In an 8-1 majority ruling released today, the Supreme Court of Canada (SCC) has affirmed the record-setting $645M patent infringement award in Dow v Nova.
The Supreme Court dismissed Nova's appeal of the earlier decisions of the Federal Court (2017 FC 350 and 2017 FC 637), and Federal Court of Appeal (2020 FCA 141), wherein Nova Chemicals Corporation (Nova) was ordered to pay The Dow Chemical Company (Dow) approximately $645 million as a result of Nova's infringement of Dow's patent on novel polyethylene blends (2014 FC 844). As reported previously, this was and remains the largest reported Canadian patent infringement award in history.
Broadly speaking, the Supreme Court's majority decision (2022 SCC 43) addresses the principles that should govern the calculation of a plaintiff's recovery under the accounting of profits remedy. The decision covers various aspects of the remedy, including the "differential profits" calculation approach, and the availability of springboard profits to account for an infringer's increased profits following patent expiry.
Dow was represented by Smart & Biggar with Steven Garland, Jeremy Want, Daniel Davies, Matthew Burt and Nicole Boyle acting as counsel.
Earlier decisions on infringement and validity
During the liability phase, which began in 2010, the Federal Court upheld the validity of Dow's Canadian Patent No. 2,160,705 and found that Nova's SURPASS polymers infringed the patent. Polymers are polyethylene compositions used in packaging applications including heavy-duty bags, pallet wrapping and food packaging. Dow sells such compositions under the name ELITE.
The Federal Court awarded Dow various remedies, including an election between damages and an accounting of profits, reasonable compensation for infringement that occurred between the publication date of the '705 Patent and its date of issuance, interest and costs. Dow elected for an accounting of Nova's profits.
The Federal Court of Appeal upheld the Federal Court decision on infringement (2016 FCA 216). Nova was denied leave to appeal to the Supreme Court of Canada.
Federal Court judgment on remedies
In the quantification phase of the proceedings, the Federal Court ordered Nova to disgorge profits and other relief totalling approximately $645 million as a result of its infringement of Dow's patent. Nova appealed to the Federal Court of Appeal, whose decision was released on September 18, 2020.
Federal Court of Appeal judgment on remedies
The Federal Court of Appeal affirmed the decision of the Federal Court. The Federal Court of Appeal decision addressed several grounds of appeal, two of which were subsequently appealed to the Supreme Court of Canada. The issues were:
(a) Calculation of ethylene costs
Nova made SURPASS polyethylene using ethylene which was also manufactured by Nova. Nova argued that its ethylene had a "market value" above the actual cost to Nova of producing the ethylene. Nova argued that in calculating its profits from SURPASS, it should be entitled to deduct (or "apportion") this hypothetical "market value" of ethylene instead of using its actual ethylene costs. This argument was rejected by the majority of the Court of Appeal (Justices Stratas and Near) on both factual and legal grounds, with Justice Woods dissenting.
(b) Springboard profits
The trial judge concluded that Nova's infringement of Dow's patent provided it with a "springboard" into the market post patent expiry, which resulted in Nova continuing to profit from its infringing activity after the expiry of the '705 Patent. The Federal Court ordered Nova to disgorge the resulting springboard profits. The springboard profits comprised the portion of Nova's SURPASS profits in the 20 months following patent expiry that were causally attributable to Nova's pre-expiry infringement.
Nova argued on appeal that springboard profits are not available at law. The Court of Appeal unanimously rejected this argument, finding that there was no principled reason standing in the way of springboard profits, which are nothing more than another type of unlawful gain from the infringing activity.
Decision of the Supreme Court of Canada
By an 8-1 majority, the Supreme Court of Canada dismissed Nova's appeal.
The majority decision, authored by Rowe J., establishes a three-step approach for calculating an accounting of profits:
- Step 1: calculate the actual profits earned by selling the infringing product — i.e., revenue minus (full or differential) costs.
- Step 2: determine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer's profits not causally attributable to the invention — i.e., differential profits. It is at this step that judges should apply the principles of causation.
- Step 3: if there is a non-infringing option, the court should subtract the profits the infringer could have made had it used the non-infringing option from its actual profits, to determine the amount to be disgorged.
Applying this three-step approach, the majority found that the Federal Court did not err in declining to deduct a "market value" of ethylene instead of Nova's actual cost (step 1), or in applying the principles of causation (step 2). On causation, the majority found that there was factual support for the Federal Court's conclusion that all the profits Nova earned by selling the patented plastics were causally attributable to Dow's invention. Specifically, this conclusion was supported by two findings of fact:
- First, customers only purchased Nova's infringing plastics because they contained the features captured by Dow's patent.
- Second, Nova did not establish that there were relevant non-infringing options that would help the court isolate the profits causally attributable to Dow's invention from profits attributable to non-inventive features. In fact, before the Federal Court and Federal Court of Appeal, Nova had conceded that there were no such non-infringing options.
The majority also held that an award of springboard profits is legally permissible, and found no basis to interfere with the Federal Court's decision to award them in this case. According to the majority: "Failing to disgorge [springboard] profits would leave gains that are causally attributable to infringement of the invention in the hands of the infringer. It would also be unfair to third parties that waited for patent expiry to compete with the patentee." The dissenting Judge agreed that an award of springboard profits is legally permissible, but would have calculated the award differently.
If you have questions or require further information, please contact a member of Smart & Biggar's Patents group.
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