Holding on Disclosure of Line of Reasonsing is Strictly Obiter

Bell Helicopter Textron Canada Limitée v. Eurocopter 2013 FCA 261 Mainville JA: Noël, Trudel JJA refusing a motion for reconsideration of 2013 FCA 219

2,207,787

In previous litigation in this action, Eurocopter’s claims to helicopter landing gear with a forward offset front cross-piece had been held to be valid and infringed, but Claim 16, to landing gear with a backward offset front cross-piece, had been held invalid for lack of utility. In this motion under Rule 397, which permits reconsideration when “(a) the order does not accord with any reasons given for it; or (b) a matter that should have been dealt with has been overlooked or accidentally omitted,” Eurocopter has asked the FCA to modify two paragraphs of its reasons ([157]-[158]), in a way that Eurocopter apparently hoped would have the effect of reversing the judgment with respect to Claim 16, rendering that claim valid [4]. The FCA rejected this motion on the basis that (1), Rule 397 cannot be used to re-argue an issue [15]; (2) the paragraphs in question were not inadvertent and indeed were not incorrect [16]-[17]; and (3) the motion was pointless as even if the paragraphs in question were “corrected,” Claim 16 would still be invalid.

This last point is of some general interest. As I discussed in a post on the original FCA decision, the FCA held that the line of reasoning supporting sound prediction must be disclosed in the patent. If the decision has been amended as sought by Eurocopter, it would have held that the line of reasoning was indeed disclosed in the patent [4]. But the FCA noted that this would not have saved the claim, because Bell had brought evidence that the backward offset embodiment lacked utility, and “It would therefore have still been incumbent on Eurocopter to rebut that evidence through its own evidence of testing or through calculations supporting a sound line of reasoning for that embodiment at the time the `787 Patent was applied for. Eurocopter failed to do so. As a result, its cross-appeal would still fail” [18]. In other words, the FCA has recognized that its holding that the line of reasoning must be disclosed in the patent was obiter, because the more fundamental problem is that Eurocopter had not supplied any evidence of utility, whether in the patent or not. This is significant, as there is some suggestion of a disagreement at the FCA as to whether the heightened disclosure requirement in respect of sound prediction is sound, and to the extent that the holding in Eurocopter affirming this doctrine is obiter, it has less weight than if it were determinative. That is, it would be possible for a subsequent decision of the FCA to distinguish Eurocopter on this point as being obiter. With that said, there obiter, and there is obiter; while the Eurocopter panel of the FCA has acknowledged that its holding on this point was strictly obiter, it was clearly thoroughly considered, and so will not be lightly distinguished or ignored.

Opening the Door to Punitive Damages in Patent Law?

Eurocopter v. Bell Helicopter Textron Canada Limitée 2013 FCA 219 Mainville JA: Noël, Trudel JJA aff’g 2012 FC 113 Martineau J
            2,207,787

Punitive damages are very rarely awarded in Canadian patent cases, yet in his trial decision in Eurocopter, Martineau J held that Eurocopter was entitled to punitive damages, essentially on the basis that Bell had intentionally copied helicopter landing gear which it knew to be patented [FC 431-33]. My post on this aspect of Martineau J’s decision argued that this holding is very problematic, as it is likely to having a chilling effect on desirable challenges to invalid patents. The FCA has now affirmed Eurocopter’s entitlement to punitive damages.

Line of Reasoning Supporting Sound Prediction Must Be Disclosed in the Patent

Eurocopter v. Bell Helicopter Textron Canada Limitée 2013 FCA 219 Mainville JA: Noël, Trudel JJA aff’g 2012 FC 113 Martineau J
            2,207,787

The doctrine of sound prediction of utility is routinely applied in the context of pharmaceutical and chemical inventions, but rarely – perhaps never, before Eurocopter – applied to a mechanical invention. Nonetheless, the FCA Eurocopter decision is a significant development in the law of sound prediction, which affirms and emphasizes what I consider to be the most problematic aspects of the doctrine.

Given the novelty of applying sound prediction in the mechanical context, Eurocopter argued that the doctrine doesn’t apply to mechanical inventions at all [144]. The FCA rejected this, on the ground that there is no reason in principle why the doctrine should not apply [146]. It may generally be easier to establish demonstrate utility in the context of mechanical inventions, but I cannot think of any reason why a mechanical patentee should be precluded from establishing utility on the basis of sound prediction if it cannot establish demonstrated utility. As Snider J noted in Imatinib 2013 FC 141 [164], sound prediction “is a way of showing that an invention is useful when the invention has not been directly demonstrated to work. Its introduction into Canadian law was not, as I understand it, to give a crushing hammer to those who challenge patents.” (See more here.)

Why then was Eurocopter arguing that the doctrine does not apply? The answer is that sound prediction has become a potent weapon for attacking patents, even though Snider J was right to say that it was not originally intended as such. The reason for this is the requirement that the factual basis for sound prediction must be disclosed in the patent if, and only if, utility is based on sound prediction. This point has previously been affirmed by the FCA in the Raloxifene 2009 FCA 97 [15] and Atomoxetine 2011 FCA 220 [46-47] decisions. The consequence is to draw a sharp distinction between demonstrated utility and sound prediction, with more stringent requirements for the latter. I have argued that this distinction is inconsistent with the Act, as there is no statutory basis for this distinction; there is only one utility requirement in the Act, not two requirements with two different criteria.. Again, as Snider J stated in Imatinib “Sound prediction is not a free-standing statutory requirement” [164].

No Sign of Changed Approach to the Promise Doctrine in First Post-Clopidogrel FCA Decision

Eurocopter v. Bell Helicopter Textron Canada Limitée 2013 FCA 219 Mainville JA: Noël, Trudel JJA aff’g 2012 FC 113 Martineau J
            2,207,787

While the promise of the patent doctrine and the requirement that the factual basis for sound prediction be disclosed in the patent are most closely associated with pharmaceutical patents, the FCA Eurocopter decision is significant on both issues, particularly when contrasted with the recent FCA Clopidogrel decision 2012 FCA 186. This post deals with the promise doctrine, while the next will deal with the factual basis issue. An overview of the facts in Eurocopter is provided in my last post.

In Clopidogrel decision, as discussed here, the FCA re-affirmed the promise doctrine, but it also adopted a relatively restrictive approach to construing the promise, emphasizing repeatedly that the promise must be “explicit,” and also noting that it should not be assumed that every patent has a promise. The question remains as to whether this change in tone will generate a real change in practice. Eurocopter is the first FCA decision since Clopidogrel to consider the issue. In Eurocopter the FCA affirmed, with little discussion, a fairly aggressive pre-Clopidogrel style of interpretation of the promise. Since Eurocopter was argued before Clopidogrel was released, this may simply reflect the fact that counsel would not have argued the Clopidogrel requirement for an express promise, and the FCA did not feel inclined to review the trial judge’s construction of the promise on its own initiative. But it is disquieting that the FCA simply accepted Martineau J’s construction, without even reference to the Clopidogrel approach.

FCA Affirms Eurocopter: Overview and Claim Construction

Eurocopter v. Bell Helicopter Textron Canada Limitée 2013 FCA 219 Mainville JA: Noël, Trudel JJA aff’g 2012 FC 113 Martineau J
            2,207,787 - new Act

The FCA decision in Eurocopter is most important for its discussion of punitive damages, and it is also significant for its discussion of two doctrines more closely associated with pharmaceutical patents, namely the promise of the patent doctrine and the requirement that the factual basis for sound prediction be disclosed in the patent. I will discuss both of these issues in subsequent posts. For now I will just say that any hopes raised by the FCA’s recent Clopidogrel decision that we might see some retrenchment in respect of the pharmaceutical doctrines (see here and here), must be significantly tempered by the FCA’s Eurocopter analysis. 

This post provides background and discusses the claim construction issues. Anticipation and obviousness were also raised on appeal, but they were dismissed essentially on the basis that the points raised turned on matters of fact on which the trial judge had made no overriding error.

Costs in Eurocopter v Bell

The only patent case posted for the week of 12 August was the costs decision in Eurocopter v Bell 2012 FC 842. While I won’t comment in detail, Martineau J’s decision was interesting in several respects. He indicated at [22] that the costs award in a “lengthy and hard-fought” patent case should normally be assessed at the upper end of column IV of Tariff B. His discussion of what constitutes success and how to assess costs in when success is divided was also interesting. Eurocopter was successful in respect of the Legacy landing gear, of which only a small number were made by Bell, but Bell was successful in respect of the Production landing gear, which, as the name reflects, was put into production. Martineau J concluded that overall, Eurocopter was the most successful party, but while he assessed Eurocopter’s costs at the upper end of column IV, he reduced the costs award by 50% to reflect “Bell’s indisputable partial success in defending its Production gear and Eurocopter’s choice to pursue an action against the Production gear in which it was ultimately unsuccessful” [23].

An Accounting Really Is Difficult in Some Cases

Eurocopter v Bell Helicopter Textron Canada Limitée 2012 FC 113 Martineau J

In Eurocopter Martineau J held that the successful patentee was not entitled to an accounting of the defendant’s profits. Martineau J began his discussion of this point with what is becoming a standard assertion of the complexity of an accounting as a reason that courts “have been very reluctant to grant such remedy. Perhaps such complexity does not prevent the Court from exercising its discretion, but there must exist good reasons to do so” [411], citing the decision of Snider J in Merck & Co Inc v Apotex Inc / lovastatin 2010 FC 1265, [615]-[616]. It may be that an accounting is a difficult calculation, but the real question is whether it is more difficult than the damages calculation. As I commented in my post on the lovastatin decision, the courts have often remarked on the difficulty of an accurate calculation of damages (see cases cited in that post), and I fail to see why an accounting of profits is generally more difficult that a calculation of lost profits damages. The former compares the profits the defendant actually earned with the hypothetical profits that would have been earned using the best non-infringing alternative, while the latter compares the profits the plaintiff actually earned with the hypothetical profits the plaintiff would have earned had the defendant not infringed. Both require discovery of similar kinds of information, and both require construction of a hypothetical “but for” scenario.

Moreover, an accounting has at least two advantages. As between an accounting and lost profits damages, if the remedial order is going to require one competitor to open its books to the other, surely it is more equitable to order the wrongdoer to open its books to the successful patentee, rather than the other way around. And as between an accounting and reasonably royalty damages, an accounting provides a better deterrent, as the reasonable royalty amounts to a compulsory licence. As Zinn J has pointed out in Monsanto Canada Inc. v. Rivett 2009 FC 317 at [23], “[a]t the level of principle, there is no deterrent from infringing the patent if what the infringer is required to hand over is the sum he would otherwise have paid to Monsanto to buy the seed and the licence. In fact, this would almost be counter to the purpose of deterrence. It is much like saying, as the plaintiffs put it in their oral submission, ‘Catch me if you can’. If caught, the defendant would be required to pay the sum he would have paid to use the patent in any event. When not caught, he is left with a windfall.”

This does not mean that an accounting is always preferable; it does mean that question of whether an accounting is justifiable as compared with the damages remedy will turn on the facts of the particular case, not on broad generalizations.

In this particular case, Martineau J pointed out that an accounting would be complex because “landing gear, although essential for the proper functioning and security of a helicopter, represents just a small part of the total cost of a helicopter” [412]. While it is often possible to prove sales (whether by the infringer, in an accounting calculatin, or by the patentee, in a lost profits calculation), attributable to some patented feature, that is an easier inquiry when the patented feature is an important selling point. Further, in this case, Bell did not actually sell any helicopters at all that were equipped with the infringing landing gear; the argument for an accounting of profits would be that it had secured extra sales of models equipped with non-infringing gear on the basis of marketing of prototype models equipped with infringing gear. This is an particularly speculative inquiry. It is true that Eurocopter’s lost profit damages would be just as speculative – it would be require exactly the same inquiry – but the consequence would very probably be that Eurocopter would be confined to reasonable royalty damages, which would likely be a significantly easier calculation.

In this case I am entirely persuaded that on the facts Martineau J’s decision to refuse an accounting was correct for the reasons he gave, but I hope that dubious generalizations about the relative complexity of an accounting do not become entrenched through repetition.

When Should Entitlement to Punitive Damages be Determined?

Eurocopter v Bell Helicopter Textron Canada Limitée 2012 FC 113 Martineau J
 
Yesterday’s post addressed the question of whether it appropriate to hold that Eurocopter was entitled to punitive damages. A preliminary question is whether it appropriate to make this determination prior to the actual assessment of damages. In Apotex v Merck / Vasotec 2003 FCA 291, [34], Sharlow J stated(emphasis added):

The purpose of punitive damages is to punish, to deter the wrongdoer and others, and to denounce wrongful behaviour. Punitive damages are awarded only where compensatory damages and other normal civil remedies are insufficient to accomplish those objectives, and in an amount that is no greater than necessary to accomplish that objective: Whiten, supra; Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130. It is axiomatic that until all the ordinary civil remedies are finally determined (which in this case would include a determination as to whether the remedy is an award of damages or an accounting of profits, and the quantum), it is impossible to determine whether punitive damages are required to meet the objectives of punishment, deterrence and denunciation.

Martineau J distinguished Vasotec on the basis that in that case there had been a de facto bifurcation of liability and remedies generally, not just quantum. That is true, but it is not clear that this distinction addresses the FCA’s point, which is that the court cannot tell whether compensatory damages are sufficient for deterrence until the court knows the quantum of those compensatory damages. Martineau J responded by stating that in his view of the evidence, ordinary damages were likely to be minimal and “will simply not be enough to achieve the goal of punishment and deterrence” [455]. In other words, even without a full determination of damages, he was nonetheless in a position to make the determination that ordinary damages would be insufficient for deterrence. I have argued in yesterday’s post that this is not persuasive.

Martineau J also justified his decision on the much more persuasive ground that entitlement to punitive damages was dependent in large measure on the conduct of the infringer. This was a matter that had been thoroughly canvassed at trial, and delay would make determination of this issue all the more difficult [454], and therefore he was best placed to make the determination. This is a compelling point which is complementary to, rather than inconsistent with, the FCA’s point in Vasotec: whether punitive damages are appropriate depends on both the quantum of compensatory damages and the conduct of the parties, so in principle a determination as to entitlement should not be made until both have been addressed. The problem remains, as Martineau J pointed out, that because of the bifurcation, both factors cannot be determined in the same proceedings. In principle, perhaps the best course would have been for Martineau J to have made findings as to whether the conduct is of the type that would warrant punitive damages, and then leave it for damages phase to determine whether punitive damages are warranted, in light of those findings and the quantum awarded as compensatory damages. In practice, given that Martineau J did not actually specify the quantum, which will only be determined at the damages stage, his holding that Eurocopter is entitled to punitive damages is not so different from merely making findings as to the relevant facts.

For an overview of this decision, see here.

Problematic Entitlement to Punitive Damages

Eurocopter v Bell Helicopter Textron Canada Limitée 2012 FC 113 Martineau J

In Eurocopter v Bell, Martineau J, having held one claim of Eurocopter’s patent to be valid and infringed, went on to hold that Eurocopter is entitled to punitive damages, though the quantum was left for determination pursuant to the order bifurcating damages assessment. This holding is the most legally novel aspect of Martineau J’s decision, and in my view it is also the most problematic.

The factors that Martineau J pointed to in holding that punitive damages were warranted were that Bell intentionally copied “the unique and new patented technology developed by Eurocopter” [430], without any attempt to avoid infringing the patent [431], with knowledge of the patent [432]. From this Martineau J concluded that:

[ 433] On a balance of probability, the Court finds that there is clear evidence of bad faith and egregious conduct on the part of Bell. This is not a case where the infringement is small, trivial or isolated, or where the defendant is unsophisticated or ignorant. This is a case of wilful blindness or intentional and planned misappropriation of the claimed invention. Eurocopter has proven that the infringement of the '787 Patent by the making and use of the Legacy gear was not innocent or accidental.

In short, intentional copying of a product that the defendant knows to be patented is conduct warranting punishment. This is an entirely novel concept in Canadian patent law, and it is very worrying as a matter of policy.

Eurocopter v Bell Overview

Eurocopter v Bell Helicopter Textron Canada Limitée 2012 FC 113 Martineau J

Eurocopter v Bell is a familiar case name from numerous visits to the Federal Court on discovery matters, but now the infringement decision itself is available. It has not yet now been posted to the Federal Court website, but Alan Macek has made it available through his IPPractice site. Eurocopter’s patent in question, 2207787, relates to sled-type helicopter landing gear which was known as “Moustache” gear. Matineau J held that one claim was valid and infringed by Bell’s prototype “Legacy” landing gear, but no valid claims were infringed by Bell’s current “Production” gear. The most interesting legal aspect of the decision is that Martineau J held that Eurocopter as the successful patentee was entitled to punitive damages, which is extremely unusual in Canadian patent law. I will deal with that issue in a separate post. This post will provide a synopsis of the remainder of the decision.