Wednesday, February 8, 2012

An Accounting Really Is Difficult in Some Cases

Eurocopter v Bell Helicopter Textron Canada Limitée 2012 FC 113 Martineau J

In Eurocopter Martineau J held that the successful patentee was not entitled to an accounting of the defendant’s profits. Martineau J began his discussion of this point with what is becoming a standard assertion of the complexity of an accounting as a reason that courts “have been very reluctant to grant such remedy. Perhaps such complexity does not prevent the Court from exercising its discretion, but there must exist good reasons to do so” [411], citing the decision of Snider J in Merck & Co Inc v Apotex Inc / lovastatin 2010 FC 1265, [615]-[616]. It may be that an accounting is a difficult calculation, but the real question is whether it is more difficult than the damages calculation. As I commented in my post on the lovastatin decision, the courts have often remarked on the difficulty of an accurate calculation of damages (see cases cited in that post), and I fail to see why an accounting of profits is generally more difficult that a calculation of lost profits damages. The former compares the profits the defendant actually earned with the hypothetical profits that would have been earned using the best non-infringing alternative, while the latter compares the profits the plaintiff actually earned with the hypothetical profits the plaintiff would have earned had the defendant not infringed. Both require discovery of similar kinds of information, and both require construction of a hypothetical “but for” scenario.

Moreover, an accounting has at least two advantages. As between an accounting and lost profits damages, if the remedial order is going to require one competitor to open its books to the other, surely it is more equitable to order the wrongdoer to open its books to the successful patentee, rather than the other way around. And as between an accounting and reasonably royalty damages, an accounting provides a better deterrent, as the reasonable royalty amounts to a compulsory licence. As Zinn J has pointed out in Monsanto Canada Inc. v. Rivett 2009 FC 317 at [23], “[a]t the level of principle, there is no deterrent from infringing the patent if what the infringer is required to hand over is the sum he would otherwise have paid to Monsanto to buy the seed and the licence. In fact, this would almost be counter to the purpose of deterrence. It is much like saying, as the plaintiffs put it in their oral submission, ‘Catch me if you can’. If caught, the defendant would be required to pay the sum he would have paid to use the patent in any event. When not caught, he is left with a windfall.”

This does not mean that an accounting is always preferable; it does mean that question of whether an accounting is justifiable as compared with the damages remedy will turn on the facts of the particular case, not on broad generalizations.

In this particular case, Martineau J pointed out that an accounting would be complex because “landing gear, although essential for the proper functioning and security of a helicopter, represents just a small part of the total cost of a helicopter” [412]. While it is often possible to prove sales (whether by the infringer, in an accounting calculatin, or by the patentee, in a lost profits calculation), attributable to some patented feature, that is an easier inquiry when the patented feature is an important selling point. Further, in this case, Bell did not actually sell any helicopters at all that were equipped with the infringing landing gear; the argument for an accounting of profits would be that it had secured extra sales of models equipped with non-infringing gear on the basis of marketing of prototype models equipped with infringing gear. This is an particularly speculative inquiry. It is true that Eurocopter’s lost profit damages would be just as speculative – it would be require exactly the same inquiry – but the consequence would very probably be that Eurocopter would be confined to reasonable royalty damages, which would likely be a significantly easier calculation.

In this case I am entirely persuaded that on the facts Martineau J’s decision to refuse an accounting was correct for the reasons he gave, but I hope that dubious generalizations about the relative complexity of an accounting do not become entrenched through repetition.

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