Thursday, April 6, 2023

Nova v Dow: Causation as a Matter of Fact

Nova Chemicals Corp v Dow Chemical Co 2022 SCC 43 Rowe J: Wagner CJ, Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ concurring; Côté J dissenting affg Nova Chemicals Corporation v Dow Chemical Company 2020 FCA 141 Stratas JA: Near, Woods JJA affg Dow Chemical Co v Nova Chemicals Corp 2017 FC 350, 2017 FC 637 Fothergill J

2,160,705 / film-grade polymers / ELITE SURPASS

The Intuition / The Legal Background

In Nova v Dow the SCC addressed the method of calculating an accounting of profits in the patent context. This is the third in a series of posts summarizing my case comment on Nova v Dow, which is forthcoming in the IPJ. In Schmeiser 2004 SCC 34 [102] the SCC held that the preferred method for calculating an accounting of profits is the “differential profit” approach, in which “[a] comparison is to be made between the defendant’s profit attributable to the invention and his profit had he used the best non-infringing option.” The question that developed in the subsequent FCA decisions is whether the non-infringing option—or the non-infringing alternative, as the FCA usually called it—represents what the infringer would have done had it not infringed, in which case the differential profits approach simply reflects “but for” causation; or whether there is something special about the non-infringing option, and if so, what that something special might be.

As discussed here, the FCA caselaw was at least consistent with the “but for” approach until the FCA decision in Nova v Dow, in which Stratas JA, writing for the majority, rejected the “but for” approach to an accounting. On appeal to the SCC, Rowe J, for the majority, affirmed Stratas JA’s decision, though without specifically approving his reasoning.

Rowe J at [15] set out a three-step test to “conceptualize” an accounting of profits:

Step 1: Calculate the actual profits earned by selling the infringing product — i.e., revenue minus (full or differential) costs.

Step 2: Determine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer’s profits not causally attributable to the invention — i.e., differential profits. It is at this step that judges should apply the principles of causation. . . .

Step 3: If there is a non-infringing option, subtract the profits the infringer could have made had it used the non-infringing option from its actual profits, to determine the amount to be disgorged.

Rowe J noted that the principal issue on appeal was Step 2 [16]. There are two key issues at Step 2: (1) the nature of the causation requirement; and (2) the nature of the non-infringing option—for convenience, the “NIO.”

The nature of the causation concept is central, as it allows us to determine what constitutes an appropriate NIO. Rowe J repeatedly affirmed the centrality of the causation concept. He stated that it is a “fundamental principle” that the infringer must disgorge all profits causally attributable to the invention, and only those profits [4], [48]. Rowe J repeated the need for a causal connection more than two dozen times. The causation requirement is crucial because infringers must be deterred, but not punished: [44–45]. If too little is disgorged, an accounting will not serve its deterrence function; if too much is disgorged, it will have a chilling effect on innovation [4]. The right balance is struck by requiring the infringer to disgorge all profits causally attributable to the invention, but no more.

The most prominent legal causation concept is “but for” causation. (The other well known causation concept is material contribution: no one has ever suggested that it is appropriate in this context.) Stratas JA expressly rejected “but for” causation [40], [76], as did the respondent Dow in its submissions to the SCC: FM020 50, 54, 55. Côté J, dissenting, expressly endorsed “but for” causation (paras 91, 138, 146, 162, 171, 183, 185), as did both interveners, the CGPA FM030 [12–13], [18], [22], [28]; Bell FM040 [2], [17–26], and the appellant, Nova, which put “but for” causation at the heart of its argument: FM010 [52–56], [59]. The applicability of “but for” causation was therefore at the heart of the appeal.

Remarkably—indeed, astonishingly—Rowe J never directly addressed the causation concept. He did not explicitly affirm or reject “but for” causation; rather, as Côté J pointed out at [184], he simply avoided referring to it. Nor did he specify any alternative causation concept. This means that some very basic questions are left unanswered. What is the causation concept in identifying the NIO? What is the causation concept if there is no NIO? What role is there, if any, for “but for” causation in either context? What is the causation concept if it is not “but for” causation?

These questions will be addressed in subsequent posts. This post addresses a preliminary question: if “but for” causation was so central to the appeal, how was it possible for Rowe J to avoid talking about it?

The answer is that he characterized causation as being a matter of fact, quoting Lovastatin Damages 2015 FCA 171, in turn quoting Snell v Farrell [1990] 2 SCR 311, 328:

[15] Causation “need not be determined by scientific precision: it is ‘essentially a practical question of fact which can best be answered by ordinary common sense.’”

With due respect, the notion that the causation concept is purely a matter of fact is quite untenable. The SCC has a whole series of cases in which the central question of law was as to the correct causation concept, including decisions which overruled the trial judge on a question of law for having applied the wrong causation concept: see Clements v Clements 2012 SCC 32 [5], [11] (overruling the trial judge); Resurfice v Hanke 2007 SCC 7 [19], [21], [22]; Blackwater v Plint 2005 SCC 58 [78]; Athey v Leonati [1996] 3 SCR 458 [12] (holding the trial judge had applied the wrong causation concept, but it had not affected the outcome); Snell v Farrell, [1990] 2 SCR 311, 319–20. In none of these cases has it ever been suggested that the causation concept itself is purely a matter of fact. Indeed, the cases cited by Rowe J as authority in the passage quoted above, the Court of Appeal decision in Lovastatin Damages [45] and the SCC decision in Snell v Farrell, 319–20, both explicitly adopt “but for” causation.

Of course, it may be difficult to apply the causation concept on the facts of a particular case: as the FCA explained in Lovastatin Damages [45]:

The legal test for establishing causation is the “but for” test. A plaintiff must show on a balance of probabilities that “but for” the defendant’s wrongful conduct, the plaintiff would not have suffered loss. This is a “factual inquiry” to be established on the evidence. The “but for” test for causation is to be applied in a “robust common sense fashion”

As this paragraph makes clear, it is the application of the causation concept to the facts that is a matter of common sense, not the causation concept itself. As I discuss in the case comment, the various cases that led to this “common sense” approach to causation, generally involved difficulties in drawing causal inferences on the facts: eg the question in Snell was whether the plaintiff’s optic nerve atrophy was caused by negligent eye surgery several months prior.

So, it is entirely true that the application of the law to the facts is not subject to strict rules and requires common sense. This does not imply that there is no legal causation concept; as Côté J noted at [193], causation “is, and must be, a question of mixed fact and law.” In holding that causation is a question of fact to be addressed with common sense, Rowe J conflated the legal test with its application to the facts. The failure to engage with the causation concept resulted in an implicit rejection of “but for” causation, without anything principled to replace it with. That is a point for future posts.


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