Nova v Dow: The Concession

Nova Chemicals Corp v Dow Chemical Co 2022 SCC 43 Rowe J: Wagner CJ, Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ concurring; Côté J dissenting affg Nova Chemicals Corporation v Dow Chemical Company 2020 FCA 141 Stratas JA: Near, Woods JJA affg Dow Chemical Co v Nova Chemicals Corp 2017 FC 350, 2017 FC 637 Fothergill J

2,160,705 / film-grade polymers / ELITE SURPASS

The Intuition / The Legal Background / Causation as a Matter of Fact

In Nova v Dow, Rowe J held that when an accounting of profits is granted, the infringer will be required to disgorge all profits caused by the invention. He set out a three-step test to “conceptualize” an accounting of profits. The principles of causation are applied at the Step 2, which requires the court to “[d]etermine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer’s profits not causally attributable to the invention — i.e., differential profits.” [15]. In my last post on Nova v Dow I explained how Rowe J avoided addressing the causation concept by characterizing the central issue of causation as being a matter of fact. We should nonetheless expect the lower courts to scrutinize the decision closely for guidance as to the nature of the causation requirement before giving free reign to their own common sense and intuition in selecting an “non-infringing option” [NOI]. Accordingly, the next few posts, starting with this one, will examine the decision to see what more can be learned about the causation concept from the facts and examples approved by Rowe J.

Unfortunately, the holding on the facts in this case is not particularly informative because it turned in large part on a concession made by Nova at trial. Nova argued that had it not infringed it would have made approximately $300m in profits on commodity grade “pail and crate” plastic, which, on the “but for” causation approach to an accounting, should therefore be deducted from its actual profits to arrive at the amount to be disgorged. The main question on appeal was whether that deduction should be permitted [2]. There was no finding at trial that Nova would in fact have made such profits, though there were findings that made it plausible: it was undisputed that Nova enjoyed a substantial cost advantage in the production of ethylene, and the trial judge found that if Nova had not made the infringing products, it would have made and sold pail and crate plastic: Nova v Dow FC [137], [158]. The trial judge, affirmed by the Court of Appeal, had refused to allow the deduction. That the Supreme Court affirmed without sending the matter back for a determination of the quantum would normally allow us to infer that the deduction was not permitted as a matter of law.

Matters are not so simple in this case. As noted in a previous post, Dow had characterized the post-Schmeiser FCA cases as restricting the use of the differential profits to cases in which the infringer’s alternative was a “true market substitute[] for the patented invention.” What I didn’t mention in that post is that Nova agreed that the “non-infringing alternative” referred to in the Court of Appeal’s elaboration of the differential profit approach was restricted to a true market substitute: Nova Factum FM010 [26]. Consequently, Nova had conceded at trial that there “there were no ‘direct non-infringing alternatives’ available for the purpose of applying the ‘differential profits’ approach”; in particular, Nova agreed that commodity grade plastic was not a “non-infringing alternative”: see Nova v Dow FC [146]. Because of this concession, Rowe J held that the differential profits approach did not apply: [70]–[73].

However, Nova also argued that the “non-infringing alternative” used in the FCA caselaw was different from the “non-infringing option” referred to in Schmeiser, and that the differential profit approach as set out in Schmeiser itself was directly based on “but for” causation. Nova therefore argued that “but for” causation should be used directly to determine the quantum to be disgorged: see Nova Factum [27], [37], [56], [59], [100]–[103]. While Rowe J held that the differential profit approach did not apply, he did not directly address Nova’s alternative argument that “but for” causation should be applied even if the differential profit approach could not be applied; however, since he affirmed rather than sending the matter back for a determination of whether Nova would in fact have made such profits in the pail and create market, the direct implication is that this argument was rejected.

Thus, Rowe J held, at least implicitly, that “but for” causation cannot be used directly to assess the quantum to be disgorged in an accounting; it is necessary to apply the three-step differential profit test which Rowe J set out, with causation to be addressed at Step 2. However, Rowe J did not explicitly reject the application of “but for” causation at Step 2, as his holding that any profits from the commodity grade could not be deducted at Step 2 turned entirely on Nova’s concession. My next post considers what role, if any, there is for the application of “but for” causation as part of the three-step test, in particular, at Step 2.