Monday, August 3, 2020

Stay Pending Appeal Denied in the Absence of an Undertaking

Arctic Cat, Inc v Bombardier Recreational Products Inc 2020 FCA 116 Rivoalen JA


In this decision, Rivoalen JA denied Arctic Cat’s application for a stay pending appeal. That in itself is not so unusual, but what is odd is that there is no suggestion that the patentee, BRP, provided an undertaking in damages to address the issue of irreparable harm. From the complete absence of any discussion of the point, I have to suspect that an undertaking was not even requested by AC, or offered by BRP. In any event, the absence of an undertaking substantially affects the analysis, and accordingly, I will focus on that issue in this post.

As discussed here, the patents at issue related a “significant breakthrough” in snowmobile design made by BRP, that moved rider weight forward. BRP’s “Rider Position Patents” covered the forward position itself, and the 264 “Frame Construction Patent” relates to a frame assembly that facilitates the construction of sleds with the rider forward position. The litigation started when BRP filed its statement of claim in December of 2011 [43]. The trial started in 2015, with Roy J’s decision 2017 FC 207 following in 2017. Roy J held the Rider Position Patents to be invalid, and the Frame Construction Patent to be not infringed. On appeal, Roy J’s decision on the invalidity of the Rider Position Patents was upheld, but the FCA 2018 FCA 172 reversed on claim construction in respect of the Frame Construction Patent and remanded to Roy J to determine validity and infringement on the correct construction. Finally, on 15 June 2020, eight years after litigation started, and with less than a year left on the term of the 264 patent, BRP prevailed, with Roy J’s decision on remand, 2020 FC 691, holding the Frame Construction Patent to be valid and infringed. Roy J granted a permanent injunction, as is normal, over the objections of AC: see here.

AC has appealed, as importantly, it sought this stay pending an appeal. The stay will determine whether AC can ship infringing machines for the upcoming winter season (summer-fall 2020 is the crucial window [13]). Since the patent expires next June, AC will be able to return to this design for the following season, regardless of the outcome of any appeal, which will affect only damages.

Rivoalen JA applied the standard three-part RJR-MacDonald [1994] 1 SCR 311 test that is used for both interlocutory injunctions and stays pending appeal. Unsurprisingly, the low threshold of the first branch, requiring a serious issue to be tried, was met [17]. Also unsurprisingly, at least in the Federal Court jurisprudence, irreparable harm was the key issue. The sleds that are affected have already been manufactured and are stored in US warehouses [9]. AC submitted that it would not be be possible to redesign them for the upcoming season [9] and Rivoalen JA’s decision proceeded on that basis [34], [35]. So, the question is whether AC being kept out of the snowmobile market for the upcoming (2020-21) season constitutes irreparable harm.

AC argued that they would be irreparably harmed by being kept off the market for the upcoming season, in a highly competitive Canadian market [24], and that they will suffer permanent harm to their Canadian dealer network and relationships with dealers and customers in Canada [25]. They also argued that the dealers themselves would suffer irreparable harm, especially because many are single-line dealers who may not be able to supply a competing product, because of territorial exclusivity agreements [27].

The threshold for establishing irreparable harm is very high, and applications for an interlocutory injunction almost invariably fail on this branch. While the test is the same, there is an important difference between a stay and an interlocutory injunction. When the patentee seeks an interlocutory injunction, if the injunction is refused and the patentee ultimately prevails at trial, it will be entitled to damages. Thus the irreparable harm question turns not on whether the patentee will suffer a loss, but on whether damages will be adequate compensation for that loss; the “irreparable” part of the harm is the difference between the actual loss and the damages that will be awarded. As the FCA explained in the seminal decision in Cutter v Baxter Travenol (1980), 47 CPR(2d) 53, 55-56 (FCA) interlocutory injunctions are rare in a patent actions because

 the fact that in most instances the nature of the patent rights involved is such that damages (provided there is some reasonably accurate way of measuring them) will be an adequate remedy for such infringement of the rights as may occur pending the trial and because when the matter turns on the balance of convenience if the defendant undertakes to keep an account and there is no reason to believe that he will be unable to pay such damages as may be awarded, the balance will generally be in favour of refusing the injunction.

In a stay application, in contrast, if the stay is refused and the applicant then prevails on appeal, the applicant will not be entitled to damages for having been kept off the market by the injunction that was (with hindsight), improperly granted, because the loss is due to the court order, and not to any wrong done by the opposing party. In that case, any actual loss will be irreparable: Apotex v Wellcome [zidovudine] (1998), 82 CPR(3d) 429, A-294-98 (FCA) at [4]. Consequently, a patentee seeking to resist a stay may choose to give an undertaking to indemnify the adjudged infringer against such irrecoverable financial loss that it may suffer, in the event that its stay is not granted and its appeal is successful. If the patentee is financially able to pay any loss which might arise, such an undertaking will be a complete answer to this concern: see Apotex v Merck 2006 FCA 198 [7]-[9]; AstraZeneca 2005 FCA 208 [18]-[19]; Novopharm Ltd v. Janssen-Ortho Inc, 2006 FCA 406 [12]-[15]. A patentee might choose not to give an undertaking, perhaps because it is concerned about the outcome of the appeal, but if an undertaking is not given, a stay is much more likely to be granted, as any actual loss will be irreparable: see eg Evolution Technologies 2019 FCA 11, discussed here.

In this respect, the position of an applicant seeking a stay is similar to that of the defendant resisting an interlocutory injunction. If an interlocutory injunction is granted and the defendant prevails at trial, the defendant will be wrongly (in hindsight) have been prevented from carrying on lawful activity. Because this loss is a result of a court order, there is no automatic entitlement to compensation. Consequently, the plaintiff seeking an injunction will almost invariably be required to give an undertaking in damages to compensate the defendant for any loss it might suffer. If the plaintiff refuses to give the undertaking, the injunction will normally be refused because any harm suffered by the defendant will be irreparable: Sharpe, Injunctions and Specific Performance § 2.470, explains that “as a condition of obtaining an interlocutory injunction,” the plaintiff “must” give an undertaking. The undertaking given by the party opposing a stay application plays the same role as the undertaking given by the plaintiff seeking an interlocutory injunction; the centrality of the undertaking in the latter context explains why it plays a similar role in a stay application.

There is no suggestion in this case that an undertaking was given by BRP, so I can only assume that none was given, or it would have played a role in the irreparable harm analysis. Rivoalen JA nonetheless held that irreparable harm was not established. This is quite surprising. In RJR-MacDonald at 341 the SCC described irreparable harm by saying “[i]t is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other.” That is exactly what is at issue here: any harm to AC cannot be cured because AC will not be able to collect damages from BRP.

Refusing the stay would nonetheless be justified if the uncompensated harm to AC were trivial. While Rivoalen JA found that AC would not suffer irreparable harm, I have difficulty reading the decision as saying the harm was insignificant, particularly in light of the “breakthrough” nature of the design discussed in the liability decision. While Rivoalen JA apparently accepted that it would be impossible for AC to re-tool and re-design their snowmobiles to comply with the terms of the judgment for the upcoming season, she was nonetheless “not convinced by the evidence” that “they will be kept off the market in Canada and will not be able to continue to sell most of their snowmobile products in Canada for MY2021” [34]. This suggests that “most” of AC’s products would be unaffected, which might suggest the harm would be trivial. However, no numbers are provided. The breakthrough nature of the rider forward position, and the fact that the infringing frame design is apparently used to make sleds with that position, suggests that the lost market was important. So, Rivoalen JA continued by saying that “The appellants manufacture certain snowmobiles that do not infringe the ´264 Patent. They also manufacture snowmobiles for Yamaha. These snowmobiles will not be affected by the injunction” [34]. That implies that AC will be able to sell some product, but that its main product lines will be affected. I don’t have the advantage of the full record, but if a stay is to be refused without an undertaking in damages, I would have liked to see a more fulsome discussion of why the damages likely to be suffered by AC are trivial.

My sense is that the somewhat cursory treatment of the facts on this issue is because another consideration was driving the outcome, namely the fact that there is only one year left to run on the patent. Rivoalen JA stated that “The crucial period is thus September-November 2020, since the ´264 Patent will expire before the equivalent shipping period in 2021. If the respondent does not have an injunction in place now, then it will effectively have no meaningful injunction at all. I agree.”

[42] If the anti-infringement injunction is stayed pending the determination of the appeal, I find that the respondent [BRP] will lose all practical benefits from its patent. It will have been deprived of patent exclusivity – the very definition of the patent bargain – essentially from the moment of grant until expiry. This is tantamount to having no patent at all.

With respect, it is not correct to say that this is “tantamount to having no patent at all,” as BRP will normally have an undertaken given by AC to compensate it for any damages: Zidovudine A-294-98 (FCA) [7]. Phostech v Valence 2011 FCA 107 [6]. It is true, as Rivoalen JA states, that BRP will be deprived of patent exclusivity, but why is that? It is because the FC will not grant an interlocutory injunction. (So far as I can tell, BRP did not apply for an interlocutory injunction, but no doubt that is because it is well known they are essentially impossible for a patentee to obtain.) Why will the FC not grant an interlocutory injunction? Because damages are adequate compensation.

So, for eight years, the damages accruing to BRP was considered adequate compensation, and all of a sudden, the very same damages for the very same loss, is not adequate. This is a contradiction. Either damages were never adequate compensation, and the Federal Court approach to interlocutory injunctions must be revised; or they always were and remain adequate, in which case the fact that BRP will be confined to damages is no reason to refuse a stay. That is especially true because of the asymmetry: if the stay is granted BRP would get damages for infringement, but if the stay is refused AC will be uncompensated for any loss it suffers if it prevails on appeal.

I must say that I’m really very puzzled by this decision, and the absence of any discussion of the undertaking. I have to suspect that an undertaking was not requested by AC, or offered by BRP.

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