Patent Act

The Patent Act is Canada's federal statute governing patent rights and the government's powers concerning patented inventions. It sits within Canada's wider intellectual-property framework, alongside rules on patentees, licences, royalties and the use of patented inventions.

In federal procurement, the Act matters mainly through section 19. Government guidance identifies it as a legal authority Canada may use in exceptional public-interest circumstances to obtain or use a patented product or invention when market-based licensing or supply arrangements have been exhausted. The CanadaBuys guidance on royalty payments and licence agreements sets out how contracting authorities approach it.

Section 19 of the Patent Act in federal procurement

Section 19 is not a routine buying tool. CanadaBuys describes the use of rights under the Patent Act as appropriate only in exceptional circumstances where the public interest is involved, and only after market-based processes have been exhausted. The guidance discusses it alongside section 22 of the Defence Production Act, which is a separate authority with its own approval requirement.

For most contracts, the Patent Act never becomes an operating consideration. The guidance treats it as a last resort, reached only after a series of ordinary commercial steps have failed.

Steps contracting authorities take before relying on the Act

CanadaBuys directs contracting authorities to follow a sequence before section 19 is even considered:

• Minimize the use of patented products by writing performance specifications rather than product specifications that name a patented item.
• Where a patented product is necessary, explore market-based supply arrangements first. These include licensed production, manufacturing licences, technical-assistance agreements and royalty arrangements.
• Consider section 19 only when those alternatives have been exhausted and exceptional public-interest circumstances exist.

This order of operations means a supplier holding a patent is normally approached through negotiation and licensing, not through the statutory authority.

Approvals and royalty thresholds

The CanadaBuys royalty guidance attaches approval levels to these decisions. Approval of the Assistant Deputy Minister is required before Canada exercises rights under section 19 of the Patent Act or section 22 of the Defence Production Act.

Royalty payments also carry approval thresholds. Royalties of 5% or less of the selling price of a patented item require approval from the Director. Royalties above 5% require Deputy Minister approval before the contract is entered into.

Patents and foreground intellectual property in Crown contracts

The Patent Act can also be relevant indirectly, through intellectual property created under a contract. Treasury Board's policy on intellectual property in Crown procurement defines intellectual property to include creations legally protected through patents, along with copyright, industrial design, integrated-circuit topography and plant breeders' rights. The policy addresses who owns or licenses intellectual property that arises during a government procurement contract, a subject also covered by Innovation, Science and Economic Development Canada.

Departments use supplemental conditions to deal with foreground information, meaning intellectual property first conceived, developed, produced or reduced to practice under a Crown procurement contract. An example is the Immigration, Refugees and Citizenship Canada supplemental conditions on foreground information.

What it means for a supplier bidding on Canadian public contracts

Suppliers should read the solicitation and the contract clauses it incorporates, because the exact obligations depend on them. Depending on the deliverables, a solicitation or contract may require a supplier to:

• identify patented products, inventions or third-party rights relevant to the proposed deliverables;
• provide evidence of licences or other authorization where patented technology is supplied or used; and
• negotiate royalty, manufacturing-licence or technical-assistance terms where those arrangements are needed.

Suppliers that offer a patented product can expect the buyer to pursue licensing and royalty terms before any statutory authority is considered. Bid teams should also check the intellectual-property clauses on ownership and licensing of anything created under the contract.