Innotech Pty. Ltd. v. Phoenix Rotary Spike Harrow Ltd., docket T-1455-93

                                             T-1455-93

BETWEEN:

     INNOTECH PTY. LTD.

                                             Plaintiff

     - and -

     PHOENIX ROTARY SPIKE HARROW LTD.

     BRIAN READ and

     SELECT INDUSTRIES LIMITED

                                             Defendants

     REASONS FOR ORDER

JEROME, A.C.J.:

     This is an application by the plaintiff for an order pursuant to Rule 419(1)(a) of the Federal Court Rules striking out portions of the Amended Counterclaim of the defendant Phoenix Rotary Spike Harrow Ltd., filed on February 4, 1994.

BACKGROUND

     The plaintiff commenced an action in this Court on June 15, 1993, alleging that the defendants were infringing its Canadian patent no. 1,305,628, relating to tool elements, elongated ground working tools, and ground working implements for working and cultivating land. The Statement of Claim states in part:

8. Subsequent to the date of issue of the Patent, the Defendant Phoenix, without a licence from or the consent of the Plaintiff, knowing of the Patent and its contents, for its own ends and benefit, has:

(a) imported into Canada;

(b) manufactured, or caused to be manufactured by the Defendant Select, in Canada;

(c) used in Canada;

(d) offered for sale and sold to persons in Canada and for export to the United States; and

(e) by such offering for sale and sales, induced others to use in Canada

tool elements, elongated ground working tools and ground working implements for cultivating and working land.

9. The Defendants Phoenix and Read attempted to copy and eventually did copy the Plaintiff's tool elements, elongated ground working tools and ground working implements as claimed in the Patent.

10. The tool elements, elongated ground working tools and ground working implements described in paragraph 8 herein incorporate the inventions claimed in each of claims 1 to 19 of the Patent, and the Defendants Phoenix, Read and Select knew this at the times the Defendants Phoenix, Read and Select engaged in the activities described in paragraph 8 hereof.

11. By reason of the facts pleaded herein, and the provisions of the Patent Act, the Defendant Phoenix has:

(a) directly infringed each of claims 1 to 19 of the Patent by manufacturing, constructing, importing, using and selling to others to be used the tools as described in paragraph 8; and

(b) indirectly infringed each of claims 1 to 19 of the Patent by inducing others to use the tools described in claims 1 to 19 of the Patent by offering to sell and selling the tools as described in paragraph 8.

12. Subsequent to the date of issue of the Patent, the Defendant Select, without a licence from or the consent of the Plaintiff, knowing of the Patent and its contents, for its own ends and benefit has manufactured and constructed in Canada and offered for sale and sold to persons in Canada tool elements, elongated ground working tools and ground working implements for cultivating and working land.

. . .

20. THEREFORE THE PLAINTIFF CLAIMS:

(a) A declaration that each of the claims 1 to 19 of the Patent is valid and has been infringed by the Defendants; . . .

     The defendant Phoenix Rotary Spike Harrow Ltd. filed a Statement of Defence and Counterclaim, alleging that it is an agent for Phoenix Industries (Singapore) Pte. Ltd., who has a license from the plaintiff to manufacture and sell the farm tools in question, and that the plaintiff has breached the license agreement.

     The plaintiff filed a Reply to and Defence to Counterclaim of the Statement of Defence and Counterclaim of Phoenix Rotary Spike Harrow Ltd. which stated in part:

1. The Plaintiff denies that there is any licence agreement between the Plaintiff and the Defendant Phoenix Rotary Spike Harrow Ltd. ("Phoenix").

2. The Plaintiff entered into a licence arrangement with Singapore Pte. Ltd. ("the Singapore company"), but the licence to the Singapore company was terminated as of December 4, 1991 for failure of the Singapore company to pay royalties and to provide proper statements.

3. The Singapore company did not grant to the Defendant Phoenix any sub-licence.

4. In the alternative, if a sub-licence were granted by the Singapore company to the Defendant Phoenix such licence terminated as of December 4, 1991 pursuant to the termination of the licence agreement between the Plaintiff Innotech and the Singapore company. Neither the Singapore company nor any of the Defendants, including the Defendant Phoenix, has made any royalty payment to the Plaintiff or provided any statement subsequent to a royalty payment in May, 1992 regarding sales taking place prior to termination on December 4, 1991 and within a six-month run-down period immediately following termination on December 4, 1991.

     The plaintiff now seeks to have the defendant's Counterclaim struck out on the grounds that the only claim made therein is that the plaintiff has breached the license agreement and the defendant has been adversely affected by the breach. It is submitted that this Court does not have jurisdiction to consider an alleged claim for breach of a license where the contractual issue is not merely incidental to other issues before the Court.

     The Amended Counterclaim of Phoenix Rotary Spike Harrow Ltd. states:

1. The Plaintiff by Counterclaim repeats the allegations in its Statement of Defence.

2. The Plaintiff by Counterclaim states that it is an agent for Phoenix Industries (Singapore) Pte. Ltd. and that Phoenix Industries (Singapore) Pte. Ltd. has a valid license with the Defendant by Counterclaim and that the Defendant by Counterclaim has breached the license granted to Phoenix Industries (Singapore) Pte. Ltd. by:

(a) attempting to sell the rights under the license to others;

(b) advising customers or potential customers of the Plaintiff by Counterclaim      that the Plaintiff by Counterclaim's license has been revoked or terminated; and

(c) advising customers or potential customers of the Plaintiff by Counterclaim      that they should not doe [sic] business with the Plaintiff by Counterclaim.

3. The Plaintiff by Counterclaim states that these actions by the Defendant by Counterclaim have adversely affected the Plaintiff by Counterclaim's ability to do business. The Plaintiff by Counterclaim states that it has lost earnings and profits as a result of these actions by the Defendant by Counterclaim.

WHEREFORE THE PLAINTIFF BY COUNTERCLAIM CLAIMS:

(a) a declaration that the license granted to Phoenix Industries (Singapore) Pte. Ltd. by the Defendant by Counterclaim is valid and subsisting and that the Plaintiff by Counterclaim is acting appropriately under that license;

(b) a permanent, interlocutory and interim injunction restraining the Defendant by Counterclaim, its officers, directors, employees or any other person under its control from dealing with the license and the license rights which properly are the property of the Plaintiff by Counterclaim;

(c) a permanent, interlocutory and interim injunction restraining any person who has knowledge of the injunction from buying, accepting or otherwise acquiring license rights;

(d) a permanent, interlocutory and interim injunction restraining the Defendant by Counterclaim, its officers, directors, employees or any other person under its control from advising persons, be they customers or potential customers of the Plaintiff by Counterclaim or not, that the license is revoked or terminated;

(e) a permanent, interlocutory and interim injunction restraining the Defendant by Counterclaim, its officers, directors, employees or any other person under its control from advising persons, be they customers or potential customers of the Plaintiff by Counterclaim or not, that they should not do business with the Plaintiff by Counterclaim;

(f) damages for loss of earnings or profits;

(g) exemplary damages;

(h) prejudgment and post-judgment interest;

(i) costs;

(j) such further and other relief as this Honourable Court may deem just.

ANALYSIS

     Intellectual property disputes which include contractual disagreements are not unusual. Their presence will not preclude the court's jurisdiction, provided the subject-matter of the action primarily concerns a patent, trade-mark, or copyright. In [1941] S.C.R. 242">Kellogg Co. v. Kellogg, [1941] S.C.R. 242 at 249-250, the Supreme Court of Canada made the following comments in this regard:

... the Exchequer Court has no jurisdiction to determine an issue purely and simply concerning a contract between subject and subject ... but here the subject-matter of the appellant's allegation only incidentally refers to the contract of employment ... The allegation primarily concerns the invention alleged to have been made by him and of which the appellant claims to be the owner as a result of the contract and of the other facts set forth in the allegation. The contract and the claims based thereon are advanced for the purpose of establishing that the appellant is entitled both to the rights deriving from the invention and to the issue of a patent in its own name. (emphasis added)

     This principle was applied in R. W. Blacktop Ltd. v. Artec Equipment Co. (1991), 39 C.P.R. (3d) 432 (F.C.T.D). In that case, the plaintiffs filed an Amended Statement of Claim in a patent infringement action alleging the defendants to have breached a buy-out agreement. The defendant applied for an order striking out those portions of the pleading relating to breach of contract and breach of fiduciary duty as being matters over which the Federal Court of Canada did not have jurisdiction. Following a review of [1941] S.C.R. 242">Kellogg, Rouleau J. stated at 439:

In the present case, this is an action for infringement of the plaintiffs' patent. The plaintiffs' allegations relating to breach of contract and breach of fiduciary duty, are not advanced for the purpose of establishing infringement. The subject-matter of the plaintiffs' allegations does not incidentally refer to certain contracts between the parties. Rather, these claims are advanced for the sole purpose of establishing that there was a breach of these contracts. These allegations are not incidental to the cause of action such as to confer jurisdiction on this court per [1941] S.C.R. 242">Kellogg.

     In Asse International, Inc. v. Svenska Statens Sprakresor (1996), 70 C.P.R. (3d) 222 (F.C.T.D.), Nadon J. considered a request to strike paragraphs of a Statement of Claim which were said to raise matters of contract and, thus, were outside the jurisdiction of the Court. In that case, the plaintiffs submitted the allegations were not advanced to establish a breach of contract, but rather in relation to the plaintiffs' claim for punitive damages. Nadon J. stated at para. 14:

I should point out that the Plaintiffs, by their amended statement of claim, do not seek any conclusion against the Defendant with regard to the alleged breach of contract. Thus, it becomes obvious that this action is not an action in breach of contract. It goes without saying that if that were the case, the Federal Court would not have jurisdiction and the statement of claim would have to be struck in its entirety.

     The Statement of Claim alleges that infringement has taken place since these defendants have, without permission or license, used the plaintiff's patent. It is, however, the defendants' contention that their use of the invention was at all times under a valid license. That pleading is central to their defence. It also alleges that it is the plaintiff who has acted in breach of the terms of the license, wherefore it is the defendants who will be entitled to the customary kind of relief granted at trial, be it injunctive or monetary. In my opinion, the Counterclaim does no more than particularize the basis of the grievance claimed by the defendants. The license which forms the basis of the Counterclaim is the same one that forms the basis of the defence of non-infringement.

     It would therefore be inappropriate to microscopically sever the one pleading from the other. The plaintiff's application is therefore dismissed. Costs in the cause.

O T T A W A

March 18, 1997                      "James A. Jerome"

                             A.C.J.