Rlp Machine & Steel Fabrication Inc. v. Walter Ditullio, 2001 FCT 245

Date: 20010327

Docket: T-961-99

                                                           Neutral Citation: 2001 FCT 245

B E T W E E N:

           R.L.P. MACHINE & STEEL FABRICATION INC.

                                                                                                   Applicant

                                                    - and -

WALTER DITULLIO and THE COMMISSIONER OF PATENTS

                                                                                           Respondents

                                  REASONS FOR ORDER

HENEGHAN J.

INTRODUCTION

[1]                 R.L.P. Machine & Steel Fabrication Inc. ("R.L.P.") applies for a declaration that the purported assignment of Canadian patent number 2,001,469 ("469 Patent") from Nor-Equip Mfg. Inc. ("Nor-Equip") to Walter DiTullio dated May 21, 1993 is and always has been null and void. The patent in question is entitled "Mill Hole Liner Ring Connector Assembly". The issue in this application is the ownership of the patent.

[2]                 The Applicant brings this application pursuant to Rule 301 of the Federal Court Rules, 1998, section 20 of the Federal Court Act, R.S.C. 1985, c. F-7 and section 52 of the Patent Act, R.S., c. P-4. The Applicant seeks the following relief:

1. A declaration that the purported assignment of Canadian Patent Number 2,001,469, titled "Mill Hole Liner Ring Connector Assembly" (hereinafter referred to as the "‘469 Patent"), from Nor-Equip Mfg. Inc. to Walter DiTullio, dated May 21, 1993 is and always has been null and void.

2. A declaration that, as of April 28, 1994, the beneficial owner of the full right, title and interest in and to the ‘469 Patent has been and now is the Applicant, R.L.P. Machine & Steel Fabrication Inc.

3. An order pursuant to Section 52 of the Patent Act that the entry in the records of Patent Office with respect to the ‘469 Patent be varied to delete and cancel the recordal of the purported assignment of the ‘469 Patent from Nor-Equip Mfg. Inc. to Walter DiTullio dated May 21, 1993 and made effective as of October 17, 1990 and to enter the assignment of the ‘469 Patent from Nor-Equip Mfg. Inc. to the Applicant as of April 28, 1994.

4. A mandatory injunction requiring Walter DiTullio to assign the ‘469 Patent to the Applicant made effective as of April 28, 1994.

5. A permanent injunction restraining the Respondent, Walter DiTullio, from representing to others that he is the owner of the ‘469 Patent and that the Applicant is infringing the said patent.

6. Costs of this Application on a solicitor and client scale.

FACTS

[3]                 R.L.P. is a corporation incorporated pursuant to the laws of Ontario and has a principal place of business in Timmins, Ontario. Steven Symes is the President of R.L.P. He is also the President of 910609 Ontario Inc., operating as Colombia Chrome ("Colombia").

[4]                 The Respondent, Walter DiTullio, incorporated Walter's Welding and Fabrication Limited ("Walter's Welding") on June 30, 1980. In 1989, he changed the name of the company to Nor-Equip.

[5]                 Nor-Equip applied for the 469 Patent on October 25, 1989. The named inventor, Pertii Raty, was employed as a consultant by Nor-Equip. He was paid for his work. Mr. Raty assigned his interest in the 469 Patent to Nor-Equip. The 469 Patent was issued on May 17, 1994 in the name of Walter DiTullio, pursuant to a back-dated assignment agreement filed in the Patent Office in 1993. DeTullio signed on behalf of both the assignor and assignee.

[6]                 Prior financing agreements made by Walter's Welding and Nor-Equip are relevant to the question of ownership of the 469 Patent. On December 3, 1986, Walter's Welding executed a security agreement with the Federal Business Development Bank ("FBDB") for a loan in the amount of $270,000. This security agreement provided for a charge over certain property of the company, including a charge on patents. In January, 1989, Nor-Equip obtained another loan of approximately $120,000 from the FBDB. The second FBDB security agreement was on the same terms, insofar as patents are concerned, as the 1986 agreement.

[7]                 At the end of 1989, Nor-Equip was in fairly serious financial trouble. In March of 1990, the company obtained a third loan for $500,000 from the FBDB to finance the purchase of equipment. This security agreement contained the same terms concerning patents as the first FBDB security agreement. According to the financial statements as of March 30, 1990, the "patent" was listed as having a value of $4,158.00 and was considered to be an asset of some value to the company.

[8]                 Mr. DiTullio says that it was during this period of financial difficulties that he assigned the application for the 469 Patent from his company to himself. He says that the FBDB had no real concern about the removal of this asset from its security agreement.^[1]

[9]                 In 1990, 913418 Ontario Inc. operating as Nor-Equip (1990) was established with Mr. DiTullio's daughter as the sole shareholder.

[10]            Nor-Equip continued to have financial difficulties in 1991. Mr. DiTullio met Mr. Symes in January or February of 1991. Mr. DiTullio retained Mr. Symes and relied on his experience as a trustee in bankruptcy and accounting to re-organize Nor-Equip and negotiate with its creditors. From March 1991 to October 1992, Mr. Symes charged Mr. DiTullio approximately $37,500 in consulting fees.

[11]            Mr. Symes is a controlling partner in Huron Associates, a partnership which established Columbia and R.L.P. In May 1991, Huron Associates and Columbia took control of Nor-Equip (1990). From this date until November 1992, Mr. DiTullio was employed by Nor-Equip (1990) as General Manager.

[12]            In late 1990 or early 1991, the Toronto Dominion Bank discovered that a second Nor-Equip Company had been established. That bank then sent out notices to the creditors of Nor-Equip to pay the bank directly, as it assumed that the assets of Nor-Equip had been assigned to Nor-Equip (1990). Mr. Symes went to the Toronto Dominion Bank and gave his personal assurances that the Nor-Equip debt would be repaid. Then Mr. Symes commenced negotiations with the FBDB to try to effect a re-organization of the Nor-Equip companies. The business plan written by Mr. Symes states that Nor-Equip held patents on the Mill Hole and as a result, had no competition in this area.^[2]

[13]            In the meantime, on October 17, 1990, the assignment of the United States Patent Application from Nor-Equip to DiTullio for the 469 Patent was executed. The assignment was reported by the United States Patent and Trade-mark Office on November 4, 1991.

[14]            In June 1992, Mr. Symes heard rumours that Mr. DiTullio intended to start his own business, making and selling mill holes in accordance with the 469 Patent, and that he was planning to assign the 469 Patent from Nor-Equip to himself. On June 30, 1992, Mr. Symes asked Mr. DiTullio to sign a letter that confirmed that Nor-Equip or Nor-Equip (1990) owned the patent. Mr. DiTullio signed that letter.

[15]            Subsequently, Mr. DiTullio claimed that the letter was signed under duress, that is in circumstances where Mr. DiTullio and his wife were led to believe that they would lose their jobs with Nor-Equip (1990). Mr. DiTullio also alleges that Mr. Symes drafted the letter and did not provide Mr. DiTullio or his wife with an opportunity to review it.

[16]            At the time when this letter was signed, the application for the 469 Patent was in the name of Nor-Equip. After Mr. DiTullio had been laid off by Nor-Equip (1990) in November 1992, he was alerted to the fact that the letter of June 30, 1992 had been registered in the Patent Office, in Canada, in April 1993. Once he became aware of these facts, Mr. DiTullio signed the written assignment to himself from Nor-Equip on May 21, 1993.

[17]            The financial situation did not improve for Nor-Equip. In 1993 the FBDB took steps to collect the monies owed to it. By an agreement dated January 14, 1994, Columbia acquired all of the security agreements, security interests and indebtedness held by the FBDB in respect of Nor-Equip. When Columbia purchased the security agreements from the FBDB, Nor-Equip had been in default for at least four years under its loans to the FBDB. The loans total $1,200,000.00. Acting under the terms of the FBDB security agreements, Columbia began selling the assets of Nor-Equip to third parties. In return for a waiver for the need to present a demand for payment and the requirement for notice to be given of a sale of the collateral under the FBDB security agreements, the FBDB released Mr. DiTullio and his wife from personal guarantees they had given to the FBDB.

[18]            On April 28, 1994, Columbia sold Nor-Equip's interest in and to the 469 Patent to R.L.P.

[19]            By 1996, Mr. DiTullio had established a new company, that is Nor-Fab. In 1996, solicitors for Nor-Fab wrote to R.L.P. alleging that R.L.P. was infringing the 469 Patent. This dispute was settled when the main purchaser of the mill hole products indicated that it would purchase from both Nor-Fab and R.L.P. Nor-Fab ceased to threaten infringement at that time.^[3]

[20]            In 1999, Mr. DiTullio was advising customers of R.L.P. that mill hole segments purchased from R.L.P. infringed the 469 Patent and that he was the owner of the 469 Patent.

[21]            In May 1999, Mr. Symes had patent agents search the Patent Office file. He was then advised that the 469 Patent had been assigned to Mr. DiTullio personally.

[22]            On June 1, 1999, this proceeding was commenced upon the filing of a Notice of Application.

ISSUE

[23]            The application raises the question of ownership of the patent

APPLICANT'S SUBMISSIONS

[24]            The Applicant argues that the issue is ownership. It says that it is open to this Court to determine competing priorities to the 469 Patent and conclude that this Applicant is the rightful owner of the 469 Patent.

[25]            The Applicant submits that this Court is authorized to look at the various contracts which were made, particularly the contracts by which the FBDB sold its security interests to Columbia Chrome and the subsequent contracts by which Columbia Chrome sold the 469 Patent to the Applicant. The Applicant urges the Court to follow the decisions in Love v. Claveau, [1990] 1 F.C. 64 (T.D.) and Saskatchewan Economic Development Corp. v. Westfalia DME Inc., (1993), 46 C.P.R. (3d) 322. The Applicant submits that the decision in Engineering Dynamics Ltd. v. Joannou (1996), 122 F.T.R. 174 is not binding because it is a decision of a prothonotary.

RESPONDENTS' SUBMISSIONS

[26]            The Respondent^[4] argues that this Court is without jurisdiction to grant the relief sought since the question of ownership of the patent requires an interpretation of the various contracts referred to above and those contracts contain specific jurisdiction clauses, stating that the contracts are to be interpreted in accordance with the laws of Ontario, not Canada.

[27]            Second, the Respondent argues that the chain of title does not show that the Applicant is the owner of the patent.

[28]            Finally, the Respondent submits that the Applicant is guilty of laches in pursuing its claim and on that basis, the application should be dismissed.

ANALYSIS

[29]            The statutory bases for this application are section 20 of the Federal Court Act and section 52 of the Patent Act.

[30]            Section 20 sets out the jurisdiction of the Federal Court in matters involving intellectual property. Section 20 provides as follows:

[31]            Section 52 of the Patent Act provides as follows:

[32]            As is well known, the Federal Court of Canada is a statutory court, vested with the jurisdiction conferred on it by statute.

[33]              In ITO-Int'l Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1 S.C.R. 752, the Supreme Court of Canada stated at page 766 that jurisdiction of the Federal Court depends on these elements:1.            There must be a statutory grant of jurisdiction by the federal Parliament.

2.             There must be an existing body of federal law which is essential to the disposition of the case and which nourishes the statutory grant of jurisdiction.

3.             The law on which the case is based must be "a law of Canada" as the phrase is used in section 101 of the Constitution Act, 1867.

[34]            The statutory grant of jurisdiction here is found in section 20 of the Federal Court Act. The "law of Canada" upon which the case is based is the Patent Act . However, the Applicant has not shown that there is an existing a body of federal law which is essential to the disposition of this case.

[35]            The Applicant is seeking a declaration of ownership of the patent. It claims to be the owner of the patent but can only refer to a series of contracts in support of its claim. It is necessary for a court to interpret those contracts to determine if indeed the Applicant acquired ownership of the patent in issue. This Court has no inherent jurisdiction to adjudicate upon private contracts which are not otherwise within its jurisdiction.

[36]              In my opinion, the situation here is analogous to the one considered by Prothonotary Morneau in Engineering Dynamics Ltd. v. Joannou, supra. I adopt, as well, the remarks of Justice Simpson in Lawther v. 424470 B.C. Ltd. (1995), 60 C.P.R. (3d) 510 at pages 511-12 as follows:In my view, the determination of this contractual issue will dictate ownership of the patent and the appropriate relief in respect of the patent. For this reason, I have concluded that this is primarily a case in contract and that the patent issues are ancillary. Accordingly, this court is without jurisdiction. The plaintiff should pursue his right in the Supreme Court of British Columbia. As Mr. Justice Dubé noted in Laurin v. Champagne (1991), 38 C.P.R. (3d) 193, at p. 196, 49 F.T.R. 280; 29 A.C.W.S. (3d) 538 (T.D.), the plaintiff may apply to this court in the future to vary the registration of the Assignment should such an application be required.

[37]            The Applicant's argument, in the present case, that this Court has the jurisdiction to determine priorities between competing claims to the 469 Patent is, in my opinion, misplaced and designed to distract attention from the primary issue which is ownership of the 469 Patent. The evidence is that the Respondent claims to be the owner of the Patent, not that it has a prior claim to it. The 469 Patent was assigned to the Respondent by Columbia in 1994 and the assigned was registered.

[38]            In my opinion, the validity of that assignment, for the purpose of determining ownership, can be determined only upon interpretation of the various contracts referred to above and particularly, the security agreements made between Walter's Welding and Nor-Equip and the FBDB and the subsequent purchase by Columbia Chrome of those security agreements by the FBDB

[39]            The interpretation of these various contracts requires the interpretation and application of provincial law, including Ontario's Personal Property Security Act, R.S.O. 1990, c. P.10. This Court is without jurisdiction to interpret and apply provincial law.

[40]            In my opinion, the decision of this Court in Love v. Claveau, supra, is not determinative of this application. In that case, the Court was addressing the issue of whether section 52 is limited to the patent which has been issued or whether it is broad enough to include any entry relating to a pending application for a patent.

[41]            In the present case, the issue is ownership of the 469 Patent and that depends upon interpretation of various contracts, including those made by the Applicant and the Respondent with third parties who are not before this Court.

[42]            Reliance by the Applicant upon the decision in Saskatchewan Economic Development Corp. v.Westfalia DME Inc., supra, likewise does not assist it because the Court in that case was dealing with an application for an injunction, not with the merits of the claim.

[43]            As for the issue of laches raised by the Respondent, in my opinion this is not determinative of this application. The only issue here is that of ownership of the Patent. That arises from the chain of title which depends upon the interpretation of a series of contracts. The interpretation of these contracts is not within the jurisdiction of the Court.

[44]            In the result, the application is dismissed with costs to the Respondent. The Applicant is at liberty to seek relief

from this Court in the matter of varying the registration of the 469 Patent should such an application be required.

                                                                                            "E. Heneghan"                

                                                                                                      J.F.C.C.                   

OTTAWA, Ontario

March 27, 2001

                          FEDERAL COURT OF CANADA

                                       TRIAL DIVISION

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                   T-961-99

STYLE OF CAUSE:R.L.P. MACHINE & STEEL FABRICATION INC.                                                                  v.WALTER DITULLIO ET AL.

PLACE OF HEARING:                                   TORONTO

DATE OF HEARING:                                     OCTOBER 27, 2000

REASONS FOR ORDER OF HENEGHAN, J.

DATED:                      MARCH 27, 2001

APPEARANCES:

CAROL HITCHMAN                                     FOR THE APPLICANT

WILLIAM MAYO

ROBERT YU                                                FOR THE RESPONDENT

                                                                              WALTER DITULLIO

SOLICITORS OF RECORD:

HITCHMAN & SPRIGINGS                         FOR THE APPLICANT

TORONTO

EVANS, BRAGAGNOLO & SULLIVAN FOR THE RESPONDENT

TIMMINS                                                              WALTER DITULLIO