Remedies in the                      Federal CourtArthur B. RenaudLivia AumandNovember 22, 2012
PresentersArthur RenaudPartner, Ottawa613-786-0202arthur.renaud@gowlings.comLivia AumandAssociate, Ottawa613-786-0112livia...
What we won’t be talking about:• Section 8 damages in PM(NOC) matters• Extraordinary remedies – Anton Piller Orders & Mare...
Outline1.    Remedies providing immediate relief     • Pre-trial injunctions     • Motions to strike2.    Disposition shor...
Outline3.    Equitable relief at/after trial     • Permanent injunctions     • Delivery up     • Accounting and payment of...
1) Remedies providing immediate relief                                         6
Pre-trial injunctionsFour-part test1:1) Does the moving party have a prima facie or at least a fairly     arguable case?2)...
Pre-trial injunctions• Almost never granted in patent cases• Last patent case in which a pre-trial injunction was granted ...
Pre-trial injunctions• However, various Federal Court judges have hinted during CLE  conferences that they may be prepared...
Motions to Strike• The power to strike out claims that have no reasonable  prospect of success is a valuable housekeeping ...
Motions to Strike• Ought to be a defendant’s first consideration• Two main bases:   • claim is beyond Court’s jurisdiction...
2) Disposition short of trial                                12
Default Judgment• Unlike some jurisdictions, absence of a defence in Federal Court  proceedings is tantamount to a denial ...
Summary JudgmentRule 215(1) If on a motion for summary judgment the Court is satisfied that there    is no genuine issue f...
Summary Judgment•    Under pre-2009 Rule amendments, Federal Court appeared reluctant to     grant summary judgment•    In...
Summary Judgment2)   Swamp Mats Inc. and Ronald Harrison et al., 2010 FCA 22•    One of the issues was whether the patente...
Summary Judgment3)   Aga Khan v. Nagib Tajdin et al., 2011 FC 14•    only issue was whether the plaintiff consented to the...
Summary TrialRule 216(3) The Court may make any order required for the conduct of thesummary trial, including an order req...
Summary Trial• The factors to be considered in determining whether a matter is  appropriate for summary trial include7:   ...
Summary Trial• the course of the proceedings;• is the litigation extensive and will the summary trial take  considerable t...
Summary TrialIn Wenzel (2010 FC 966):• The summary trial procedure was found to be an inappropriate   forum to determine t...
Summary trial• The Federal Court has embraced the rule as “one to be used,  not avoided”:1)   Louis Vuitton Malletier S.A....
Summary Trial• Big record with numerous witnesses and competing evidence  [98] In this case, it is my view that summary tr...
Summary Trial2)   Teva Canada Limited v. Wyeth LLC, 2011 FC 1169; rev’d 2012     FCA 141• Issues well defined• Facts clear...
3) Equitable relief at/after trial                                     25
Permanent Injunctions• Section 44 of the Federal Courts Act puts the onus squarely on  the party seeking the remedy to dem...
Permanent Injunctions• Despite ebay10 decision from USSC, Federal Court routinely  grants permanent injunctions• Circumsta...
Delivery Up• Patentee able to request Federal Court to order that all  infringing products in infringer’s possession, cust...
Accounting of Profits• Court has jurisdiction to grant under s. 57(1)(b) of the Patent Act• Serves two equitable purposes1...
Accounting of Profits•   No “Entitlement” to Profits:    • Plaintiff entitled to pursue its legal claim in damages or elec...
Accounting of Profits• Evidentiary Burdens:   • Plaintiff need only prove amount of revenue made from acts of     infringe...
Accounting of Profits• Quantifying the Remedy:   • Three approaches have been advocated:       (1)    Incremental (or diff...
Accounting of Profits1) Differential Cost Accounting Approach• Profits derived from sale of infringing pulsating showerhea...
Accounting of Profits2) Full Costs Absorption Approach• All common costs incurred by infringer, whether related to  manufa...
Accounting of Profits3) Differential Profits Approach• Profits allocated according to the benefit obtained by the  infring...
Accounting of ProfitsMonsanto v. Schmeiser16 (infringement)• Patent covered modified gene/cell that imparted herbicide  re...
Accounting of ProfitsMonsanto v. Schmeiser (remedy)•     Monsanto sought and was granted right to elect between      its d...
Accounting of ProfitsMonsanto v. Schmeiser (remedy SCC)• “Preferred approach” to calculating profits is the differential  ...
Accounting of ProfitsMonsanto v. Schmeiser (aftermath)• Differential profits approach now “preferred”.• Were statements ob...
Accounting of ProfitsMonsanto v. Rivett17 (facts)• No attack on patent validity by defendant.• Defendant aware that SCC ha...
Accounting of ProfitsMonsanto v. Rivett (remedy)• License fee that infringer could have paid is not a measure of  the prof...
Accounting of ProfitsQuantification Formula after Schmeiser / Rivett18• Must be a causal connection between profits made a...
Accounting of ProfitsWhat Constitutes a Non-Infringing Option?• Must be legally available.• Must be shown to have been a u...
Accounting of ProfitsAre Former Approaches to Calculating Profits Gone?• Did Schmeiser take the law on the remedy of the a...
Accounting of ProfitsComparison of Methods                                    Differential Cost        Full Costs         ...
Accounting of ProfitsPractical Consequences:• Hold off making election as long as possible.• Each side ought to collect ev...
Stay of Judgments• Appeal to Federal Court of Appeal does not automatically  suspend operation/enforcement of terms of jud...
Stay of Judgments• Successful patentee can likely avoid any stay from being  granted if it undertakes to make the infringe...
4) Legal remedies available at/after trial                                             49
Reasonable Compensation• Successful plaintiff entitled to “reasonable compensation” (ss.  55(2)) for defendant’s manufactu...
DamagesLost Profits Damages• Both damages and profits calculations will need the occasional  application of the broad-axe•...
Damages• In a marketplace where purchasers had alternatives to the infringer’s  product, the court uses the market share a...
Damages• Damages equal the delta between:  (a) the financial position that patentee would have been in “but  for” the infr...
Damages• Damages are computed on the assumption that infringer would  not have entered the marketplace at all26• Is the av...
Reasonable royalty• Where patentee does not exploit its intellectual property or  cannot prove it would have made the lost...
Punitive Damages• Intended to punish a party for malicious, oppressive, high-  handed, blameworthy conduct30 or marked dep...
Punitive Damages       “Deliberate appropriation of intellectual property does not,       without more, amount to high-han...
Recoverable Costs• Unlike U.S. proceedings, successful party does not have to  make out an exceptional case in order to ob...
Recoverable Costs• Two approaches to awards of costs• First Approach   • The Court Tariffs   • 5 columns reflect degree of...
Recoverable Costs• Second Approach34   • Partial v. substantial indemnity costs   • Deep-pocketed sophisticated litigants ...
Apportionment of costs?• Successful party did not win on all pleaded issues?   • Still entitled to its costs35   • May be ...
Solicitor and client costs• Usually only granted in situations involving litigation  misconduct during or closely related ...
Pre-Judgment Interest• Infringement limited to one province – laws relating to interest  in that province apply• Otherwise...
Pre-Judgment Interest• Simple, not compounded, on award of damages unless  compound interest proven to be an element of th...
Post-Judgment Interest• Infringement limited to one province – laws relating to interest  in that province apply• Interest...
Footnote References1 – RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311    (S.C.C.)2 – R. v. Imperial ...
Footnote References11 – BaxterTravenol Laboratories v. Cutter (Canada), [1983] 2 S.C.R. 388;   Merck & Co. Inc. v. Apotex ...
Footnote References21 – Phostech Lithium Inc. v. Valence Technology, Inc., 2011 FCA 10722 – Novopharm Limited v. Janssen-O...
Footnote References31 - Adobe Systems Incorporated et al. v. Dale Thompson, 2012 FC   1219; Microsoft Corp. v. PC Village ...
Footnote References38 - Microsoft Corporation v. 9038-3746 Quebec Inc., 2007 FC 659;   Aquasmart Technologies Inc. v. Klaz...
Thank You    Arthur B. Renaud                                     Livia Aumand    613-786-0202                            ...
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Remedies in the Federal Court

  1. 1. Remedies in the Federal CourtArthur B. RenaudLivia AumandNovember 22, 2012
  2. 2. PresentersArthur RenaudPartner, Ottawa613-786-0202arthur.renaud@gowlings.comLivia AumandAssociate, Ottawa613-786-0112livia.aumand@gowlings.com 2
  3. 3. What we won’t be talking about:• Section 8 damages in PM(NOC) matters• Extraordinary remedies – Anton Piller Orders & Mareva injunctions• Remedies available in applications for judicial review (writ of certiorari, mandamus)• Interlocutory remedies such as appointing a receiver or compelling witnesses to testify, inspection orders 3
  4. 4. Outline1. Remedies providing immediate relief • Pre-trial injunctions • Motions to strike2. Disposition short of trial • Default judgment • Summary judgment • Summary trials 4
  5. 5. Outline3. Equitable relief at/after trial • Permanent injunctions • Delivery up • Accounting and payment of profits • Stay of judgments4. Legal remedies at/after trial • Reasonable compensation (ss. 55(2)) • Damages ‐ Lost profits damages ‐ Reasonable royalties ‐ Punitive damages ‐ Recoverable costs ‐ Pre/Post judgment interest 5
  6. 6. 1) Remedies providing immediate relief 6
  7. 7. Pre-trial injunctionsFour-part test1:1) Does the moving party have a prima facie or at least a fairly arguable case?2) Will the moving party probably suffer harm that is irreparable if the injunction is not granted (not simply “may” or “possibly” suffer harm)? • “Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other.3) If the moving party satisfies the Court as to the aforementioned points, where does the balance of convenience lie, including the preservation of the status quo?4) Is there a public interest involved that must be taken into consideration? 7
  8. 8. Pre-trial injunctions• Almost never granted in patent cases• Last patent case in which a pre-trial injunction was granted was Carbo Ceramics Inc. v. China Ceramic Proppant Ltd., 2004 FC 1046** • Defendant had no apparent assets in Canada • Defendant brought a motion to be self-represented on the basis that it could not afford counsel (not helpful on the injunction motion) • Injunction granted**The defendant did not seem to advance a non-infringement or invalidity argument at the hearing 8
  9. 9. Pre-trial injunctions• However, various Federal Court judges have hinted during CLE conferences that they may be prepared to revisit the reluctance to grant pre-trial injunctions in appropriate circumstances 9
  10. 10. Motions to Strike• The power to strike out claims that have no reasonable prospect of success is a valuable housekeeping measure essential to effective and fair litigation. It unclutters the proceedings, weeding out the hopeless claims and ensuring that those that have some chance of success go on to trial2.• Striking out claims that have no reasonable prospect of success promotes litigation efficiency, reducing time and cost. The litigants can focus on serious claims, without devoting days and sometimes weeks of evidence and argument to claims that are in any event hopeless3. 10
  11. 11. Motions to Strike• Ought to be a defendant’s first consideration• Two main bases: • claim is beyond Court’s jurisdiction4 • absence of material facts to support cause of action5• High threshold: • Moving party must establish that it is “plain and obvious” that claim is bereft of any possible chance of success6 11
  12. 12. 2) Disposition short of trial 12
  13. 13. Default Judgment• Unlike some jurisdictions, absence of a defence in Federal Court proceedings is tantamount to a denial of all pleaded facts and remedies• After deadline for delivery of a defence has passed, patentee must file a motion for default judgment supported by evidence of rights under a subsisting patent and infringement of those rights• Patent presumed to be valid in the absence of any evidence to the contrary• In the absence of defendant’s participation, patentee can request a reference to determine its lost profits (or the infringer’s profits) and compel the defendant to participate in that process 13
  14. 14. Summary JudgmentRule 215(1) If on a motion for summary judgment the Court is satisfied that there is no genuine issue for trial with respect to a claim or defence, the Court shall grant summary judgment accordingly;(2) If the Court is satisfied that the only genuine issue is: (a) the amount to which the moving party is entitled, the Court may order a trial of that issue or grant summary judgment with a reference under rule 153 to determine the amount; or (b) a question of law, the Court may determine the question and grant summary judgment accordingly.(3) If the Court is satisfied that there is a genuine issue of fact or law for trial with respect to a claim or a defence, the Court may (a) nevertheless determine that issue by way of summary trial and make any order necessary for the conduct of the summary trial; or (b) dismiss the motion in whole or in part and order that the action, or the issues in the action not disposed of by summary judgment, proceed to trial or that the action be conducted as a specially managed proceeding. 14
  15. 15. Summary Judgment• Under pre-2009 Rule amendments, Federal Court appeared reluctant to grant summary judgment• Initial reluctance to grant remedy appears to be softening:1) Atomic Energy of Canada Limited v. Areva NP Canada Ltd. et al., 2009 FC 980• Defendant’s motion to summarily dismiss the action allowed.• Nature of parties’ businesses – sale of nuclear reactors – highly sophisticated.• “Hurried consumer” test inapplicable since there is no such thing as a hurried consumer of nuclear products and services.• Copyright claim summarily dismissed because of uncontradicted evidence of independent creation. 15
  16. 16. Summary Judgment2) Swamp Mats Inc. and Ronald Harrison et al., 2010 FCA 22• One of the issues was whether the patentee had made an enabling disclosure of the subject matter of his invention more than one year before filing his patent application.• Motions Judge had dismissed the defendant’s motion for summary judgment.• On a de novo review, the Court of Appeal reversed the decision below, granted the summary judgment motion and dismissed the action with costs. On the evidence before the Court, the plaintiff’s action was so doubtful as not to deserve consideration by a trier of fact at trial. 16
  17. 17. Summary Judgment3) Aga Khan v. Nagib Tajdin et al., 2011 FC 14• only issue was whether the plaintiff consented to the defendants’ publication of the works.• A defendant has the burden of proving that consent was granted.• Consent not proven. Summary judgment granted to plaintiff. 17
  18. 18. Summary TrialRule 216(3) The Court may make any order required for the conduct of thesummary trial, including an order requiring a deponent or an expert whohas given a statement to attend for cross-examination before the Court.(5) The Court shall dismiss the motion if (a) the issues raised are not suitable for summary trial; or (b) a summary trial would not assist in the efficient resolution of the action.(6) If the Court is satisfied that there is sufficient evidence foradjudication, regardless of the amounts involved, the complexities of theissues and the existence of conflicting evidence, the Court may grantjudgment either generally or on an issue, unless the Court is of theopinion that it would be unjust to decide the issues on the motion. 18
  19. 19. Summary Trial• The factors to be considered in determining whether a matter is appropriate for summary trial include7: • the amount involved; • the complexity of the matter; • its urgency; • any prejudice likely to arise by reason of the delay until conventional trial; • the cost of taking the case forward to a conventional trial in relation to the amount involved (i.e., the concept of proportionality) 19
  20. 20. Summary Trial• the course of the proceedings;• is the litigation extensive and will the summary trial take considerable time;• is credibility a crucial factor – have the deponents of the conflicting affidavits been cross-examined;• will the summary trial involve a substantial risk of wasting time and effort, and producing unnecessary complexity;• and does the application of the rule result in litigating in slices. 20
  21. 21. Summary TrialIn Wenzel (2010 FC 966):• The summary trial procedure was found to be an inappropriate forum to determine the validity of the patent.• Patent trials are inherently complex; the patent required review by expert witnesses.• Given the fixed trial date, a summary trial would increase costs and result in litigation in slices.• The Court also noted the delay in bringing the motion, particularly after the trial date had been fixed. 21
  22. 22. Summary trial• The Federal Court has embraced the rule as “one to be used, not avoided”:1) Louis Vuitton Malletier S.A. et al. and Singga Enterprises (Canada) Inc. et al., 2011 FC 776• Knock-off Louis Vuitton and Burberry products• 3 groups of Defendants: • Singga Enterprises: Vancouver based, cross-Canada distributor • Carnation (Guo): Vancouver based retail store/importer • Altec Productions: Toronto based, cross-Canada distributor• Brought summary trial motion after discovery and extensive private investigations 22
  23. 23. Summary Trial• Big record with numerous witnesses and competing evidence [98] In this case, it is my view that summary trial judgment is appropriate, having regard to all of the evidence and jurisprudence. The British Columbia Supreme Court has itself granted judgment on summary trial in cases of the manufacture, importation, distribution, sale and offer for sale of counterfeit goods, even in cases with multiple defendants, a complex fact pattern, numerous investigations and affidavits, and relatively large damages awards, thereby confirming the appropriateness of doing so.• Over $2M awarded 23
  24. 24. Summary Trial2) Teva Canada Limited v. Wyeth LLC, 2011 FC 1169; rev’d 2012 FCA 141• Issues well defined• Facts clearly set out in the evidence• Evidence was not controversial• No issue of credibility• Although legal question was novel (whether the “doctrine of election” applied), it could be resolved just as easily on motion for summary trial as at trial• Judgment on summary trial granted in favour of defendants• Decision overturned by Federal Court of Appeal – judgment on summary trial granted in favour of the plaintiff 24
  25. 25. 3) Equitable relief at/after trial 25
  26. 26. Permanent Injunctions• Section 44 of the Federal Courts Act puts the onus squarely on the party seeking the remedy to demonstrate the need for a permanent injunction• Only one or two patent decisions in Federal Court in which a permanent injunction was denied: • Named plaintiff was not the proper party/owner of the patent8 • Patent was not being worked in Canada by the patentee9 26
  27. 27. Permanent Injunctions• Despite ebay10 decision from USSC, Federal Court routinely grants permanent injunctions• Circumstances that may convince Federal Court to withhold an injunction: • patent about to expire and result of injunction will cause devastating hardship to defendant and its employees • patentee does not practice the invention in Canada • defendant not a direct competitor of patentee – no adverse affect upon patentee’s ability to profit from the patent • patentee has demonstrated a willingness to license the patented invention • infringing component makes up only a small part of infringer’s product 27
  28. 28. Delivery Up• Patentee able to request Federal Court to order that all infringing products in infringer’s possession, custody or control to be delivered up to patentee• Jurisdiction for such an order resides in section 57 of the Patent Act • Court may make “such order as the judge sees fit”• Order for delivery up routinely granted• Disposition of infringing products between date of release of Court’s reasons and date of issuance of formal judgment amounts to contempt of Court11 28
  29. 29. Accounting of Profits• Court has jurisdiction to grant under s. 57(1)(b) of the Patent Act• Serves two equitable purposes12: (1) a prophylactic purpose to deter wrong-doer and others who may emulate his actions; and (2) a restitutionary purpose to restore to wronged party profit which properly belongs to him but which has been wrongly appropriated by the wrong-doer.• While an accounting of profits might serve to dissuade a defendant from pursuing an improper course of conduct, punishment does not play a role in its award.• As an equitable remedy, its entire rationale is to redress wrongs, not to administer punishment. 29
  30. 30. Accounting of Profits• No “Entitlement” to Profits: • Plaintiff entitled to pursue its legal claim in damages or elect, with leave of the Court, to seek an accounting and payment of the infringer’s profits • No presumption that plaintiff is entitled to an election – trial judge has complete discretion. • Success in action not enough – choice between two remedies not left entirely to successful plaintiff. • Plaintiff bears onus to establish “good reason” to warrant Court’s exercise of discretion in favour of granting remedy13. • Defendant may rely on “disentitling” factors – delay, plaintiff’s unclean hands, plaintiff’s abandonment of market. • If Court grants plaintiff’s election, and plaintiff pursues infringer’s profits, claim to damages is abandoned – plaintiff cannot obtain both remedies 30
  31. 31. Accounting of Profits• Evidentiary Burdens: • Plaintiff need only prove amount of revenue made from acts of infringement. • Infringer must prove the costs incurred to generate this revenue. • Any doubts as to computation of deductions from revenue to be resolved in favour of Plaintiff. • However, application of accounting principles are not to be done in a purely mechanical fashion. • It is open to the Trial Judge to adjust the quantum on a principled basis. 31
  32. 32. Accounting of Profits• Quantifying the Remedy: • Three approaches have been advocated: (1) Incremental (or differential cost accounting) approach. (2) Full costs absorption approach. (3) Differential profits (or comparative) approach. 32
  33. 33. Accounting of Profits1) Differential Cost Accounting Approach• Profits derived from sale of infringing pulsating showerheads to be quantified as follows14: A. Revenue minus plus B.1 Variable expenses directly attributable to infringing units; plus B.2 Any increase in fixed expenses attributable to infringing units units. equals C. Profits to be disgorged.• No part or proportion of any expenditure which would have been incurred had infringing acts not taken place is deductible. 33
  34. 34. Accounting of Profits2) Full Costs Absorption Approach• All common costs incurred by infringer, whether related to manufacture/sale of infringing units, are proportionately deducted from revenue.• Approach has never found favour with Canadian Courts. 34
  35. 35. Accounting of Profits3) Differential Profits Approach• Profits allocated according to the benefit obtained by the infringer derived from its infringement of the IP right• Compare profit attributable to IP right infringed with profit that would have been made had best available non-infringing option been used.• Approach routinely rejected until 200415: “I believe one has to look at the profits the infringer made through the infringing acts, not the profit he would have made had he used a non-infringing option …” 35
  36. 36. Accounting of ProfitsMonsanto v. Schmeiser16 (infringement)• Patent covered modified gene/cell that imparted herbicide resistance to plant – ROUNDUP READY®• To benefit from this technology farmer had to spray herbicide on GM plants.• Benefits include ↑ yields; ↓input costs; agricultural and environmental benefits.• Patent claims to gene/cells themselves – utility not part of claims.• No finding that farmer had sprayed GM crop – hence no benefit.• Farmer nonetheless found to have infringed by making use of “stand by” benefit of technology. 36
  37. 37. Accounting of ProfitsMonsanto v. Schmeiser (remedy)• Monsanto sought and was granted right to elect between its damages and the infringer’s profits – Monsanto elected profits.• Trial Judge applied Teledyne approach (differential costs accounting).• Trial Judge expressly rejected differential profits approach.• FCA affirmed Trial Judge’s exercise of discretion: “If application of accounting principles in a mechanical fashion results in a quantum that does not reflect the economic profit from the infringement … Trial Judge [may] adjust the quantum [if done] on a principled basis. “ 37
  38. 38. Accounting of ProfitsMonsanto v. Schmeiser (remedy SCC)• “Preferred approach” to calculating profits is the differential profit approach.• Only that portion of infringer’s profit which is causally attributable to the invention needs to be disgorged.• A comparison is to be made between defendant’s profit attributable to invention and his profit had he used the next best non-infringing option.• As infringer did not benefit from the invention – no finding that he sprayed crop with herbicide - no causal connection between profits and invention.• Profits arose solely from qualities of crop that could not be attributed to invention.• Profits award reduced to zero. 38
  39. 39. Accounting of ProfitsMonsanto v. Schmeiser (aftermath)• Differential profits approach now “preferred”.• Were statements obiter since case was decided upon lack of causation?• Were statements re: remedy limited to the particular facts of that case?** test case* unsettled validity of subject matter of patent* bona fide challenge to patent validity 39
  40. 40. Accounting of ProfitsMonsanto v. Rivett17 (facts)• No attack on patent validity by defendant.• Defendant aware that SCC had upheld validity of patent.• Defendant admitted that he had sprayed ROUNDUP READY crop with herbicide to fully benefit from invention.• Defendant admitted he made a deliberate decision to infringe rather than pay license fee. 40
  41. 41. Accounting of ProfitsMonsanto v. Rivett (remedy)• License fee that infringer could have paid is not a measure of the profits derived from infringement.• Differential profits approach not limited to particular facts of Schmeiser decision• Fact that these infringers were deliberate infringers without any bona fide challenge to patent validity not a distinguishing factor.• Differential profits approach applied. 41
  42. 42. Accounting of ProfitsQuantification Formula after Schmeiser / Rivett18• Must be a causal connection between profits made and infringement – if none, profits = zero.• Calculate gross profits of infringement (using Teledyne approach tempered by further deductions on a principled basis) – “actual profits”.• Determine if there was a non-infringing option that infringer could have used.• If no non-infringing option, actual profits disgorged and quantification exercise stops.• If non-infringing option available, what gross profits of non- infringement (“hypothetical profits”) would have been made?• Profits to be disgorged is the difference between actual profits and hypothetical profits. 42
  43. 43. Accounting of ProfitsWhat Constitutes a Non-Infringing Option?• Must be legally available.• Must be shown to have been a useful alternative that would have generated profits if used.• Must have been physically available in the marketplace although whether it was actually available to infringer at time to decision to infringe is irrelevant.• Non-infringing option not disqualified as such even if it does not bestow all the benefits of the invention.• Even though onus on infringer to demonstrate availability and utility of non-infringing option, court may consider all sources of evidence to arrive at profits differential. 43
  44. 44. Accounting of ProfitsAre Former Approaches to Calculating Profits Gone?• Did Schmeiser take the law on the remedy of the account of profits in a new direction?• Or, are the principles in Schmeiser/Rivett restricted to biotechnology-based inventions?• Either way, Schmeiser does not definitively close the door on the use by a Trial Judge of other valuation methods better suited to a different set of facts.• Choice from among a number of legally acceptable tests is a matter of Trial Judge’s judicial discretion to be afforded deference.• Clearly, the approach will be preferred when the IP right represents only a part of the ultimate infringing product/process. 44
  45. 45. Accounting of ProfitsComparison of Methods Differential Cost Full Costs Differential Profit Accounting Absorption Approach Approach Approach Revenue $1,000 $1,000 $1,000 Variable Costs (200) (200) (200) Semi-Variable Costs (50) (50) (50) Incremental Profit $750 750 750 Proportion of Fixed Costs (150) (150) Absorption Profit $600 600 Profits net of hypothetical (100) profits** Differential Profit $500 Total Award $750 $600 $500** that would have been earned by the use of a non-infringing alternative 45
  46. 46. Accounting of ProfitsPractical Consequences:• Hold off making election as long as possible.• Each side ought to collect evidence of “unclean hands” by the other side.• Explore issue of availability of non-infringing alternatives in documentary/oral discovery.• If evidence demonstrates that non-infringing alternative was available, assess how that will impact profits award.• Lost profits damages or reasonable royalty available as of right. 46
  47. 47. Stay of Judgments• Appeal to Federal Court of Appeal does not automatically suspend operation/enforcement of terms of judgment• Stays ordinarily difficult to obtain, however will likely be granted by FCA if moving party can establish irreparable harm: • Permanent reputational harm and irreparable “financial consequences if permanent injunction required to be complied with19 • Payment of financial remedies awarded at trial will threaten very viability of infringer’s business and prevent its ability to pursue appeal20 • Infringer would suffer permanent loss of market share and downstream customers would also be affected21 47
  48. 48. Stay of Judgments• Successful patentee can likely avoid any stay from being granted if it undertakes to make the infringer whole should infringer succeed on appeal22• If granted, stays are usually granted on terms: • Undertaking as to damages supported by a bond • Prohibition on distribution of monies to shareholders • Prohibition on unnecessary business expenditures • Expedited hearing date• Unsuccessful patentee likely unable to stay order declaring patent invalid since purpose of a stay is to permit a party to avoid having to do something that order requires it to do23 48
  49. 49. 4) Legal remedies available at/after trial 49
  50. 50. Reasonable Compensation• Successful plaintiff entitled to “reasonable compensation” (ss. 55(2)) for defendant’s manufacture/sale of a device that would have infringed patent claims provided the claims are materially unchanged between laid open publication date and grant date• Language used in ss. 55(2) speaks of “reasonable compensation” rather than “damages sustained” language in ss. 55(1) of the Patent Act• Successful plaintiff not entitled to an award of lost profits damages for the pre-grant laid open period24• “Reasonable compensation” = reasonable royalty 50
  51. 51. DamagesLost Profits Damages• Both damages and profits calculations will need the occasional application of the broad-axe• Patentee’s damages equal the profits it would have earned “but for” the presence of the infringing product in the marketplace• Lost profits calculated on loss of sale of product even if product comprised patented and non-patented components• Exceptionally, Court will consider an apportionment and reduction of patentee’s lost profits when infringer can demonstrate that non-patented features or its new improvements were responsible, in whole or in part, for the sale 51
  52. 52. Damages• In a marketplace where purchasers had alternatives to the infringer’s product, the court uses the market share approach – notwithstanding the presence of acceptable, non-infringing substitutions in the marketplace, the patentee would have captured a proportion of the infringer’s share equivalent to its market share• Lost profits award may include compensation for patentee’s price suppression, loss of convoyed sales, loss of post-patent market share due to pre-patent expiry infringement• If infringer can prove that patentee would not have captured infringer’s sales, no lost profits will be awarded for those sales, only a reasonable royalty25 52
  53. 53. Damages• Damages equal the delta between: (a) the financial position that patentee would have been in “but for” the infringement; and (b) the actual financial position of the patentee caused by infringement• “But for” test leads to the “but for world” – hypothetically, what would have happened in the marketplace if the infringer had not infringed 53
  54. 54. Damages• Damages are computed on the assumption that infringer would not have entered the marketplace at all26• Is the availability to the infringer of non-infringing alternatives relevant to the assessment of patentee’s lost profits damages?• Well-established authority suggests not27• However, infringers continue to argue that defendant’s non- infringing alternatives available to the infringer are also relevant considerations in the “but for” world28 54
  55. 55. Reasonable royalty• Where patentee does not exploit its intellectual property or cannot prove it would have made the lost sale, the appropriate remedy is a reasonable royalty• Court will look at patentee’s past licensing behaviour and historical license rates to determine reasonable royalty• In the absence of such historical license rates, court will look at comparable licenses within the industry• In the further alternative, court will construct a hypothetical negotiation where, in lieu of infringement, infringer and patentee would have negotiated a royalty based upon the infringer’s anticipated profits had it taken a license rather than infringed29 55
  56. 56. Punitive Damages• Intended to punish a party for malicious, oppressive, high- handed, blameworthy conduct30 or marked departure from ordinary standards of decent behaviour• Federal Court has long been willing to find requisite blameworthy conduct in cases involving counterfeiting activities in trade-mark/copyright matters31• Federal Court historically reluctant to award punitive damages in patent cases32 56
  57. 57. Punitive Damages “Deliberate appropriation of intellectual property does not, without more, amount to high-handed, callous behaviour that offends the Court’s sense of decency”• Historical reluctance is apparently softening: • Punitive damages awarded in case33 involving sophisticated parties where infringement was deliberate and planned misappropriation of the invention 57
  58. 58. Recoverable Costs• Unlike U.S. proceedings, successful party does not have to make out an exceptional case in order to obtain a costs award in its favour• General rule is that “costs follow the event” – to the victor go the spoils 58
  59. 59. Recoverable Costs• Two approaches to awards of costs• First Approach • The Court Tariffs • 5 columns reflect degree of legal complexity and sometimes court’s displeasure with a party’s conduct • Default column is column III • Successful party can expect to recover approximately 20 to 25% of what it paid its lawyers • No less than 85% of out of pocket expenses (e.g. expert witness fees) 59
  60. 60. Recoverable Costs• Second Approach34 • Partial v. substantial indemnity costs • Deep-pocketed sophisticated litigants who spare no expense • In complex, hard-fought litigation, court may be convinced to use the partial or substantial indemnity approach in lieu of the tariffs • Can expect upwards of 50% of actual fees spent if partial indemnity approach applied • 80% to 90% of actual fees if substantial indemnity approach applied • Greater incentive for pre-trial resolution 60
  61. 61. Apportionment of costs?• Successful party did not win on all pleaded issues? • Still entitled to its costs35 • May be deduction to reflect time spent on unsuccessful issues36• Patentee loses infringement case but successfully defends counterclaim alleging invalidity? • Defendant gets its costs, perhaps with a deduction to reflect time spent on unsuccessful counterclaim37• Ultimately, it is a matter within the Court’s discretion 61
  62. 62. Solicitor and client costs• Usually only granted in situations involving litigation misconduct during or closely related to the hearing, amounting to reprehensible, scandalous or outrageous behaviour• Full indemnity• Increasingly seeing this kind of award in cases of counterfeiting cases and copyright infringement cases38• Goal is to discourage such behaviour as a matter of public interest• Party enforcing the Court’s order usually entitled to solicitor- and-client costs39 62
  63. 63. Pre-Judgment Interest• Infringement limited to one province – laws relating to interest in that province apply• Otherwise, Court has discretion to fix whatever rate it considers reasonable: (a) On liquidated claim, from the date cause of action arose to date of judgment (b) On an unliquidated claim, from the date notice was given to date of judgment• Rate used may be an average bank rate40 or rate that patentee would have been able to obtain in the market 63
  64. 64. Pre-Judgment Interest• Simple, not compounded, on award of damages unless compound interest proven to be an element of the damages itself41• Compound interest made by infringer on profits derived from infringement is part of the infringer’s profits and may be awarded42• Delay and patentee’s conduct of action may negate or reduce amount of interest 64
  65. 65. Post-Judgment Interest• Infringement limited to one province – laws relating to interest in that province apply• Interest Act fixes rate of post-judgment interest at 5% - Court has discretion to apply lower or higher rates• In PMNOC proceedings, the Court fixed post-judgment interest rate on an award of costs at 4.5% (compounded annually) which approximated the current three year mortgage rate43• Otherwise, Federal Court has discretion to fix a rate that it considers reasonable in the circumstance, calculated from the time of the giving of judgment 65
  66. 66. Footnote References1 – RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 (S.C.C.)2 – R. v. Imperial Tobacco Canada Ltd., 2011 SCC 423 – R. v. Imperial Tobacco Canada Ltd., 2011 SCC 424 - Suncor Energy Inc. v. MMD Design and Consultancy Limited et al., 2007 CF 896; Bristol-Myers Squibb Company v. Apotex Inc., 2008 FC 1196; Laboratoires Quinton International S.L. v. Biss, 2010 FC 3585 – Bertelsen v. Automated Tank Manufacturing inc., 2011 FC 1219; AstraZeneca Canada Inc. v. Novopharm Limited, 2009 FC 1209; Eli Lilly Canada Inc. v. Nu-Pharm Inc., 2011 FC 2556 – Inuit Tapirisat of Canada v. Canada, [1980] 2 S.C.R. 735; Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 9597 - Wenzel Downhole Tools Ltd. v. National-Oilwell Canada Ltd., 2010 FC 9668 –Globe-Union Inc. v. Varta Batteries Ltd., (1981), 57 C.P.R. (2d) 1329 – Unilever PLC et al. v. Procter & Gamble Inc. et al. (1993), 47 CPR (3d) 47910 – e-Bay Inc. v. MercExchange L.L.C. 126 S.Ct 1837 (May 15, 2006). In ebay, USSC denied a permanent injunction to the patentee, accepting the following four part test: irreparable harm; inadequate remedies at law; balance of hardship between patentee and defendant; public interest 66
  67. 67. Footnote References11 – BaxterTravenol Laboratories v. Cutter (Canada), [1983] 2 S.C.R. 388; Merck & Co. Inc. v. Apotex Inc., 2003 FCA 23412 – Strother v. 3464920 Canada Inc., [2007] 2 S.C.R. 17713 – Merck & Co., Inc. et al v. Apotex Inc., 2006 FC 524; affirmed 2006 FCA 323, leave to appeal dismissed (SCC 31754); Janssen-Ortho Inc. et al v. Novopharm Limited, 2006 FC 1234; affirmed 2007 FCA 217; leave to appeal dismissed (SCC 322001). For an example in which the Court granted the patentee’s election, see Valence Technology, Inc. v. Phostech Lithium Inc., 2011 FC 17414 - Teledyne Industries Inc. v. Lido Industrial Products (1982), 68 C.P.R. (2d) 204 (F.C.T.D.)15 – Reading & Bates Construction Co. v. Baker Energy Resources Corp., [1995] 1 F.C. 483 (F.C.A.)16 - Monsanto Canada Inc. v. Schmeiser, [2004] 1 S.C.R. 90217 - Monsanto Canada Inc. v. Rivett, 2009 FC 317; var’d 2010 FCA 207.18 - Monsanto, note 17 at ¶ 29 (FC).19 – Nissan Canada Inc. v. BMW Canada Inc., 2007 FCA 11920 – Halford et al v. Seed Hawk Inc. et al., 2006 FCA 167 67
  68. 68. Footnote References21 – Phostech Lithium Inc. v. Valence Technology, Inc., 2011 FCA 10722 – Novopharm Limited v. Janssen-Ortho Inc. et al., 2006 FCA 406; Apotex Inc. v. Merck & Co. Inc. et al., 2006 FCA 19823 – Apotex Inc. v. Sanofi-Aventis, T-933-0924 – Jay-Lor International Inc. et al. v. Penta Farm Systems Ltd. et al., 2007 FC 35825 – Allied Signal Inc. v. DuPont Canada Inc. et al. (1999), 78 C.P.R. (3d) 12926 – Domco Industries Ltd. v. Armstrong Cork Canada Ltd. (1983), 76 CPR (2d) 7027 – United Horse-Shoe & Nail Co. v. Stewart & Co (1888), 5 R.P.C. 260 (H.L.)28 – Eli Lilly Canada, Inc. et al. v. Apotex Inc., T-1321-97 (cefaclor) – Reference begins September 2, 201429 – Jay-Lor International Inc. et al. v. Penta Farm Systems Ltd. et al., 2007 FC 35830 - Whiten v. Pilot Insurance, [2002] 1 SCR 595 68
  69. 69. Footnote References31 - Adobe Systems Incorporated et al. v. Dale Thompson, 2012 FC 1219; Microsoft Corp. v. PC Village Co Ltd., 2009 FC 40132 - Wi-Lan Technologies Corp. v. D-Link Systems Inc., 2006 FC 1484; Dimplex North America Ltd. v. CFM Corporation, 2006 FC 58633 - Eurocopter v. Bell Helicopter Textron Canada Ltee, 2012 FC 11334 - Air Canada v. Toronto Port Authority, 2010 FC 1335; Phillip Morris Products S.A. v. Marlboro Canda Ltd., 2011 FC 113; Harmony Consulting Ltd. v. G.A. Foss Transport Ltd., 2011 FC 54035 - Philip Morris Products S.A. v. Marlboro Canada Limited, 2011 FC 11336 - Fournier Pharma Inc. v. Canada (Health), 2012 FC 1121; Apotex Inc. v. Sanofi-Aventis, 2012 FC 31837 - Raydan Manufacturing Ltd. v. Emmanuel Simard & Fils (1983) Inc., 2006 FCA 293 69
  70. 70. Footnote References38 - Microsoft Corporation v. 9038-3746 Quebec Inc., 2007 FC 659; Aquasmart Technologies Inc. v. Klazen, 2011 FC 212; Louis Vuitton Malletier S.A. et al. v. Singga Enterprises (Canada) Inc. et al., 2011 FC 77639 - Riaz Lari v. Canadian Copyright Licensing Agency, 2007 FCA 12740 – Allied Signal Inc. v. DuPont Canada Inc. (1999), 78 CPR (3d) 12941 – Eli Lilly v. Apotex Inc. (2010), 80 CPR (4th); affirmed 90 CPR (4th) 327 (FCA)42 – Beloit Canada Ltee v. Valmet Oy, (1995), 61 CPR (3d) 271 (FCA)43 – AstraZeneca Canada Inc. v. Apotex Inc., 2011 FC 663 70
  71. 71. Thank You Arthur B. Renaud Livia Aumand 613-786-0202 613-786-0112 arthur.renaud@gowlings.com livia.aumand@gowlings.com Join us for our next webinar, November 27 at 12:00 pm ET Methods of medical treatment claims: Issues in Canada, US and Europemontréal  ottawa  toronto  hamilton  waterloo region  calgary vancouver  beijing  moscow  london

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