2020 FCA 141, 2020 FCA 141

A-150-17 A-227-17 2020 FCA 141 Nova Chemicals Corporation ( Appellant ) v. The Dow Chemical Company, Dow Global Technologies Inc. and Dow Chemical Canada ULC ( Respondents ) Indexed as: Nova Chemicals Corporation v. Dow Chemicals Company Federal Court of Appeal, Stratas, Near and Woods JJ.A.—Ottawa, June 19, 2018; September 15, 2020.

Patents –– Infringement –– Remedies –– Accounting of profits –– Appeal, cross-appeal from Federal Court decision concerning remedy of accounting of profits, specifically calculation of amount respondents entitled to receive –– Issue arising from earlier Federal Court judgment finding that appellant liable for infringing respondents’ patent over metallocene linear low-density polyethylene by manufacturing its product SURPASS, selling it in competition to respondents’ product ELITE –– Question of remedy arising therein –– Respondents electing accounting of profits –– Whether Federal Court erring in rejecting appellant’s apportionment claim; whether Federal Court erring in awarding respondents “springboard profits”; whether Federal Court erring in selecting “full cost” method for deducting costs; whether Federal Court erring in converting currency at date of judgment –– Per Stratas J.A. (Near J.A. concurring): Appellant’s apportionment argument failing –– Appellant not demonstrating that it would have sold ethylene to third parties if not using it to make infringing SURPASS polyethylene or that portion of profits attributable to its unique ability to produce ethylene at significant discount –– Respondents having exclusive right to produce polyethylene covered by own patent –– Fact appellant producing its own ethylene in manner that generates higher profits irrelevant –– Federal Court correctly holding that accounting of profits should be based on actual revenues, costs –– Appellant’s actions part, parcel of manufacture, sale of infringing product –– Federal Court addressing issue on “apportionment” even though not using actual term in reasons –– Federal Court finding that gain appellant earning resulting from more efficient manner of manufacturing ethylene was gain made as result of infringement –– Not erring in law or making palpable, overriding error on issue of apportionment –– Federal Court not making palpable, overriding error by allowing respondents springboard profits as sought –– Profits disgorged constituting actual profits appellant earned that were causally attributable to infringement –– While Federal Court reaching correct outcome in deducting costs, selected full costs method on incorrect basis –– Wrongly relying on Australian High Court decision Dart Industries Inc. v.

Décor Corporation Pty Ltd ; wrongly holding that “full costs” approach can be implemented as long as infringer operating at full capacity, can prove opportunity cost –– “Full costs” approach should always be available to infringer; is preferred method for deducting costs –– Despite Currency Act, s. 12 requirement that courts render judgments in Canadian dollars, Federal Court not wrong in converting award at date of judgement –– Facts of present case such that conversion at date of judgment rather than date of breach only correct outcome –– In conclusion, Federal Court committing no reviewable error when dismissing appellant’s apportionment arguments, awarding springboard profits, applying “full cost” method for deducting costs, converting foreign currency at date of judgment –– Appeal, cross-appeal dismissed –– Per Woods J.A. (dissenting): Not all SURPASS profits should have been disgorged because not entirely attributable to infringing activity –– Appellant’s process for producing ethylene not infringing respondents’ patent –– Federal Court failing to consider appellant’s argument that portion of SURPASS profits not causally attributable to respondents’ patent; therefore failing to consider proper legal test for apportionment of profits –– Thus, Federal Court erring in law.

This was an appeal and cross-appeal from a Federal Court decision concerning the remedy of an accounting of profits and, specifically, the calculation of the amount the respondents were entitled to receive. The issue arose from an earlier judgment of the Federal Court, later affirmed on appeal. In that earlier judgment, the Federal Court found that the appellant was liable for infringing the respondents’ patent over metallocene linear low-density polyethylene by manufacturing its product SURPASS and selling it in competition to the respondents’ product ELITE. The question of remedy arose.

The Federal Court permitted the respondents to elect between an accounting of profits earned as a result of the patent infringement or compensatory damages caused by the patent infringement. The respondents elected an accounting of profits. Neither the decision to allow the respondents to elect nor the election itself were under appeal.

The issues were whether the Federal Court erred in rejecting the appellant’s apportionment claim; whether the Federal Court erred in awarding the respondents “springboard profits”; whether t he Federal Court erred in selecting the “full cost” method for deducting costs; and whether the Federal Court erred in converting the currency at the date of judgment. Held (Woods J.A. dissenting), the appeal and cross-appeal should be dismissed. Per Stratas J.A. (Near J.A. concurring): The appellant’s apportionment arguments failed.

Its first apportionment argument concerned its manufacture of ethylene, a major component of metallocene linear low-density polyethylene and its SURPASS product that infringed the respondents’ patent. The appellant stated that had it not infringed the respondents’ patent, it would have produced ethylene anyway and would have made lawful profits from that. In the Federal Court, the appellant did not demonstrate that it would have been able to sell ethylene to third parties had it not used it to make infringing SURPASS polyethylene.

There was no evidence before the Federal Court of any market demand or market price for the appellant’s ethylene as opposed to the prices the appellant sold ethylene to certain third

parties. Also, the Federal Court had confidential evidence before it that stood in the way of any argument that the appellant could have made and sold ethylene to third parties. The appellant also ran its apportionment argument a slightly different way by stating that a portion of its profits were attributable to its unique ability to produce ethylene at a significant discount. It stated that this portion of the profits was not causally attributable to the patent but instead attributable to its efficiencies.

Thus, according to the appellant, some of its profits were due to its own efficiencies and should be apportioned out of the amount to be awarded to the respondents. This argument was also rejected. The respondents have the exclusive right to produce the polyethylene covered by their patent. The fact that the appellant produces its own ethylene in a way that allows it to make higher profits was irrelevant. Under the principles governing an accounting of profits, the profits as a result of the wrongful manufacture and sale of the infringing product had to be stripped from the appellant.

The Federal Court specifically rejected the appellant’s argument. In addressing it, the Federal Court correctly held that an accounting of profits should be based on actual revenues and costs . An accounting of profits does not look at hypotheticals. In isolation, the appellant’s production of the raw material, ethylene, for its SURPASS product was “non-infringing” but each step of an infringer’s activities cannot be viewed in isolation.

In this case, the findings of the Federal Court regarding how the infringing SURPASS product was made precluded any attempt to regard the appellant’s manufacture of ethylene as a separate matter or feature. As the Federal Court found, all of the appellant’s actions, including its manufacture of the ethylene that was wholly integrated and merged into the infringing SURPASS polyethylene product, were part and parcel of the manufacture and sale of the infringing product. Moreover, contrary to the suggestion of the minority, the Federal Court did decide the issue on “apportionment”.

While the Federal Court did not use the word “apportionment” in its reasons on this issue, it did not need to. It would be wrong to quash its reasons based on an insistence it should have used that magic word. Unquestionably, the Federal Court always had causation front of mind in this case. Causation depends on the facts. In this case, for very good reasons, the Federal Court found that all of the gain earned by the appellant as a result of its more efficient manner of manufacturing ethylene was gain made as a result of the infringement.

It made this finding mindfully and having considered all of the evidence and arguments before it. Therefore, on the so-called “apportionment” issue, the Federal Court neither erred in law nor committed a palpable and overriding error. Its decision had to be left in place. With respect to “springboard profits”, the Federal Court allowed the respondents the springboard profits they sought. The appellant argued that springboard profits are not available at law and, in the alternative, if springboard profits are available at law, the Federal Court incorrectly calculated these.

However, the appellant did not establish any error of law or palpable and overriding error on the part of the Federal Court. Springboard profits seek to identify the actual profits causally attributable to the infringement. There is no hypothetical world involved: the profits disgorged are actual profits that are causally connected to the patent’s exclusivity rights. Establishing causation for springboard profits requires a causal link between the profits and the patent. In this case, the profits disgorged were the actual profits the appellant earned that were causally attributable to the infringement.

Thus, the Federal Court made the right analysis on this issue. The Federal Court selected the “full costs” or “absorption” method to deduct costs. In its cross-appeal, the respondents challenged this. While the Federal Court reached the correct outcome in deducting costs, it selected the full costs method on an incorrect basis. Applying an Australian High Court decision, Dart Industries Inc. v. Décor Corporation Pty Ltd , the Federal Court held that the “full costs” approach can be implemented as long as the infringer is operating at full capacity and can prove an opportunity cost.

To the contrary, the “full costs” approach should always be available to an infringer. Indeed, absent some exceptional and compelling circumstance or persuasive expert evidence in a particular case, the “full costs” approach is the preferred method for deducting costs. While Dart Industries provides a helpful

summary of accounting of profits principles, its rule for deducting full costs should not be adopted in Canada. Dart Industries allows an infringer to deduct a hypothetical opportunity cost, which is not a cost actually incurred whereas an accounting of profits occurs in the real world. Actual profits must be disgorged, which means only actual costs can be deducted. While the Federal Court wrongly relied on Dart Industries, selecting the full costs approach was not in error. Any infringer, regardless of whether it is operating at full capacity, should be able to deduct a proportion of its fixed costs.

Absent some exceptional or compelling circumstance or persuasive expert evidence to the contrary in a particular case, the full cost method is the appropriate approach to deducting costs in an accounting of profits. The Federal Court adopted that method and did not commit a reversible error in so doing. Although

section 12 of the Currency Act requires courts to render judgments in Canadian dollars, the Federal Court converted the award at the date of judgment. The Federal Court’s decision to do this was upheld. The particular facts of this case made it such that conversion at the date of judgment (rather than date of breach) was the only correct outcome. At the time of the Federal Court’s judgment, the profits earned by the appellant became more valuable because of the increased value of U.S. dollars.

Because the appellant held the profits primarily in U.S. dollars throughout the period of the infringement, conversion at the time of judgment ensured that the entire value of the actual profits earned as a result of the infringement was disgorged. An accounting of profits is indifferent to the patentee’s award. As long as the infringer’s profits are extracted, and, thus, the integrity of the patent bargain is restored, then it does not matter what the patentee actually receives. Therefore, the Federal Court correctly converted the appellant’s profits at the date of judgment.

In conclusion, the Federal Court committed no reviewable error when it dismissed the appellant’s apportionment arguments, awarded springboard profits, applied the “full cost” method for deducting costs, and converted the foreign currency at the date of judgment. Per Woods J.A. (dissenting): Not all SURPASS profits should have been disgorged because they were not entirely attributable to the infringing activity.

The total amount ordered to be paid to the respondents was approximately $644 million, and according to the appellant, the failure to apply an apportionment of profits resulted in inflating the award by more $300 million. The appellant`s process for producing ethylene did not infringe the respondents’ patent. The appellant amply demonstrated that an apportionment of SURPASS profits was appropriate in this case. Plainly, the production of ethylene was a non-infringing element which contributed to the value of SURPASS. The quantum of this contribution should not be disgorged.

The majority took a different view and concluded that the manufacture of ethylene was “part and parcel of the manufacture and sale of the infringing product.” While this statement was accurate, it did not properly take into account the value that the non-infringing activity contributed to SURPASS profits. Also, the Federal Court failed to consider the appellant’s argument that a portion of the SURPASS profits were not causally attributable to the respondents’ patent.

In other words, the Federal Court did not put its mind to the issue of whether a portion of SURPASS profits were attributable to something other than an infringing activity and, in doing so, it failed to consider the proper legal test for an apportionment of profits. This was an error of law. STATUTES AND REGULATIONS CITED

Currency Act, R.S.C., 1985, c. C-52, s. 12. Federal Courts Act, R.S.C., 1985, c. F-7, s. 20(2). Patent Act, R.S.C., 1985, c. P-4, ss. 55, 57. CASES CITED not followed: Dart Industries Inc. v. Décor Corporation Pty Ltd., [1993] HCA 54, (1993), 179 C.L.R. 101, 116 A.L.R. 385 (Aust. H.C.). applied: Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, [2004] 1 S.C.R. 902; Apotex Inc. v. ADIR, 2017 FCA 23, 406 D.L.R. (4th) 572, revg2015 FC 721; Beloit Canada Ltd. v. Valmet Oy (1994), 55 C.P.R. (3d) 433, 78 F.T.R. 86 (F.C.T.D.), revd on other grounds (1995), 184N.R. 149, 61 C.P.R. (3d) 271; Monsanto Canada Inc. v.

Rivett, 2009 FC 317, [2010] 2 F.C.R. 93; Alliedsignal Inc. v. Dupont CanadaInc. (1999), (FCA), 86 C.P.R. (3d) 324, 235 N.R. 185 (F.C.A.). considered: Dow Chemical Company v. Nova Chemicals Corporation, 2014 FC 844, 129 C.P.R. (4th) 199, affd 2016 FCA 216, 142 C.P.R. (4th) 339;Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177; Hodgkinson v. Simms, (SCC), [1994] 3 S.C.R.377, (1994), 117 D.L.R. (4th) 161; Hall v. Hebert, (SCC), [1993] 2 S.C.R. 159, (1993), 101 D.L.R. (4th) 129; LubrizolCorp. v. Imperial Oil Ltd., (FCA), [1997] 2 F.C. 3, (1996), 71 C.P.R. (3d) 26 (C.A.); Atlantic Lottery Corp.

Inc. v.Babstock, 2020 SCC 19, 447 D.L.R. (4th) 543; Celanese International Corp. v. BP Chemicals Ltd., [1999] R.P.C. 203 (Pat. Ct.); PfizerCanada Inc. v. Teva Canada Limited, 2016 FCA 161, 483 N.R. 275; Wellcome Foundation Ltd. v. Apotex Inc. (1998), (FC), 82 C.P.R. (3d) 466, 151 F.T.R. 250 (F.C.T.D.) affd (FCA), [2001] 2 F.C. 618, (2001), 11 C.P.R. (4th) 218(C.A.); Teledyne Industries, Inc. v. Lido Industrial Products Ltd. (1982), 68 C.P.R. (2d) 204, 31 C.P.C. 285 (F.C.T.D.); ManufacturingCompany v. Cowing, 105 U.S. 253 (1881); AstraZeneca Canada Inc. v. Apotex Inc., 2015 FC 671; Bayer Aktiengesellschaft v.

ApotexInc. (2001), (ON SC), 10 C.P.R. (4th) 151 (Ont. Sup. Ct.). referred to: Free World Trust v. Électro Santé Inc., 2000 SCC 66, [2000] 2 S.C.R. 1024; Merck & Co. Inc. v. Apotex Inc., 2015 FCA 171, [2016] 2F.C.R. 202; Lundy v. Lundy (1895), 24 S.C.R. 650, 1895 CanLII 19; Jamieson v. Jamieson (1921), (SCC), 63 S.C.R.188, 65 D.L.R. 68; Brissette Estate v. Westbury Life Insurance Co.; Brissette Estate v. Crown Life Insurance Co., (SCC), [1992] 3 S.C.R. 87, (1992), 96 D.L.R. (4th) 609; Scott v. Wawanesa Mutual Insurance Co., (SCC), [1989] 1S.C.R. 1445, (1989), 59 D.L.R. (4th) 660; Monsanto Canada Inc. v.

Rivett, 2010 FCA 207, [2012] 1 F.C.R. 473, 408 N.R. 143; Whiten v.Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595; Reading & Bates Construction Co. v. Baker Energy Resources Corp., (FCA), [1995] 1 F.C. 483, (1994), 58 C.P.R. (3d) 359 (C.A.); My Kinda Town Limited v. Soll and Another, [1983] R.P.C.15, [1981] Com. L.R. 194 (Ch. D.); Collette v. Lasnier (1886), 1886 CanLII 54 (SCC), 13 S.C.R. 563; Housen v. Nikolaisen, 2002 SCC33, [2002] 2 S.C.R. 235; Canada v. South Yukon Forest Corporation, 2012 FCA 165, 431 N.R. 286; Benhaim v. St-Germain, 2016 SCC48, [2016] 2 S.C.R. 352; Mahjoub v.

Canada (Citizenship and Immigration), 2017 FCA 157, [2018] 2 F.C.R. 344; Quan v. Cusson, 2009SCC 62, [2009] 3 S.C.R. 712; Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678;R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869; R. v. R.E.M., 2008 SCC 51, [2008] 3 S.C.R. 3; Bayer Cropscience KK v. CharlesRiver Laboratories Preclinical Services Edinburgh Limited & Albaugh Inc., [2010] CSOH 158; Ishaq v. Canada (Citizenship andImmigration), 2015 FCA 151, [2016] 1 F.C.R. 686; Neilson v. Betts (1871), L.R. 5 H.L. 1; L.P. Larson Jr., Co. v.

William Wrigley Jr.,Co., 227 U.S. 97 (1928); Cala Homes (South) Ltd. v. Alfred McAlpine Homes East Ltd., [1996] F.S.R. 36 (Ch. D.); Beloit Canada Ltd. v.Valmet-Dominion Inc., (FCA), [1997] 3 F.C. 497, (1997), 73 C.P.R. (3d) 321 (C.A.); Tremaine v. Hitchcock, 90 U.S.518 (1874); The Custodian v. Blucher, (SCC), [1927] S.C.R. 420, [1927] 3 D.L.R. 40; Gatineau Power Co. v. CrownLife Insurance Co., (SCC), [1945] S.C.R. 655, [1945] 4 D.L.R. 1; N.V. Bocimar S.A. v.

Century Insurance Co. ofCanada (1984), 53 N.R. 383, 7 C.C.L.I. 165 (F.C.A.) revd (SCC), [1987] 1 S.C.R. 1247, (1987), 39 D.L.R. (4th) 465;Wellcome Foundation Ltd. v. Apotex Inc., (FCA), [2001] 2 F.C. 618, (2001), 11 C.P.R. (4th) 218 (C.A.);Westinghouse Electric & Manufacturing Co. v. Wagner, 225 U.S. 604 (1912); Ledcor Construction Ltd. v. Northbridge IndemnityInsurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23. AUTHORS CITED Burrows, Andrew S. The Law of Restitution, 3rd ed. New York: Oxford University Press, 2011. Edelman, James.

Gain-Based Damages: Contract, Tort, Equity and Intellectual Property, Oxford, Portland, OR: Hart, 2002. Edelman, James. “The Measure of Restitution and the Future of Restitutionary Damages” (2010) 18 R.L.R. 1. Jackman, I.M. “Restitution for Wrongs” (1989), 48:2 Cambridge L.J. 302. MacOdrum, Donald H. Fox: Canadian Law of Patents, looseleaf, 5th ed. Toronto: Carswell, 2013. Perry J.A. and T.A. Currier. Canadian Patent Law, 2nd ed. Markham, Ont.: LexisNexis Canada, 2014. Siebrasse, Norman. “A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms” (2004),20 C.I.P.R. 79.

Siebrasse, Norman et al., “Accounting of Profits in Intellectual Property Cases in Canada” (2007) 24 C.I.P.R. 83. Vaver, David. “Civil Liability for Taking or Using Trade Secrets in Canada” (1981), 5 Can. Bus. L.J. 253. Waddams, S.M. The Law of Damages , loose leaf, 2nd ed. Toronto: Canada Law Book, 1991. Watterson, Stephen. An Account of Profits or Damages? The History of Orthodoxy” (2004), 24:3 O.J.L.S. 471.

APPEAL and CROSS-APPEAL from a Federal Court decision ( 2017 FC 350 , [2018] 2 F.C.R. 154 , 2017 FC 637 (supp. reasons), 2017 FC 759 (costs reasons)) concerning the remedy of an accounting of profits and, specifically, the calculation of the amount the respondents were entitled to receive, an issue that arose from an earlier judgment of the Federal Court finding that the appellant was liable for infringing the respondents’ patent. Appeal and cross-appeal dismissed, Woods J.A. dissenting. APPEARANCES Sheila R. Block, Andrew Bernstein, Robert H.C. MacFarlane, Nicole Mantini and Jon Silver for appellant. Steven B.

Garland, Jeremy E. Want, Colin B. Ingram and Daniel S. Davies for respondents. SOLICITORS OF RECORD Torys LLP , Toronto, for appellant. Smart & Biggar/Fetherstonhaugh , Ottawa, for respondents. This is a public version of confidential reasons for judgment issued to the parties. There are no redactions from the confidential reasons for judgment.

The following are the public reasons for judgment rendered in English by [ 1 ] Stratas J.A. : Before the Court is an appeal and a cross-appeal from the judgment of the Federal Court in file T-2051-10 ( per Fothergill J.): 2017 FC 350 , [2018] 2 F.C.R. 154, supplementary reasons 2017 FC 637 , reasons on costs 2017 FC 759 . [ 2 ] After argument in this Court, the appeal and the cross-appeal were held in abeyance for a considerable time to allow for settlement discussions.

Unfortunately, those settlement discussions were unsuccessful. [ 3 ] For simplicity, in these reasons I will refer to the appellant as “NOVA” and the respondents as “Dow”. [ 4 ] Broadly speaking, the appeal and the cross-appeal in this Court concern the principles that should govern the calculation of a plaintiff’s recovery under an accounting of profits.

This issue arises from an earlier judgment of the Federal Court, later affirmed on appeal: 2014 FC 844 , 129 C.P.R. (4th) 199, affd 2016 FCA 216 , 142 C.P.R. (4th) 339. [ 5 ] In that earlier judgment, the Federal Court found that NOVA was liable for infringing Dow’s patent over metallocene linear low- density polyethylene by manufacturing its product, SURPASS and selling it in competition to Dow’s product, ELITE. [ 6 ] The question of remedy arose.

The Federal Court permitted Dow to elect between an accounting of profits earned as a result of the patent infringement or compensatory damages caused by the patent infringement. Dow elected an accounting of profits. [ 7 ] Neither the decision to allow Dow to elect nor the election itself is under appeal. The appeal and the cross-appeal exclusively concern the remedy of an accounting of profits and, specifically, the calculation of the amount Dow is entitled to receive. [ 8 ] For the reasons that follow, I would dismiss both the appeal and the cross-appeal. A.

An accounting of profits as a remedy for patent infringement

(1) General principles [ 9 ] In this area of law, judges tend not to write much about the principles they are applying and, rather, offer narrow rationales for their decisions. Sometimes in later cases, judges take these rationales as ironclad rules and apply them according to their terms. Over time, there is a risk that, through later application and refinement, the rules evolve in a way that deviates from the governing principles. Worse, as the rules get more complicated, some lawyers and even some judges, start invoking “equity” as a reason to award whatever seems, to them, appropriate and fair.

Such an approach is antithetical to a legal system governed by the rule of law that prizes consistent and predictable rulings. [ 10 ] To prevent this from happening, it is useful every once and a while to identify and explain the principles that underlie an area of law. This case presents us with an opportunity to do this in the area of an accounting of profits as a remedy for patent infringement. When we do this and when we apply the principles to the facts here, it becomes evident that the Federal Court did not commit reviewable error in deciding in the way it did.

Indeed, as will be seen, except for one small area, I substantially agree with the analysis of the Federal Court. [ 11 ] Broadly speaking, the Patent Act , R.S.C., 1985, c. P-4 enshrines and regulates a bargain made between inventors and the public: inventors disclose their inventions for the good of all, including the public and later inventors, and, in return, they are given a powerful monopoly for a period of time to exploit their invention. If the Patent Act did not do this, one would expect that many inventors would keep their inventions secret, depriving all of knowledge and know-how that can be built upon.

Over time, one would expect fewer

discoveries and, thus, fewer benefits for society. The Supreme Court and this Court have repeatedly explained this patent bargain in casessuch as Free World Trust v. Électro Santé Inc., 2000 SCC 66, [2000] 2 S.C.R. 1024, at paragraph 13 and Merck & Co. Inc. v. ApotexInc., 2015 FCA 171, [2016] 2 F.C.R. 202 (Apotex FCA (2015)), at paragraph 42. [12] In the academic literature and in many university seminars, many debate whether the bargain is as beneficial for society as somecontend. But in the courtroom, the debate is irrelevant.

The Patent Act, with the bargain it enshrines and regulates, is law that binds us.By enacting the Patent Act, Parliament has decreed the bargain to be a social good, necessary both for the creation of wealth and theimprovement of our collective welfare. [13] Putting aside the exceptional cases where punitive damages are warranted or specific legislative provisions provide to thecontrary, remedies addressing patent infringement must be consistent with the bargain.

The remedies must neither overshoot norundershoot the mark: they must neither undercut the bargain nor extend it. [14] The Patent Act and the Federal Courts Act, R.S.C., 1985, c. F-7 specifically speak to the remedies for patent infringement. Oneremedy is compensatory damages: Patent Act,

section 55. Others include injunction, inspection and an accounting: Patent Act, section57. The Federal Courts also have the power to grant other remedies “at law or in equity” or under other Acts of Parliament: FederalCourts Act, subsection 20(2). [15] Compensatory damages for patent infringement serve a particular purpose: to restore those whose patents have been infringed tothe position they would have been in had the infringement never taken place. Compensation is the aim, no more, no less. [16] In many cases, an award of compensatory damages is consistent with the bargain under the Patent Act.

Those whose patents havebeen infringed are made whole for the wrongful incursion into their rights to exclusive use of the invention. In many cases, the infringerdoes not benefit from its wrongdoing and no incentives to infringe are created. [17] In some cases, however, compensatory damages are inconsistent with the bargain under the Patent Act. An infringer can make again from the use of the patented invention and, in some cases, that gain can be more than the cost of paying compensatory damages tothe holder of the benefit of the patent.

On a net basis, the infringer can come out ahead. [18] If the court’s remedial armoury were limited to an award of compensatory damages, in some cases infringers would have anincentive to infringe. For them, compensatory damages would be nothing more than a manageable fee to infringe the patent and earnbenefits over and above the fee. Effectively, in such cases, inventors would no longer enjoy exclusive rights to benefit from theirinvention but rather merely a right to a fee for the unconsented-to use of their invention.

Indeed, in some cases, infringers would havevery strong economic incentives to invade the monopoly granted by the patent. The bargain under the Patent Act would be no more. [19] Fortunately, the court’s remedial armoury is not so impoverished. It has another tool by which it can protect and vindicate thepatentee’s right to exclusivity and, thus, the bargain under the Patent Act: an accounting of profits. [20] The aim of an accounting of profits is not to compensate for injury but to remove the benefits the wrongdoer has made as a resultof the infringement.

By doing this, any economic incentive to infringe is removed. Potential infringers realize that they will not come outahead if they infringe a patent and the infringement is detected—all benefits earned as a result of the infringement will be stripped fromthem. The availability of the remedy of an accounting of profits warns potential infringers that they had best steer clear of others’ rightsof exclusivity under patents and, instead, spend their time in more profitable, lawful ways. In this way, an accounting of profits reinforcesthe bargain under the Patent Act.

If infringers invade a patentee’s statutory monopoly with insufficient consequence, the Patent Act’sbargain crumbles, inventive spirit sputters, and a source of public wealth depletes. [21] This is not unlike the role of an accounting of profits in preserving other important dynamics and relationships recognized bylaw. For example, an accounting of profits plays a key role in protecting and vindicating the relationship between fiduciaries and theirbeneficiaries and removing any incentives to dishonour the relationship.

See, e.g., Strother v. 3464920 Canada Inc., 2007 SCC 24,[2007] 2 S.C.R. 177, at paragraph 75; Hodgkinson v. Simms, (SCC), [1994] 3 S.C.R. 377, at pages 453–454, (1994), 117D.L.R. (4th) 161; I.M.

Jackman, “Restitution for Wrongs” (1989), 48:2 Cambridge L.J. 302, at page 304; James Edelman, Gain-BasedDamages: Contract, Tort, Equity and Intellectual Property (Oxford, Portland, OR: Hart, 2002), at pages 83–86. [22] In the area of fiduciary duty, compensatory damages can fall short of vindicating the fiduciary relationship in the same way thatthey can fall short in the patent infringement context: James Edelman, “The Measure of Restitution and the Future of RestitutionaryDamages” (2010), 18 R.L.R. 1, at page 11 (“disgorgement damages … are needed … where other remedies do not provide sufficientdeterrence”).

For example, if persons in a fiduciary position invest $100 of trust money for their personal use and earn a profit of $1000,compensatory damages would only require them to surrender $100, allowing them to retain $900. A purely compensatory approachwould incentivize faithless fiduciary behaviour and undermine a relationship the law considers worthy of protection. [23] In the patent infringement context, suppose a multinational infringer is extremely efficient: it can produce infringing wares atmuch higher volumes than the patentee at similar cost.

If a court is restricted to awarding only compensatory damages, the patentee’slost sales will be a drop in the infringer’s bucket of profits. The remedial restriction would be a boon for efficient infringers.

Strippinginfringers of their wrongful gains through an accounting of profits is often the only way to vindicate the patentee’s rights to exclusivityover the invention. [24] An accounting of profits ensures that faithless fiduciaries and patent infringers alike will not “profit from [their] wrong”: Hall v.Hebert, (SCC), [1993] 2 S.C.R. 159, at page 174, (1993), 101 D.L.R. (4th) 129; Strother, above, at paragraph 77 (theremedy “teaches faithless fiduciaries that conflicts of interest do not pay”); Andrew S.

Burrows, The Law of Restitution, 3rd ed. (NewYork: Oxford University Press, 2011) [Burrows], at pages 621–623; Jackman, above, at page 304. This principle is a longstanding andpowerful one that animates remedial responses in many areas of law: see, e.g., Lundy v. Lundy (1895), 24 S.C.R. 650, 1895 CanLII 19;Jamieson v. Jamieson (1921), (SCC), 63 S.C.R. 188, 65 D.L.R. 68; Brissette Estate v. Westbury Life Insurance Co.;Brissette Estate v. Crown Life Insurance Co., (SCC), [1992] 3 S.C.R. 87, (1992), 96 D.L.R. (4th) 609; Hall v. Hebert,above; Scott v.

Wawanesa Mutual Insurance Co., (SCC), [1989] 1 S.C.R. 1445, (1989), 59 D.L.R. (4th) 660. In the

area of patents, stripping infringers of their wrongful gains restores confidence in the Patent Act scheme and ensures equitable treatmentnot only for inventors but also for market competitors who continue to play by the rules. As Professor Burrows (now Burrows L.J. of theU.K. Supreme Court) puts it, above, at page 662, “[w]hy should a wrongdoing defendant end up better off, for example, than acompetitor who has taken care not to infringe another’s legal rights?”. [25] I.M.

Jackman, a leading Commonwealth scholar on the topic of restitution, explains how restitutionary remedies, like anaccounting of profits, can guard the integrity of “facilitative legal institutions”: …. Just as the law protects people directly from harm, so must the law protect the integrity of … facilitative legal institutions, and thestructure of civil remedies thus reflects the need to guard against not only personal harm, but also institutional harm.

Institutional harmmay not be a form of immediate “harm to others,” but will be in a mediate way, by depriving a community of the integrity (and thus theutility) of its facilitative institutions.

Further, these two kinds of protection from harm operate independently, so that even if no onepersonally and immediately has suffered harm, a remedy might still be attracted to protect a particular facilitative institution. (Jackman, above, at page 304; emphasis added, footnotes omitted.) [26] In Hodgkinson, above, at page 453, the Supreme Court echoes these comments in the fiduciary context: “the law is able tomonitor a given relationship society views as socially useful while avoiding the necessity of formal regulation that may tend to hamperits social utility.” [27] An accounting of profits is directed to the disgorgement of benefits obtained by infringers as a result of the infringement, nomore, no less: e.g., Monsanto Canada Inc. v.

Schmeiser, 2004 SCC 34, [2004] 1 S.C.R. 902 [Schmeiser], at paragraph 101; Apotex Inc. v.ADIR, 2017 FCA 23, 406 D.L.R. (4th) 572 (ADIR FCA), at paragraphs 26, 28; Monsanto Canada Inc. v. Rivett, 2010 FCA 207, [2012] 1F.C.R. 473, 408 N.R. 143 (Rivett FCA); Dart Industries Inc. v. Décor Corporation Pty Ltd., [1993] HCA 54, (1993), 179 C.L.R. 101[Dart Industries], at page 111, (1993), 116 A.L.R. 385 (Aust.

H.C.); Norman Siebrasse, “A Remedial Benefit-Based Approach to theInnocent-User Problem in the Patenting of Higher Life Forms” (2004), 20 C.I.P.R. 79 (Siebrasse 2004), at page 83. [28] Awarding less—leaving infringers to enjoy some of the benefits from their infringement of patents—does not fully remove theincentive to infringe. It incentivizes infringement, thereby undercutting the bargain. Awarding more—stripping infringers of the benefitsobtained from their infringement and taking even more away—removes the incentive to infringe. The bargain is affirmed.

But by takingeven more away, it punishes the infringer. [29] An accounting of profits is not to be punitive: Schmeiser, above, at paragraph 101; Lubrizol Corp. v. Imperial Oil Ltd., (FCA), [1997] 2 F.C. 3, (1996), 71 C.P.R. (3d) 26 (C.A.) [Lubrizol], at paragraph 15. Instead, that is the objective ofpunitive damages. Punitive damages are additional awards tacked on top of another remedial response (whether compensatory orrestitutionary) and a separate body of law defines and regulates their availability and quantum: e.g., Whiten v.

Pilot Insurance Co., 2002SCC 18, [2002] 1 S.C.R. 595, at paragraph 36, cited in Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, 447 D.L.R. (4th) 543[Atlantic Lottery], at paragraphs 63–66. [30] Here, a warning must be sounded. In some cases, an accounting of profits, calculated in accordance with proper principle, canresult in an enormous quantum of recovery, a sum with many digits. Some judges get spooked by this. They turn their backs on thedoctrine, draw upon their own vague sense of what seems to be fair, and find some formula of words to reduce the amount awarded. Thisis wrong.

Their response is not a judicial one, a reasoned application of settled doctrine to the evidence. Rather, their response springsfrom idiosyncratic feelings and impressions, something that varies from judge to judge. Were this the accepted way of performing anaccounting of profits, outcomes would depend on the random chance of the particular person chosen to decide the case—essentiallyjustice turning on the spin of a roulette wheel.

Alas, some counsel—not the skilled and professional ones here—encourage these sorts ofnon-judicial responses by lambasting claims as “enormous”, “unfair” and “unjust” without referring to the settled doctrine. [31] These sorts of non-judicial approaches should be seen for what they are. If a defendant wrongly takes a plaintiff’s patentedmachine and earns millions from the machine that it had no right to use and the remedy is an accounting of profits, every last pennycaused by the wrongdoing must be stripped from the defendant, no matter how high that may be.

Otherwise, the defendant is rewardedfor its wrongdoing and others looking on might be encouraged to do the same. [32] Thus, properly seen, the instruction to avoid punitive outcomes when awarding an accounting of profits is no reason to arbitrarilyreduce or cap the amount to be disgorged from the infringer.

It is just a prudent reminder to apply causation principles properly andrigorously, to ensure that the gain earned by the infringer as a result of the infringement is reversed, no more, no less. [33] To reiterate, under an accounting of profits, the patentee is entitled to the benefits obtained by infringers as a result of theinfringement of the patent, properly construed and understood, no more, no less. The key words are “as a result” and “infringement ofthe patent, properly construed and understood”.

The former stresses the need for the court to analyze causation, for only those amountscausally linked to the infringement are captured by the accounting of profits; anything extra is punitive. The latter reminds us that thefocus is on the protection afforded by the patent; anything extra effectively extends, improperly, the scope of protection afforded by thepatent. [34] Thus, an accounting of profits must walk a fine line between deterring infringement, i.e., extracting any economic incentive toinfringe, without punishing, i.e., extracting sums not causally connected to the infringement.

And it must focus on defending andvindicating—not expanding—the patentee’s lawful monopoly under the patent. [35] To illustrate this, consider a luxury car manufacturer that uses a screw in its windshield wipers. The screw infringes a patent. Thepatentee’s monopoly covers that screw, not luxury cars. If the infringer would be forced to disgorge all of its profits from the luxury cars,in practical terms the remedy would place the patentee in the position of enjoying a monopoly that it simply does not possess. Thepatentee did not invent luxury cars, it only invented a screw.

An accounting of profits defends and, thus, is constrained by a patent’sborders, nothing more.

[36] The jurisprudence has developed two rules for courts to help them implement these principles: (1) only actual profits, meaningactual revenues minus actual costs, are disgorged; (2) only profits that have resulted from the patent infringement are disgorged.

(2) Specific principles (

a) Only actual profits are disgorged [37] In an accounting of profits, courts must work in the real world, not the hypothetical. Courts care only about actual revenues andactual costs. What “could have”, “should have”, or “would have” happened is of no moment. The only thing that matters is what didhappen.

Because the aim of the remedy is to strip the gains that did happen from the infringer as a result of the actual infringement of thepatent, properly construed and understood. [38] Thus, it is a key principle in this area of law that patentees must take their infringers as they find them: Lubrizol, above, atparagraph 15; Reading & Bates Construction Co. v. Baker Energy Resources Corp., (FCA), [1995] 1 F.C. 483,(1994), 58 C.P.R. (3d) 359 (C.A.), at page 368; Norman Siebrasse et al., “Accounting of Profits in Intellectual Property Cases in Canada”(2007), 24 C.I.P.R. 83 (, at page 87; S.J. Perry and T.A.

Currier, Canadian Patent Law, 2nd ed. (Markham, Ont: LexisNexis Canada,2014), at page 472, §17.46; Dart Industries, above, at page 111; Celanese International Corp. v. BP Chemicals Ltd., [1999] R.P.C. 203,at page 220, [1998] All E.R. 594(Ch. D.). In its reasons, the Federal Court correctly identified this principle and was guided by it:reasons, at paragraphs 138–140. [39] This principle advances the purposes of the remedy. Disgorging anything less than an infringer’s actual profits would offer aneconomic incentive to infringe.

It allows the infringer to retain some of its ill-gotten gains and chip away at the patentee’s monopoly.But disgorging more than what was actually earned is not necessary to protect that monopoly and is, therefore, punitive. [40] In order to do this properly in an accounting of profits, courts must avoid the hypothetical, “but for” world. Questions of what theparties could, would, or should have done are irrelevant to the analysis. [41] For example, infringers cannot deduct opportunity costs (i.e., what they would have done but for the infringement).

Opportunitycosts are hypothetical costs occurring in the “but for” world. Allowing any hypothetical revenues or costs to be deducted undercuts thepatent bargain.

When hypothetical revenues and costs are used it distorts the picture of what the infringer actually earned making itimpossible to extract the actual value derived from the infringement. [42] In its oral submissions, the respondent Dow offered a simple, apt example to illustrate this point: if bank robbers steal $50 andare liable to return it, they cannot seek to deduct $20 because they would have earned $20 in the workplace had they never robbed thebank.

To allow the $20 deduction is to incentivize bank robbery: in the best case scenario, where their robbery is not detected, the bankrobbers would keep all of their ill-gotten gains and, in the worst case scenario, the bank robbers would keep what they would haveearned had they not robbed the bank. Given this, why wouldn’t the bank robbers decide to rob a bank every time? Likewise, whywouldn’t infringers decide to infringe every time? Under this approach, they are in effect given a free lottery ticket—there is onlyupside, no downside. [43] Dow’s example can be extended further.

Suppose the bank robbers were earning much more than minimum wage such that therobbers’ opportunity costs were $100. If the robbers could deduct the opportunity costs ($50 minus $100), they would have no profits todisgorge. This would allow the robbers to rob the bank free from any consequence. If actual profits are not disgorged, the robbers havean open license to rob the bank.

Similarly, in the patent context, infringers with large opportunity costs—those who are powerful andwell off who could make substantial lawful profits elsewhere—could infringe patents free from any consequence. [44] Thus, allowing infringers to deduct opportunity costs violates the rule that only actual costs can be deducted.

If hypotheticalcosts are deducted, it provides economic incentive for infringers to “rob the bank” and undermine the patent bargain. [45] To be clear, “but for”, hypothetical reasoning applies when courts award compensatory damages for patent infringement: see,e.g., Apotex FCA (2015), at paragraphs 43–45; Pfizer Canada Inc. v. Teva Canada Limited, 2016 FCA 161, 483 N.R. 275 [Pfizer], atparagraph 50. There is no doubt that, in that context, “[b]oth ‘would have’ and ‘could have’ are key” to determine the proper amount ofcompensation: see, e.g., Pfizer, at paragraph 50.

But this is not the case in an accounting of profits. An accounting of profits is indifferentto the plaintiff’s compensation. What “would have” and “could have” happened does not matter—all that matters is what is actually inthe infringer’s pockets as a result of the infringement of the patent, properly construed and understood. (

b) Only profits that have resulted from the patent infringement are disgorged [46] There must be a causal connection between the profits to be disgorged and the patent infringement. A “common sense view ofcausation” is to be applied: Schmeiser, above, at paragraph 101. For example, a pharmaceutical company does not disgorge its profitsfrom all of its products just because one of its products is infringing. [47] Even within a particular product, there may be infringing elements and non-infringing elements.

If a patented brake is sold insidea car, the patentee is not entitled to all of the profits generated from the sale of the car: Dart Industries, at page 120. Likewise, if a drugcontains two active ingredients, one of which is patented and the other unpatented, then the patentee may not be entitled to all of theprofits from the drug: Wellcome Foundation Ltd. v. Apotex Inc. (1998), (FC), 82 C.P.R. (3d) 466, 151 F.T.R. 250(F.C.T.D.) [Wellcome]. The court parses through the profits and orders only those profits caused by the infringement to be disgorged,allowing the infringer to retain the rest.

This is because some of the profits are generated from a non-infringing source (i.e., the car or theunpatented ingredient). [48] The case law in this area uses the term “apportionment of profits” to describe this process of dividing profits caused by theinfringement from other profits: e.g., ADIR v. Apotex Inc., 2015 FC 721, 482 F.T.R. 276 (ADIR FC), at paragraph 119 revd but not onthis principle, ADIR FCA, above. This is unfortunate, as the term can be misleading. It invites some to think that the court’s task is todivide the profits into recoverable and irrecoverable amounts on the basis of fairness.

Not at all. “Apportionment” is just another way of

describing the process by which the court identifies and separates the profits made as a result of the infringement from those that are not. As the Supreme Court put it in Schmeiser , at paragraph 101 , “the inventor is only entitled to that portion of the infringer’s profit which is causally attributable to the invention” (emphasis added). Assessing what profit has resulted from the infringement remains the core of the court’s task. [ 49 ] To disgorge the profits generated from an entire car because of an infringing brake or screw is not only punitive but it also overinflates the value of the patent.

As explained above, the patentee has a patent over the value generated from the patented brake or the screw, not the car as a whole. Otherwise, the Patent Act would be protecting a right that the patentee simply does not have. The remedy of an accounting of profits only defends the patent’s borders; it does not expand them. [ 50 ] In apportioning profits, the court must look for a link between the patent and the profits. It can do this by identifying the value (i.e., profit) generated because of the patent. In other words, the court can ask what profits are attributable to the patented brake in the car.

What profits are attributable to the patented ingredient in the medicine? [ 51 ] Professor Norman Siebrasse, a leading, incisive member of Canada’s intellectual property academy, calls this the “differential profits approach” or “value-based apportionment”: …. awarding profits according to the value added by the patented invention and opposed to the proportionate cost or physical size, is consonant with fundamental nature of patents as intellectual property. What is valuable is the intellectual contribution that is embodied in an invention, not the physical contribution.

It may be that even though the patented aspect is only a small part of the wares that are sold, either by physical proportion or by cost, the entire value of the wares is due to the patent. [Emphasis in original.] (Siebrasse 2004, at page 92.) [ 52 ] In ADIR FCA , at paragraph 73, this Court cited a passage in Beloit Canada Ltd. v. Valmet Oy (1994), 55 C.P.R. (3d) 433, at page 457, 78 F.T.R. 86 (F.C.T.D.) , revd (1995), 184 N.R. 149, 61 C.P.R. (3d) 271 (but affirmed on this point) , approvingly as an illustration of this value-based approach.

The passage is as follows: There is no question however, that the individual circumstances of a particular case may render an apportionment of profits the only equitable solution. The test in determining if there should be an apportionment is based on the saleability, as a whole, of the product which contains the patented invention. The question for the court is whether the market demand for the defendant’s product arose because of the infringed patent or whether it arose by virtue of the product’s additional features.

In other words, the inquiry is directed to “the value of the patented part to the machine as a whole”, to use the words of Lord Shaw in Watson Laidlaw. This determination is a factual one to be made on the basis of all the evidence. The answer depends entirely on the particular circumstances of each case. The onus is on the defendant to adduce sufficient evidence to satisfy the court that consumer demand for its product arose by virtue of features other than the plaintiffs’ infringed patent.

If the defendant’s evidence in this regard is inadequate, the court will not make an apportionment. [ 53 ] For a court to apportion profits, the defendant must prove that some of its profits are attributable not to the patent but some other non-infringing aspect of the infringing wares: ADIR FCA, at paragraph 72; Donald H.

MacOdrum, Fox: Canadian Law of Patents , 5th ed. (looseleaf) (Toronto: Carswell, 2013) (looseleaf update 2018-3), at §14:5(f). [ 54 ] There are numerous examples of value-based apportionment in the accounting of profits jurisprudence: • In Wellcome , above, where a drug featured one patented ingredient and one unpatented ingredient, the Federal Court declined to apportion on the basis of the relative weight of the two ingredients or the cost to make them. Instead, the Federal Court apportioned on the basis of the value generated by the patented ingredient: see paragraphs 54–58. • In Teledyne Industries, Inc. v.

Lido Industrial Products Ltd. (1982), 68 C.P.R. (2d) 204, 31 C.P.C. 285 (F.C.T.D.) [ Teledyne ] , the Federal Court declined to apportion the profits because “there [was] no evidence whatsoever establishing that the improvements made did, in fact, increase in any way the marketability of the shower heads or have any effect on their sales. Without a clearly proven effect on the market, there can obviously be no apportionment”: at page 214. • In Lubrizol , above, the patent covered motor oil with a certain additive in it.

This Court apportioned the profits because “it [was] possible that [the motor oils] have achieved their market share and attendant profits for reasons other than the presence of [the patentee’s] patented additive”: paragraph 10.

Indeed, “the reality” was that the patentee “did not invent motor oil”: paragraph 10. • In Dart Industries , the High Court of Australia declined to apportion profits because the infringing press button lid on an otherwise non-infringing canister was the “essential feature … without which this particular container would never have been produced at all”: at page 120 [paragraph 30 of [1993] HCA 54]. • In Manufacturing Company v.

Cowing , 105 U.S. 253 (1881), the patentee added a new device to an existing pump but the United States Supreme Court declined to apportion profits and awarded the full amount of profit from the pump because the “old pump was useless without the improvement”: at page 256. None of the infringing sales would have been possible without the improvement: at page 256. [ 55 ] Value-based apportionment is accepted and applied outside of the patent infringement context and guidance can be obtained from cases in those areas: see, e.g., My Kinda Town Limited v. Soll and Another , [1983] R.P.C. 15, at page 56, [1981] Com.

L.R. 194 (Ch. D.). [ 56 ] Apportionment is most easily understood when the patent is a component of a larger whole (i.e. when the infringing brake is sold inside the car). It is easy to grasp why the patentee is not entitled to profits from an entire car because it uses an infringing brake. But binding jurisprudence from this Court and the Supreme Court of Canada tells us that apportionment may be necessary even when the infringing product is the whole of the patent: Schmeiser ; ADIR FCA , both above. In both of these cases, this Court and the Supreme

Court applied value-based apportionment even though the infringing products were the patent itself. [ 57 ] As instructed by the Supreme Court, this is accomplished by comparing “the defendant’s profit attributable to the invention and his profit had [the defendant] used the best non-infringing [alternative]”: Schmeiser , above, at paragraph 102 ; Collette v. Lasnier (1886), 1886 CanLII 54 (SCC) , 13 S.C.R. 563, at page 576.

Indeed, this is the “preferred means of calculating an accounting of profits”: Schmeiser , at paragraphe 102 . [ 58 ] Both Schmeiser , above, and ADIR FCA ,above, are good illustrations of how to apply value-based apportionment when the product used or sold is the whole of the patent. [ 59 ] In Schmeiser , the infringing farmers used the patentee’s herbicide-resistant canola seeds on their land. There were no non- infringing subcomponents: the patent was the whole seed. But the infringers never sprayed herbicide over their crops.

The Supreme Court awarded no profit because the infringers’ “profits were precisely what they would have been had they planted and harvested ordinary canola” and, therefore, the infringers “obtained no premium” nor “gain[ed] any agricultural advantage” from the patented seeds: paragraph 104. When compared to the non-infringing alternative, the farmer generated no profits “ as a result of the invention ”: paragraph 103; emphasis in original. [ 60 ] In ADIR FCA , above, the infringer manufactured the patentee’s drug in Canada and then sold it both in Canada and internationally.

The infringer conceded that its Canadian sales should be disgorged but asserted, and this Court agreed, that it did not need to disgorge its international sales because the patented drugs could have been manufactured outside of Canada without infringing. The infringer gained no benefit (i.e., profit) from the patent when manufacturing in Canada because the drug could have been manufactured and sold outside of Canada without infringing. [ 61 ] Value-based apportionment “isolates and identifies the profit that was generated because of the patented invention”: Monsanto Canada Inc. v.

Rivett , 2009 FC 317 , [2010] 2 F.C.R. 93 ( Rivett FC ), at paragraph 53 . In Schmeiser , above, the infringing farmers profited from the seeds but none of those profits were attributable to the seeds’ inventive value (i.e., herbicide resistance). In ADIR FCA , the profits earned outside of Canada were not causally attributable to the value of the patent because the patentee did not have the benefit of a monopoly in those other jurisdictions. [ 62 ] These cases illustrate how value-based apportionment must focus on the value added by the invention itself. This advances the purposes of the remedy.

It ensures that the Patent Act only protects the rights actually conferred to the patentee by the Patent Act .

Failing to apply value-based apportionment in Schmeiser would give the patentee a monopoly over canola seeds generally and, in ADIR FCA , “would give an extraterritorial reach” to the patent that only had a monopoly in Canada: paragraph 33. [ 63 ] Even putting aside the binding jurisprudence, apportioning profits even when the patent is the whole of the infringing product makes sense on a principled level: if the purpose of an account is for the infringer to disgorge the value derived from the patent, the fact that a patent is physically part of a larger whole or not should not determine whether apportionment is available.

Apportionment is simply how a court ascertains which profits are causally attributable to the patentee’s monopoly and which profits were generated by some other unpatented, non-infringing element. [ 64 ] What is the value of a patented pain reliever that provides eight hours and one minute of pain relief when there is a non- infringing alternative that provides eight hours of relief? The patentee did not invent pain relievers; the patentee only invented a drug that added an extra minute of relief: Lubrizol , above, at paragraph 10 (“the reality is that Lubrizol did not invent motor oil”).

Why should the defendant disgorge all of its profits if only a small fraction of its profits are attributable to the value of the invention? When comparing the patent to a non-infringing alternative, we can “isolate[] and identif[y]” the value of the patent: Rivett FC , above, at paragraph 53. This “results in a true reflection of the profits made from the invention”: Rivett FC , at paragraph 56. [ 65 ] The use of non-infringing alternatives in the accounting of profits context does not engage in impermissible hypothetical, “but for” reasoning. It is simply a means of isolating the value of the patent.

While it is tempting to drift into the world of hypotheticals when using non-infringing alternatives, this temptation must be resisted. [ 66 ] Indeed, the seminal Siebrasse (2004) article, above, advocating for value-based apportionment, cited at paragraph 51, above, briefly succumbs to this temptation. In that article, Professor Siebrasse justifies non-infringing alternatives as a “specialized statement” of the “but for” principle of causation (at page 91, emphasis added): ….

The argument in favour of the differential-profits approach is that it is simply the application of “but for” causation to an accounting of profits. … …. It says that the defendant’s profit caused by the infringement is the difference between the profit that the defendant in fact made and the profit that the defendant would have made but for the infringement, on the supposition that but for the infringement the defendant would have used the next best non-infringing method . [ 67 ] This logic violates the foundational principle that one must take the infringer as one finds them.

What the defendant “would have used” is not relevant to the analysis. As explained above, at paragraphs 37–45, an accounting of profits takes into account only actual revenue, actual costs and actual profits.

The use of hypotheticals and the “but for” test is often used to calculate compensatory damages but has no place in an accounting of profits. [ 68 ] Professor Siebrasse defends the proposition that but for the infringement an infringer would have used the next best non- infringing alternative as: … a reasonable one, since it says no more than that, but for the infringement, the defendant would have acted in a prudent and informed manner in pursuing its interest in making as much money as possible. Indeed, it is difficult to see what other supposition might be

used …. (Siebrasse 2004, at pages 91–92; emphasis added.) [ 69 ] On the contrary, it is quite easy to posit another supposition. For example, if an infringer could prove in evidence that, but for the infringement, it would have used its capital to invest in, say, Apple or Amazon before their market ascendance then the infringer could retain the vast majority, if not all, of its profits. But for the infringement, the infringer would have earned much more investing in Apple or Amazon than selling the infringing goods.

By Professor Siebrasse’s “but for” logic, the infringer would not have to disgorge anything because using the infringing product was actually detrimental to the infringer’s overall profitability. [ 70 ] The reality is that infringers may not always pursue the next best non-infringing alternative.

It may be the case that without access to the patented product, the infringer might have pursued an entirely different course, for example, speculative investments in emerging tech companies, and would have lost everything. [ 71 ] Professor Siebrasse’s logic permits the deduction of opportunity costs when it comes in the form of “next best non-infringing method”.

But it would be unprincipled to allow the infringer to deduct its opportunity costs where that opportunity cost is in the form of a “true” non-infringing alternative but prevent the infringer from deducting if the opportunity cost is of a different nature (i.e., investing in Apple or Amazon).

If value-based apportionment is rooted in “but for” principles, it should not matter whether the foregone alternative was a “true” non-infringing alternative or a simple opportunity cost. [ 72 ] So if non-infringing alternatives cannot be rooted in “but for” reasoning, on what principled basis are they allowed to flourish in the accounting-of-profits ecosystem? [ 73 ] Non-infringing alternatives are used not to determine what the infringer could have done instead of infringing (i.e., “but for” reasoning), but instead to establish a non-infringing baseline to isolate the value of the patent.

As the Federal Court explains in Rivett FC , above (paragraph 56): …. the next best non-infringing alternative that is to be considered when using the differential profits approach cannot be what one would have done had one complied with the law, i.e . obtained a licence to use the patent. … The comparison is to the profit that would have been earned from using the next best product that is not the patented product itself, with the latter acting as a baseline from which to calculate added value.

That results in a true reflection of the profits made from the invention—the necessary causal link. [ 74 ] If one compares the profits earned on an infringing product (i.e., eight hour and one minute pain reliever) with a non-infringing product (i.e., the eight hour pain reliever), one can isolate the value of the patent (i.e., profits attributable to the extra minute of pain relief). This establishes a causal connection between the profits and the patent with greater exactitude.

The infringer will disgorge the profits attributable to the extra minute of pain relief, no more, no less. [ 75 ] “Non-infringing alternative” can be a deceiving term in the accounting of profits context. The word “alternative” invites “but for”, hypothetical reasoning. Investing in Apple or Amazon or obtaining a license to use the patent are, on the plain meaning of the words, “non-infringing alternatives”. But when courts use the term “non-infringing alternative”, they are really referring to a non- infringing course of action that can effectively isolate the value of the patent.

They really mean the non-infringing baseline—not an alternative. [ 76 ] In the compensatory damages context, the term “non-infringing alternative” is entirely appropriate. In that context, the infringer must prove that it “would have” and “could have” used the non-infringing alternative: see, e.g., Apotex FCA (2015) , above, at paragraphs 43–45; Pfizer , above, at paragraph 50.

But the language of “would have” and “could have” does not extend to the accounting of profits context. [ 77 ] The Federal Court’s decision in Rivett FC , affirmed by this Court, best illustrates why “baseline”, not “alternative”, is more appropriate terminology in the accounting of profits context. In Rivett FC , the Federal Court used a non-infringing alternative even though the “alternative”—in that case, regular, unpatented canola seed—was not locally available to the infringer during the infringement period.

Using “but for” logic, the Federal Court could not consider the non-infringing alternative because the infringer had no access to the non-infringing seeds: but for the infringement, the infringer would still have used the patentee’s seed. [ 78 ] But the Federal Court resisted the “but for” reasoning and used the regular soybean seed as an alternative even though the infringer could not have used it. If non-infringing alternatives must be true “alternatives”, “the fact that the [product] has a value apart from the invention will be ignored”: Rivett FC , at paragraph 62.

The patent is not valuable because it just so happens to be unavailable in a particular locale. It is valuable because it has some inventive quality that increases the infringing product’s profitability or marketability. For the Federal Court in Rivett FC , the point of using non-infringing alternatives was to isolate the value of the patent. It was irrelevant whether the infringer could have —in a hypothetical universe—avoided the infringement because it had an alternative course of action.

This point was affirmed on appeal: Rivett FCA , at paragraphs 50–57. [ 79 ] Thus, for the foregoing reasons, in the accounting of profits context, the use of the term “non-infringing baseline” is preferable to “non-infringing alternative”. Using the term “non-infringing baseline” steers courts and litigants away from impermissible “but for” reasoning.

Perhaps ADIR FCA ’s words in obiter looking at a “but for” situation involving non-infringing alternatives can be understood in this way and, as a result, can be seen as consistent with the reasoning in Rivett FCA and this opinion. [ 80 ] To summarize, the key task of the Court in determining an accounting of profit is causation—the actual benefit received by the infringer that was caused by the infringement of the patent. “Apportionment” is nothing more than part of the assessment of causation: the exercise of ensuring that benefit not caused by the infringement of the patent is factored out.

This assessment is based on the particular facts of a case and it may be informed by expert evidence. In most cases, causation is a factually suffused question of mixed fact and law. Thus, the standard of review is palpable and overriding error: Housen v. Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235 [ Housen ].

[ 81 ] Palpable and overriding error is a difficult standard for appellants to meet. This Court has said that it requires appellants to go beyond pulling at leaves and branches and pull the whole tree down: Canada v. South Yukon Forest Corporation , 2012 FCA 165 , 431 N.R. 286, at paragraph 46 , cited with approval by the Supreme Court in Benhaim v. St-Germain , 2016 SCC 48 , [2016] 2 S.C.R. 352, at paragraph 38 . [ 82 ] Many appellants misunderstand the requirement of palpable and overriding error. They urge appellate courts to reweigh the evidence.

Many parse the first-instance court’s reasons, pointing out gaps and non-mentions of evidence, and call these instances of palpable and overriding error. Others read the first-instance court’s reasons in the abstract, divorced from the record before the court, and find things that could have been said better, and then declare that there is palpable and overriding error. Others try to dress up a drafting deficiency in the reasons as an error of law or principle. Without more, none of these things constitute palpable and overriding error. See generally Mahjoub v.

Canada (Citizenship and Immigration) , 2017 FCA 157 , [2018] 2 F.C.R. 344 . B. Analysis [ 83 ] To reiterate, the Federal Court found NOVA liable for infringing Dow’s patent over metallocene linear low-density polyethylene by manufacturing its product, SURPASS and selling it in competition to Dow’s product, ELITE. Four issues arise in the appeal and cross-appeal:

(1) Did the Federal Court err in rejecting NOVA’s apportionment claim?

(2) Did the Federal Court err in awarding Dow “springboard profits”?

(3) Did the Federal Court err in selecting the “full cost” method for deducting costs?

(4) Did the Federal Court err in converting the currency at the date of judgment?

(1) Did the Federal Court err in rejecting NOVA’s apportionment claim? [ 84 ] At the outset, Dow objects to NOVA’s raising of this issue in the manner in which it did. Dow says that NOVA cast its apportionment arguments differently in the Federal Court and that it is asking this Court to deal with new legal arguments without the Federal Court’s views on them. [ 85 ] This Court does have a discretion not to consider new issues on appeal.

Where the late raising of new issues on appeal causes prejudice because the parties would have adduced evidence at first instance on those issues, the Court generally should refuse to consider the new issues. See, e.g., Quan v. Cusson , 2009 SCC 62 , [2009] 3 S.C.R. 712; Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd. , 2002 SCC 19 , [2002] 1 S.C.R. 678, at paragraph 33 . [ 86 ] However, NOVA is not raising any new legal issues. Broadly speaking, the legal issue it raises is the calculation of the accounting of profits, an issue considered and decided by the Federal Court.

In this Court, NOVA simply offers different legal arguments on that same issue. [ 87 ] This is not a problem. The law is always at large.

A party can always raise new law and new legal arguments in this Court concerning issues that were before the first-instance court provided that the opposing party has had fair notice of them and has had an opportunity to respond to them. [ 88 ] In any event, regardless of how this issue was framed in the Federal Court, NOVA’s apportionment arguments must fail in this Court. [ 89 ] NOVA’s apportionment arguments are two-fold. [ 90 ] NOVA’s first apportionment argument concerns its manufacture of ethylene, a major component of metallocene linear low- density polyethylene and its SURPASS product that infringed Dow’s patent.

NOVA says that had it not infringed Dow’s patent, it would have produced ethylene anyway and would have made lawful profits from that. It says that it should be credited for these hypothetical profits in the accounting of profits—or, in other words, there should be apportionment of the profits—because it “would have earned … ethylene profits even without infringing”: NOVA’s revised memorandum of fact and law, at paragraphs 24, 55, 56. [ 91 ] This argument must be rejected. In this regard, I disagree with my colleague who accepts the argument. [ 92 ] First, at a factual level, the argument fails.

In the Federal Court, NOVA did not demonstrate that it would have been able to sell ethylene to third parties if it did not use it to make infringing SURPASS polyethylene. There was no evidence before the Federal Court of any market demand or market price for NOVA’s ethylene, as opposed to the prices NOVA sold ethylene to certain third parties under long-term supply contracts with different and variable pricing: see paragraphs 36–37 of Dow’s memorandum of fact and law.

Also the Federal Court had confidential evidence before it that stood in the way of any argument that NOVA could have made and sold ethylene to third parties. We must presume that the Federal Court reviewed and considered all of the evidence before it, absent proof that it forgot, ignored or misapprehended the evidence: Housen , at paragraph 46 ; Mahjoub , at paragraphs 66–67 . [ 93 ] In short, the Federal Court declined to make the finding that NOVA would have been able to sell ethylene to third parties if it did not use it to make infringing SURPASS polyethylene.

It did not make that finding because, for one thing, there was nothing in the record to allow it to do so. Thus, we cannot make that finding. [ 94 ] Further, in law, NOVA’s argument fails. NOVA says that it would have earned ethylene profits from ethylene sales without infringing Dow’s patent. But this is purely hypothetical and, thus, is legally irrelevant to the accounting of profit. What a party could have done or would have done in a hypothetical non-infringement scenario is no part of the accounting-of-profits exercise.

As explained in paragraphs 37–-45 and 65–79, above, only actual revenues, costs and profits are relevant.

[ 95 ] The Federal Court looked at this very issue and specifically rejected it. It held that “[a]n accounting of profits should be based on actual revenues and costs” and added that a “market price” for ethylene was “a theoretical cost [NOVA] did not incur” (at paragraph 139). These findings are correct in law and, for good measure, are supported by the evidence. [ 96 ] As explained in paragraphs 37–45, above, stripping all of the ill-gotten gains made from the infringement of the patent restores the patentee’s monopoly and, generally, the integrity of the patent bargain.

Allowing NOVA to deduct its hypothetical ethylene sales from the accounting of profits would incentivize NOVA and others like it to infringe, thereby undermining the patent bargain under the Patent Act . In that scenario, NOVA and others like it would know that there is no downside to infringing the patent because, at a minimum, it will do no worse than earning the hypothetical profits it would have made had it acted legally.

In fact, depending on the market situation, it may even end up making more than those hypothetical profits. [ 97 ] Is there a comparative baseline that might help in the accounting of profit in this case? (See discussion at paragraphs 72–79, above.) No. NOVA conceded that it had no non-infringing alternative to the manufacture of Dow’s product: Federal Court reasons, at paragraph 146. Thus, a comparative baseline is not available.

Without this, it must be presumed that all of NOVA’s profits were caused by its exploitation of the patented product. [ 98 ] NOVA also runs its apportionment argument a slightly different way. NOVA says that a portion of its profits are attributable to its unique ability to produce ethylene at a significant discount, what it calls its “Alberta Advantage”. NOVA says that this portion of the profits is not causally attributable to the patent but is instead attributable to NOVA’s “Alberta Advantage”.

Thus, according to NOVA, some of its profits are due to its own efficiencies and should be apportioned out of the amount to be awarded to Dow. [ 99 ] This argument must be rejected. [ 100 ] Dow has the exclusive right to produce the polyethylene covered by its patent. The fact that NOVA produces its own ethylene in a way that allows it to make higher profits is irrelevant. Under the principles governing an accounting of profits, the profits as a result of the wrongful manufacture and sale of the infringing product must be stripped from NOVA. [ 101 ] The Federal Court specifically rejected NOVA’s argument.

In addressing it, the Federal Court correctly held that “[a]n accounting of profits should be based on actual revenues and costs”. It found that the “market price” for ethylene that NOVA was using in its calculation, rather than its actual cost of ethylene, was “a theoretical cost [NOVA] did not incur” (at paragraph 139). Again, an accounting of profits looks to actualities, not hypotheticals. [ 102 ] An accounting of profits looks at the actual infringer, what the infringer actually did and the actual profits made from the infringement. It does not look at hypotheticals.

It does not ask what another hypothetical, less efficient infringer might have made. See paragraphs 37–45 and 65–79, above. [ 103 ] In isolation, NOVA’s production of the raw material, ethylene, for its SURPASS product is “non-infringing”. But one cannot view each step of an infringer’s activities in isolation. When viewed at a micro level, almost anything an infringer does can be classified as non-infringing. Training employees, building a new assembly line, and expanding a marketing budget are all, in isolation, “non- infringing” activities that contribute to ultimate profitability.

In theory, the act of infringement can be sliced endlessly into tiny “non- infringing” actions. But it is artificial and, thus, wrong in principle to do that. [ 104 ] In this case, the findings of the Federal Court regarding how the infringing SURPASS product was made preclude any attempt to regard NOVA’s manufacture of ethylene as a separate matter or feature. As the Federal Court found, all of NOVA’s actions, including its manufacture of the ethylene that was wholly integrated and merged into the infringing SURPASS polyethylene product, were part and parcel of the manufacture and sale of the infringing product.

Unlike Beloit , above, at page 457 C.P.R., the ethylene is not an “additional feature” of SURPASS to which consumer demand can be attributed and apportioned. [ 105 ] The Federal Court’s decision on this issue is wholly consistent with the test set out in Beloit , at page 457, reproduced at paragraph 52 above, that has been adopted by this Court in ADIR (FCA) . The infringing SURPASS product was, in the words of Beloit , “saleab[le], as a whole” and “[m]arket demand” for SURPASS “arose because of the infringed patent” and not any “additional features” such as the efficiently produced ethylene in this case.

As Beloit says, the “inquiry is directed to ‘the value of the patented part’ to the [product] as a whole” and the “determination is a factual one to be made on the basis of all the evidence”, dependent “entirely on the particular circumstances of each case”. What drove the sales of SURPASS was not the cheaper, efficiently produced ethylene that was fully incorporated and merged into the final product but the superior physical properties and processability of the final product, superior qualities that were the fruits of Dow’s invention.

This was proven in the Federal Court: reasons of the Federal Court, at paragraphs 70– 76; Federal Court judgment on liability, at paragraph 252; Exhibit PR-16, AB-68, at page 7. In the face of this, we cannot make our own factual findings and replace the Federal Court’s decision with our own. [ 106 ] An infringer may have produced an infringing product using an efficient and well-trained workforce, one superior to that of the patentee. An infringer may have produced the infringing product using only four assembly lines rather than the patentee’s seven.

An infringer may be a better marketer than the patentee or may have superior distribution channels. Here, the infringer made its own raw material, ethylene, in a particularly efficient way. All of these are of no moment: NOVA’s product infringed Dow’s patent and, as the Federal Court found, based on the superior qualities of the infringing SURPASS in the market and other evidence, NOVA’s gains were all caused by its infringement.

To vindicate the patentee’s rights to exclusivity and deter infringement, the profits earned from the infringement must be stripped from the infringer. [ 107 ] In an accounting of profits, it is not open to an infringer to say the following. “Yes I infringed the patent, yes I violated the patentee’s exclusive rights over its invention, and yes I wronged the patentee.

But because I am more efficient I was able to benefit more from my wrongdoing, so I should be able to keep that extra benefit.” [ 108 ] Allowing an infringer like NOVA to deduct its efficiencies jeopardizes the patent bargain by creating wrong incentives and weakening deterrence. Those who are able to achieve efficiencies by making a raw material more cheaply, using established distribution channels, exploiting trusted brand name recognition or taking advantage of greater economies of s

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