Can the Election Between Damages and an Accounting Be Made after Discovery?

Angelcare Canada Inc v Munchkin Inc 2023 FC 1111 Roy J

2,640,384 / 2,855,159 / 2,936,415 / 2,936,421 / 2,937,312 / 2,686,128 / Diaper pail cassette

In Angelcare v Munchkin 2022 FC 507, Roy J held that various claims of Angelcare’s six patents were valid and infringed by Munchkin in the liability phase of a bifurcated trial: see here. This motion concerned a variety of remedial matters preliminary to the remedies phase, specifically entitlement to injunctive relief, entitlement to an accounting of profits; entitlement to punitive damages; and which of the three plaintiffs is entitled to a pecuniary remedy.

Election between damages and an accounting

With respect to entitlement to an accounting, Angelcare did not merely seek an accounting: it sought the entitlement to decide between damages and an accounting after discovery was completed, in order to have the financial information necessary to make the most advantageous choice [15]. Roy J granted this right to elect after discovery, after a review of the authorities which focused exclusively on the issue of entitlement to an accounting, not the narrower issue of whether there is an entitlement to elect after discovery: see [15]–[41] and the Order entitling the Plaintiffs “to claim a monetary remedy, be it damages or an accounting profits.”

This holding is contrary to AlliedSignal (1995), 61 CPR (3d) 417 (FCA) 444 which addressed the same issue: “[t]he appellant is asking for damages or an accounting of profits made by the respondents by reason of their unlawful acts, ‘whichever shall, upon inquiry, prove to be the larger amount’.” This request was denied: entitlement to an accounting “certainly cannot depend on whichever amount would turn out, on inquiry, to be more profitable.” The reason is that “[a]n accounting of profits is an equitable remedy which ought to be allowed by the Court in the exercise of its equitable jurisdiction when the circumstances so warrant.” There must a basis in equity for granting an accounting and “putting as much money as possible into the pocket of the patentee” is not an equitable principle. Roy J did not consider AlliedSignal, presumably because it was not cited to him, and consequently his holding on this point cannot be considered to have any precedential value.

I would also point out that while Roy J also held that Angelcare was entitled to an accounting if it so elected, he relied entirely on caselaw that preceded the SCC decision in Nova v Dow 2022 SCC 43. In a two part article forthcoming in the IPJ and summarized in a series of blog posts, I have argued that Nova v Dow wrought such a major change in the principles on which the quantum of an accounting is assessed that the courts should revisit the principles on which an accounting is granted. I argued that Nova v Dow turned an accounting into a randomized quasi-punitive remedy, and consequently an accounting should only be awarded in cases in which the infringer tried to game the system by knowingly declining to take a licence to a patent which it knew to be valid, in the hopes of escaping detection.

Punitive damages

Roy J declined to award punitive damages [61], rightly, in my view. He noted that there is a very high threshold for awarding punitive damages, which are granted only in “exceptional cases for ‘malicious, oppressive and high-handed’ misconduct that ‘offends the court’s sense of decency’”: [46], quoting Whiten 2002 SCC 18 [36]. He further noted that “[a]llegations of willful and knowing infringement are alone insufficient to support a claim to punitive damages” [45], quoting Bauer 2014 FCA 158 [25]. This is because wilful infringement of a patent which the defendant reasonably believes to be invalid is not malicious at all; on the contrary, it does a public service by enabling a challenge to patents which were obtained without the quid pro quo of a truly new, useful and non-obvious invention. US law does allow for treble damages for wilful infringement, while carving out an exception for cases in which the infringer reasonably believed the patent to be invalid or not infringed, but the US experience, in my view, illustrates the futility of trying to assess the intent of the infringer for such purposes. The Canadian approach, in which wilful infringement alone is not grounds for punitive damages, is clearly preferable.

Bell Helicopter 2013 FCA 219 was the only case brought to his attention by the parties (and the only Canadian case known to me) in which punitive damages were awarded outside the context of litigation misconduct [44]. Roy J distinguished Bell Helicopter on the basis that in that case “Bell Helicopter used the invention as its own to promote its helicopter” [50]: see also [58]. More specifically, in passages quoted by Roy J at [50], the FCA in Bell Helicopter stated “Bell Helicopter promoted the infringing Legacy landing gear as its own invention,” knowing this to be untrue [191], and the FCA went on to say that “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” [192]. As Roy J stressed, this was the key fact which took the infringement in Bell Helicopter beyond wilful and knowing infringement to a case in which punitive damages could properly be awarded [58]. Consequently, in my view, Roy J was quite right to distinguish Bell Helicopter on this basis.

In this case, “the Defendants sought to create a product which would be compatible with the Plaintiffs’ pails,” [55], but as Roy J pointed out “there is nothing inherently wrong with developing compatible products. Unless there is patent infringement, that constitutes valid innovation,” which should not be discouraged [56]. “The Defendants chose to compete with the Plaintiffs in an area they believed was not covered by the Plaintiffs’ patents,” and while it turned out that they had failed in that effort, such failure is not morally blameworthy so as to justify punitive damages [56]. Patent remedies must strike a balance by protecting the incentive to invent without chilling competition, and, as Roy J pointed out repeatedly, the remedies of damages and an accounting (until Nova v Dow) strike the right balance except in the most egregious cases [56], [59].

One point which arose on the facts is worth noting, as it is likely a common scenario:

[60] The Plaintiffs seek to reproach that the Defendants’ cassettes were displayed in retail stores where the Plaintiffs’ cassettes were displayed. I cannot see anything wrong with a retailer displaying like products with like products. This is merely common sense. That is especially so with respect to large-surface retailers which represent 80% of the market. As such, there is nothing nefarious which could be held against the Defendants; it would be rather weird if the Defendants had chosen to refrain from marketing their wares in large-surface retailers where 80% of the market is.

This must be right. It is evidence that the defendants believed that their products were truly non-infringing, as they were sure to be caught if they sold their product side-by-side with the plaintiff’s product. If we are going to allow good faith competition, then we should allow vigorous good faith competition.

Injunctive Relief

The main issue relating to injunctive relief was whether an injunction should be granted in respect of early generation products which were no longer being actively marketed, and which (according to the defendants) had been removed from Canada, and which may no longer have been in existence [7]. While there is a maxim to the effect that equity does not act in vain, Roy J pointed out that “if the Defendants have no intent to commercialize in Canada their cassettes of generations 1, 2 and 3, they should not be concerned that an injunction is issued until the various patents at issue have expired” [9]. In light of the uncertainty as to whether those products were still available outside of Canada, it was not clear that the injunction would be futile [12], and Roy J consequently granted the injunction.

Standing

The standing issue concerned the entitlement of the various plaintiffs to claim damages under s 55(1) as persons “claiming under the patentee” during certain periods of time. There were three plaintiffs, Edgewell and Playtex, which were affiliated companies [65] and Angelcare, a member of a separate family of companies [66], [68]. At the risk of glossing over a very complicated set of facts, the gist of the problem is that the three plaintiffs cooperated in selling diaper pail systems in Canada over an extended period of time without always having fully formalized the licensing of the various patents which they each owned. Roy J held that this was not an insurmountable hurdle to standing. The courts have taken an expansive approach to the interpretation of s 55. It is now clear that a licence does not have to be exclusive, nor does it have to be in writing, for a person to qualify as claiming under the patentee [119]. Indeed, it is not even necessary that the person be a licensee: “[A] person ‘claiming under’ the patentee is a person who derives his rights to use the patented invention, at whatever degree, from the patentee” [80], quoting Signalisation de Montréal [1993] 1 FC 341 (FCA) 356-357. In light of this expansive definition, Roy J had little difficulty holding the plaintiffs were all persons claiming under the patentee during the relevant period, in light of the close working relationship between them in the manufacture and distribution of the patented diaper systems [122]–[125], [139]. “I find that there was ample evidence in this case that the Plaintiffs were operating together towards a common goal, thus granting each other the right to use the patents” [129].