In the case of Canadian Energy Services Inc v Secure Energy Services Inc, 2020 ABQB 473, parties on the both sides raised the claims for patent ownership, patent infringement, damages and other remedies but it all ended up in a single summary motion as the Hon’ble Justice M. David Gates found that the claims of the defendant were barred by the limitation period. It is going to be a simple write-up, with first half summarizing the judgment and the second half covering the law of limitation and the fraudulent concealment.
CES v Secure: Facts, Reasoning & Summary ↑
Parties on the both sides have gone through amalgamations, acquisitions and change in name which led to the assignment of ownership rights in the IPRs on both sides. For the sake of simplicity all parties involved on the plaintiff side are referred as CES and all those on the defendant side are referred as Secure.
At the root of this litigation lies two employees Mr. John Ewanek and Mr. Simon Levey. Both were working for what is now known as the Secure Energy. They worked together in 2003 and became inventors for the invention under Canadian patent CA 2508339. All rights were assigned to the then employer Genesis and later to its successor Secure.
The timeline indicates that Ewanek resigned in August 2005 and joined a competitor company (which is now known as CES) in September 2005. Mr. Levey also resigned soon after 2-3 months and took certain lab notebooks with him. In September & October 2005 Ewanek received letters from the previous employer alleging that he had misappropriated confidential information and he/his prospective future business associate will be liable for the infringement.
The language of the letters indicated that Secure didn’t knew what Ewanek had taken with him, these letters seems merely threatening letters. Secure did asked Ewanek to reveal its misappropriated confidential information, if any, which might help the development of a new product in the future.
In October 2006, Ewanek’s new employer, filed a patent application CA2624834 (‘834). The patent application got published in April 2007. In August 2007, a release was executed from the Secure’s predecessor which discharged Ewanek absolutely from all causes of action and liabilities relating to any matter it might have against Ewanek in future.
Levey stated on record that he learnt about this patent application in 2007. Whereas, Secure claimed that it didn’t knew about this patent application until the launch of this infringement suit i.e. February 2018. Basically, Secure contended that it wasn’t aware of the Levey’s possession of the lab notebooks which formed the subject matter of ‘834 patent. Therefore, Secure stood deprived of knowledge of its own proprietary information till 2018. Secure conveniently put the blame on Ewanek, as he was the sole supervisor of Levey and he failed to report about Levey’s work and his lab notebooks.
Hon’ble Justice Gates, summarily dismissed the defence and counterclaims of the Secure holding that there’s no merit in them as the limitation period has been passed to make such claims. His reasons follow:-
- Firstly, the allegations of the misappropriation of confidential information were made in Sept & Oct 2005, placing Secure’s predecessor in the knowledge of the misappropriation.
- Secondly, the patent application ‘834 was published in April 2007. The application publicly named Ewanek as the inventor. Those in the same field could have easily learn about it. Levey knew about this application in 2007 but his previous employer failed to keep itself up to date. Hon’ble Judge held Secure accountable for this reasonable lack of diligence. According to the court threatening letters amounting to suspicions against Ewanek and the fact that he’s a named inventor for ‘834 patent which is similar to ‘339 patent were enough to constitute an enquiry against Ewanek in 2005/2007.
- Thirdly, a public release was made by Secure’s predecessor in Aug 2007 which discharged Ewanek from any liability with respect to any matter it might have in the future.
- 2-year limitation period under S. 3(1)(a) and 10-year limitation period under S. 3(1)(b) were long gone in the light of above factors.
- Secure raised the declaration of ownership as a defense to infringement as well alleged infringement on its basis. Allegation of infringement is an executory or coercive action hence limitation period will be applicable to declaration of ownership. Secure is looking for right to sue for infringement as well. Otherwise if it would have been only declaration of ownership court would not have applied the limitation period.
- The claim of fraudulent concealment against Ewanek also failed because the party alleging such fraud had failed to make reasonable inquiries to discover such fraud. Levey and Ewanek could have been enquired far earlier than 2018.
- Secure easily accessed the lab notebooks lying with Levey in 2018. What stopped the Secure/its predecessor from doing the same in 2005 or 2007? They could have accessed it earlier as well.
- The absence of established fraud allowed the August 2007 release to stay in effect and therefore allegations of breach of confidence also failed against Ewanek.
The above reasons were enough for Hon’ble judge to held that Secure’s defence and counterclaims were without merit.
Fraudulent Concealment and Limitation Period ↑
The Hon’ble Judge dismissed the allegations of fraudulent concealment as Secure failed to raise fraudulent concealment in pleadings and during cross examination of Ewanek.
Section 4(1) of the Limitation act talks about the suspension of 10-year limitation period if the defendant fraudulently conceals a fact of injury. As stated in WP v Alberta, to establish fraudulent concealment for suspension of limitation period: –
“the claimant must show (a) that the defendant perpetrated some kind of fraud; (b) that the fraud concealed the fact of the claimant’s injury; and (c) that the claimant exercised reasonable diligence to discover the fraud.” 1
Secure tried to impose fiduciary duty upon Ewanek which was refused by court as he was a president and not a director of the company. Secure also placed Ewanek’s conduct in question and tried to establish a special relationship between Ewanek and Genesis. Supreme Court in the Pioneer Corp. v. Godfrey, 2019 SCC 42, held that it’s not the special relationship which matters but the conduct which is unconscionable and gives one an advantage over another by such concealment.2 Further limitation period will not be applicable until plaintiff has discovered the material fact (cause of action) or ought to have been discovered by the exercise of reasonable diligence. This is the rule of discoverability. It is based on principles of certainty, preservation of evidence and encouragement of reasonable diligence.3
In CES v Secure, the failure to disclose certain information or not volunteering to provide certain information is not enough for the determination of the fraudulent concealment. The important factor is, if Ewanek’s conduct was deliberate or not? And whether reasonable diligence was made to find the fraudulent concealment?
It leads to more factual questions like, was Ewanek aware of Levey’s notebooks and the work (subject matter of ‘834 patent) in it before or after his own resignation? What information was in the possession of Ewanek? Whether Ewanek intentionally failed to disclose Levey’s work to Genesis? Nevertheless, if Secure is confident that the 2005 lab notebooks of Levey constitute the subject matter of the ‘834 patent, it can still help in invalidating the ‘834 patent.
Lessons from CES v Secure ↑
Following are the lessons from the present caselaw which could have placed Secure in a better position:
- Employees should be placed under an obligation to disclose and surrender the company’s proprietary information or any other material that belongs to the company before leaving.
- It is important to keep an eye on competitor’s information in the public domain especially those competitors where ex-employees are going next to work.
- In the present case no action was taken against Levey, might be if Secure had sued him first for the misappreciation of confidential information, the situation would have been different.
Footnotes
- WP v Alberta, 2014 ABCA 404 (CanLII), par. 34, <http://canlii.ca/t/gffgj#par34>, retrieved on 2020-09-25 ↩
- Pioneer Corp. v. Godfrey, 2019 SCC 42 (CanLII), par. 54, <http://canlii.ca/t/j2hbf#par54>, retrieved on 2020-09-25 ↩
- Id, para 41; para 47: … This Court has recognized that three rationales underlie limitation periods (M. (K.), at pp. 29-31), which courts must consider in deciding whether the discoverability rule applies to a particular limitation period. The first is that limitation periods foster certainty, in that “[t]here comes a time . . . when a potential defendant should be secure in his reasonable expectation that he will not be held to account for ancient obligations”(M. (K.), at p. 29). This concern must be balanced against the unfairness of allowing a wrongdoer to escape liability while the victim of injury continues to suffer the consequences (M. (K.), at p. 29). The second rationale is evidentiary: limitation periods are intended to help prevent evidence from going stale, to the detriment of the plaintiff or the defendant (M. (K.), at p. 30). Finally, limitation periods serve to encourage diligence on the part of plaintiffs in pursuing their claims (M. (K.), at p. 30). ↩