Friday, October 13, 2023

Infringement by Import, Export, and Possession

Deeproot Green Infrastructure, LLC v GreenBlue Urban North America Inc 2023 FCA 185 Mactavish JA: Gleason, Woods JJA affg 2022 FC 709 McDonald J

2,552,348 / 2,829,599 / Integrated Tree Root and Storm Water System

DeepRoot’s 348 and 599 patents relate to a landscaping system to promote healthy urban trees using a subsurface structural cell system that supports the hardscape (eg sidewalk and paving), enables stormwater retention and filtration, as well as allowing tree roots to grow in uncompacted soil. In DeepRoot v GreenBlue 2021 FC 501 (see here). McDonald J held that DeepRoot’s patents were infringed by GreenBlue’s RootSpace product. She consequently enjoined GreenBlue from infringing. The claims require that 85% of the volume of the cell is empty (to be filled with soil once installed). After this liability decision, GreenBlue revised its product by adding the “Airform Insert” component to reduce the empty space to less than 85%. (The empty volume with the Airform Insert is about 82%.) In response, DeepRoot brought a contempt motion against GreenBlue. McDonald J dismissed the motion in a decision that turned entirely on the facts, on the basis that DeepRoot had not proven beyond a reasonable doubt that GreenBlue’s revised system was infringing: see here. The FCA has now affirmed, generally on the basis that McDonald J’s decision turned on the facts and DeepRoot had not established any palpable and overriding error. My last post gave an overview of the facts and discussed the issues of non-functional design-around and the infringing intermediate.

This post discusses the import / export question. The key fact for this discussion is that the patent claims a structural cell or cell system, in which the cells comprise a base and supporting members. The cells are delivered as a kit of parts and assembled on-site. The only difference between the infringing product and the non-infringing redesigned product is the Airform Insert, which is inserted during assembly. So anyone in possession of all the components of the RootSpace Airform system is also in possession of all the components of the original infringing RootSpace system. DeepRoot alleged that GreenBlue had infringed by importing the components of the infringing system into Canada for transshipment into the US. It seems also to have been argued that possession of the components in Canada was also infringement, though this point was largely run together with the export argument.

The ‘import’ argument was as follows:

[123] DeepRoot argues that the importation of all of the component parts of a patented invention for simple assembly constitutes patent infringement. As GreenBlue is importing all of the components of Claim 1 of the 599 patent, it is therefore infringing the 599 patent, thereby violating the terms of the Federal Court’s injunction.

The export argument was that “The purchase or possession of infringing articles in Canada, for the purpose of export, constitutes infringement” [124].

These issues were “very much a secondary issue at the contempt hearing” [125] and the argument failed on appeal, in large part because there was no evidence on some of the key points [141]. The legal issues are nonetheless noteworthy, as infringement by import and export is unsettled. It is uncontroversial that “[t]he exclusive rights conferred under the [Act] are territorially confined to Canada” [128], and neither import, export, nor possession are explicitly encompassed by enumerated grounds of infringement, as s 42 explicitly grants only the rights “of making, constructing and using the invention and selling it to others to be used.” Whether these additional rights should be read into s 42 is a matter of statutory interpretation. As the FCA pointed out in Biolyse 2003 FCA 180 [13] (my emphasis), “the clearer the ‘ordinary meaning’ of the text, the more compelling the contextual considerations must be in order to warrant a different reading of it, especially when that involves adding words to those used by the legislator.” Similarly, in Canada Trustco 2005 SCC 54 [10] the SCC noted that “When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process” and in Celgene 2011 SCC 1 [21], the Court noted that “[t]he words, if clear, will dominate; if not, they yield to an interpretation that best meets the overriding purpose of the statute.” In this case, the words of the statute are clear: import, export, and possession are not enumerated rights. To read those words into the provision requires strong contextual or purposive arguments.

The Import Issue

Mactavish JA dealt with the import issue briefly:

[131] It is true that the importation of the component parts of a patented invention for simple assembly constitutes patent infringement: Dominion Chain Co. v. McKinnon Chain Co. (1919) 58 S.C.R. 121 at para 53. However, in this case the Federal Court found as a fact that there was no evidence of the sale or assembly of the original RootSpace product in Canada after the Court issued its permanent injunction against GreenBlue.

Thus, the argument was dismissed on the facts, and Mactavish JA’s statement that importation constitutes infringement is obiter. This is important because I would suggest that this issue is not as well settled as Mactavish JA’s brief statement implies.

In Dominion Chain, Anglin J did say that “[t]he importation of all the component parts of the patented invention ready to be put together by some very simple process would in my opinion constitute an infringement of the patent” (132). However, he was not interpreting the granting provision, which was in essentially the same terms as today (using “vending” instead of “selling”). He was interpreting the term “imports” in an entirely different provision, which was repealed in 1935. When Dominion Chain was decided, patent law was still conceived of being a tool of industrial policy, to encourage the establishment of new industry in Canada. The Act consequently required that the patentee commence manufacturing the invention in Canada within two years of grant: see s 38(a) of the Act of 1906. This was reinforced by s 38(b), which provided that the patent would be void if the patentee “imports, or causes to be imported into Canada” the invention for which the patent is granted. The invention in Dominion Chain related to traction chains for car tires. The component parts were imported into Canada in what amounted to a kit form “‘adapted to be put together’ by a simple process which ‘any school boy,’ if endowed with sufficient strength, could apply” (133). The question was whether the import of those kits for final assembly in Canada amounted to importation within the meaning of s 38(b) (131). The SCC held that it did. Anglin J’s statement that importation would constitute infringement was obiter, as infringement was not at issue; the question was whether the importation of the parts ready for assembly constitutes importation. In effect, the SCC held that importation of the kit for assembly was importation of the invention just as much as importation of the fully assembled invention. Given that the Act expressly provided the patent would be void if the invention was imported, it does not matter whether importation also constitutes infringement. Anglin J’s obiter statement, in the course of interpreting the term “imports” in a since repealed provision of the Act, is a very slender basis for reading the right of importation into s 42, against the clear text of that provision.

The strongest support for reading in additional rights to s 42 is Schmeiser 2004 SCC 34 [55], where the SCC discussed Lord Wilberforce’s remarks in Pfizer v Ministry of Health [1965] AC 512 (HL) 572, in which he stated that possession as such is not an infringement, but possession with an “additional ingredient,” in particular possession “with a view to trade,” constitutes infringement. But for its citation by the SCC, the decision in Pfizer would not be particularly persuasive in Canadian law, as it turned on a peculiar provision of the UK Act and not on the general infringement provisions. In Pfizer, the defendant was selling the infringing product to the Crown and would clearly have been liable for selling, but for an exception for Crown use found in s 46 of the Patents Act 1949 (UK). Because that provision exempted use, but not sale, the question was whether importing, stocking and selling the infringing product constituted “use.” The House of Lords answered in the affirmative.

But since the SCC did discuss Lord Wilberforce’s remarks with apparent approval, this suggests that possession with a view to trade constitutes infringement as such. This would indeed read words into the grant provision. More conservatively, I would suggest that even if possession with a view to trade does not constitute infringement as such, it would support a quia timet action on the basis that future use is likely once possession with a view to trade is established, though I must acknowledge there is no suggestion of this theory in the Court’s brief discussion. However, the Schmeiser decision is a bit difficult to interpret on this point, as the Court also discussed two distinct principles. The Court [56], [58.6] also clearly held that that possession may give rise to a rebuttable presumption of use. This proposition does not require reading any words into s 42, as the right being infringed remains the right to use. The SCC also held that infringement may arise by passive exploitation of the invention’s “stand-by utility” [56],[58.5]. For example, a patented fire-extinguisher is “used” if it is standing in the corner of a room, ready for use in case of a fire, even if the trigger has never been pulled by the time of trial. Again, this does not require reading any words into s 42, as the holding is that stand-by use is indeed use. Of these three aspects of infringement by possession, only the latter two, which do not require reading words into the Act, were listed by the Court in its summary of the proposition emerging from its discussion: [58]. Moreover, this entire discussion seems to have been obiter, as the FC and FCA held that infringement was established on the basis of use (growing the patented seed) and sale, both of which are enumerated rights (2001 FCT 256 [123], [127]; 2002 FCA 309 [46]) and the SCC apparently affirmed this reasoning: Schmeiser [82], [92].

So, there is support in Schmeiser for the view that possession with a view to trade constitutes infringement as such, which required reading words into the granting provision. However, the decision is by no means unequivocal on this point, as it is also possible to read the decision as turning on theories which do not require reading words into the Act, namely possession giving rise to a presumption of use, stand-by use constituting use, or possession with a view to trade, being a sound basis for a quia timet action.

Possession with a View to Trade

Returning to the case at hand, Mactavish JA stated that:

[129] The jurisprudence does establish that the purchase or possession of infringing articles in Canada, with a view to sale or trade, or for the purpose of export, constitutes infringement: Laboratoires Servier v. Apotex Inc., 2008 FC 825 at para. 143, aff’d 2009 FCA 222, leave to appeal dismissed, [2009] S.C.C.A. No. 403.

In Servier v Apotex [143], Snider J stated “Servier submits (correctly, in my view) that the purchase or possession of infringing articles in Canada, with a view to sale or trade, or for the purpose of export, constitutes infringement.” However, this was obiter, as Snider J held on the facts [144]–[160] that there was no sale in Canada when goods were delivered abroad to foreign purchasers and title to the goods did not pass until the product was delivered to the foreign country. While Snider J’s decision was affirmed, this legal point was not at issue on appeal.

Snider J relied on Schmeiser, just discussed. Even if we accept on the authority of Schmeiser that possession with a view to trade constitutes infringement, there is a question as to what “a view to trade” encompasses. Keeping in mind the clear principle that patent rights are territorial, it is arguable that “a view to trade” should be interpreted as meaning “a view to trade within Canada.” For example, suppose an exhibitor at an international trade show held in Canada displays an article that is manufactured abroad and patented in Canada. It would be a principled distinction to say this constitutes infringing possession if the exhibitor intends to conclude sales within Canada, but not if the interest generated at the trade show is reflected only in contracts entered into abroad, for manufacture and delivery abroad. At this point, I am not saying that this distinction should be drawn, but only that it is a principled distinction which requires further consideration. The SCC in Schmeiser did not explicitly suggest any such limitation, but the rule against extraterritoriality was not at issue, as all of the allegedly infringing activity was purely domestic.  

 Snider J also relied on Wellcome v Interpharm (1992) 41 CPR(3d) 215 (FCTD) 226–27, apparently for the proposition that possession for the purpose of export constitutes infringement. Wellcome v Interpharm did quote Hoffman-LaRoche [1977] FSR 200 (Ch), in which Whitford J stated that possession for export constitutes infringement. But Joyal J himself held only that “manufacture” for sales abroad constitutes infringement even if the product is intended for sale abroad—that is, this is a straightforward case of infringement by making. Snider J also relied on Fox 4th 393, but Fox relied only on UK cases, such as Pfizer, discussed above.

The Export Issue

The key case on whether the export of component parts for assembly abroad constitutes infringement is Beloit v Valmet-Dominion [1997] 3 FC 497 (FCA) varg JM Voith v Beloit [1993] 2 FC 515 (FCTD). At trial, Rouleau J had held that “when the defendants shipped the unassembled parts in question out of the country, they cannot be said to have made, constructed, used or sold to others, in Canada, the plaintiff’s invention” (543): that is, he held that export is not one of the enumerated rights and was therefore not infringing. While the FCA reversed, Mactavish JA [135] pointed out that the FCA began its analysis by noting that “[a] person who, beyond Canada, makes, constructs, uses, or sells the invention commits no breach of the Canadian patent,” so that consequently, the focus must be on the domestic actions of the respondent [33]–[34]. As Mactavish JA [137] also noted, the FCA held that Rouleau J had erred because he “failed to consider that the respondent GEC had in fact sold in Canada the patented invention when it signed contracts in MontrĂ©al” [43] (my emphasis). The FCA in Beloit also noted that “[w]here the elements of an invention are sold in a substantially unified and combined form for the purpose of later assembly, infringement may not be avoided by a separation or division of parts which leaves to the purchaser a simple task of integration and assembly” [41]. Thus, the sale entered into in Canada was a contract for the sale of the invention, notwithstanding that the parts were to be assembled and used abroad [45]. So, the basis for the holding of infringement was not that export (either of the invention or parts for assembly) constitutes infringement, but rather that the sale—an enumerated right—took place in Canada where the contract was entered into.

As Mactavish JA [138] also noted, the FCA in Beloit further pointed out that the machines had been assembled for testing in Canada before being disassembled for shipment abroad, and the Court held that this “constitutes ‘making’ a patented invention for the purposes of [what is now section 42] of the Act” [47]. Thus it is clear that the FCA found infringement on the basis of domestic acts—sale and making—which fall squarely within the rights enumerated in s 42.

In this case, while it was clear that GreenBlue had exported the components of the infringing RootSpace system to the US, it was unclear as to where the sale took place [145] and even who the parties were to the sale (GreenBlue’s UK parent company was also involved) [142]–[144]. (Recall that this issue was not at all prominent at trial.) In this case, there was no evidence of assembly in Canada after the injunction was issued [141]. Consequently, the FC did not err in declining to find infringement [146].

DeepRoot had relied on Varco 2013 FC 750 for the proposition that “the shipment of parts outside of Canada, along with the relatively simple later assembly, constitutes the shipment of the assembled product from Canada” [124]. In Varco, Phelan J [260] interpreted Windsurfing (1985) 8 CPR(3d) 241 (FCA) and Beloit in the same way as Mactavish JA did in this case, as turning on the point that “the sale was made in Canada.” Consequently, Mactavish JA held that Varco was distinguishable because in this case there was no evidence that GreenBlue had made the sale [141].

While it was not mentioned in this case, either at first instance or on appeal, I would also note that in Apotex v Sanofi-Aventis 2011 FC 1486, Boivin J held that “Apotex committed acts of infringement by manufacturing, using, importing, exporting, possessing and selling a product protected by the [patent at issue]” [210]. However, this broad statement must be read in conjunction with his specific findings, namely that “the transfer of title occurs in Canada,” and “[t]he sales by Apotex Corp. [Apotex’s US marketing entity] are made pursuant to an Abbreviated New Drug Application (ANDA) in the name of Apotex and regulatory approval obtained by Apotex Inc. with Apotex Corp. acting as its agent” [209]. Thus, the sale took place in Canada and the sale was for the benefit of Apotex. In light of these facts, Boivin J’s analysis appears to be consistent with Mactavish JA’s analysis in this case.

In summary on the export point, while Mactavish JA did not expressly hold that export as such does not constitute infringement, that seems to be the implication of the decision. While it was not clear where the sale took place or who the parties were, it does seem clear that GreenBlue exported the components, and this implies that GreenBlue would have been found to infringe if the FCA considered that export as such constitutes infringement.

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