Friday, November 17, 2023

The UK Approach to Electing an Accounting

In a recent post I noted that AlliedSignal (1995), 61 CPR (3d) 417 (FCA) 444 held that an entitlement to an accounting “certainly cannot depend on whichever amount would turn out, on inquiry, to be more profitable.” I should point out that in UK law is to the contrary. In UK law, as I understand it, the successful patentee is entitled to elect between damages and an accounting as of right, unlike in Canadian law where it is clear that an accounting, as an equitable remedy, is discretionary: Beloit v Valmet-Dominion [1997] 3 FC 497 (FCA) ¶ 111. Further, in UK law, the patentee is entitled to some information from the defendant to allow it to make an informed election between the two remedies: see Lufthansa v Panasonic Avionics [2023] EWCA 1273, in which Birss LJ explained [3]:

If an IP rights holder's business is in licensing their rights then the damages would be measured by the loss of royalty on the defendant's infringing goods, which, if the infringements were highly profitable, may be a lower sum than the amount of profit the infringer earned from the infringement. The rational choice might then be to choose an account of profits. On the other hand if the infringer's business was unprofitable, perhaps trying to break into a new market, and the rights holder's business was a profitable one making direct sales to customers, which were lost due to the infringement, then a damages enquiry might be more sensible.

I am not persuaded. The question is not which remedy is more rational from the perspective of the patentee, it is which remedy is more rational in light of the purpose of the patent system. The primary purpose of patent remedies is to preserve the incentive to invent. Damages serve that purpose. That is why damages are available as of right in Canada and that is why an accounting is not available at all in the US. An accounting that exceeds damages must be justified by some independent principle, such as sanctioning bad faith behaviour. So, in my article on Nova v Dow (forthcoming in the IPJ), I argue that an accounting should only be granted if the infringer was deliberately avoiding taking a licence in a game of “catch-me-if-you-can.” Simply putting more money into the pocket of the patentee is not an adequate principle. Indeed, an award that exceeds damages can be counter-productive, as it may encourage needless litigation by giving the patentee an incentive to disguise its patent rights in the hopes of trapping an unwary infringer, thereby getting a better outcome that if it had sought to make a licence easily available ex ante. This is all the more reason why the grant of an accounting must turn on the behaviour of the parties and not simply on which remedy is most favorable to the patentee.

With that said, I can understand that if the bad behaviour of the infringer warrants the grant of an accounting, it is reasonable for the patentee to want to know whether that remedy will exceed its damages. The patentee is entitled to damages to make it whole and should not have to accept a lesser amount because the infringer behaved badly. My objection is to allowing the patentee to elect an accounting simply because the quantum of the accounting would exceed the quantum of damages. The FCA in AlliedSignal did not say that a patentee is never entitled to information allowing it to judge which remedy is greater before making an election; AlliedSignal said that the grant of an accounting cannot turn on which remedy is greater. This is consistent with the view that a successful patentee must establish its entitlement to an accounting on independent substantive grounds, such as the bad behaviour of the infringer, but once it has established that it should be granted an accounting on substantive grounds, it may be granted an inquiry allowing it to make an informed choice so as to ensure that it is at least made whole.

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