Canada: "High Stakes" Patent Action Turned "Damp Squib"

Last Updated: February 6 2017
Article by Michael Crichton

In Mediatube Corp. v. Bell Canada, 2017 FC 6, the Federal Court of Canada has rendered a patent infringement trial decision in a case involving an alleged non-practicing entity.  While in the early days of the case the plaintiffs had been seeking damages for infringement in the hundreds of millions of dollars, by the time of the trial the issues had narrowed substantially to the point that non-infringement was largely admitted by the plaintiffs and the Court was mainly just being asked to render a decision on the allocation of costs.  What was once set to be a "high stakes fight" had turned into "something of a damp squib".

Background

The plaintiffs, Mediatube Corp. and Northvu Inc., asserted Canadian Patent No. 2,339,477 (the 477 Patent) against Bell Canada in an action commenced in 2013.  Generally, the 477 Patent relates to a system for redistributing a plurality of audio/video signals to a plurality of communications interfaces.  The plaintiffs alleged infringement based on Bell's Internet Protocol Television (IPTV) services known as Fibe TV and FibreOp TV.  The plaintiffs further sought punitive damages on the basis that Bell had knowledge of the application for the 477 Patent, worked with the plaintiffs pursuant to a confidentiality agreement for the purpose of commercializing the invention, and eventually launched Fibe TV without the plaintiffs' knowledge or involvement.

In response, Bell denied infringement and asserted invalidity.  In addition, Bell denied any impropriety and sought elevated costs for what it alleged were intentionally false claims made by the plaintiffs.

Narrowing of the issues

As the case proceeded through discovery and towards trial, a number of events occurred that had the effect of narrowing the issues in dispute:

  • By December 2015, the plaintiffs narrowed their infringement case by dropping their claim of infringement to be in respect of only fibre-to-the-node customers; fibre-to-the-home subscribers were no longer at issue;
  • By February 2016, by way of its expert reports, Bell reduced its list of asserted prior art from 753 references to a small subset thereof;
  • By summer 2016, the plaintiffs limited the asserted claims of the 477 Patent to only four claims in total;
  • Throughout 2016, including up to and during the September 2016 trial, Bell provided numerous corrections/clarifications to its discovery answers concerning the details of Bell's Fibe TV and FibreOp TV systems;
  • After their case in chief closed at trial, the plaintiffs conceded non-infringement on all outstanding matters, except that they continued to argue that the multicasting aspect of the Fibe TV service could be modified to infringe the 477 Patent; and 
  • The plaintiffs also withdrew their claim for punitive damages.

Patent not infringed

In addressing infringement, the Court concluded there was no infringement.  In this regard, multiple essential claim elements were not present in the accused system.  With respect to the claim element "audio/video signals" in particular, the Court concluded that the patentee contemplated and disclosed in its specification only analog formats for the demodulated and processed audio/video signals.  As these signals in the accused system were in digital format, there was no infringement.

On the question of whether the possibility of modifying the multicasting aspect of the Fibe TV service constituted infringement on the basis of the doctrine of stand-by utility (e.g., a patented fire extinguisher may infringe even if not used because its stand-by benefit is enjoyed), the Court found no infringement.  This is because Bell was found to have had no intention to carry out the alleged modification.  While intention to infringe is normally not relevant to a patent infringement analysis, it is relevant when considering the doctrine of stand-by utility.

Notably, with respect to expert witnesses and claim construction, and specifically the plaintiffs' argument that its expert should be preferred because he was "blinded" from the allegedly infringing systems when he construed the claims, the Court noted that blinding a witness may indeed lend weight to their testimony in some situations, but ultimately how well-reasoned the various experts' opinions are is of greatest importance. 

Patent valid

In addressing validity, and based on the claim construction adopted by the Court, the Court concluded that none of the asserted references anticipated the 477 Patent, and that the 477 Patent was non-obvious.  The allegation of lack of utility was also rejected, particularly since the 477 Patent contained no clear and unambiguous promise.

Cost consequences

Regarding costs, the plaintiffs argued that, if they had known earlier what they eventually learned about Bell's systems, they would not have pursued the matter to trial.  As such, the plaintiffs argued that they should be awarded costs regardless of any conclusions on patent infringement and validity.

Bell, on the other hand, argued that it should be awarded its costs, including elevated costs in certain situations, because of the plaintiffs' numerous late admissions.

The Court's conclusion on these arguments was that none of the updated discovery answers would have been determinative on the issue of infringement, as the essential claim elements that were missing from Bell's system were missing in any event.  The plaintiffs' arguments regarding inconsistencies in Bell's answers were also dismissed because the plaintiffs never sought further discovery to clarify those answers.  Furthermore, the Court found that Bell's updated answers were properly characterized as clarifications, and earlier-produced answers were not unreliable in any substantial way.  Bell was found to have acted in good faith in answering discovery questions and in providing updated answers.

Notwithstanding the above, the plaintiffs further argued that they were entitled to aggravated costs on the basis of an allegation made by Bell – that the plaintiffs are "patent trolls" – which had allegedly resulted in embarrassment to the plaintiffs and others associated with them.  Bell's position was that the plaintiffs were in fact "patent trolls" on the basis that they were non-practicing entities whose only business was the litigation.

In response to these "patent troll" claims, the Court acknowledged that the term "patent troll" means different things to different people. Some may use it to describe an entity that asserts patent rights it does not use, and others argue it connotes an entity that asserts patent rights that it did not develop and that are invalid and/or are asserted far beyond the scope contemplated at the time of the invention.

Ultimately, the Court concluded that the plaintiffs in the present case were not "patent trolls" in the sense that the expression is generally used, and its use to characterize the plaintiffs was found to have not been warranted.  Nevertheless, use of the expression is more a question of opinion rather than fact.  While the expression is clearly not complimentary, use of the expression does not equate to an allegation of fraud or dishonesty.  Because there was insufficient evidence of the impact of the use of the expression against the plaintiffs, no award of aggravated costs was awarded. 

Finally, the Court made some other notable findings related to costs:

  • There were no adverse cost consequences for Bell for having asserted 753 prior art references, as Bell ultimately focused its prior art assertions in its expert report, nothing suggests any references were irrelevant, and the Court was not convinced the plaintiffs were put to any unnecessary expense;
  • Costs should not be elevated against the unsuccessful plaintiffs where they cast the net broadly in formulating infringement allegations and then narrowed those allegations after obtaining information during discovery.  On the other hand, where the plaintiffs had the information they needed to conclude there was no infringement but delayed in withdrawing the infringement claim, costs should be elevated;
  • Acknowledging that providing a clear theory of infringement may have been challenging to do prior to full discovery, the Court nevertheless found that costs should be elevated on the basis that the plaintiffs commenced the action without a clear theory of infringement, and the theory they did eventually form was weak; and
  • Considerable time was spent during and preparing for trial on the issue of punitive damages when the plaintiffs' allegations in relation to such claim were found to be meritless, particularly with respect to the fact that the plaintiffs had information all along demonstrating that Bell had not engaged in any of the high handed activities the plaintiffs had alleged but ultimately withdrew before Bell called its case.  Accordingly, solicitor-client costs on this issue were awarded in favour of Bell.

Conclusion

This case demonstrates the need for plaintiffs in patent actions to establish as early as possible a strong case for infringement, as well as to drop well before trial any weaker claims, particularly where those claims may involve allegations of high handed conduct.  Failure to take either of these steps could result in significant adverse cost consequences.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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