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Edmonton property sale washes away patent rights

An interesting question arose in a recent case before the Alberta King’s Bench Court: Can a patent holder prevent the sale of a property that uses their patented design? 

The case involved a truck wash facility called “Wash Factory” in Edmonton, operated by 2093924 Ontario Inc. MNP Ltd. was appointed as the Receiver of 209 on a consent basis by court order. The Receiver sought the Court’s approval to sell 209’s assets to Klair Group Industries Ltd. However, 1643434 Alberta Ltd. opposed the sale of the Wash Factory to its competitor, Klair Group, by claiming to hold a patent incorporated into the Wash Factory facility.

209 acquired the Wash Factory facility from 164 in 2016. The facility was designed and operated following a “3 Door Car Wash Design,” which was the subject of Canadian patent 2,767,610. The patented design and layout were physically incorporated into the building, making it “practically impossible” to separate it from the structure. A licensing agreement was signed between 209 and Slazs Investments Ltd. in 2017 to address incorporating the patented design into the facility. The agreement granted 209 a non-exclusive license to use the patented design but also included restrictions on the assignment or sub-licensing of these rights.

The Court had to address whether 164’s patent could prevent the sale of the Wash Factory to Klair.

The Court’s analysis of the patent issue focused on the doctrine of patent exhaustion. This principle holds that a patentee loses the right to restrict use after the first authorized sale of a patented item. The Court found that this doctrine applies to land and facilities by concluding that 164’s right to control the patented facility was exhausted when it sold the property to 209 in 2016. The Court stated:

Where the intellectual property protected by a patent has been incorporated into a parcel of land, a patentee who sells that land must impliedly renounce the exclusive right to use and sell the invention with respect to that land. After the first sale, the monopoly conferred by a patent must yield to common law principles against restraints on alienation.

Importantly, the Court noted that since “patent exhaustion is an affirmative defence, it must be asserted and proven by the defendant”. Moreover, the Court noted that the licensing agreement did not restrict the outright sale of the facility. In its ruling, the Court declared that 164’s patent rights were exhausted and did not prevent the sale to Klair.

The full decision can be read here.

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