Punitive Damages and Infringer’s Belief that Patent is Invalid

Airbus Helicopters SAS v Bell Helicopter Textron Canada Limitée 2017 FC 170 Martineau J
            2,207,787 / helicopter landing gear

This Bell Damages decision follows the decision of Martineau J in the liability phase of this bifurcated trial, Bell Liability 2012 FC 113, aff’d 2013 FCA 219, in which he had held one of the claims of the 787 patent, owned by Eurocopter (now the helicopter division of Airbus), to be valid and infringed. In the Damages decision, Martineau J awarded $500,000 in compensatory damages and $1,000,000 in punitive damages, plus pre-judgment and post-judgment interest [2], [108]. After writing two long posts on the compensatory damages award in March (see here and here), I procrastinated on writing a third post, which I knew would be just as long, on the punitive damages issue. Now that I have returned to the case, I realize that I didn’t deal properly with the FCA Liability decision on the issue of whether the infringer will avoid punitive damages if it believes that the patent is invalid. In this post, I will deal with that issue.

To recap my post on the Bell FC Liability decision, Martineau J held that Bell’s conduct was sufficiently egregious to justify awarding punitive damages to Eurocopter, in large part because Bell had intentionally copied the landing gear, when it knew or should have known that it was patented:

[433] This is a case of wilful blindness or intentional and planned misappropriation of the claimed invention. Eurocopter has proven that the infringement of the ‘787 Patent by the making and use of the Legacy gear was not innocent or accidental.

Now, we can certainly imagine a more innocent infringement. A infringer might have independently invented the invention, and practiced it in complete ignorance of the patent until approached by the patentee. Or it might have independently invented it, and then discovered the patent, and chosen to go ahead nonetheless. It might have copied the technology without realizing it was patented. But, as I argued in my posts on both the FC and FCA decisions, even copying and intentional infringement of a technology which the infringer knew to be patented, is not necessarily objectionable. I was (and remain) concerned with the chilling effect on validity challenges if that conduct alone were sufficient to justify punitive damages. Suppose a pharmaceutical patentee has tried to evergreen a valuable drug patent by product-hopping to a new version protected by a formulation patent that claims and enteric coating or extended release, and, after a detailed assessment of the patent, a generic company reasonably concludes that the patent is probably invalid for obviousness — after all, such patents are regularly, though not invariably, held to be invalid by Canadian courts. The generic then launches a competing version which it knows will infringe. Surely, this infringement, though planned and deliberate, does not constitute misconduct worthy of punitive damages, even if the generic's reasonable and good faith opinion that the patent was invalid ultimately turns out to be wrong. On the contrary, the generic is doing a public service by attacking a patent that is wrongly increasing the burden on the health care system.

The situation is arguably quite different if the defendant infringes a patent which it believes to be probably valid. That is the position taken by the FCA is the Bell FCA Liability decision. This is where I misinterpreted the FCA decision. In my post on the FCA decision, I said the main reason the FCA held punitive damages were justified was “simply the factual finding that Bell intentionally infringed.” While the FCA did refer to Martineau J’s finding of intentional infringement [186], the FCA summarized by saying (my emphasis) that

[192] Where a person infringes a patent which it knows to be valid, appropriates the invention as its own, and markets it as its own knowing this to be untrue, punitive damages may be awarded. . .

In my post I said that the FCA reasoning “does imply that punitive damages would not be available if the infringer had had a good faith belief that the patents it knew it was infringing were invalid.” Saying it was an “implication” is much too weak. The Court began its discussion by saying this (my emphasis):

[185] [Bell] submits that infringing a patent is not conduct which intrinsically merits punishment where the infringer did not know of the existence of the patent or reasonably held that the patent was invalid. I agree that it would be difficult to uphold a punitive damages award in such circumstances. However, these are not the circumstances applicable to this case.

Moreover, [192] came at the end of the FCA’s summary of the evidence in this case, so the reference to a person infringing a patent which it knows to be valid is not a general statement about possible scenarios, but rather a statement about this particular case.

Thus, contrary to the statement in my earlier post, according to the FCA, intentional infringement of the patent alone will not normally justify punitive damages; what is required is intentional infringement of a patent which the infringed believes to be valid. In this case, according to the FCA, punitive damages were justified because Bell deliberately infringed a patent which it knew to be valid, and marketed the invention as its own.

Here is my excuse for my misreading. The evidence reviewed by the FCA at [186] as supporting the award of punitive damages, establishes that Bell intentionally copied the landing gear which it knew or should have known was patented (see FC Liability [431-34]), but I do not see any finding by Martineau J that Bell believed the patent to be valid, or that it’s belief to the contrary was unreasonable, either in the cited paragraphs, or anywhere else in either the FC Liability decision or the FC Damages decision. So far as I can see, the question of whether Bell believed the patent to be invalid during the time it infringed was never addressed by Martineau J; indeed, it seems not to have been raised at all. My statement that the main reason the FCA approved the award of punitive damages was simply intentional infringement, was based on the evidence reviewed by the FCA, rather than the statements in [185] and [192].

I’m not really sure to make of this. Maybe the FCA read the cited paragraphs of the Liability decision differently from me, and sees them as finding that Bell believed the patent was valid. Maybe there is something else in the record that isn’t reflected in the FC Liability decision which establishes that Martineau J did indeed find that Bell believed the patent to be valid, though it would be surprising for a key factual issue not to be referred to. [Addendum: At [185] the FCA said that this is not a case in which it was established that the infringer reasonably believed the patent was invalid. It has just occurred to me that this is strictly true on a straightforward reading of Martineau J's Liability decision, since there was no finding one way or the other on that point. That implies that in order for the infringer to escape punitive damages, the onus is on the infringer to establish that it reasonably believed the patent was invalid (or, presumably, that it reasonably believed that its product would not infringe). On that view, the FCA decision is consistent with Martineau J’s finding. If that is the correct interpretation, it would have been helpful for the FCA to have spelled this out more explicitly.]

In any event, the point to emphasize is that, according to the FCA, an award of punitive damages will rarely be justified in a case in which the infringer reasonably believed the patent was invalid.

The argument for awarding punitive damages is stronger when the infringer believed the patent to be valid, than in my hypothetical scenario of an objectively weak patent. Whether the infringer believed the patent to be valid is a distinction with a difference. Nonetheless, I am not persuaded that intentional copying of an invention which the infringer believes to be valid, in itself justifies punitive damages. A requirement that the infringer believed the patent to be valid is relevant and important, because it mitigates the chilling effect; but the chilling effect is not eliminated. If Canadians are spending millions of dollars annually on a product protected by a patent that is 70% likely to be valid, there is a 30% chance that those millions of dollars are being wasted on a product that should be available far more cheaply. The expected benefit to Canadians if the patent is invalidated may well outweigh the burden on the patentee of having to litigate. the rule that punitive damages are awarded on a showing that the infringer intentionally infringed a patent which it believed to be valid is essentially the US rule (treble damages for willful infringement), and that rule has not been an unqualified success. It adds to complexity of patent trials, by raising the question of the infringer’s belief as to validity, which is otherwise irrelevant; it adds legal costs by increasing the need for opinion letters, whose main purpose may be to defeat a potential claim for treble damages; it increases uncertainty as to potential liability, as the quantum turns on this difficult to prove consideration. factor; and it may deter innovators from reading and learning from issued patents, as a protection against a finding of willfulness. That doesn’t mean that punitive damages are never warranted in patent cases, but in my view there should be some egregious element beyond knowing infringement, even if the patentee believes the patent to probably be valid. Lubrizol Corp. v. Imperial Oil Ltd, 58 C.P.R. (3d) 167, (FCTD) rev’d [1996] 3 FC 40, 67 CPR(3d) 1 (FCA) is an example, in which the punitive damages were assessed primarily because the infringer had acted in callous disregard of an injunction. In this case, the fact that Bell presented the invention as its own is an additional factor, though whether that factor alone would have justified punitive damages if Bell had believed the patent to be invalid, is a different question, and I'm not sure that question was answered by either the FC or the FCA.

Update: see my more recent post for a more complete discussion of this decision.