Get To The Chopper: Canada's Federal Court Of Appeal Upholds Decision In Bell Helicopter v. Eurocopter

The Federal Court of Appeal (FCA), in Bell Helicopter Textron Canada Limitée v. Eurocopter SAS, affirmed a trial decision that invalidated most of the claims of a patent for failure to meet the promised utility. The FCA also sanctioned the concept of punitive damages for willful patent infringement under Canadian law.

BACKGROUND

As reported in our February 2012 Blakes Bulletin: Broken Promises – Canadian Patent Claims Don't Fly, the patent in suit was owned by Eurocopter SAS (Eurocopter) and related to an improved helicopter landing gear referred to as "Moustache landing gear" due to its particular geometrical shape. Bell Helicopter Textron Canada Limitée (Bell Helicopter) began developing its own competitive landing gear after the grant of the subject patent to Eurocopter. In the course of development, Bell Helicopter leased a Eurocopter helicopter equipped with the Moustache landing gear and thereafter developed its own "Legacy landing gear". Eurocopter commenced its infringement action in 2008, shortly after becoming aware of Bell Helicopter's Legacy landing gear. Bell Helicopter subsequently redesigned the Legacy landing gear to create the "Production landing gear". The Legacy landing gear was never sold in Canada.

At trial, the Federal Court found 15 of the 16 claims of the patent in suit to be invalid while affirming the validity of the one remaining claim. The Federal Court ruled that Bell Helicopter's Legacy landing gear infringed that claim, but that its Production landing gear did not. As well, the Federal Court found Bell Helicopter's conduct to be so deliberate and outrageous that punitive damages were justified.

Both parties appealed aspects of the trial decision. The FCA dismissed both the appeal and the cross-appeal.

Two key concepts were addressed in both the trial judge's decision and in the FCA's decision: (1) utility and sound prediction; and (2) punitive damages.

UTILITY AND DOCTRINE OF SOUND PREDICTION

For a patent to be valid, the invention's usefulness or utility must be established at the time of filing of the patent application. Where utility has not been demonstrated, it may be based on sound prediction of utility. A number of recent decisions by Canadian courts have highlighted the importance of meeting the utility requirement imposed under the Canadian Patent Act. However, prior to the trial decision in this case, the doctrine of sound prediction was invoked almost exclusively for biotechnology and pharmaceutical patents, where the promised utility is often not demonstrable at the time of filing.

The FCA agreed with the trial judge that the doctrine of sound prediction can also apply to the field of mechanical inventions, despite its more restricted historical application in that field. In doing so, the FCA reiterated the test for supporting a reasonable prediction, namely, that:

• There must be a factual basis for the prediction
• There must be a sound line of reasoning for inferring the prediction from the factual basis
• There must be proper disclosure in the patent.

Application to the facts

At trial, the patent in suit was construed to promise the advantage of significantly reducing drawbacks of prior landing gear designs, such as high gear weight, ground resonance, and load factors. The trial judge went on to find that, due to a lack of either demonstrated utility or sound prediction, all but one of the claims were invalid. The FCA agreed with these findings.

One claim of the patent (claim 15) was upheld at trial on the strength of its disclosure, which recited a specific structure together with sufficient test data. On appeal, the FCA was not persuaded by Bell Helicopter's argument that Eurocopter had not undertaken adequate testing regarding the forwardly inclined front cross piece bar to support claim 15. The FCA held that it was not necessary for Eurocopter to test every minute variant of the inclination of the integrated front cross piece which was offset forward in order to establish utility. The FCA agreed with the trial judge that once a skilled person had chosen a design where the front cross piece is offset forward, the person would have no difficulty choosing which inclination will provide the best result, depending on the general design and weight of the structure of the helicopter.

PUNITIVE DAMAGES

The FCA affirmed that punitive damages may be awarded for the intentional infringement of intellectual property rights and that there is no basis to exclude punitive damages from patent infringement. Prior to the trial judge's decision in this case, Canadian courts had rarely awarded punitive damages in patent infringement actions.

The FCA rejected Bell Helicopter's submission that, for policy reasons, a party who intentionally infringes a patent should be exempt from punitive damages so as to facilitate "the removal of improper monopolies through the challenge of an invalid patent".

Still, the FCA acknowledged that punitive damages "are very much the exception rather than the rule" and should only be resorted to in exceptional circumstances. More specifically, punitive damages are appropriate where a party's conduct has been high-handed, malicious, arbitrary or highly reprehensible, and represents a marked departure from ordinary standards of decent behaviour.

Accordingly, not all cases of infringement will result in, or warrant an award of, punitive damages.

Punitive damages appropriate in this case

A significant aspect of this case was the lack of evidence showing that Bell Helicopter possessed knowledge of Eurocopter's patent prior to the commencement of the litigation. Nonetheless, the trial judge found that it was not plausible that a sophisticated entity such as Bell Helicopter lacked knowledge of Eurocopter's patent, stating that "Bell knew or should have known" of the patent holding of Eurocopter. The FCA agreed with these findings.

Moreover, the FCA noted numerous credibility issues with respect to key aspects of the testimonies of senior officials of Bell Helicopter. Most notably, Bell Helicopter's employees raised concerns early on about the similarities between the Legacy landing gear and the Moustache landing gear, yet nothing was done to alleviate these concerns.

The FCA wrote: "Where a person infringes a patent which it knows to be valid, appropriates the invention as its own, and markets as its own knowing this to be untrue, punitive damages may be awarded when an accounting for profits or compensatory damages would be inadequate to achieve the objective of retribution, deterrence and denunciation of such conduct."

The FCA was of the view that the conduct of Bell Helicopter "must be denounced in a manner that deters similar misconduct in the future and mark's the community's collective condemnation."

Awarding punitive damages before the quantum of general damages is determined

With respect to timing, the FCA held that, as a general rule, the entitlement and quantum of punitive damages should be determined after the quantum of compensatory damages has been established. This was based on the rationale that, for punitive damages to serve their purpose they must be awarded only where compensatory damages are inadequate to achieve the objectives of retribution, deterrence, and denunciation.

However, the FCA held that, in appropriate cases, and depending on the context, it may be possible to determine an entitlement to punitive damages before the exact quantum of compensatory damages has been established. This would be the case where the compensatory damages, though not precisely quantified, would nevertheless likely be insufficient to accomplish the objectives of retribution, deterrence, and denunciation.

The FCA found that this was precisely the situation faced by the trial judge in this case. The infringement of the patent in suit was limited to the Legacy landing gear which was never sold; therefore, the quantum of ordinary damages would likely be minimal and would not achieve the goal of punishment and deterrence.

Effect of the decision on businesses operating in Canada

In the wake of this decision, "sophisticated" companies operating in Canada may be found to possess implied knowledge of their competitor's technology and patent holdings. As such, companies may wish to take steps to ensure that they are not exposed to punitive damages in the event they are sued for patent infringement. In particular, prior to engaging in any activity that may result in infringement of a Canadian patent, businesses should consider conducting patent searches and seeking opinions from their Canadian lawyers with respect to infringement and validity issues.

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