agreement on Trade-Related Aspects of Intellectual Property Rights

[5] s116AG(4).

[6] Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42.

[7] Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42 at [79 (majority), [120] (minority).

[8] http://www.attorneygeneral.gov.au/Mediareleases/Pages/2014/FourthQuarter/10December2014-Collaborationtotackleonlinecopyrightinfringement.aspx.

One of the legal problems with keyword advertising is that keywords are often identical or similar to registered trade marks and, if you don’t get it right, you can be dragged into costly trade mark infringement proceedings.

The Interflora v M&S case

Some guidance on how to avoid this was given in last year’s High Court ruling that M&S (Marks & Spencer plc) had infringed Interflora’s trade marks in its keyword advertising campaign by bidding on keywords identical to the Interflora trade marks, even though none of them featured in the triggered adverts.

However, in a rare move the Court of Appeal has ordered a re-trial of the dispute and in doing so has altered the way internet advertisers and brand owners should think about online campaigns.

M&S bid on a keyword that was an Interflora registered trade mark to trigger an M&S advert that ran like this:

“M&S Flowers Online

Beautiful Fresh Flowers & Plants.

Order by 5.00 p.m. for Next Day Delivery.

www.marksandspencer.com/flowers”

Interflora sued M&S for trade mark infringement.

The decision

The High Court originally held that this infringed Interflora’s trade marks because M&S had not proved that the advert enabled a reasonably well-informed and reasonably observant internet user searching “Interflora” to tell that M&S’s flower delivery service was not part of the Interflora network. In reaching this decision the judge had proceeded on the basis that, to escape infringement, M&S had the burden of proving that its adverts were sufficiently clear so that there was no real risk of confusion on the part of the average internet user and it had failed to discharge that burden.

In deciding that there was a likelihood of confusion on the part of the average internet user, the judge had also relied on instances of “initial interest confusion”. This is where the consumer has initially been attracted or diverted to the advert, or initially confused but at the point of purchase the internet user’s initial confusion has been dispelled and he/she knows that the goods or services he/she is buying are not the brand owner’s goods or services. The Court of Appeal has ruled that this initial interest confusion may not be relied upon to establish that there is a likelihood of confusion in relation to the advert. The test is whether the advert enables the average consumer to ascertain the origin of the goods or services being advertised, in order to make an informed decision at the point of sale.

The Court of Appeal was “far from confident” that the judge would have come to the same conclusion had he correctly analysed the legal test for infringement and correctly assessed the evidence. The judge’s (incorrect) approach to the burden of proof had likely influenced his assessment of all of the evidence – and so affected all of his findings.

The Court of Appeal concluded that it was not in a position to determine the question of infringement itself because it had not heard the witnesses or seen the evidence placed before the High Court. So it had no alternative but to order a re-trial (to be heard by a different judge).

Useful points

Application of the legal rules is still evolving and we wait to see if the case reaches a second trial for more insight into how the Court will apply the rules, but internet advertisers and brand owners can take the following useful points from the Court of Appeal decision:

1. The correct test for infringement in keyword advertising cases is whether or not the advert enables normally informed and reasonably observant internet users, or enables them only with difficulty, to ascertain whether the goods or services referred to in the advert originate from the trade mark owner (or someone connected with it) or, on the contrary, from someone entirely unconnected with the trade mark owner.

1. Failure on the part of the advertiser to “negatively match” against another’s trade mark (when bidding on a generic keyword, such as “florist”) might constitute use of that trade mark for the purposes of trade mark infringement law, but this will depend on all the circumstances (including the length of time involved and whether the advertiser’s bidding had been done with the intention and effect of using the rival brand to trigger the display of its own advert). Even if it does, however, this will still not lead to a finding of infringement unless it can be shown that the advert does not satisfy the test described above.

1. The burden is on the brand owner to prove that the third party advert does not satisfy that test (and not the other way round).

1. “Initial interest confusion” does not play any role in the test for infringement. An advertiser does not have any duty to avoid confusion as such, it just needs to take care to ensure that its adverts do enable average internet users to establish whether the goods or services originate from the advertiser as opposed to the brand owner (as otherwise it may be held liable for infringement).

1. When assessing the advert for confusion, the Court may have regard to its effect on a significant section of the relevant class of consumers and even if many consumers are not actually confused, the advert may still infringe.

As we move into the era of Big Data – vast exploitable datasets of computerised information – it’s worth noting that HMG’s database about UK citizens is the largest in the country and of enormous and increasing value. Mr Francis Maude the Cabinet Office Minister is a keen enthusiast for open data, but should the Government be doing more to monetise its data estate?

Even leaving aside Snowden and surveillance, government departments like Health, Home Office, Education, HMRC and BIS have huge and growing digital databases. Were it not for the seemingly endless run of high profile public sector IT fiascos in the first decade of the century, the hue and cry from civil liberties groups about the risks to individual freedoms of ‘citizen on a stick’ – everything the State knows about any citizen on a memory stick – would doubtless have been much louder by now.

As it is, as individual government departments start to master their own data estates and central government as a whole starts to join up the dots on what each department knows about any particular individual, HMG’s data estate – a term we will become much more familiar with in years to come – will become one of the UK’s most valuable national assets (perhaps comparable with its real property estate, whose book value is estimated at around £400bn).

If you look at the UK data estate as an asset, it’s not as simple as property – which has a capital value as an asset you can sell, income value from rentals and expense associated with upkeep and maintenance. With data, what should be the right policy drivers to protection, growth, maintenance and monetisation of the asset? And how do you reconcile all the conflicting interests – individual liberties, commercial interests, safeguards against overreaching by the State and maximising the benefits for citizens of technological progress?

Just as property law defines rights and obligations about real estate, a worthwhile start point in the policy debate about data is also its legal framework. Data is pretty weird stuff in legal terms – as expression and communication, English law holds that you can’t steal it and, after a judgment earlier this year, you can’t have a lien (a right to retain possession) over a database either. But as digital information becomes more valuable, legal rights in relation to data are developing fast as enforceable sources and stores of value, based on contract law, regulatory law and intellectual property (copyright, database right and confidentiality) law.

Legal rights in data provide the framework and the mechanism to mediate all the competing interests about data use. One of the most important areas of conflict is between individual rights to privacy and the commercial value of the databases concerned to service providers to the public sector, increasingly dominated by IT businesses with deep pockets.

IT companies can now develop sophisticated predictive products and services using large aggregated, anonymised public databases. In healthcare, where NHS databases of clinical outcomes can improve preventive medicine and patient care, the combination of recent breakthroughs in cancer treatment drugs and national oncology databases is a case in point. The NHS databases are of enormous value to the commercial sector, who will in turn charge the NHS a commercial rate for the drugs, treatments, medicines and services they will develop as a result.

Mr Maude is a noted advocate of open government. In a recent speech in Paris at the end of April he outlined five principles for public sector reform, all of which apply to HMG’s data estate: tight central control of IT, property and procurement as common activities; looser operational control; fostering an innovative culture; ‘digital by default’; and ‘being transparent and publishing open data’.

Talking about accountability and transparency, he said that ‘ultimately, public data belongs to the citizen, not the state’. I’m not sure that’s right – the data that the State holds about me as an identifiable individual, sure; but that data as collated, structured and searchable and as the product of all those public sector IT projects? I have an interest, protected by law, that the information that relates to me is not misused. Yet, as a taxpayer, when those vast datasets are aggregated, anonymised and packaged up, I want to make sure that HMG isn’t missing a trick in licensing them on commercial terms to the IT and healthcare providers who will use them to develop the products and services that enhance our quality of life and that they will then sell back to us on equally commercial terms.

At a time of pressure on public finances, and when everyone – citizens and business – stands to benefit from services Big Data makes possible, shouldn’t HMG be developing a comprehensive government-wide approach to commercial licensing of its data estate that balances all the competing interests?