Federal Court Of Appeal Affirms Largest Reported Canadian Patent Infringement Award In History

• Published date: 29 September 2020
• Subject Matter: Accounting and Audit, Intellectual Property, Litigation, Mediation & Arbitration, Accounting Standards, Patent, Trials & Appeals & Compensation
• Law Firm: Smart & Biggar
• Author: Mr Daniel Hnatchuk

In earlier decisions of the Federal Court (2017 FC 350 and 2017 FC 637), the Court ordered Nova Chemicals Corporation (Nova) to pay The Dow Chemical Company (Dow) approximately $650 million as a result of Nova's infringement of Dow's patent on novel polyethylene blends (2014 FC 844). As reported previously, this was the largest reported Canadian patent infringement award in history.

The Federal Court of Appeal has now issued its Judgment and Reasons (2020 FCA 141) on the appeal. Justice Stratas, writing for the majority, affirmed the judgment below, dismissing Nova's appeal in its entirety. Broadly speaking, the appeal concerned the principles that should govern the calculation of a plaintiff's recovery under an accounting of the infringer's profits, springboard profits for post patent expiry sales, and the date of currency conversion of the award into Canadian dollars.

Steven Garland, Jeremy Want and Daniel Davies of Smart & Biggar acted as counsel for Dow.

Earlier decisions on infringement and validity

During the liability phase, which began in 2010, the Federal Court found that Nova's SURPASS polymers infringed, and upheld the validity of Dow's Canadian Patent No. 2,160,705. The polymers are polyethylene compositions used in packaging applications including heavy duty bags, pallet wrapping and food packaging. Dow sells such compositions under the name ELITE.

As a result of the findings of infringement, the Federal Court awarded Dow various remedies, including an election between damages and an accounting of profits, reasonable compensation for infringement that occurred between the publication date of the '705 Patent and its date of issuance, interest and costs. Dow subsequently elected for an accounting of Nova's profits.

The Federal Court of Appeal upheld the Federal Court decision on infringement (2016 FCA 216). Nova was denied leave to appeal to the Supreme Court of Canada.

Federal Court Judgment on Remedies

In the quantification phase of the proceedings, the Federal Court ordered Nova to disgorge profits and other relief totaling approximately $650 million as a result of its infringement of Dow's patent. Nova appealed to the Federal Court of Appeal whose decision was released on September 18, 2020.

Principles relevant to an accounting of profits

The Federal Court of Appeal decision begins with a summary of the underlying principles relevant to an accounting of profits for patent infringement. As opposed to compensatory damages, which are intended to restore the plaintiff to the position it would have been in had the infringement never taken place, the aim of an accounting of profits is not to compensate for injury but to remove the benefits the wrongdoer has made as a result of the infringement. Overall, the award of an accounting of profits has two primary purposes: (i) restitution, in having the defendant disgorge all of the profits from its infringing conduct; and (ii) deterrence, by warning potential infringers that they had best steer clear of others' rights of exclusivity under patents and instead, spend their time in more profitable, lawful ways.

An accounting of profits must walk a fine line between deterring infringement, i.e., extracting any economic incentive to infringe, without being punitive, i.e., extracting sums not causally connected to the infringement. An accounting must also focus on defending and vindicating - not expanding - the patentee's lawful monopoly under the patent. This has resulted in the development of two basic rules for courts in conducting an accounting of profits: (1) only actual profits, meaning actual...