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 amount they could have made through an honest living. This would create an incentive to infringe, since in the event they are found liable for infringement, they would still be just as well off as if they did not infringe.

The infringer may only claim costs related to the infringing product or service. While this includes fixed costs, they must be proportioned based on use towards the infringement. For example, if only 10% of a factory is used towards an infringing product, then only 10% of the factory overhead costs will be deducted.

The calculation of how to apportion fixed costs to a particular product is complex and little guidance was given by the Court on this thorny issue.

The Court of Appeal's decision is a sea change in the calculation of profits – prior to this decision, unless there were very special circumstances, an infringer could only deduct its incremental costs of production. This new ruling has the effect of significantly reducing a patentee's potential recovery of profits.

Apportionment of Profit

The profit must then be apportioned to the value of the invention. The proportion will depend on the value-added of the invention. There are several possible scenarios:

  • All of the profit is attributable to the patented invention (e.g. when the product or service is the infringed claim)
  • Some of the profit is attributable to the patented invention (e.g. for a pharmaceutical with two active ingredients, one infringing and the other non-infringing, a court may proportion the profit between the two ingredients)
  • Little of the profit is attributable to the patented invention (e.g. an infringing screw in the windshield wiper of a luxury car would be responsible for a negligible proportion of the profits)

Even if the infringing product or service is the infringed claim, the Court must still apportion the profit based on the actual value of the invention. This will be relevant where, while the whole of a product or service is patented, the true inventive value is a particular feature. The Court endorsed comparing the infringing product or service to a “non-infringing baseline” to isolate the value of the patent. The Court considered the example of using infringing canola seed from Monsanto Canada Inc. v. Rivett, 2009 FC 317: although the patent may cover the entire canola seed, a patentee cannot claim the value created by canola generally, but instead the differential value created by the patented canola seed, such as the increased yield or savings in weed control.

However, if the patented feature was responsible for all of the demand for the product, then all of the profit is appropriately attributed to the patent.

Springboard Profits, Pre-Judgment Interest and “Profits on Profits”

The patentee is entitled to other ancillary profits that arose from the infringement, such as springboard profits (profits made after a patent has expired due to an early start during the life of the patent), pre-judgment interest (interest on the profit accumulated prior to judgment) and “profits on profits” (any profits from reinvestment of the profits of the infringement). These additional profits are consistent with the objective of removing any benefit the infringer may have received from infringing.

Currency Conversion

If the infringer's profits were in a foreign currency (such as US dollars), then the award is converted to Canadian dollars based on the currency exchange rate on the day of judgment. The Court reasoned that this best reflects the amount that the infringer had in pocket at the time of judgment. An infringer is not liable for, nor does it receive the benefit of, currency conversion risk.


The Court's decision in Nova Chemicals provides certainty to the calculation of an accounting of profits for patent infringement. However, the value of the remedy may vary greatly depending on the facts. Patentees may receive a court-approved windfall, reaping the benefits of an infringer's successful exploitation of the patent. However, if an infringer is unable to successfully utilize the invention, patentees may receive very little compensation. Patentees should evaluate both what an infringer's profits are and what compensatory damages may be in valuing patents and patent infringement claims. As a patentee has the option to elect either the patentee's actual damages suffered or the infringer's profits, careful consideration should be made when deciding on this election given the above.

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.