Thursday, January 16, 2020

Period for Assessing Reasonable Compensation

Western Oilfield Equipment Rentals Ltd v M-I LLC 2019 FC 1606 O'Reilly J
            2,664,173 / Shaker and Degasser Combination

Previous posts have given an overview of Western Oilfield Eqpt v M-I and discussed the best mode requirement and an objection based on added mater. A final point of interest from the decision is the question of the period for assessing reasonable compensation under s 55(2) of the Act.

M-I claimed reasonable compensation under s 55(2) of the Act for acts that “would have constituted an infringement of the patent if the patent had been granted on the day the specification became open to public inspection.” There is not a great deal of case law on this provision. Prior case law has indicated that “reasonable compensation” will normally be equated to a “reasonable royalty” (see 2007 FC 358 [122]; 2010 FC 361 [337]) and that approach was also adopted in this case: [258].

A question that does not appear to have been previously considered is when the period for assessing reasonable compensation runs. In this case, the claims had changed between the date the patent was laid open and the date it was granted; in particular, it appears that the infringed claims were added during prosecution after the patentee became aware of the defendant’s system, though it appears that the defendant had been selling its system for some time preivously: [14], [89]. O’Reilly J’s analysis takes it for granted that reasonable compensation would be due for the period starting when the claims were amended to encompass the defendant’s product, and not before. I take it that this was common ground between the parties, which is why O’Reilly J did not consider the point explicitly. It is not clear to me that this approach is correct.

On the facts, the patent was laid open on April 10, 2008. Western’s product did not infringe the claims as they were drafted at that time, as they referred to “toggling” of the air pressure. The claim was amended on October 2, 2013 (after M-I became aware of Western’s product), to include a claim referring to “controlling the air flow” (Claim 33): [240]. The claims were further amended in relatively minor ways before being granted: [241]-[244].

O'Reilly J stated that M-I was seeking reasonable compensation for the period beginning on October 2, 2013 “when the patent was amended to include the claims that ultimately became part of the issued patent” [258]. While Western disputed whether it infringed the claims at that time [259], O'Reilly J held that reasonable compensation should indeed be awarded for the period stating October 2, 2013, for the following reasons:

[264] I also disagree with Western that the VSS did not infringe the claims as they appeared on October 2, 2013. I have already concluded that subsequent amendments to the patent did not introduce new subject matter. Accordingly, the operative date for calculating reasonable compensation is October 2, 2013. Mr Palmer confirmed that the VSS infringed the patent’s claims as of October 2, 2013.

To repeat, the period commenced not at the time the patent was laid open, but at the time that the claims were amended so that the defendant’s product infringed.

This is somewhat problematic on the text of s 55(2), which, as noted, states that compensation is due for acts that would have constituted an infringement of the patent “if the patent had been granted on the day the specification became open to public inspection.” On its face, this would appear to mean granted with the claims as they existed on the day that the specification was laid open, namely April 10, 2008. As noted, in this case, it was not controversial that Western’s product did not infringe the claims as they read at that date. Using the subsequent date when the claims were amended appears to be at odds with the text of the provision.

What about a purposive analysis? The purpose of laying open the patent is to allow potential infringers to carry out a freedom to operate search, which includes applications as well as granted patents, thereby mitigating the problem of “submarine patents.” This is why reasonable compensation can never be due for the period to publication. Conversely, after publication, reasonable compensation is due if the patent is eventually granted because the user should have been aware (at least in theory), that it was doing something that might infringe, and it should be considered to have taken its chances as to whether the patent would ultimately issue. So, purposive considerations suggest that the for which reasonable compensation is due should be tied to the notice provided by the application being laid open.

What specifically does this imply about the compensation period? One view is that when the potential infringer reviews pending applications as part of a freedom to operate search, they read the claims as they stand at the time, just as they would read the claims of a granted patent, because the claims define the scope of the monopoly. This supposes that we should fix some particular time at which the potential infringer is deemed to have examined the patent, and the date of publication is the only time which is not arbitrary. On that view, reasonable compensation should be payable only if the defendant’s product infringed the claim as they were at the time the patent was laid open.

A difficulty with this approach is that presumably reasonable compensation can only be due if the claim at that time was valid, and early claims are often amended because of objections by the examiner, so this may be unduly restrictive. Moreover, it might be said that whenever the potential infringer actually reads the patent, they should know that the claims would likely be amended during prosecution, so long as any new claims are supported by the specification and do not add new matter. This suggests the potential infringer should ignore the claims, and instead focus on the specification, asking whether its product would infringe claims that could be reasonably inferred from the specification. On that view, reasonable compensation should be payable for the entire period from the date the patent is laid open, so long as the defendant’s product infringes a valid claim in the patent as ultimately granted.

The approach focusing on the claims at the time the patent is laid open will arguably provide more certainty, and it will provide a narrower scope for notional “infringement.” The approach focusing on the specification will offer better protection to the patentee. The intermediate position, adopted in this case, is that reasonable compensation is payable from the time the claims are amended so as to encompass the defendant’s product. The difficulty with this approach is that it implies that the potential infringer focuses on the claims in its freedom to operate search, not the disclosure; but it can never rely on the claims as they are drafted at the time it actually examines them. Instead, the implicit supposition is that the potential infringer continuously reviews the status of all the relevant applications to ensure that the claims have not been amended to encompass its product. This strikes me as unduly burdensome. An approach under which compensation is due from the time that the claims are amended to encompass the defendant’s product would be reasonable if it were coupled with a requirement of actual notice, so that the patentee would have to bring the amended claims to the attention of the potential infringer; but that approach is clearly not consistent with the text of the Act.

As noted, this point does not seem to have been argued. It appears to me that everyone simply assumed that the compensation period should run from the time the claims were amended to encompass the defendant’s product. Maybe that is, ultimately, the right rule, but given the limited discussion of the point in this case, and the various textual and purposive objections to this position, I would suggest that this issue should not be considered to be settled until it receives fuller consideration.

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