Canada: There And Back Again: Frac Shack Once Again Victorious In Patent Infringement Case

Last Updated: March 29 2019
Article by Timothy St.J. Ellam, Steven Tanner, James S.S. Holtom and Kaitlin Soye

Most Read Contributor in Canada, March 2019

Patents can be among the most valuable assets natural resource companies own. The time-limited monopoly right granted by a patent can preserve market exclusivity, can be used as a sword to ward off competing businesses, and are especially important for single-product companies. Despite these significant benefits, patent litigation is highly technical, involving both cutting-edge technologies and a specialized legal regime. As the Frac Shack cases show, successfully navigating the complexities of patent litigation requires experienced counsel.

In last years' edition of Mining in the Courts, we provided an overview of the Federal Court's recently released decision Frac Shack Inc. v. AFD Petroleum Ltd., 2017 FC 104. In that case, Frac Shack, a single-product company, had successfully sued a competitor for infringing a patent covering Frac Shack's innovative fracking equipment refueling system. Frac Shack's system allowed fracking equipment to be refueled without operators having to manually refill the fuel tanks in the tight quarters between the running equipment, a dangerous process known as "hot refuelling," which was the industry norm.

The competitor, AFD, conceded infringement of several patent claims, subject to attempting to invalidate them, on the theory that an invalid claim cannot be infringed.

Justice Manson rejected AFD's allegations, holding that several claims were valid and infringed. The Court awarded Frac Shack an accounting and disgorgement of AFD's profits, reasonable compensation for the period between publication of the application and patent issuance, and a permanent injunction restraining any further infringement until the patent expires in 2030.

AFD appealed to the Federal Court of Appeal, which allowed the appeal, in part (2018 FCA 140). While AFD alleged many errors on appeal, only one found favour with the Court — the Federal Court's definition of the "person skilled in the art." It is well-recognized that patents must be read and understood from the perspective of a notional person skilled in the art of the field of the patent. That person is not a member of the general public. Rather, the person skilled in the art is involved in the field of the invention and knows all of the common general knowledge of those who work in the field. They also keep up-to-date on advances in the field, in this case hydraulic fracking equipment refuelling.

The Court of Appeal held that the Federal Court had used irreconcilably inconsistent definitions of the person skilled in the art in different places in the decision and allowed the appeal on this narrow issue. At one paragraph, the Federal Court had held that the person skilled in the art "would have some experience designing fueling equipment" for hydraulic fracking equipment, yet later in the decision, this experience was entirely omitted from the Federal Court's discussion of the attributes of the person skilled in the art. The definition of the person skilled in the art could have impacted the Federal Court's construction of three critical claim elements — "automatically operable valves," "automatic fuel delivery" and "fuel cap" — as well as the Federal Court's obviousness analysis, step one of which is to identify the person skilled in the art and her or his common general knowledge. Since these issues are factually suffused, requiring an appreciation of the record and witnesses at trial, the Federal Court of Appeal remitted all three issues back to the Federal Court judge. The Federal Court of Appeal also cautioned that obviousness was to be assessed claim-by-claim.

On remand, the Federal Court issued the identical decision as it had originally (2018 FC 1047). The Federal Court explicitly incorporated its earlier finding that the person skilled in the art had experience designing fueling equipment into its definition of the skilled person throughout its decision, construed the claim elements exactly as in the 2017 decision and held that the patent claims were not obvious. As the Federal Court explained, if an independent claim is not obvious, narrower dependent claims cannot be obvious.

Interestingly, AFD argued that an earlier Federal Court of Appeal case, Ciba Specialty Chemicals Water Treatments Limited v. SNF Inc., 2017 FCA 225, had changed the law of obviousness pronounced by the Supreme Court of Canada. AFD also argued that it was entitled to determine the state of the art for the purposes of obviousness. The Federal Court rejected both arguments.

AFD has again appealed the Federal Court's decision to the Federal Court of Appeal.

Frac Shack highlights a peculiar pattern in oil field technology patent litigation for the Federal Court of Appeal to allow appeals and remit matters back to the Federal Court. Other examples include the Weatherford Canada Ltd. v. Corlac Inc. series of decisions, in which the Federal Court of Appeal has twice remitted a decision involving the infringement of a patent covering the sealing assembly for rotary oil well pumps back to the Federal Court (see 2010 FC 602, rev'd 2011 FCA 228, 2012 FC 261, rev'd 2012 FCA 261, 2018 FC 565), and Zero Spill Systems (Int'l) Inc. v. Heide, in which the Federal Court of Appeal also remitted several issues back to the Federal Court (2013 FC 616, rev'd 2015 FCA 115). While patents remain an important asset for natural resource companies, it is important to recognize the complexity and possible risk associated with patent litigation.

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