Questions on Reasonable Compensation Answered — and Left Open

Western Oilfield Equipment Rentals Ltd v M-I LLC 2021 FCA 24 Locke JA: Gleason, Mactavish JJA affg 2019 FC 1606 O'Reilly J

            2,664,173 / Shaker and Degasser Combination

In this decision Locke JA for the FCA affirmed O'Reilly J’s holding that certain claims of M-I’s 173 were valid and had been infringed by Western Oilfield Eqpt. The decision turned largely on the deferential standard of review applicable to questions of fact, and Locke JA pointedly remarked that the appellants had not paid sufficient attention to the standard of review [10]. The appellants raised approximately two dozen issues on appeal [7]. Locke JA was not impressed. He remarked on “the lack of wisdom of raising so many issues on appeal,” noting that this undermined the appellant’s case by obscuring the real issues and wasted the Court’s time [9]. As a result of the appellants’ “failure to reasonably limit the issues before the Court, and the respondent’s success on each argument raised,” costs were awarded at the top of Column V of the Tariff [162].

Despite the largely factual nature of the issues, the FCA did address a number of legal points. I’ll provide background and address reasonable compensation in this post, and subsequent posts will look at the Gillette defence, best mode and added matter. In addition, Locke JA reaffirmed the well-established law that the four-step Sanofi test for obviousness is not mandatory [109] and the fact that the embodiment disclosed in the specification is not commercializable does not mean that it lacks the necessary scintilla of utility needed to support a patent [124].

Background

As discussed here, the 173 patent relates to a machine called a “shale shaker,” used in the oil and gas industry to remove solids from the slurry that emerges from an active well in order to separate the drilling fluid for reuse. A shale shaker shakes the slurry over a screen to allow the fluid to fall through while the rock cuttings are carried away. Shaking alone does not remove all of the fluid, and the cuttings remain wet after passing through a standard shaker. The invention consisted of a method and system for applying a vacuum (“pressure differential generator”) to the cuttings to recover more of the drilling fluid. One point that underlay several of the appellants’ objection was that the patent was laid open on April 10, 2008, and the appellants’ activities did not infringe the claims as they were drafted at that time. The claims that were infringed were introduced during prosecution, on October 2, 2013, after the patentee became aware of the appellants’ product [53], [FC 14], [FC 89].

There were a number of contentious issues on claim construction, but these turned on the evidence and, unsurprisingly—given that the claims were added to capture the appellants’ product—O'Reilly J ultimately construed the claims in favour of the patentee. The finding on infringement followed directly. The appellant raised the motivation of the patentee in amending the claims in a couple of ways [22], [144], but Locke JA noted that the respondent’s motivation in amending the claims is in itself irrelevant to either claim construction or validity [22]. As he observed at [21], quoting his own prior decision in Camso 2019 FC 255 [197] aff’d 2020 FCA 183:

A patent applicant is perfectly entitled, and indeed is well-advised, to draft patent claims with an eye on competitors’ products. The limitation is that the applicant must respect all of the requirements for valid claims.

Reasonable Compensation

The decision raised three issues in the interpretation of s 55(2), which provides that the patentee is entitled to “reasonable compensation” for any damage sustained by the patentee after the specification was laid open and before the grant, “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.” For simplicity, Locke JA referred to this as “pre-issuance infringement” [52].

There were two main issues on appeal. One of the appellants, FPM, had apparently stopped doing business in 2014, prior to the issuance of the 173 patent in 2015. The first question was whether a party who engages in pre-issuance infringement “can avoid liability under subsection 55(2) by discontinuing the activities in question prior to issuance of the patent.” That is, must a party be engaged in infringing activity as of the date of issuance in order to be liable for pre-issuance infringement? The answer is no. There is nothing in the text of the provision to suggest that result [59]. Further, the purpose of s 55(2) is “to compensate inventors whose published inventions are used without permission before they can enforce their rights,” [63] and “it would defeat the purpose of the provision if the pre-issuance infringer could continue its activities, possibly for many years, and then avoid all liability by discontinuing those activities just before the patent issues” [63].

The second question was whether a party can be liable for inducement of pre-issuance infringement. The answer is yes. Inducement is “merely a form of patent infringement, not a distinct tort” [60]; there is nothing in the text to suggest liability for inducement is excluded [62]; and it would “defeat the purpose of the provision if one could avoid liability by inducing another to directly infringe. The reasons for imposing liability for infringement on one who knowingly induces a third party to infringe after a patent has issued apply equally before issuance” [63].

Neither of these issues strikes me as particularly difficult, and I agree entirely with Locke JA’s analysis.

The more difficult issue, to my mind, concerns the timing of the liability. As noted above, the appellants’ activities did not infringe the claims as they were drafted at the time the patent was laid open. The claims that were infringed were introduced five years later during prosecution, after the patentee became aware of the appellants’ product [53], [FC 240]. It was common ground on appeal, and, as I understand it, also at trial, that the appellants’ could not be liable for any of its activities prior to 2 October 2013, when the infringed claims were introduced [53]. O'Reilly J held that reasonable compensation should be awarded for the period starting 2 October 2013, and this was affirmed on appeal [66].

The difficulty is that s 55(2) makes a party liable for activity “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.” It was common ground that the appellants’ activities would not have constituted an infringement of the claims as of the date the patent was laid open, and it would seem to follow on a straightforward reading of the text that the appellants are therefore not liable for reasonable compensation for any part of the period prior to issuance—not even for the period after 2 October 2015 when the claims were amended to catch the appellants' product. The rule applied in this case is that a party will be liable for activities that would have constituted an infringement if the patent had been granted at any time subsequent to the date the patent was laid open, which does not seem to me to be entirely consistent with the text. That is not conclusive, of course; as discussed here, there might be contextual or purposive considerations that are also relevant one way or the other.

This point does not seem to have been argued either at trial or on appeal, and it would appear to remain open. Locke JA noted that FPM stopped doing business in 2014 which was after the claims had been amended to encompass its activities. He stated that this means that FPM could not avoid liability based on its activities being entirely prior to the amendment, “even if that were a basis for avoiding liability. I express no opinion here as to whether that would be a basis for avoiding liability” [56]. I take this to mean that the timing issue remains open. Locke JA did also state that the facts are not in dispute, “and there is no argument that either of the appellants is liable for any of its activities prior to October 2, 2013" [53]. I take this to mean simply that there was no argument, and not that Locke JA was necessarily endorsing this position as a matter of law.