Friday, July 14, 2023

Misleading the Court as a Basis for Punitive Damages

Fromfroid SA v 1048547 Ontario Inc 2023 FC 925 Grammond J

2,301,753 / rapid cooling cells

This decision is of interest primarily for the award of punitive damages, granted because the infringer had intentionally infringed the patent rather than buying the patented system from the patentee in order to save money and then tried to cover up the infringement by presenting misleading evidence to the court [106]–[107]. As a matter of law, it is interesting that attempting to mislead the court was used as one factor—and for one defendant, the only factor—for awarding punitive damages, rather than sanctioning that conduct through elevated costs. There is precedent for this in the trademark context: see Chanel v Lam Chan Kee Co 2016 FC 987 [76] affd 2017 FCA 38 [11].

Fromfroid’s 753 patent relates to a cooling system for food products. The system consists of “a tunnel lined with tarpaulins that inflate with air blown by a fan. When they inflate, the tarpaulins press against the pallet of products to be refrigerated, which is placed in the centre of the tunnel. In so doing, they force the stream of cold air to pass between the containers of products instead of going around the pallet, which ensures more rapid cooling” [3]. The complete system consists of a number of “cells” each with its own fan.

The defendant 1048547 Ontario Inc dba Skotidakis, operates a dairy products business [6]. Skotidakis was interested in acquiring a cooling system for its dairy products. In 2014, Skotidakis obtained a trial cell from Geosaf, Fromfroid’s agent, for a period of about six weeks. Fromfroid then submitted a bid for a 24-cell system, but Skotidakis did not follow up [6]. In October of 2018, approximately three months after the 753 patent expired, a representative of Geosaf attended Skotidakis’s facilities in order to service unrelated equipment. The Geosaf representative saw and photographed a 24-cell cooling system that bore a strong resemblance to the patented system [7]. The only live issue at trial was whether the system was built before or after the expiry of the patents [10]. (There was a feeble attempt to argue non-infringement on the basis that the tarps did not press against the sides of the pallet, but Grammond J had no difficulty dismissing this on the facts [74]–[93].)

The difficulty for Fromfroid was that it had no direct evidence of when the system was built. Instead, it had to rely on indirect evidence, such as wear marks apparent in the photograph taken by the Geosaf representative and the difficulty of constructing a system in only 3 months [71].

Against this circumstantial evidence was the direct testimony of four persons, all more or less closely associated with Skotidakis, who stated that, “to their personal knowledge, the cells were built [in the three month period after expiry], particularly since this testimony is supported by documentary evidence” [49]. As counsel for the defendants put it, “[a]ccepting Fromfroid’s position would entail that these four witnesses lied to this Court and that the documents they submitted are forgeries” [49].

While Grammond J did not explicitly find that the witnesses lied or that the documents were forgeries, he did reject their evidence as being defensive and unresponsive [52], deliberately evasive [53], “implausible” [57] and imprecise [59]. He found that while the documents Skotidakis tendered in evidence “show no obvious signs of falsification, there is also no basis for excluding the possibility that they are forged, that the date on them could have been altered (e.g., by replacing ‘2016' with ‘2018') or that they refer to a different project” [61].

With little weight given to the defendants’ evidence, Grammond J found that the circumstantial evidence was sufficient to establish “a serious, precise and concordant presumption” (per CCQ Art 2849) that the cells were built before the 753 patent expired [71]. While Grammond J did not expressly find that the Skotidakis witnesseses had lied or that the documents were forged, he did find that “Skotidakis sought to conceal the infringement by presenting various pieces of evidence intended to mislead the Court as to the date the cells were made” [106].

Grammond J awarded lost profit damages on the basis that but for the infringement, Skotidakis would have purchased its system from Fromfroid [97]–[102].

He also awarded punitive damages, on the basis of two factors. First, he found that Skotidakis knew of the existence of the patent and infringed knowingly [105]. This alone would not be sufficient to justify punitive damages [105], but as an additional factor, Grammond J found that in attempting to mislead the Court, Skotidakis had engaged in “highly reprehensible misconduct” [106]. He stated that “the attempt to mislead this Court is serious and should be severely denounced” [109]. Accordingly, he ordered Skotidakis to pay $200,000 in punitive damages, on a top of $150k in compensatory damages [102], [111].

Grammond J also awarded punitive damages against the defendant, Frimasco, a construction company that had built the system on behalf of Skotidakis, even though Frimasco was not aware of the patent at the time it constructed the system [112]. The sole basis for awarding punitive damages against Frimasco was its role in concealing the infringement [112]. While Frimasco did not benefit directly from the infringement, “Skotidakis and Frimasco have a close and longstanding business relationship” [37]. Mr. Robert, the president of Frimasco at the time, gave implausible testimony relating to the purchase of parts for the system [36] and as to the construction speed [47], and as to the nature of the system when testifying regarding infringement [78]. Grammond J found that Frimasco’s “involvement in the cover-up is just as reprehensible as that of Skotidakis” [113]. (Note there are a couple of typos in paras [112], [113], where Grammond J refers to the patentee, Fromfroid, when he evidently intends to refer to the defendant Frimasco.)

It is interesting to see such conduct used as a factor—and in the case of Frimasco, the sole factor—supporting an award of punitive damages. I would have expected to see some kind of costs sanctions instead. But I’m not an expert in sanctions for giving misleading evidence or litigation misconduct generally. Chanel v Lam Chan Kee Co 2016 FC 987 [76] affd 2017 FCA 38 [11], cited by Grammond J at [106], does use attempts to mislead the court as a factor in awarding punitive damages (though in Chanel the attempt to mislead the court was only one of nine factors supporting the award of punitive damages). Further, it is established in Ontario law that litigation misconduct can be an independent actionable wrong that could give rise to punitive damages: McCabe v Roman Catholic Episcopal Corp 2019 ONCA 213 [43]–[48]. At the same time, litigation misconduct can also be sanctioned by costs: Render v ThyssenKrupp 2022 ONCA 310 [87]–[91]. Costs submissions remain to be made in this case [121]. It will be interesting to see if Grammond J takes the misconduct into account in awarding costs, or whether that would be considered double counting. Absent the award of punitive damages, I would be inclined to think that a very substantial costs award would be appropriate, well beyond 40% lump sum which is the higher end of the usual range, and approaching full indemnity. It is apparent from Grammond J’s reasons that Skotidakis did not have any good faith defence and should have settled rather than raising a defence premised on trying to mislead the court.

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