IP monitor: Federal Court quashes Commissioner of Patent’s decision and calls for a robust “due care” analysis for patentees

In a recent decision, Matco Tools Corporation v. Canada (Attorney General), the Federal Court has overturned a Commissioner of Patents (the Commissioner) decision regarding a patent applicant failing to meet the “due care” standard in the context of an unpaid maintenance fee. To date, the Commissioner has been holding all parties involved in the patent and patent application processes to a high standard when it comes to due care. The decision in Matco Tools supports that a lower standard for due care may be more appropriate.

The maintenance fee regime and “due care” standard

The maintenance fee regime requires that patentees and patent applicants pay annual maintenance fees to keep their patents and patent applications in good standing. When a maintenance fee is left outstanding and not remedied for six months, a patent will be deemed expired. A patent application will be correspondingly deemed abandoned after the same period.

Canada’s maintenance fee regime was amended in 2019 to comply with the international Patent Law Treaty. Under the amendments, if a maintenance fee is missed, the Commissioner must provide a written notice advising that the patent will be deemed expired (or the application abandoned) if the maintenance fee and a late fee are not paid within a prescribed time.¹

If the patent is deemed expired (or application abandoned), the Commissioner can still reinstate the patent provided that the patentee pays the requisite fees within 12 months after the end of the late fee period, and establishes that the failure to pay the fee “occurred in spite of the due care required by the circumstances having been taken.” ²

In practice, the Commissioner has only found the “due care” standard to have been satisfied in approximately 13% of all reinstatement applications.³ Examples of where “due care” has been met include situations with unforeseeable errors such as internet outages, unexpected deaths, or technical system malfunctions. 

Summary of the facts in Matco Tools

The patent application at issue in Matco Tools (the Application) was drafted by Matco’s US counsel, who instructed a Canadian patent agent of record responsible for the Canadian prosecution. The Canadian patent agent had no direct contact with the client, working only with US counsel. Both US counsel and the Canadian patent agent were given explicit instructions to take no further action in these matters regarding paying annuities and maintenance fees; these fees were to be addressed by a third-party payment provider retained by Matco.

In June 2021, Matco elected to change its third-party payment provider. As part of the resulting migration between providers, an email was sent to Matco summarizing the data transferred to the new provider. While the email noted that Matco’s patent portfolio had been “successfully imported,” one of seven attachments was a “Report with cases not imported.” This report highlighted two patent applications that were not imported because of missing data fields —one of which was the Application in question (the Report).

Matco’s vice president of intellectual property—who was ultimately responsible for overseeing Matco’s patent portfolio—attested that he never saw this Report. As a result, the Application was never imported into the new third-party provider’s database, and for this reason the maintenance fee due for the Application was not paid.

The Canadian agent would go on to forward US counsel a reminder of the due date, as well as the subsequent late fee notice. US counsel, operating under their strict instructions to take no action on maintenance fees, in both cases did not forward these notices to Matco. The Application was eventually deemed abandoned based on the failure to pay the maintenance fee.

The issue was only brought to Matco’s attention during an annual meeting with US counsel shortly after the deemed abandonment. A request for reinstatement was filed but denied by the Commissioner.

Federal Court decision

The Commissioner adopted a two-part test for assessing due care: (1) whether the applicant took all measures that a reasonably prudent applicant would have taken given the particular circumstances to prevent the failure; and (2) whether, despite taking those measures, the failure nevertheless occurred.

The Commissioner held that the migration error was not relevant to the due care analysis since the abandonment could have been remedied by a proper handling of the late fee notice. The Commissioner found there was “no satisfactory explanation” for US counsel’s failure to forward the late fee notice to Matco.

The Federal Court set aside the Commissioner’s decision for being unreasonable. Nothing in the law or guidelines supported excluding the earlier oversight (i.e., the migration error) from the due care analysis. Indeed, the court held that this migration error was the “proximate cause” that led to the deemed abandonment of the Application. 

It is vital for the Commissioner to determine and examine the “proximate cause” as part of the due care analysis. Even if due care is not taken to prevent the “proximate cause,” it may still be appropriate to ask if due care was taken afterward to ameliorate the effect of the “proximate cause.” According to the court: “[a] robust due care inquiry should cover the entire chain of events, from the earliest root cause to the final opportunity for correction.”⁴

The court also held that it was inaccurate on the facts of the record for the Commissioner to find that no explanation was provided on US counsel’s failure to act. US counsel was acting under limited instructions and knowledge in the circumstances.⁵

The court remitted the matter to the Commissioner for reconsideration, with the benefit of further submissions from the applicant, on the due care measures in place to prevent the data migration error and the subsequent communication breakdown.

Key takeaways

The court’s decision supports a broader due care analysis by the Commissioner, which includes the Commissioner considering the entire chain of events leading to the failure to pay the fee.⁶

The Attorney General has appealed this decision to the Federal Court of Appeal (A-42-25). 

The authors would like to thank Chris Black, articling student, for his contribution to preparing this IP monitor.

For more information, please contact your IP professional at Norton Rose Fulbright Canada LLP.

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