Nova v Dow: What is the NIO?

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 / The Concession / What Role for “But For” Causation in Identifying the NIO? / Summary of the Summary / Causation Concept in the Absence of an NIO

As described in previous posts, the heart of Rowe J’s approach to an accounting of profits is Step 2 of his three-step test, which asks the court to determine whether there is “a non-infringing option that can help isolate the profits causally attributable to the invention” [15]. The two key concepts are the “non-infringing option” (“NIO”) and profits “causally attributable to the invention.” If we knew the causation concept, it would allow us to determine whether there is an appropriate NIO in future cases. However, as discussed in previous posts, Rowe J did not provide any coherent causation concept and the causation concept at play in Step 2 is particularly obscure. But all is not lost. If we have a sufficiently precise definition of the NIO, we can still apply the three-step test, even if we don’t know what the causation concept is; and indeed, we might even be able to infer the causation concept from the definition of the NIO.

Unfortunately, Rowe J did not provide any clear definition of an NIO. The closest he came to a definition was to say that it is “any product that helps courts isolate the profits causally attributable to the invention” [58]. Without a definition of profits “causally attributable to the invention,” this definition is circular: the NIO is anything that helps identify profits caused by the invention, and the profits caused by the invention are the profits revealed by a comparison with the NIO. Rowe J also stated that whether an appropriate NIO exists is a question of fact [67], which is not helpful in the absence of a clear causation concept; if we knew the causation concept, then it would be a matter of fact to decide whether a proposed NIO reflected that causation concept, but if both the causation concept and the NIO are a matter of fact, then one cannot inform the other.

We might still try to extract some guidance from the specific examples approved by Rowe J as illustrating an appropriate NIO, namely Schmeiser 2004 SCC 34, Rivett 2009 FC 317 and its companion case Janssens 2009 FC 318 vard 2010 FCA 207 and Imperial Oil Ltd [1997] 2 FC 3 (CA). The first three all involve the same patent, relating to a gene conferring herbicide resistance in crops, and in all three the NIO used by the court and endorsed by Rowe J was a conventional crop of the same type. In Imperial Oil, the product was motor oil with a patented additive, and the appropriate NIO, according to Rowe J, was “motor oil without the patented additive” [57].

The most obvious suggestion is that an appropriate NIO is a true market substitute for the infringing product. This was the position taken by Dow. However, Rowe J expressly rejected this definition, saying the NIO “need not be a strict market substitute for the patented product” [67]. Reinforcing this, he also suggested that even commodity plastic might have been an appropriate NIO if the trial judge had made a factual finding to that effect [72]. Note however, that while Rowe J held that the NIO “need not” be a market substitute, he did not say that it is irrelevant whether the proposed NIO is a market substitute; that is, he left open the possibility that market substitutability might be considered as a factor.

Another possibility is that the NIO should be non-infringing but otherwise the same as the infringing product in a technical sense, which is to say, the same product without the patented feature. As noted, in discussing Imperial Oil Rowe J said the NIO was “motor oil without the patented additive” [57] and in discussing Schmeiser he said that all the profits earned were causally attributable to “non-patented features of the sold product—the canola seed itself” [52]. The idea is that we can reveal the value of the invention by comparing the profit actually made with the profit that would have been made by selling the same product without the patented feature.

However, this suggestion doesn’t work if we take Rowe J’s reference to the “patented” feature as meaning the feature claimed by the patent. In Schmesier, the canola seed itself was in fact claimed: Claim 22 and dependent claims were to the transformed plant cell and those claims were infringed: 2001 FCT 256 [127]. Similarly, in Imperial Oil, what was actually claimed was not the additive, but the motor oil with the additive. In both those cases, the product without the claimed feature is no product at all.

It might be suggested that Rowe J was speaking loosely, and he did not mean to refer to the feature that was patented in the strict sense of being claimed, but rather to the inventive concept. So, even though the motor oil with an additive was claimed in Imperial Oil, what was inventive was the additive itself. However, contrary to Rowe J’s suggestion, the motor oil without the additive is clearly not the appropriate comparator, because modern automobiles require some kind of detergent additive. The same motor oil without the additive would have been completely unsaleable. The value of the invention was not the value of the patented oil over the same oil without any additive, but the rather value of the patented oil over the oil with an additive that was previously known in the art. Thus, the appropriate comparator would not be the motor oil without the additive, but the motor oil with a different additive. Further, the inventive concept may not be defined, especially if obviousness is not litigated. Obviousness was not litigated in Schmeiser, for example, and we actually don’t know what was inventive about the claimed canola cell in Schmeiser; it might have been the gene, or the method of inserting the gene into the cell, or even the idea of the type of herbicide resistance gene to use, etc. In many cases, for example if the inventive concept is the method, it is difficult to even define what it means to be the same product without the inventive concept.

Consequently, an NIO cannot be defined either as a true market substitute, or as the same product without the invention, whether we take that to mean the claimed feature or the inventive feature. Nor, as we have seen, can it be defined as simply whatever the infringer would have done but for the infringement.

It is therefore impossible to extract any kind of clear guidance, either from Rowe J’s definition of the NIO or from the examples which he approved. However, it seems clear enough that it would be open to a trial judge to consider any or all of these factors—what the infringer would have done but for the infringement, whether the proposed NIO is a market substitute, whether the proposed NIO is technically similar to the infringing product—not as a definitive test, but rather as factors to be considered in determining whether a particular product is an NIO. (I don’t consider this to be an exhaustive list—the NIO is anything the trial judge finds helpful.) That is what I suggest will be the most likely outcome in practice: counsel will propose a comparator that seems intuitively reasonable on the facts, and the trial judge will accept or reject it as an NIO based on an ad hoc list of factors, each of which may have more or less weight depending on the case.