Thursday, April 27, 2017

Springboard Profits Awarded in an Accounting

Dow Chemical Co v NOVA Chemicals Corp 2017 FC 350 Fothergill J
            2,160,705 / film-grade polymers / ELITE, SURPASS

In the liability phase of this action, Dow Chemical Co v NOVA Chemicals Corp 2014 FC 844 aff’d 2016 FCA 216, O'Keefe J held Dow’s 705 patent related to film-grade polymers to be valid and infringed by Nova: for more background see Wednesday’s post. Fothergill J’s decision in the remedies phase addresses various issues to allow the parties’ accountants to calculate the actual sums owed by Nova to Dow [6]. Dow elected an accounting [107], and one of the issues requiring clarification was whether Nova had to account for so-called “springboard profits” [112]-[130].

When a patent expires some time is normally required before a competitor can enter the market with a product that would have infringed. Infringement allows a competitor a head start in gaining market share; a competitor who infringed prior to the expiry will have a larger market share on expiry than one who started competing only the day the patent expired. The patentee’s lost sales during this post-expiry ramp-up period are known as springboard damages, and similarly, the infringer’s excess profits during the same period are springboard profits. In this case, Fothergill J awarded Nova’s springboard profits as part of the accounting [130], for what appears to be the first time in Canadian patent law [115]. While the award is novel in that narrow sense, it is by no means groundbreaking, as the possibility has previously been recognized both in Canadian law [113], and in other jurisdictions [114]. More importantly, an award of springboard profits is firmly based on “but for” causation. As Forthergill J held:

[124] An accounting of profits is to be assessed in relation to a “but-for”world in which the defendant has not infringed the plaintiff’ patent. The assumption is that at the time of the patent’ expiry, the defendant had not yet produced the infringing product. I agree with Justice Barnes [in AstraZeneca 2015 FC 671, [7]], that springboard damages are nothing more than a type of loss to be proven with evidence, and I see no reason why this principle should operate differently to a plaintiff’s gains in the context of an accounting of profits.

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