The Federal Court Of Appeal Upholds $640 Million Accounting Of Profits Award For Patent Infringement

• Published date: 23 September 2020
• Subject Matter: Accounting and Audit, Intellectual Property, Accounting Standards, Patent
• Law Firm: Aird & Berlis LLP
• Author: Mr Ken Clark, L.E. Trent Horne and Lawrence Veregin

In its recent decision in Nova Chemicals Corporation v. Dow Chemicals Company, 2020 FCA 141, the Federal Court of Appeal clarified the role and calculation of the accounting of profits remedy for patent infringement. An accounting of profits enforces the patent bargain and acts as a deterrent of infringement by denying an infringer any and all profit from the infringement. The Court clarified that an accounting of profits is a simple accounting calculation of the actual profits obtained from the infringement. How 'enormous' or 'unfair' the award may seem is irrelevant'the profits are what they are. The decision provides greater certainty to the valuation of an accounting of profits for patent infringement.

In the case of Dow Chemicals, they received all of the benefits of Nova Chemicals' infringing'yet efficient and successful'SURPASS product, resulting in a $640 million judgment.

The Court distinguished an accounting of profits from compensatory damages. Compensatory damages are from the perspective of the patentee and seek to restore the patentee to the position they would have been in if no infringement had taken place. However, in some circumstances, the patentee's loss may be less than an infringer's gain from the infringement. An accounting of profits bridges this gap by stripping an infringer of all of its profit from the infringement.

The Court established a clear formula for calculating an accounting of profits:

The infringer's actual revenue from the infringing goods, services or process Less: The infringer's actual incremental costs from the infringing goods, services or process Less: The infringer's actual fixed costs, proportioned to use towards the infringement

The infringer's actual profit from the infringing goods, services or process Apportion: Apportion profits attributable to the infringement

The infringer's actual apportioned profits Add: Springboard profits, pre-judgment interest and 'profits on profits'

Accounting of profits award (in foreign currency) Conversion: Convert foreign currency to CAD based on conversion rate on date of judgment

Accounting of profits award (in CAD)

Actual Revenue and Costs

An accounting of profits analysis must consider the actual revenue and costs rather than hypothetical revenue and costs. There are no deductions or additions for what an infringer could have done. The objective is to calculate how much the infringer has profited from the infringement, not how much they could have or should have benefitted (e.g. such as how efficient the infringer was).

The actual revenue and cost is not reduced by other opportunities (e.g. what the infringer would have done if they did not infringe). The Court endorsed the analogy of a bank robbery'the bank robbers cannot reduce the amount they have to return (i.e. what they stole) by the...