Nova v Dow: Will Nova v Dow Create a Chilling Effect?

Nova v Dow: Will Nova v Dow Create a Chilling Effect?

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 / Three Policy Arguments / The Source of the Chilling Effect / Miscellaneous Policy Issues / Doctrinal Implications

In previous posts summarizing my forthcoming IPJ article, I have argued that an accounting based on “but for” causation avoids the risk of a chilling effect in which parties avoid engaging in legitimate competition and investment in innovative sectors; conversely, an accounting which results in a greater disgorgement on average than a “but for” accounting will have a chilling effect on innovation and competition. Whether Nova v. Dow will have a chilling effect on innovation therefore turns on whether it will on average result in a greater disgorgement than a “but for” accounting. The chilling effect is always prospective—the problem is that the prospective infringer does not take a socially desirable course of action out of fear of litigation—so the question is which way this balance tips in expectation, which is to say on average.

There are some cases, such as Schmeiser, where the appropriate NIO corresponds to what the infringer would in fact have done, in which case the result will be the same under either a “but for” accounting or the Nova v Dow approach. There are other cases, such as Nova v Dow itself, in which the infringer would in fact have made substantial profits but for the infringement, but there is no appropriate NIO, so that a Nova v Dow accounting will result in a greater disgorgement than a “but for” accounting. Finally, in cases in which an NIO exists that was not in fact available to the infringer and which would have been more profitable than the non-infringing option actually available to the infringer, a Nova v Dow accounting will result in a smaller disgorgement than a “but for” accounting. Whether the Nova v Dow approach will result in a chilling effect turns on whether, on average, the excessive disgorgement in the second category of cases more than outweighs the reduced disgorgement in the third category of cases.

In Part II of my forthcoming IPJ article, I argue that the expected accounting under Nova v. Dow will be excessive for two reasons. First, cases in which the infringer will be able to establish a reduced disgorgement are likely to be rare. A reduced disgorgement arises when NIO was not actually available to the infringer and the NIO was more profitable than the alternative that was actually available to the infringer. This will be rare because the market will usually supply the infringer with the most profitable alternative. If the NIO is more profitable, it will normally be available; and if it is less profitable than the alternative that the infringer would in fact have used, then using the NIO will result in excessive disgorgement. Further, the burden is on the infringer to show the profits it would have made with the NIO. It will be difficult for the infringer to establish profits that it would have made with an alternative that was not actually available to it: how can the infringer establish the cost of an alternative that it could not have purchased at any price? Rivett 2009 FC 317 is the exception which proves the rule — the profitability of the non-available alternative was, unusually, established by evidence introduced by the patentee. Second, there is a selection bias: the patentee is entitled to damages as of right and so is less likely to seek an accounting when it expects the accounting to result in a reduced disgorgement.

The article goes through the implications of these points in detail, discussing issues such as how likely it is that there will be an NIO that existed but which was not in fact available to the infringer, which the infringer will nonetheless be able to use to establish its profits in the hypothetical world. I won’t review those details here, as the argument is a bit intricate, going through a variety of scenarios, and I don’t think that I can meaningfully compress it. Suffice it to say that I am very confident that the Nova v Dow approach will result in a chilling effect. I will leave it to the reader to review my arguments in detail when the article is published, and see if you agree.