Supreme Court Clarifies Accounting Of Profits Remedy In Patent Infringement Cases

• Published date: 05 December 2022
• Subject Matter: Intellectual Property, Patent
• Law Firm: Stikeman Elliott LLP
• Author: Mr Kevin K. Graham

On November 18, 2022, the Supreme Court of Canada ("SCC") released its decision in Nova Chemicals Corp. v. Dow Chemical Co. (2022 SCC 43). This decision upheld the largest monetary award to date in a Canadian patent infringement proceeding, and provided the SCC with an opportunity to clarify the framework for calculating an accounting of profits, including the implementation of a "non-infringing option", as well as confirming the availability of springboard profits.

Background Facts

Canadian patent infringement actions are often bifurcated into a liability phase and, if liability is established, a phase to establish the quantum of the claimed monetary remedy (i.e., damages and/or an accounting of profits).

During the liability phase in this proceeding, the Federal Court found that the patent in issue owned by Dow Chemical Co. ("Dow") was valid and had been infringed by the manufacture and sale of certain plastics by Nova Chemicals Corp. ("Nova") (2014 FC 844). The finding of infringement was affirmed by the Federal Court of Appeal (2016 FCA 216) and leave to appeal to the Supreme Court of Canada was denied.

At the quantification phase, the Federal Court awarded Dow an accounting of Nova's profits arising from its infringing activities, totaling approximately $645M (2017 FC 350). A portion of the award was for "springboard profits" for activities that occurred after the expiry of the patent, which was the first time that such profits were awarded in a Canadian patent action. The Federal Court of Appeal upheld this award (2020 FCA 141). Nova then sought, and was granted, leave to appeal to the Supreme Court of Canada.

Nova pursued the appeal to the Supreme Court of Canada on two primary grounds:

• Non-infringing option: Nova argued that had it not manufactured the infringing plastics, it would have manufactured and sold a non-infringing option. As such, Nova argued that the profits from the sale of the non-infringing option should be deducted from the profits award.
• Springboard profits: Nova argued that (i) the remedy of springboard profits was not legally permissible; and (ii) Nova had already compensated Dow for its "ramp-up" into the market through its payment of a reasonable royalty.

Analysis

In an 8-1 decision, the Supreme Court of Canada dismissed Nova's appeal (2022 SCC 43).

In doing so, the Supreme Court established a three-step framework for an accounting of profits analysis:

Step 1: Calculate the actual profits earned by selling the infringing...