Nova v Dow: Three Policy Arguments

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 / What is the NIO? / The Value of the Invention / Rivett on the Facts

In Nova v Dow, Rowe J, writing for an 8-1 majority, addressed the proper method of calculating an accounting of profits in the patent context. I have a two-part article on the decision forthcoming in the IPJ. Part I of that article analyzes Nova v Dow at a doctrinal level. What did Rowe J mean by “cause”? What did he mean by “the non-infringing option”? What did he mean by “the value of the invention”? I summarized Part I in a series of blog posts, listed above. Part II addresses the policy implications of Nova v Dow. Are the policy reasons given by Rowe J persuasive? Will Nova v Dow chill innovation? What is the appropriate response to the decision? This is the first in a series of posts summarizing Part II.

The Facts

Dow had a patent on specialized plastic film, used for items such as food packaging. Nova made and sold a competing film that was found to be infringing. Dow was awarded an accounting of Nova’s profits from sales of the infringing film, with a quantum of $644 million. The major input to the infringing plastic is ethylene, an unpatented bulk commodity. Nova had a very efficient process for making ethylene—the “Alberta Advantage”—and so could make ethylene for far less than it would have cost to buy on the open market. On the facts, if Nova had not infringed, it would have used its ethylene to make commodity grade “pail and crate” plastic [FC 158]. Nova argued that because of the Alberta Advantage, it would have made approximately $300 million in profit on the sale of that plastic, despite the competitive nature of that market [FCA 187]. The question was whether Nova was entitled to deduct the amount it would have made in the pail and crate market, on the view that that part of the overall profit was caused by its efficient ethylene production process and not by the infringement.

Rowe J stated that it is a "fundamental principle" that the infringer must disgorge "all profits causally attributable to infringement of the invention" [4] and at the same time he emphasized that the profits to be disgorged in an accounting are "only the profits causally attributable to the invention" [48] (original emphasis). Rowe J set out a three-step test to “conceptualize” an accounting of profits [15]:

Step 1: Calculate the actual profits earned by selling the infringing product — i.e., revenue minus (full or differential) costs.

Step 2: Determine 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. It is at this step that judges should apply the principles of causation. . . .

Step 3: If there is a non-infringing option, subtract the profits the infringer could have made had it used the non-infringing option from its actual profits, to determine the amount to be disgorged.

As discussed in Part I, Rowe J did not define the terms “non-infringing option” or “causally attributable.”

On the facts, Rowe J held that Nova was not entitled to deduct the amount it would have made in the commodity plastic market, because commodity plastic was not a “non-infringing alternative” (“NIO”) under Step 2, so the entire actual profits were to be deducted.

Purpose of the accounting remedy

Rowe J began his discussion of policy considerations by noting, uncontroversially, that the purpose of the Patent Act is to encourage innovation for the public benefit [43]. He then adverted to three rationales for the accounting remedy: (1) to preserve the patent incentive; (2) a proprietary rationale; (3) a deterrence rationale.

Preserve the patent incentive

Rowe J stated that an accounting serves to “protect the patent bargain,” saying:

[42] Disgorgement is necessary because allowing infringers to appropriate the benefits of the patent monopoly for themselves “discourages research and development, and the disclosure of useful inventions” (Merck [2015 FCA 171], at para. 42). If infringers could keep the profits earned from patent infringement, they could appropriate the time, effort, and risk associated with making the invention for their own benefit. This would make disclosure less likely, and the public would receive fewer innovative products.

[48] Disgorging anything less [than the profits caused by the invention] would reduce the incentive to invent (Merck, at para. 42; ADIR, [2020 FCA 60] at para. 39).

With respect, this paragraph reflects a basic conceptual error. It is true that the primary objective of patent remedies is to preserve the incentive to innovate. It is wrong to suggest that this is the purpose of the accounting remedy; that purpose is served by damages.

The patentee’s incentive to innovate is provided by the profits the patentee expects to make from the exploitation of its invention in the absence of any infringement. The damages remedy preserves the incentive to innovate by restoring the patentee to the position it would have been in but for the infringement: Merck [48], [49]. That is why damages are available as of right, while an accounting is discretionary; that is why TRIPS requires that damages are available as a remedy (Art 45.1), while an accounting is merely permitted (Art 45.2); that is why an accounting is not available at all in the United States.

Rowe J cited Merck for the proposition that disgorgement is necessary to preserve the incentive to invent. Merck does not stand for that proposition. Merck was a damages case, and the passage quoted by Rowe J specifically addressed “[t]he purpose of an award of damages” [41], not the purpose of disgorgement. Moreover, the FCA in Merck specifically endorsed the “but for” test for causation [45], which was rejected by Rowe J in Nova v Dow.

Nor does ADIR support Rowe J’s proposition. While ADIR was an accounting case, the cited paragraph simply says that an accounting is not punitive and nothing in that paragraph or the decision as a whole says that an accounting preserves the incentive to invent. Moreover, ADIR [47] also explicitly endorsed “but for” causation.

In summary, Rowe J’s assertion the purpose of the disgorgement remedy is to preserve the incentive to invent is wrong in principle and is not supported by the authorities he cites.

Proprietary interest

The second rationale given by Rowe J was that “any profits improperly received by the defendant as a result of its wrongful use of the plaintiff’s property. . . having been earned through the use of the plaintiff’s property, rightly belong to the plaintiff” [46]. This correctly links the accounting remedy to the fact that a patent is a property right. However, this link directly implies “but for” causation should be used in assessing an accounting. As Professor Lionel Smith puts it: “[i]f disgorgement is allowed, the effect is that rights cannot be taken; they must be purchased”: (1994), 24 Can Bus LJ 121, 123. Saying that the defendant is required to restore to the plaintiff all profits earned by the defendant through the use of the plaintiff’s property is equivalent to saying that the defendant should be restored to the position it would have been in if it had been prevented from taking the patentee’s rights by an injunction granted quia timet. This directly implies that an accounting should be based on “but for” causation, looking to the position the infringer would have been in had it been prevented from infringing.

The notion that an accounting reflects the principle that rights must be purchased, not taken, also reflects the rationale for injunctive relief set out by Calabresi & Melamed in “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral”(1972), 85 Harv L Rev 1089, one of the most cited law review articles of all time.

Thus, the proprietary nature of the accounting remedy, both in terms of the historical doctrinal link and in terms of the most widely accepted theory of injunctive relief, supports “but for” causation as the correct approach to assessing the quantum of the disgorgement.

Deterrence

Third, Rowe J [47] adverted to the need for deterrence:

Deterrence flows from disgorgement. The incentive to infringe is minimized if an infringer has to disgorge all profits causally attributable to the invention.

At the same time, Rowe J stated repeatedly that an accounting is not punitive and he emphasized (original emphasis) that:

[48] [D]eterrence should not be conflated with punishment. An infringer can be liable for patent infringement even if they had no knowledge of the patent or genuinely believed that the patent was invalid. An accounting of profits should therefore discourage infringement but do no more. This requires disgorging only the profits causally attributable to the invention. Requiring infringers to disgorge anything more would constitute punishment and risk chilling public innovation and competition.

Thus, Rowe J was evidently of the view that his approach would not chill innovation because it is not punitive and the reason it is not punitive is that the profits to be disgorged are causally attributable to the invention.

With due respect, this is nothing more than word games. The incentive effect of a $500m award is the same whether or not we affix the label “punitive” to it. The chilling effect doesn’t turn on the words used to describe the remedy; it turns on the incentive structure created by the remedy, which in turn depends on the nature of the causation concept. The mere fact that the remedy incorporates a causation concept does not guarantee it will not have a chilling effect; it matters which causation concept.

Rowe J cited the FCA decision in ADIR [37] for the proposition that an accounting ensures that infringers are deterred “but not punished” [44]. While the FCA did indeed so hold, the Court emphasized that it is “but for” causation specifically that ensures the accounting remedy is not punitive: see ADIR [39]–[49], esp [47].

In short, the mere fact that Rowe J stated that his approach is not punitive does not mean it does not have a chilling effect. The chilling effect depends on the actual nature of the remedy, not the terminology that is used to describe it. While Rowe J rejected “but for” causation, the FCA cases cited by Rowe J support the view that an accounting must be based on “but for” causation to avoid the chilling effect. As I will discuss in the next post, the FCA is correct on this point, and Rowe J is wrong.

Adding the Manufacturer to a Suit Against End-users

Seismotech IP Holdings Inc v John Does 2023 FC 1335 Grammond J

2552603 / 2364081 / 2551854 / 2621287 / 2551847*

This procedural decision, adding the manufacturer to an action brought by the patentee against end-users, will be of interest in actions relating to patent assertion entities (PAEs). Patent assertion entities are businesses whose primary business is asserting patents against alleged infringers which typically independently developed the technology. The PAE’s patents are normally acquired from third parties, though in some cases the PAE may be the final business model for a previously successful operating company. The PAE may also be the inventor of ‘paper’ patents that were never commercialized: see generally Patent Assertion Entity Activity: an FTC Study (2016).

Some PAEs assert strong patents or large portfolios against large companies, seeking a licence for large sums, often in the millions of dollars. Other PAEs assert a small number of patents, which are often weak, against smaller entities, seeking much smaller settlements in a pattern that is consistent with nuisance litigation: FTC Study 41. The nuisance actions may be brought against end-users because the interest of the end-user extends only to the disruption and expense of switching to another product if a settlement is not reached. An end-user will often be willing to settle for a small amount to make the litigation go away, even if the patent is weak and the infringement claim is doubtful. A similar issue arises in the context of demand letters, as illustrated by Fluid Energy Group v Exaltexx 2020 FC 81, discussed here.

The interest of the patentee or licensed manufacturer, on the other hand, extends to the product itself. The interest of the patentee will be much greater than the interest of any individual end-user, and indeed, will generally be much greater than even the cumulative interests of all the current end-users, because the patentee hopes to also sell its product to future end-users. Consequently, the patentee will be willing to spend money to defend the validity of the patent that covers its product. The manufacturer is therefore a far more formidable foe for the PAE, which will accordingly wish to avoid prodding the bear.

This appears to be the situation here. Judging from its name, it’s recent incorporation in BC on 3 November 2022, and the lack of an online footprint, the plaintiff, Seismotech IP Holdings Inc, appears to be a PAE, perhaps with ‘paper’ patents. Even if it is not, its tactics are typical of the nuisance action PAEs. The patents at issue relate to smart thermostats, which help save money by reducing energy use. In the underlying litigation, Seismotech is suing as of yet unidentified end-users who purchased allegedly infringing smart thermostats, as well as the retail distributors—but not the manufacturer. In this decision, Seismotech was resisting a motion by Ecobee, the manufacturer of the allegedly infringing product, seeking to have Ecobee added as a party to the action [6].

Grammond J ordered that Ecobee be added as a party under Rule 104(b). That Rule is to be interpreted in light of the principle of party autonomy, according to which “parties are free to choose the manner in which they will assert or defend a claim, including the plaintiff’s choice of the defendants against whom to bring an action” [9]. Thus there is a fairly high hurdle if a party is to be added against the objections of the plaintiff [11].

In Ferguson v Arctic Transportation Ltd [1996] 1 FC 771 Prothonotary Hargrave provided a very helpful review of the cases to that point, including International Minerals v Potash Company of America [1965] SCR 3 in which the SCC addressed the issue in the patent context. More recently, in Servier v Apotex 2007 FC 1210, Snider J updated Hargrave P’s discussion and provided a helpful summary of the relevant principles at [17]. The current leading case from the FCA is Canada (Fisheries and Oceans) v Shubenacadie Indian Band 2002 FCA 509, though the discussion is fairly brief.

The case most directly relevant is Havana House (1998) 80 CPR (3d) 443 (FCTD) in which “[t]he owner of a trademark sued sellers of allegedly infringing cigars, but not their distributor. The Court added the distributor as a defendant in spite of the plaintiff’s objections” [16]. Rothstein J, as he then was, stated that:

Kozy Korner’s and Nigro are retail sellers, and Copa-Habana is the distributor to them. It may well be that Kozy Korner’s and Nigro will defend, but there is no reason that Copa-Habana should have to accept that its interest and its ability to market its merchandise as the original distributor to them should have to be defended vicariously. Its rights and its pocket-book would be directly affected by any order made against Kozy Korner’s and Nigro and it therefore has a direct interest to protect.

Exactly the same principle applies in this case.

Grammond J rejected Seismotech’s arguments that Havana House should not be applied. The most interesting argument made by Seismotech was that Havana House has been “overtaken by subsequent cases” [18]. A point emerging from the earlier cases is that “[a] mere commercial interest rather than a legal interest is not sufficient to make a person a necessary party,” as Snider J [17] put it in her summary.

Grammond J did not accept this argument. He held that the action “affects [Ecobee’s] legal interests, and consequently Ecobee should be added as a party [29]. He explained:

[18] Copa-Habana’s “ability to market its merchandise” was a legal right that would be affected by Havana House’s trademark. This is similar to Ecobee’s right to manufacture and sell its products, which would be affected by Seismotech’s allegations of patent infringement.

Further, “the reality [is] that the action cannot be allowed without determining the lawfulness of Ecobee’s products” [19].

In response, it might be said that while the lawfulness of Ecobee’s products is at stake, Ecobee’s legal rights are not at stake. Customers were never legally obliged to buy Ecobee’s products, and if in the future they refuse because Ecobee’s products are found to be infringing, that does not affect Ecobee’s legal rights as such any more than if in the future customers refuse to buy because they don’t like the colour.

The law doesn’t support such a fine distinction. International Minerals is directly on point. It concerned a conflict proceeding between International and Duval. The Potash Company of America (PCA) had for many years operated a process which it believed would infringe the patent, if granted. PCA and International had initially agreed to cooperate in either obtaining a royalty-free licence from Duval, or, failing that, in vigorously prosecuting International’s claim to be entitled to the patent. International then backed out of that agreement and told PCA it would be negotiating independently with Duval. PCA was concerned that Duval would reach an agreement with International, with the result that the patent would issue to Duval without challenge and without protection for PCA. PCA therefore sought to be added as a party. Cartwright J for the Court held that PCA should be added:

The order for which Duval is asking in the action is that it be declared that it is entitled to the issue of a patent which, if granted, will confer upon it the exclusive right of using the flotation process which PCA has been using for years and proposes to use in the development of its deposits of potash ores in Saskatchewan. The order sought would, in my opinion, affect the legal right of PCA to continue to carry on its business. It is true that if the intervention were not allowed the question of the validity of any patent to which Duval might be declared entitled would not as against PCA be res judicata and could be put in question under either s. 61 or s. 62 of the Patent Act, but until the patent was successfully impeached the right of PCA set out above would be affected. To allow the present action to proceed to judgment without the intervention of PCA, leaving it to its rights under the sections mentioned, would be to countenance the multiplicity of proceedings which it was one of the objects of the rule to avoid.

These words are equally applicable to this case. Seismotech already has its patent, but if it is successful in the underlying action, the result would confirm that Seismotech has the exclusive right of selling the product which Ecobee has been selling for some time. This in itself “would. . . affect the legal right of [Ecobee] to carry on its business.” It is true that if Ecobee were not added as a party, the outcome of the action would not be res judicata as against Ecobee, which would be entitled to bring an action under s 60 to determine whether Seismotech’s patent is valid and infringed by Ecobee’s product, but until the patent was successfully impeached, the right of Ecobee to sell its product would be affected. To allow the present action to proceed without Ecobee “would be to countenance the multiplicity of proceedings which it was one of the objects of the rule to avoid.”

In summary, in my view Grammond J’s decision was clearly right for the reasons he gave. All that I would add is to point out that this result is supported not only by Havana House, but also by the SCC decision in International Minerals.

*Grammond J did not specify the patents at issue, noting merely that there were four. The patents I have listed here are patents owned by Seismotech IP Holdings Inc which appear to broadly relate to the kind of technology at issue. Clearly, not all five patents are being asserted and it is possible that none of these patents are actually at issue in this litigation.

PS - I checked the Statement of Claim on a suggestion by a commenter. All the listed patents are being asserted except the 287 patent.

Infringement by Import, Export, and Possession

Deeproot Green Infrastructure, LLC v GreenBlue Urban North America Inc 2023 FCA 185 Mactavish JA: Gleason, Woods JJA affg 2022 FC 709 McDonald J

2,552,348 / 2,829,599 / Integrated Tree Root and Storm Water System

DeepRoot’s 348 and 599 patents relate to a landscaping system to promote healthy urban trees using a subsurface structural cell system that supports the hardscape (eg sidewalk and paving), enables stormwater retention and filtration, as well as allowing tree roots to grow in uncompacted soil. In DeepRoot v GreenBlue 2021 FC 501 (see here), McDonald J held that DeepRoot’s patents were infringed by GreenBlue’s RootSpace product. She consequently enjoined GreenBlue from infringing. The claims require that 85% of the volume of the cell is empty (to be filled with soil once installed). After this liability decision, GreenBlue revised its product by adding the “Airform Insert” component to reduce the empty space to less than 85%. (The empty volume with the Airform Insert is about 82%.) In response, DeepRoot brought a contempt motion against GreenBlue. McDonald J dismissed the motion in a decision that turned entirely on the facts, on the basis that DeepRoot had not proven beyond a reasonable doubt that GreenBlue’s revised system was infringing: see here. The FCA has now affirmed, generally on the basis that McDonald J’s decision turned on the facts and DeepRoot had not established any palpable and overriding error. My last post gave an overview of the facts and discussed the issues of non-functional design-around and the infringing intermediate.

This post discusses the import / export question. The key fact for this discussion is that the patent claims a structural cell or cell system, in which the cells comprise a base and supporting members. The cells are delivered as a kit of parts and assembled on-site. The only difference between the infringing product and the non-infringing redesigned product is the Airform Insert, which is inserted during assembly. So anyone in possession of all the components of the RootSpace Airform system is also in possession of all the components of the original infringing RootSpace system. DeepRoot alleged that GreenBlue had infringed by importing the components of the infringing system into Canada for transshipment into the US. It seems also to have been argued that possession of the components in Canada was also infringement, though this point was largely run together with the export argument.

The ‘import’ argument was as follows:

[123] DeepRoot argues that the importation of all of the component parts of a patented invention for simple assembly constitutes patent infringement. As GreenBlue is importing all of the components of Claim 1 of the 599 patent, it is therefore infringing the 599 patent, thereby violating the terms of the Federal Court’s injunction.

The export argument was that “The purchase or possession of infringing articles in Canada, for the purpose of export, constitutes infringement” [124].

These issues were “very much a secondary issue at the contempt hearing” [125] and the argument failed on appeal, in large part because there was no evidence on some of the key points [141]. The legal issues are nonetheless noteworthy, as infringement by import and export is unsettled. It is uncontroversial that “[t]he exclusive rights conferred under the [Act] are territorially confined to Canada” [128], and neither import, export, nor possession are explicitly encompassed by enumerated grounds of infringement, as s 42 explicitly grants only the rights “of making, constructing and using the invention and selling it to others to be used.” Whether these additional rights should be read into s 42 is a matter of statutory interpretation. As the FCA pointed out in Biolyse 2003 FCA 180 [13] (my emphasis), “the clearer the ‘ordinary meaning’ of the text, the more compelling the contextual considerations must be in order to warrant a different reading of it, especially when that involves adding words to those used by the legislator.” Similarly, in Canada Trustco 2005 SCC 54 [10] the SCC noted that “When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process” and in Celgene 2011 SCC 1 [21], the Court noted that “[t]he words, if clear, will dominate; if not, they yield to an interpretation that best meets the overriding purpose of the statute.” In this case, the words of the statute are clear: import, export, and possession are not enumerated rights. To read those words into the provision requires strong contextual or purposive arguments.

The Import Issue

Mactavish JA dealt with the import issue briefly:

[131] It is true that the importation of the component parts of a patented invention for simple assembly constitutes patent infringement: Dominion Chain Co. v. McKinnon Chain Co. (1919) 58 S.C.R. 121 at para 53. However, in this case the Federal Court found as a fact that there was no evidence of the sale or assembly of the original RootSpace product in Canada after the Court issued its permanent injunction against GreenBlue.

Thus, the argument was dismissed on the facts, and Mactavish JA’s statement that importation constitutes infringement is obiter. This is important because I would suggest that this issue is not as well settled as Mactavish JA’s brief statement implies.

In Dominion Chain, Anglin J did say that “[t]he importation of all the component parts of the patented invention ready to be put together by some very simple process would in my opinion constitute an infringement of the patent” (132). However, he was not interpreting the granting provision, which was in essentially the same terms as today (using “vending” instead of “selling”). He was interpreting the term “imports” in an entirely different provision, which was repealed in 1935. When Dominion Chain was decided, patent law was still conceived of being a tool of industrial policy, to encourage the establishment of new industry in Canada. The Act consequently required that the patentee commence manufacturing the invention in Canada within two years of grant: see s 38(a) of the Act of 1906. This was reinforced by s 38(b), which provided that the patent would be void if the patentee “imports, or causes to be imported into Canada” the invention for which the patent is granted. The invention in Dominion Chain related to traction chains for car tires. The component parts were imported into Canada in what amounted to a kit form “‘adapted to be put together’ by a simple process which ‘any school boy,’ if endowed with sufficient strength, could apply” (133). The question was whether the import of those kits for final assembly in Canada amounted to importation within the meaning of s 38(b) (131). The SCC held that it did. Anglin J’s statement that importation would constitute infringement was obiter, as infringement was not at issue; the question was whether the importation of the parts ready for assembly constitutes importation. In effect, the SCC held that importation of the kit for assembly was importation of the invention just as much as importation of the fully assembled invention. Given that the Act expressly provided the patent would be void if the invention was imported, it does not matter whether importation also constitutes infringement. Anglin J’s obiter statement, in the course of interpreting the term “imports” in a since repealed provision of the Act, is a very slender basis for reading the right of importation into s 42, against the clear text of that provision.

The strongest support for reading in additional rights to s 42 is Schmeiser 2004 SCC 34 [55], where the SCC discussed Lord Wilberforce’s remarks in Pfizer v Ministry of Health [1965] AC 512 (HL) 572, in which he stated that possession as such is not an infringement, but possession with an “additional ingredient,” in particular possession “with a view to trade,” constitutes infringement. But for its citation by the SCC, the decision in Pfizer would not be particularly persuasive in Canadian law, as it turned on a peculiar provision of the UK Act and not on the general infringement provisions. In Pfizer, the defendant was selling the infringing product to the Crown and would clearly have been liable for selling, but for an exception for Crown use found in s 46 of the Patents Act 1949 (UK). Because that provision exempted use, but not sale, the question was whether importing, stocking and selling the infringing product constituted “use.” The House of Lords answered in the affirmative.

But since the SCC did discuss Lord Wilberforce’s remarks with apparent approval, this suggests that possession with a view to trade constitutes infringement as such. This would indeed read words into the grant provision. More conservatively, I would suggest that even if possession with a view to trade does not constitute infringement as such, it would support a quia timet action on the basis that future use is likely once possession with a view to trade is established, though I must acknowledge there is no suggestion of this theory in the Court’s brief discussion. However, the Schmeiser decision is a bit difficult to interpret on this point, as the Court also discussed two distinct principles. The Court [56], [58.6] also clearly held that that possession may give rise to a rebuttable presumption of use. This proposition does not require reading any words into s 42, as the right being infringed remains the right to use. The SCC also held that infringement may arise by passive exploitation of the invention’s “stand-by utility” [56],[58.5]. For example, a patented fire-extinguisher is “used” if it is standing in the corner of a room, ready for use in case of a fire, even if the trigger has never been pulled by the time of trial. Again, this does not require reading any words into s 42, as the holding is that stand-by use is indeed use. Of these three aspects of infringement by possession, only the latter two, which do not require reading words into the Act, were listed by the Court in its summary of the proposition emerging from its discussion: [58]. Moreover, this entire discussion seems to have been obiter, as the FC and FCA held that infringement was established on the basis of use (growing the patented seed) and sale, both of which are enumerated rights (2001 FCT 256 [123], [127]; 2002 FCA 309 [46]) and the SCC apparently affirmed this reasoning: Schmeiser [82], [92].

So, there is support in Schmeiser for the view that possession with a view to trade constitutes infringement as such, which required reading words into the granting provision. However, the decision is by no means unequivocal on this point, as it is also possible to read the decision as turning on theories which do not require reading words into the Act, namely possession giving rise to a presumption of use, stand-by use constituting use, or possession with a view to trade, being a sound basis for a quia timet action.

Possession with a View to Trade

Returning to the case at hand, Mactavish JA stated that:

[129] The jurisprudence does establish that the purchase or possession of infringing articles in Canada, with a view to sale or trade, or for the purpose of export, constitutes infringement: Laboratoires Servier v. Apotex Inc., 2008 FC 825 at para. 143, aff’d 2009 FCA 222, leave to appeal dismissed, [2009] S.C.C.A. No. 403.

In Servier v Apotex [143], Snider J stated “Servier submits (correctly, in my view) that the purchase or possession of infringing articles in Canada, with a view to sale or trade, or for the purpose of export, constitutes infringement.” However, this was obiter, as Snider J held on the facts [144]–[160] that there was no sale in Canada when goods were delivered abroad to foreign purchasers and title to the goods did not pass until the product was delivered to the foreign country. While Snider J’s decision was affirmed, this legal point was not at issue on appeal.

Snider J relied on Schmeiser, just discussed. Even if we accept on the authority of Schmeiser that possession with a view to trade constitutes infringement, there is a question as to what “a view to trade” encompasses. Keeping in mind the clear principle that patent rights are territorial, it is arguable that “a view to trade” should be interpreted as meaning “a view to trade within Canada.” For example, suppose an exhibitor at an international trade show held in Canada displays an article that is manufactured abroad and patented in Canada. It would be a principled distinction to say this constitutes infringing possession if the exhibitor intends to conclude sales within Canada, but not if the interest generated at the trade show is reflected only in contracts entered into abroad, for manufacture and delivery abroad. At this point, I am not saying that this distinction should be drawn, but only that it is a principled distinction which requires further consideration. The SCC in Schmeiser did not explicitly suggest any such limitation, but the rule against extraterritoriality was not at issue, as all of the allegedly infringing activity was purely domestic.  

 Snider J also relied on Wellcome v Interpharm (1992) 41 CPR(3d) 215 (FCTD) 226–27, apparently for the proposition that possession for the purpose of export constitutes infringement. Wellcome v Interpharm did quote Hoffman-LaRoche [1977] FSR 200 (Ch), in which Whitford J stated that possession for export constitutes infringement. But Joyal J himself held only that “manufacture” for sales abroad constitutes infringement even if the product is intended for sale abroad—that is, this is a straightforward case of infringement by making. Snider J also relied on Fox 4^th 393, but Fox relied only on UK cases, such as Pfizer, discussed above.

The Export Issue

The key case on whether the export of component parts for assembly abroad constitutes infringement is Beloit v Valmet-Dominion [1997] 3 FC 497 (FCA) varg JM Voith v Beloit [1993] 2 FC 515 (FCTD). At trial, Rouleau J had held that “when the defendants shipped the unassembled parts in question out of the country, they cannot be said to have made, constructed, used or sold to others, in Canada, the plaintiff’s invention” (543): that is, he held that export is not one of the enumerated rights and was therefore not infringing. While the FCA reversed, Mactavish JA [135] pointed out that the FCA began its analysis by noting that “[a] person who, beyond Canada, makes, constructs, uses, or sells the invention commits no breach of the Canadian patent,” so that consequently, the focus must be on the domestic actions of the respondent [33]–[34]. As Mactavish JA [137] also noted, the FCA held that Rouleau J had erred because he “failed to consider that the respondent GEC had in fact sold in Canada the patented invention when it signed contracts in Montréal” [43] (my emphasis). The FCA in Beloit also noted that “[w]here the elements of an invention are sold in a substantially unified and combined form for the purpose of later assembly, infringement may not be avoided by a separation or division of parts which leaves to the purchaser a simple task of integration and assembly” [41]. Thus, the sale entered into in Canada was a contract for the sale of the invention, notwithstanding that the parts were to be assembled and used abroad [45]. So, the basis for the holding of infringement was not that export (either of the invention or parts for assembly) constitutes infringement, but rather that the sale—an enumerated right—took place in Canada where the contract was entered into.

As Mactavish JA [138] also noted, the FCA in Beloit further pointed out that the machines had been assembled for testing in Canada before being disassembled for shipment abroad, and the Court held that this “constitutes ‘making’ a patented invention for the purposes of [what is now section 42] of the Act” [47]. Thus it is clear that the FCA found infringement on the basis of domestic acts—sale and making—which fall squarely within the rights enumerated in s 42.

In this case, while it was clear that GreenBlue had exported the components of the infringing RootSpace system to the US, it was unclear as to where the sale took place [145] and even who the parties were to the sale (GreenBlue’s UK parent company was also involved) [142]–[144]. (Recall that this issue was not at all prominent at trial.) In this case, there was no evidence of assembly in Canada after the injunction was issued [141]. Consequently, the FC did not err in declining to find infringement [146].

DeepRoot had relied on Varco 2013 FC 750 for the proposition that “the shipment of parts outside of Canada, along with the relatively simple later assembly, constitutes the shipment of the assembled product from Canada” [124]. In Varco, Phelan J [260] interpreted Windsurfing (1985) 8 CPR(3d) 241 (FCA) and Beloit in the same way as Mactavish JA did in this case, as turning on the point that “the sale was made in Canada.” Consequently, Mactavish JA held that Varco was distinguishable because in this case there was no evidence that GreenBlue had made the sale [141].

While it was not mentioned in this case, either at first instance or on appeal, I would also note that in Apotex v Sanofi-Aventis 2011 FC 1486, Boivin J held that “Apotex committed acts of infringement by manufacturing, using, importing, exporting, possessing and selling a product protected by the [patent at issue]” [210]. However, this broad statement must be read in conjunction with his specific findings, namely that “the transfer of title occurs in Canada,” and “[t]he sales by Apotex Corp. [Apotex’s US marketing entity] are made pursuant to an Abbreviated New Drug Application (ANDA) in the name of Apotex and regulatory approval obtained by Apotex Inc. with Apotex Corp. acting as its agent” [209]. Thus, the sale took place in Canada and the sale was for the benefit of Apotex. In light of these facts, Boivin J’s analysis appears to be consistent with Mactavish JA’s analysis in this case.

In summary on the export point, while Mactavish JA did not expressly hold that export as such does not constitute infringement, that seems to be the implication of the decision. While it was not clear where the sale took place or who the parties were, it does seem clear that GreenBlue exported the components, and this implies that GreenBlue would have been found to infringe if the FCA considered that export as such constitutes infringement.

Infringing Intermediate or de minimis Use?

Deeproot Green Infrastructure, LLC v GreenBlue Urban North America Inc 2023 FCA 185 Mactavish JA: Gleason, Woods JJA affg 2022 FC 709 McDonald J

            2,552,348 / 2,829,599 / Integrated Tree Root and Storm Water System

DeepRoot’s 348 and 599 patents relate to a landscaping system to promote healthy urban trees using a subsurface structural cell system that supports the hardscape (eg sidewalk and paving), enables stormwater retention and filtration as well as allowing tree roots to grow in uncompacted soil. In DeepRoot v GreenBlue 2021 FC 501 (see here) McDonald J held that DeepRoot’s patents were infringed by GreenBlue’s RootSpace product. She consequently enjoined GreenBlue from infringing. After this decision, GreenBlue revised its product by adding the “Airform” component in an attempt to design around the patents. In response, DeepRoot brought a contempt motion against GreenBlue. McDonald J dismissed the motion in a decision that turned entirely on the facts, on the basis that DeepRoot had not proven beyond a reasonable doubt that GleenBlue’s revised system was infringing: 2022 FC 709 discussed here. The FCA has now affirmed, generally on the basis that McDonald J’s decision turned on the facts and DeepRoot had not established any palpable and overriding error. Some interesting points are nonetheless raised tangentially. This post discusses the issue of non-functional design-around and the question of the infringing intermediate. A subsequent post will discuss the import / export question, which was not really addressed at trial.

The GreenBlue RootSpace structural cell that was found to infringe is shown here [10]:

 

The claims require that “at least approximately 85% of the volume” in the cells in the structural cell system be available to be filled with soil. This was held to be an essential element, and was construed as meaning at least 84.5% [15]. After the initial infringement determination, GreenBlue began selling the RootSpace AirForm system as a design-around. It is the same as the infringing system except for the addition of the “AirForm Insert” which reduces the space available to be filled with soil. The AirForm Insert is shown on the right:

 

GreenBlue would be in contempt if the RootSpace AirForm system infringes. There were two main questions on appeal. One was whether DeepRoot had established beyond a reasonable doubt that the cells in the RootSpace AirForm system have available volume space of at least 84.5% [51]. McDonald J found on the facts that the available volume was less than 84.5%, and this was affirmed on the basis that she had not made any palpable and overriding error [92].

The other issue was whether it is appropriate to include the volume of the AirForm Insert in the calculation of the available volume in the cells in the RootSpace AirForm system [51]. (If not, the new system would clearly infringe.) The way it was argued, this turned on whether the AirForm Insert formed part of the structural cell itself [52]. On the facts, this was unclear and therefore DeepRoot had not carried it’s burden of establishing infringement beyond a reasonable doubt [62]. This factual finding was not tainted by a palpable and overriding error [64].

Structural element

The tangential issue is whether it is really necessary that the AirForm Insert is structural. I don’t see why it should be. The 85% requirement was express in the claim and was an essential element. This implies it is important. It seems obvious enough that the more dirt volume the better for the tree roots. So perhaps the prior art had systems where only 80% of the volume was available, and the breakthrough lay in devising a system with 85% volume. In that case, so long as the RootSpace AirForm system was in fact used with the AirForm insert in place, the essence of the invention would not be taken, and I don’t see why it should be considered infringing, whether or not the AirForm insert is structural. More broadly, since the requirement that “at least approximately 85% of the volume can be filled with soil” is essential, I don’t see why a system should be considered infringing so long as that requirement is not met, regardless of reason that is it not met.

I will note that there is a claim construction point here. This argument applies directly to Claim 1 of the 348 Patent requires that “at least approximately 85% of the volume can be filled with soil.” If the system is used with the AirForm insert, that is not true, and I don’t see why it should matter whether the insert is structural. Claim 1 of the 599 Patent requires a base and periphery support members “said support members being sized and arranged so that at least approximately eighty five percent of a volume defined by outer edge of said cell is a void space.” This might possibly be construed as requiring that “void” is defined solely by structural members. However, this does not seem to have been the basis for the argument, since the structural argument applied to both the 248 and 599 patents [52].

On a related point, GreenBlue’s witnesses at the contempt hearing “explained that the trial judgment drew ‘a line in the sand’, allowing the company to know the parameters that it needed to follow in designing a new product that had less soil volume than that of the cells in its old RootSpace cell system” [21]. The obvious rejoinder is that it is the claims of the patents themselves that drew the line in the sand. It is clear that GreenBlue designed AirForm for the purpose of avoiding infringement [22], but as Mactavish JA pointed out, this is entirely permissible: “One can deliberately attempt to avoid infringing a patent of which one has knowledge by “designing around” the patent. Whether or not that effort succeeds will depend on the construction of the claims of the patent at issue and not on one’s intention” [42].

With all that said, I don’t see Mactavish JA’s decision as endorsing the view that the Airform Insert had to be structural for the system to be non-infringing. As I read it, she was simply addressing the issues the way the case was argued. She did say that “In assessing whether the space taken up by the AirForm Insert should be included in calculating the volume available in GreenBlue’s RootSpace AirForm system, DeepRoot had to establish that the AirForm Insert did not form part of the structural cell itself” [52]. I don’t read this as a holding that this is required as a matter of law. Read in conjunction with the following sentence—”If the AirForm Insert did not constitute part of the structure of the cell, DeepRoot contends that it could be ignored in calculating the available volume in the RootSpace AirForm cells” (my emphasis), I read this as simply setting out DeepRoot’s argument, not as endorsing it.

Infringing intermediate

DeepRoot also argued that “a RootSpace cell could be made as an ‘infringing intermediate’ if an old RootSpace cell was assembled before adding the AirForm Insert to complete the new RootSpace AirForm cell” [98]. This was dismissed on the facts, on the basis that there was no evidence that RootSpace induced infringement by instructing customers to install the system without the inserts (indeed, the evidence was to the contrary).

The more interesting issue is DeepRoot’s argument that “the creation of infringing RootSpace structural cells during the assembly of GreenBlue’s RootSpace AirForm structural cell systems constitutes direct infringement . . . [e]ven if the structural cell was subsequently rendered non-infringing by installation of the AirForm Insert” [103]. This was dismissed on the basis that if GreenBlue’s assembly instructions were followed, not even a single structural cell would be created during assembly, as the AirForm Insert is inserted before the final structural panel [120]. Any evidence of a different assembly sequence did not involve GreenBlue’s participation [116].

While the argument failed on the facts, it raises an interest issue of de minimis use. Citing Pfizer v Apotex 2009 FC 671 [48], DeepRoot argued that “a party is liable for patent infringement if any intermediates made during the process to make its end product are found to infringe the patent in question” [103]. However, as pointed out in Pfizer-Atorvastatin 2007 FC 898 [91] this rule applies when the role of the intermediates in the manufacturing process is “not insignificant or incidental.” Intermediates are typically important because they are part of a more efficient process. Incidental production of intermediate might not be considered infringing as being de minimis. This view is supported by Bayer v Fresenius Kabi 2016 FC 581. DeepRoot cited Bayer v Fresenius Kabi [164], which states “infringement occurs where a patented substance is produced at an intermediate stage, even if the intermediate is not in the final drug product,” in support of its argument. But Brown J went on to say that even if the patented compound was present in the manufacturing process, that use would be insufficient to establish infringement by importation [168] because it was it was only transiently present, and “trivial and merely incidental” in the manufacture of the product sold into Canada [171], [182]. In my view, both cases relied on by DeepRoot support the view that occasional inadvertent creation of an infringing cell during the assembly process—eg if a worker who was new on the job mistakenly assembled the full cell before inserting the AirForm Insert—would be considered de minimis and therefore non-infringing.