Co-written with Emily Papsin
The Federal Court (per Zinn J.) set aside a decision by the Commissioner of Patents (“Commissioner”) refusing to reinstate Matco Tools Corporation’s (“Matco”) patent application which had been deemed abandoned for failure to pay maintenance fees. The Court found that the Commissioner did not conduct the requisite two-stage inquiry to assess whether “due care” was exercised by Matco and its agents to avoid such failure.
Matco Tools Corporation v. Canada (Attorney General), 2025 FC 118
Background
On June 17, 2020, Matco filed Canadian patent application no. 3,086,194 (“the 194 Application”) through the PCT route, which became subject to maintenance fees under Canadian law.
Three entities manage Matco’s Canadian patent portfolio: 1) a Canadian patent agent of record (“Canadian Agent”) that receives instructions only from US counsel, but is explicitly prohibited from dealing with maintenance fees; 2) a US law firm (“US Counsel”) who was instructed “to take no further action in these matters with regard to payment of annuities and maintenance fees;” and 3) a third-party service provider that exclusively deals with maintenance fee payments.
Matco changed its third-party service provider in 2021. During that transfer, a data migration error resulted in parts of the patent portfolio not being imported, including the 194 Application. The new third-party service provider, Dennemeyer Group (“DG”), informed Matco’s Vice President of Intellectual Property (“VP”) in a reporting email, that the previous provider’s data had been imported successfully. While the reporting email included an attachment referring to cases not imported (one of which included the 194 Application), identifying information of those unimported cases was not included in the body of the reporting email. The email also did not mention any potential consequences associated with non-importation even though knowledge of consequences would have been obvious had the VP noted the error mentioned in the attachment.
On January 4, 2022, the Canadian Agent sent a reminder to US Counsel of the approaching maintenance fee due date of January 8, 2022. US Counsel, in its response, confirmed that DG would handle those fees. Further, in February 2022, the Canadian Agent sent to US Counsel a maintenance fee notice (“Notice”) they had received from CIPO indicating non-payment of the maintenance fees for the 194 Application. US Counsel ultimately took no action given the client’s explicit instructions to not deal with annuity payments and maintenance fees. Matco ultimately did not receive the Notice in a timely manner.
In August 2022, CIPO sent a letter to the Canadian Agent stating that the 194 Application was deemed abandoned for non-payment of maintenance fees. The Canadian Agent then forwarded this letter to US Counsel, who subsequently informed Matco. US Counsel also had independently identified in early August 2022 that the 194 Application’s fees had not been paid by the initial deadline of January 8, 2022, nor within the six-month grace period that ended on July 8, 2022.
On December 13, 2022, Matco, through its Canadian Agent, requested that the Commissioner reinstate the 194 Application explaining that its failure to pay its maintenance fee was due to “unforeseen error”. On May 8, 2023, the Commissioner indicated its intention to refuse reinstatement and invited Matco to provide further information, which Matco did on June 7, 2023. This new information included an affidavit from the VP outlining the specifics of the importation error and subsequent failures in communication between relevant parties.
The Commissioner’s Decision
On December 6, 2023, the Commissioner refused to reinstate the 194 Application, concluding that Matco had failed to meet the “due care” standard in paragraph 73(3)(b) of the Patent Act. The 194 Application was deemed abandoned as of July 11, 2022. The Commissioner described the two-part test for assessing “due care” as: 1) whether the applicant took all measures in a reasonably prudent manner, and 2) whether, despite taking those measures, the failure nevertheless occurred. The Commissioner applied this test to three aspects of the evidence.
The first aspect was related to the migration error. While the Commissioner acknowledged that the migration error initiated the chain of events leading to the abandonment, the Commissioner determined that this error was “not relevant” in the due care analysis. The Commissioner reasoned that abandonment could have been prevented had the Commissioner’s original Notice been handled properly. The second aspect was related to communication process’ deficiencies. The Commissioner held that satisfactory explanation was not provided for US Counsel’s failure to forward the Notice to Matco, especially given its importance as the Notice was a final warning before abandonment would occur. Regarding the third aspect, the Commissioner held that Matco had failed to show that it had implemented key safeguards to prevent institutional shortcomings in Matco’s organizational structure and procedures.
The Commissioner in its refusal order reasoned that the “due care” standard required an assessment of the actions of all involved parties, not just of the Applicant. The Commissioner stated that applicants must either possess the necessary knowledge and manage their patents independently, or effectively supervise qualified third parties to do so.
Issue and Standard of Review
The reasonableness of the Commissioner’s decision was the only issue to be decided, which in turn depended on “the Commissioner’s analysis of the “due care” required to reverse a deemed abandonment.” The Court adopted reasonableness as the standard of review.
Law and Argument
The Court agreed with Taillefer[1] that the core question in assessment of the “due care” standard was whether the applicant took “all measures that a reasonably prudent [applicant] would have taken, given the particular set of circumstances to avoid the failure – and despite taking those measures – the failure nevertheless occurred”.
The Court explained this assessment of the “due care” standard as a two-stage inquiry. According to the Court, in the first stage of inquiry, the Commissioner must find the “Proximate Cause” for the failure to pay maintenance fees. The second stage of inquiry should then ascertain if due care was “taken by either or both the Applicant and its representative to avoid the Proximate Cause”. In this two-stage inquiry, if the Commissioner finds that due care was taken to avoid the Proximate Cause, the Application should be reinstated. If due care was not taken to avoid the Proximate Cause, the inquiry moves on to whether due care was taken afterwards to mitigate the effect before abandonment, and if due care was exercised later at that stage, reinstatement may still be justified. Otherwise, the application should remain abandoned.
The first stage of inquiry
The Court held that examination of the circumstances of the Proximate Cause was a vital element of the “due care” analysis, and that failure to do so in the present case meant that the Commissioner did not undertake the two-stage inquiry properly. Particularly, the Court disagreed with the Commissioner’s conclusion that the initial data-migration error was not relevant in the due care assessment. The Court held that the initial migration error was the Proximate Cause for the eventual deemed abandonment of the 194 Application, as the maintenance fee would have been paid if the error had not occurred. The Court thus found the Commissioner’s refusal order to be deficient and unreasonable.
The Court noted the importance of post-Notice diligence per International and Canadian guidelines, but clarified that the due care analysis should still consider if earlier oversights were preventable through prior due care. However, the Court observed that there was no contradiction in considering both the initial error (the Proximate Cause) and subsequent failures to respond to the Commissioner’s notice in the due care assessment. The Court held that a thorough due care inquiry should encompass the entire chain of events from the root cause to the final chance for correction.
The second stage of inquiry
The Court found that the Commissioner’s finding that “[no] explanation [had] been provided as to why the Notice was not forwarded to the applicant” overlooked key facts and was not supported by the evidence. The Court observed that the Canadian Agent had promptly forwarded the Notice to the US Counsel, their instructing party, thereby completing their expected duty. Similarly, the Court found the Commissioner’s claim of “no explanation” to be inaccurate. US Counsel had strict instructions that the maintenance fee payment was to be dealt by DG alone, reasonably expected DG to handle fee payments, and was unaware of the migration error.
The Court held that the Commissioner had the authority to assess the conduct of all parties involved to determine if due care was exercised. However, in the present case, the Court found the Commissioner’s approach to be unbalanced, since the Commissioner had faulted US Counsel for not forwarding the Notice despite their lack of authorization to handle maintenance fees and had overlooked DG’s role in the Proximate Cause. According to the Court, the Commissioner should have considered whether DG’s email to Matco was clear about non-imported cases not being paid, whether DG followed up on the email, and whether Matco’s VP reviewed it with due care. The Commissioner had not addressed these factors, which the Court found to be crucial in determining whether due care was exercised.
Conclusion
The application was allowed, and the Commissioner’s decision was set aside. Matco was allowed to provide further information ahead of the redetermination of the issue to address points raised in this decision, specifically regarding whether due care measures were in place to prevent the initial migration error, and the communication breakdown that occurred afterwards.
[1] Taillefer v. Canada (Attorney General), 2024 FC 259.