Seismotech IP Holdings Inc v Apple Canada Inc 2023 FC 1649 Grammond J
Seismotech owns patents related to intelligent thermostats and it wishes to sue consumers who bought and used such devices in their homes [1]. In a previous motion in the same litigation, 2023 FC 1335, Seismotech resisted adding the manufacturer of the allegedly infringing product to the action it brought against the consumers. As discussed in my post on that motion, Seismotech appears to be a patent assertion entity (PAE), which is focusing on consumers as they will be soft targets who will prefer to enter into nuisance value settlements rather than defending the patent vigorously.
This decision relates to a Norwich order sought by Seismotech which would have required Apple to disclose the names and addresses of consumers who downloaded the apps controlling such intelligent thermostats from the App Store [1]. The factors usually taken into consideration for granting a Norwich were recently summarized in Voltage Pictures 2018 SCC 38 [18], quoted at [12]. Grammond J refused to grant the order, on the basis that Seismotech failed to show that it has a bona fide claim (the first factor), and because the public interest does not favour the granting of a Norwich order (the fifth factor) [2]. Grammond J’s analysis on both points is of interest, but I will start with the public interest analysis as it bears on Seismotech’s litigation strategy and will be relevant to PAE litigation more broadly.
The thrust of the decision is that the courts will not exercise their discretion to facilitate a litigation strategy that is designed to extract settlements from consumers who are not in a position to effectively defend the claims made against them and so will settle simply to avoid getting embroiled in litigation. I entirely agree with his analysis, and I can’t do any better than to reproduce the key paragraphs.
Grammond J noted that while the public interest prong typically focuses on privacy concerns, that is not the only relevant consideration [40]. More broadly, “a Norwich order facilitates the search for the truth” [41].
[42] This, however, works both ways. Access to justice is important not only for plaintiffs, but also for defendants. Civil litigation is an adversarial process. Truth is expected to emerge from the process because assertions made by one party are subject to challenge by the other. For this to happen, both parties must have a genuine opportunity to put their cases forward. There is a serious risk that a matter will not be correctly adjudicated if the defendant is deprived of access to justice or is ill equipped to assert available defences.
[44] Special considerations arise when a party proposes bringing an action in patent infringement against a large number of individual consumers, each having a relatively modest amount at stake. Patent infringement cases are inherently complex. Patents are intended to be read by a person of skill in the art, not by persons who lack technical skills, such as judges and lawyers and, a fortiori, individual consumers. For this reason, prosecuting or defending an action in patent infringement almost always requires the presence of expert witnesses. In a large proportion of such cases, the validity of the patent is challenged on a number of grounds, which reinforces the need for expert evidence. The quantification of damages also often raises complex issues. For all these reasons, patent litigation is costly. Costs awards made by this Court provide a glimpse of the magnitude of the financial resources needed to defend such an action, which are often measured in millions of dollars. . .
[45] The nature of the technology at stake in this case compounds the difficulty of defending the claim. Very broadly, Seismotech’s patents involve the use of information technology to provide sophisticated manners of controlling devices such as heaters, gas fireplaces and the like. End-users of intelligent thermostats cannot be expected to read the patents at issue and to construe their claims. Moreover, they do not have access to the inner workings of the device they own or the app they downloaded. Without the assistance of the manufacturer, it would require considerable effort and expertise to disassemble the device and its code to ascertain whether it infringes the claims of Seismotech’s patents. This is unlike simpler mechanical inventions that a layperson may more easily understand. . . .
[46] It is obvious that meaningfully defending Seismotech’s action is entirely out of reach for the individual consumer. Even accepting Seismotech’s theory that it is entitled to recover each consumer’s utility bill savings, the amount at stake for each defendant is unlikely to exceed a few thousand dollars. The Court is not aware of any realistic manner of providing individual consumers with adequate legal representation in the defence of such an action that would be proportionate to their own potential liability. Seismotech explicitly declined to attempt to certify this action as a reverse class action. Seismotech’s suggestion that defendants could pool their resources to defend the action appears out of touch with reality, given the number of individual consumers involved and the amount at stake for each of them.
[47] Given the practical impossibility of defending the action, it is foreseeable that many defendants will feel compelled to accept an offer to settle regardless of the merits of the case.
With all that said, in some circumstances the end-users are appropriately named as defendants.
[48] The complexity of mounting a defence sets this case apart from copyright infringement cases in which a Norwich order was issued to identify a large number of individual defendants. In those cases, there is rarely any debate about the plaintiff’s copyright over the musical or cinematographic work that was copied or downloaded by the defendants. It appears that the defence is usually that the owner of the IP address is not the person who illegally copied the work. It stands to reason that the factual and legal complexity of such a defence bears no relationship to a patent infringement action.
While I agree that complexity is a distinguishing factor, there is another difference that I would suggest is relevant to the public interest analysis. The consumer in most patent cases — certainly in this one — is an innocent infringer, who purchases the goods from a mainstream outlet in the reasonable belief that any intellectual property issues have been dealt with. In copyright cases, the individual defendants typically know full well that the uploading or downloading is illegal, even if they might express ‘information likes to be free’ style arguments as to why the law is wrong. (I recall the horror on the face of one of my students after we discussed the reverse class action copyright cases.) Another distinguishing feature is that the copyright owners in such cases have made very considerable efforts to go after larger entities, such as ISPs, and they have been led to pursue individual defendants because their strategies aimed at ISPs have not proven entirely satisfactory.
Another example where end-users are appropriately pursed is where the end-user is a large entity, with the resources and interest to defend the case on the merits:
[49] Seismotech also relied upon Wobben Properties GmbH v Siemens Public Ltd Co, [2014] EWHC 3173 (Pat), to argue that a Norwich order can properly be used to reveal the identity of the end-users of patented technology. It is obvious, however, that the proposed defendants in that case were large businesses that, one can assume, had the resources to defend a patent infringement action involving complex technology. If anything, this case shows that the character of the parties and the manner in which the proposed litigation is likely to unfold are relevant factors for deciding whether a Norwich order should be issued.
In some cases, where a small entity inventor supplies a crucial patented component to a large entity end-user, the end-user may even be better placed to defend the action.
When I say that in some cases it is appropriate to pursue the end-user while in others it is not, I am of course not saying that the plaintiff does not have a legal right to pursue the end-user in the latter category. The question is whether it is appropriate in the sense of being in the public interest, so as to properly come into play in a discretionary order such as a Norwich order. The difficulty of drawing any bright line between cases in which it is, or is not, appropriate shows the wisdom of making this one factor in a holistic consideration.
On the first point, the requirement of a bona fide case, Seismotech sought to have the motion granted on the basis of a bare assertion of belief that the defendants infringed, without any supporting evidence [23]; Seismotech’s owner refused to even explain the basis for his belief [25]. Seismotech argued that evidence that a wrongful act has been committed is not necessary to obtain a Norwich order and that all that is required is to show that the plaintiffs really do intend to bring an action [15]. Grammond J rejected this argument, holding that while a plaintiff need not show that the claim is likely to succeed [14], “the mere assertion of a cause of action, without any factual foundation, is insufficient” [16]. I won’t go through Grammond J’s analysis of the cases except to say I agree with it, but I will highlight one comment:
[29] A useful way of looking at the matter is to ask whether the statement of claim, together with [Seismotech’s owner’s] evidence, would withstand a motion to strike. The test for striking out a claim does not have the exact same purpose as the requirement for a bona fide claim in the test for a Norwich order. Nevertheless, it is difficult to contemplate the issuance of a Norwich order where the statement of claim is so deficient that it is liable to be struck.
This does strike me as a very useful test, at least for the minimum evidentiary threshold. If a statement of claim would be struck when asserted against a defendant, how can it be the basis for an order against a third party?
On the facts, Grammond J found the claim to be “purely speculative” and hence it was not bona fide [35]. He also helpfully distinguished this case from the typical copyright infringement cases:
[36] Typically, the plaintiff provides a forensic investigation report showing that a person using a certain IP address downloaded a file containing music or a movie, in which the plaintiff holds the copyright. In such a case, the report provides a plausible basis for assuming that there was a copyright infringement, as the very act of unlawfully downloading the copyrighted work is the infringing act. The investigator is able to report that the work downloaded by the user and the copyrighted work are the same. In contrast, the mere fact that consumers downloaded the apps in this case does not give any indication that the apps, the devices or their use by the consumers infringe Seismotech’s patents.
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