Thursday, August 15, 2013

Background and Infringement in Varco v Pason

Varco Canada Ltd v Pason Systems Corp 2013 FC 750 Phelan J

The ‘313 patent at issue in this litigation is for an automatic drilling system for use in the petroleum industry. The most interesting part of the decision concerns remedies, and particularly the question of entitlement to an accounting. This post provides an overview of the facts and infringement. Subsequent posts will deal with validity and remedies.

The advantage of the invention was that it allowed for automatic drilling of directional oil wells. Previously, automatic drilling systems were known for vertical wells, but directional wells had to be drilled manually. Since autodrillers were “generally more efficient, more precise and cost effective than manual drilling” there was a felt need for a directional autodrilling system [33]. Autodrillers used in vertical drilling used “weight on board” (WOB), readings to control the drill. WOB is essentially the force put on the drill bit by the weight of the drill string. Pure WOB systems do not work effectively in directional wells because some of the weight of drill string is taken up by the string resting on the curve of the well. The key inventive concept which allowed the inventor to develop his directional autodriller was to use drilling fluid pressure fluid, as well as WOB, to control the drilling process.

The patentee’s product, known as the Wildcat, was the first directional autodriller in the market. It was very successful, being used on 90% of active rigs in Canada by 2003 [99-100]. The main claims in issue were Claim 1, a claim to the system or product itself, and Claims 11 and 14, both method claims. The defendant, Pason, had a dominant position in electronic oil rig data monitoring systems [97]. Presumably because autodrillers are dependent on rig data, Pason decided to enter the market for directional autodrillers. Pason developed its autodriller by benchmarking against the Wildcat [102], and Pason recognized that it was essential to use pressure as a control parameter for directional drilling. The essential agreed difference between the two was the defendant’s device was electronic while the patentee’s device was mechanical [109]. Pason became aware of the ‘313 patent prior to marketing its product, and sought a letter of advice. The advice received by Pason was that its device infringed, and the software implementation in its device was functionally equivalent to the essential elements of Claim 1 of the ‘313 patent [105].

Claim Construction
This history explains why the claim construction and infringement issues were straightforward. The claim construction issues were specific to the patent at hand, and raise no issues of general importance. The defendant’s claim construction arguments were weak, in my view, and easily dismissed by Phelan J, who accepted the construction advanced by the patentee on all points.

As noted, the only real difference between the Pason device and the Wildcat is that the Pason device is electronic whereas the Wildcat is mechanical. But of course the question is not whether the defendant’s embodiment is similar to the embodiment practised by the patentee; it is whether the defendant’s embodiment falls within the claims. So, the system of Claim 1 comprised a “drilling fluid pressure regulator,” and Phelan J had no difficulty in holding that the microcontroller performs the function of regulating the drilling fluid pressure [212], and similarly for the other essential elements. Consequently, Pason’s device infringed both the product claim [209]-[231] and the method claims [240], [249].

The issue of inducement of infringement was also raised. Phelan J cited and applied the three-prong test for inducement set out in Weatherford v Corlac, 2011 FCA 228, and came to the same conclusion as he did in that case, namely that selling a product with instructions to use it in an infringing manner, knowing that customers are likely to follow those instructions, amounts to inducement. This decision adds to the increasingly long list of Canadian cases to the same effect. The interesting point with respect to inducement is that Phelan J held that Pason was liable for inducement in respect of foreign sales, as well as Canadian sales, on the basis that “The acts of inducement occur at least in part in Canada” [256]. In principle, this holding might raise issues of the territorial reach of patent laws. For example, the inducement took place in Canada but the sale took place in the US, so that defendant was liable for inducement in Canada and sale in the US in respect of exactly the same transaction. This is not to say that Phelan J’s holding on this point was wrong, but only that some difficult issues might arise. But on the facts of this case, in light of the conclusion regarding direct infringement, it appears that the holding respecting inducement did not make any difference in the final calculation of monetary remedies.

Export of Parts for Assembly Abroad
Pason also argued that it did not infringe in respect of its foreign sales because it shipped parts in unassembled form for assembly abroad. Phelan J readily dismissed this argument on the clear authority of JM Voith v Beloit (1997) 73 CPR (3d) 321 (FCA) and Windsurfing v Trilantic (1985) 8 CPR(3d) 241 (FCA) that shipment of parts abroad for the purpose of assembly into an infringing unit constitutes infringement [260]. While those cases are indeed clear authority that the sale of parts intended for assembly into an infringing whole is itself infringement, the precise ground of infringement is not entirely clear to me. Windsurfing clearly treated it as a matter of inducement (presumably inducing the end-user to “make” by assembly). Voith on the other hand suggests it is a matter of sale by the defendant itself. There is some suggestion in Voith that this is because the sale of component parts with intent that they should be assembled is functionally a sale of the entire product: “Where the elements of an invention are sold in a substantially unified and combined form for the purpose of later assembly, infringement may not be avoided by a separation or division or parts which leaves to the purchaser a simple task of integration and assembly.” There is also some suggestion that it was an infringing sale because the contract of sale so specified: “In our view, however, the Trial Judge failed to consider that the respondent GEC had in fact sold in Canada the patented invention when it signed contracts in Montréal for complete press machines, not simply for components.” In this case, Phelan J treated the issue as being a matter of sale: “the product claim is protected because the sale of the infringing product occurs, at least for purposes of this case, in Canada where Pason is paid for the goods and shipments” [260].

(Thanks to Alan Macek's IPPractice blog for posting this decision before it has appeared on the FC website. )

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