This issue in this decision in the Philip Morris v Marlboro litigation is whether Marlboro Canada and Imperial Tobacco (ITL), which prevailed in a trademark action, should be entitled to elect an accounting of profits. It is relevant to the same question in the patent context, as de Montigny J relied on the patent case law on the same point [17] and he was clearly of the view that the applicable principles are the same in both contexts. The decision is noteworthy for its extensive review of the factors to be considered in deciding whether to allow a successful party to elect an accounting.
As I noted in a previous post, there is something of a split between cases suggesting that a patentee will normally be permitted to elect an accounting unless there is some reason why that remedy should be denied, and others indicating that an accounting will be denied unless the plaintiff can show some positive reason why it should be granted. That issue was directly raised in Philip Morris, as ITL argued that “the remedy is ordinarily awarded unless there are special circumstances,” whereas Philip Morris, the defendant on the trademark claim, argued that the Court must simply balance the equities and decide whether the remedy is appropriate in the circumstances [18]. de Montigny J held that an accounting is not a presumptive remedy and the trial judge has complete discretion [19], but on the whole, this decision falls into the first category (my emphasis):
[21] I shall therefore weigh the relevant factors in light of the equitable purposes of the
remedy, bearing in mind that the Defendants have no right to an accounting of profits but
that they should not be denied that option in the absence of any compelling reasons.
(While ITL was the successful party in the litigation, it was the defendant on the underlying action, and the plaintiff only by counterclaim, and so is referred to as the “Defendant” by de Montigny J, while Philip Morris is referred to as the “Plaintiff”.)
de Montigny J then reviewed a number of factors. This list is of course not exhaustive, but only reflects those raised by the parties. And, as de Montigny J noted, "none of the factors is controlling, in and of itself” [21].
(1) The claimant's conduct
The main point here is that “As for delay, it would dearly be inequitable to allow a plaintiff to recover profits made by a defendant while the plaintiff was aware of the infringement for some time and did nothing about it” [22]. This strikes me as sensible. Delay should not be encouraged, particularly when the defendant reasonably believes it is not infringing and so may be relying on the status quo.
On the facts, there was no undue delay in this case, nor was there any allegation of unclean hands [22]-[23]. de Montigny J then held that "All these factors clearly militate in favour of an accounting of profits - and indeed the Plaintiffs do not contest any of these arguments [24]. It is interesting that the fact that there is no undue delay and no unclean hands militates in favour of an accounting, rather than being neutral. This reinforces the point that an accounting will be granted unless there is some reason not to do so.
(2) Complexity of an accounting of profits
The complexity of an accounting of profits is often raised as a factor militating against an accounting, and indeed is cited as the main reason why US law abolished the accounting remedy in patent cases. The key point made by de Montigny J on this issue is that “the calculation of damages is likely to be as complex as the accounting of profits” [31]. While is true that an accounting in this case would be difficult [27]-[29], “[j]ust as with accounting, the causation/apportionment issues will likely be contentious in the calculation of damages” [31]. Consequently,
[32] [A]ny calculation will be complex and contentious, whether in relation to assess the
damages or in relation to the apportionment issue. For that reason, I am of the view that
the complexity factor weighs neither for nor against the accounting of profits.
In my view this is an entirely sound point which is too often overlooked. The correct question is not whether an accounting is complex, but whether it is substantially more complex than the damages calculation would be. When the accounting remedy was rejected in US law, the principles used in assessing the defendant’s profits were not the same as those used in modern Canadian law. In Canadian law, the basic “but for” inquiry is conceptually the same in either case, particularly when lost profit damages are claimed. Depending on the particular facts, an accounting may be more complex than the damages assessment, but it may also be less complex or roughly equivalent, as in this case.
Another point made by de Montigny J is that the absolute complexity is not the main issue, but rather proportionality: “the Court is essentially concerned with the proportionality of the accounting remedy in view of the length or extent of the infringing activity and the likely benefit of the accounting exercise” [29].
(3) The infringer’s conduct
Here de Montigny J noted that the legal issue in question “was a genuinely novel legal issue, and not a case of blatant infringement” [35]. He contrasted this was Varco 2013 FC 750 (blogged here) in which the defendants “knew the patent infringement was blatant and the only defence would be patent invalidity” [35]. I am not persuaded by this distinction. Many granted patents turn out to be invalid, and I don’t see why it is more blameworthy to proceed in the face of uncertainty as to liability on the facts, as opposed to uncertainty as to liability as a matter of law. It is entirely legitimate to infringe a patent in order to test its validity, and a defendant who does so successfully is doing a public service, as the benefit of lower prices from having a bad patent held invalid redounds to society as a whole in the form of lower prices. Such infringement should not be discouraged by the threat of a more severe remedy. (This is not to say that an accounting should never be awarded in the case of patent infringement, but only that the distinction between uncertainty in the law and uncertainty on the facts does not strike me as a proper consideration in deciding whether to allow an accounting.)
(4) The claimant's damages
The defendant, Philip Morris, argued that “if the claimant could never have earned the profits or was in no way harmed by the infringement, accounting would be an undue windfall to the claimant” [36]. de Montigny J rejected this both for lack of authority, and because taking this factor into account would require a detailed assessment of disputed evidence [37]-[38]. This seems right to me: to take into account the plaintiff’s damages would require the court to undertake an assessment of damages as part of the analysis of whether to allow the plaintiff to elect an accounting. This is impractical.
(5) Actual confusion
This factor is specific to trademark litigation.
Thanks to Alan Macek's IPPractice for making this case available before it is posted on the FC website.
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