Nova Chemicals Corporation Appellant v. The Dow Chemical Company, Dow Global Technologies Inc., 2022 SCC 43

SUPREME COURT OF CANADA Citation: Nova Chemicals Corp. v. Dow Chemical Co., 2022 SCC 43 Appeal Heard: April 20, 2022 Judgment Rendered: November 18, 2022 Docket: 39439 Between: Nova Chemicals Corporation Appellant and The Dow Chemical Company, Dow Global Technologies Inc. and Dow Chemical Canada ULC Respondents - and - Bell Canada, Rogers Communications Canada Inc., TELUS Communications Inc., Vidéotron ltée and Canadian Generic Pharmaceutical Association Interveners Coram: Wagner C.J. and Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin, Kasirer and Jamal JJ.

Reasons for Judgment : (paras. 1 to 87) Rowe J. (Wagner C.J. and Moldaver, Karakatsanis, Brown, Martin, Kasirer and Jamal JJ. concurring) Dissenting Reasons : (paras. 88 to 227) Côté J. Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports .

Nova Chemicals Corporation Appellant v. The Dow Chemical Company, Dow Global Technologies Inc. and Dow Chemical Canada ULC Respondents and Bell Canada, Rogers Communications Canada Inc., TELUS Communications Inc., Vidéotron ltée and Canadian Generic Pharmaceutical Association Interveners Indexed as: Nova Chemicals Corp. v. Dow Chemical Co. 2022 SCC 43 File No.: 39439. 2022: April 20; 2022: November 18.

Present: Wagner C.J. and Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin, Kasirer and Jamal JJ. on appeal from the federal court of appeal Intellectual property — Patents — Infringement — Remedies — Accounting of profits — Non-infringing option — Springboard profits — Patentee permitted to seek accounting of profits following successful infringement claim against infringer — Reference judge awarding patentee sum equal to infringer’s actual revenue selling patented product minus its actual full costs and also awarding springboard profits — Court of Appeal upholding reference judge’s award — Whether lower courts erred in calculating infringer’s profits under accounting of profits — Whether theoretical profits that infringer could have earned by selling unrelated product can be considered as non-infringing option in calculation of profits that infringer must disgorge — Whether patentee entitled to springboard profits.

Nova made and sold products covered by Dow’s patent for metallocene linear low-density polyethylenes, which are thin but strong plastics. The Federal Court permitted Dow to seek an accounting of profits to be assessed by reference. The reference judge awarded Dow a sum equal to Nova’s actual revenue from selling the patented plastics minus its actual full costs associated with producing the patented plastics. Accordingly, Nova was only permitted to subtract its actual cost of producing ethylene, the main ingredient in the patented plastics, not the higher market price of ethylene.

The reference judge also concluded that Dow was entitled to “springboard profits” — profits that arise post-patent-expiry but that are causally attributable to infringement of the invention during the period of patent protection. The Federal Court of Appeal upheld the entirety of the award to Dow. Held (Côté J. dissenting ): The appeal should be dismissed.

Per Wagner C.J. and Moldaver, Karakatsanis, Brown, Rowe , Martin, Kasirer and Jamal JJ.: When a patentee chooses an accounting of profits as a remedy for patent infringement, the infringer must disgorge all the profits they gained that are causally attributable to the invention. This may involve consideration of the hypothetical profits that an infringer could have earned by selling a non-infringing option. Springboard profits may also be available. An accounting of profits requires that the infringer disgorge all profits causally attributable to infringement of the invention after the grant of the patent.

An accounting of profits is sometimes presented as a choice between the (1) differential costs, (2) full costs, and (3) differential profits approaches.

Under the differential costs and full costs approaches, the infringer is required to disgorge the difference between actual revenues earned by selling the infringing product and the actual costs associated with producing the infringing product; under the differential profits approach, the infringer is required to disgorge the difference between the actual profits earned by selling the infringing product and the profits it could have earned had it sold the best non-infringing option.

But these approaches are not completely distinct as all three start with determining the infringing product’s actual revenues and costs. It is therefore more appropriate to conceptualize an accounting of profits as a three-step test. At step 1, the court should calculate the actual profits earned by selling the infringing product — i.e., revenue minus (full or differential) costs. At step 2, the court should determine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer’s profits not

causally attributable to the invention — i.e., differential profits. It is at this step that judges should apply the principles of causation. At step 3, if there is a non-infringing option, the court should subtract the profits the infringer could have made had it used the non-infringing option from its actual profits, to determine the amount to be disgorged. When calculating the infringer’s profits in Step 1, courts should only consider actual revenues and costs.

If an infringer is an inefficient manufacturer, and, as a result, makes less profit than theoretically possible, the patentee cannot claim profits that the infringer “should have” made, but if the infringer is an efficient manufacturer, the patentee is entitled to all the profits actually made, even if the patentee could not have achieved similar profit levels. At Step 2, a “non-infringing option” is any product that helps courts isolate the profits causally attributable to the invention from the profits not causally attributable to the invention.

It is not an infringer’s “most profitable” alternative sales product that it “would have” and “could have” sold had it not infringed. The latter approach is flawed for two reasons. First, it is grounded on the incorrect premise that an accounting of profits is designed to ensure that the infringer ends up no worse off than had it never infringed. Instead, the goal of an accounting of profits is to ensure that all profits causally attributable to the invention are disgorged to the patentee.

Second, this reading of non-infringing options would distort the purpose of an accounting of profits and, in turn, undermine the patent bargain underlying the Patent Act . If an infringer is allowed to use any prior profitable business venture as a non-infringing option, an infringer would always be incentivized to switch its business capacity to a more profitable infringing product, creating a form of business insurance for infringers: an infringer could always use their previous product lines as a non-infringing option and protect those profits in the event their new product infringes a patent.

Whether there is a non-infringing option is a question of fact. There are no strict rules around this factual exercise, and the non-infringing option need not be a strict market substitute for the patented product. The onus is on the infringer to adduce sufficient evidence to satisfy the court that the profits from its infringing product arose by virtue of features other than the patentee’s invention and that there is a non-infringing option that can help the courts isolate this value. Springboard profits are legally permissible.

An accounting of profits requires that the infringer disgorge all profits causally attributable to infringement of the invention, regardless of when the profits materialize, including profits an infringer earns because of an accelerated entry into the market. A patent provides a time-limited monopoly to make, use, and sell an invention during the life of the patent. This monopoly gives the patentee the right to build sales capacity and market share without any market competition. The patentee can then use this market advantage against competitors after the patent expires.

An infringer that begins selling a patented invention before the patent expires can build sales capacity and market share for their own version of the patented product. Then, after the patent expires, the infringer can use this sales capacity and market share to earn profits that it would not have earned but for the infringing activity that occurred during the life of the patent. A portion of such post-expiry profits may be causally attributable to infringement of the invention.

Failing to disgorge those profits would leave gains that are causally attributable to infringement of the invention in the hands of the infringer and would be unfair to third parties that waited for patent expiry to compete with the patentee. In the instant case, the reference judge did not err in refusing to deduct the market price of ethylene as a cost that Nova incurred by making the patented plastics. Nor did the reference judge err when he concluded that all the profits Nova earned by selling the patented plastics were causally attributable to Dow’s invention. His conclusion is supported by two facts.

First, he found that customers only purchased Nova’s infringing plastics because they contained the features captured by Dow’s patent. Second, Nova did not establish that there were relevant non-infringing options that would help the court isolate the profits causally attributable to Dow’s invention from profits attributable to non-inventive features of the infringing product. Nova bore the evidentiary onus to establish this fact.

Instead, Nova conceded before the reference judge and again before the Federal Court of Appeal that there were no non-infringing options available for the purpose of applying the differential profits approach. As the reference judge did not misapply the law, there is no basis for sending the matter back for redetermination. Nor is there any basis to interfere with the decision to award springboard profits to Dow.

By infringing Dow’s patent, Nova entered the market created by the invention early, built market share, and used that market advantage to earn profits post-patent-expiry that were causally attributable to infringement of the invention, during the period of patent protection. The reference judge found no support for Nova’s argument that its springboard profits were already accounted for by its payment of pre-grant reasonable royalties, and Nova conceded that there were no non-infringing options that would reduce the springboard profits award. Per Côté J. (dissenting): The appeal should be allowed.

The focus of an accounting of profits in the patent context must be on the infringer ’ s profits that are causally attributable to its infringement. This is determined using “but for” causation. This approach is consistent with the gain - based nature of the remedy and ensures that the analysis remains unwaveringly focused on the infr inger and the profits it earned — whether during the life of the patent or after its expiry — as a result of its infringement.

An accounting of profits, which focuses on the wrongdoer ’ s gains, seeks to restore the wrongdoer to the position it would have been in but for its wrongdoing. “But for” causation is therefore appropriate, as the focus is on restoring the wrongdoer to the position it would have occupied but for its wrongdoing. The remedy of an accounting of profits may serve either or both of two equitable purposes: a restorative purpose and a prophylactic deterrence purpose.

While an accounting of profits can have a deterrent purpose in the patent context, as it can deter intentional and efficient infringements, the primary purpose of the remedy in this context is restorative. As in other contexts, a causal relationship between the infringement and the profits is required, but, in the patent context, there is an acute focus on causation: the patentee is entitled only to the profits causally attributable to the infringement of the patent. The differential profit approach is the preferred approach in this context because it best approximates the causal contribution of the infringement.

It isolates the value of the patent in the hands of the infringer by comparing the infringer ’ s actual profits with the profits that the infringer could have and would have earned but for the infringement. Once the profits causally attributable to the infringement have been isolated, no other apportionment would appear to be necessary to restore the infringer to the position it would have occupied, but for the infringement. Reading the case law as showing that the purpose of an accounting of profits is to isolate the value of the patent in the hands of the infringer is preferable for four reasons.

First, the statement of the law in the leading cases underscored that the proper focus is on the infringement. Second, the application of the differential profit approach confirms that focus. Third, a narrow

interpretation that

focuses exclusively on the value of the invention is inconsistent with the proposition that the profits to be disgorged are those that, on acommon sense view of causation, were caused by the breach. The phrase “a common sense view of causation” clarifies that “but for”causation applies. Fourth, a focus on the infringement is necessary to capture all of the potential profits that the infringer may derivefrom its breach of the patentee’s statutory monopoly.

The advantage of the patented technology over the non-infringing options does notturn solely on whatever value we might decide is attributable to the inventive quality of the technology; it turns on the actual differencein profitability. Under the differential profits approach, a non-infringing option does not have to be a true a consumer substitute for thepatented product. There are two principled reasons for this. First, a true consumer substitute requirement is legally irrelevant in anaccounting of profits given the different purposes and focus of this remedy.

An accounting of profits is not compensatory, as the profitsto be disgorged are calculated exclusively by reference to the defendant’s wrongful gain, irrespective of whether it corresponds todamage suffered by the plaintiff. It is therefore legally irrelevant whether consumers would view the product that the infringer couldhave and would have made in the hypothetical world as a substitute for the patented product. What matters is the profits the infringerderived from its breach of the patentee’s statutory monopoly.

Second, limiting non-infringing options to true consumer substitutesdistorts the causation analysis. By focusing on the value of the patent in the abstract, the analysis ignores the value that the infringementbrought to the infringer. It needlessly disadvantages infringers that could have and would have produced a different product that wouldnot have been a consumer substitute for the patented product or that would have competed in a different consumer market.

Conversely, itrisks incentivizing efficient infringement by benefiting infringers that could not or would not otherwise have produced a consumersubstitute for the patented product. Without any principled justification, it prevents the application of the differential profit approach,forcing an infringer to disgorge gains that are not causally attributable to its infringement. Courts are to determine the appropriate hypothetical “best non-infringing option” to be used based on what an infringercould have and would have done but for the infringement.

An examination of what the infringer could have done involves an objectiveassessment of what was feasible in the circumstances, while an examination of what the infringer would have done involves a moresubjective assessment of its alternative course of conduct. In an accounting of profits case, the infringer’s best non-infringing option canbe, and likely often will be, a consumer substitute for the patented product, but the focus should be on what the infringer could have andwould have done but for the infringement.

The real world informs both the “could have” and the “would have” branches of thehypothetical analysis and the burden of establishing what the infringer could have and would have done lies on the infringer, althoughboth sides can adduce evidence on this point. It is of no moment that certain profits — known as springboard profits — causally attributable to infringement do not accrueuntil after the patent has expired. So long as the profits are causally attributable to the infringement, they remain subject to disgorgement.

In the instant case, upholding the conclusion that there was no non-infringing option is problematic for three reasons. First,it is based on two factual findings which clearly show that the distinct consumer market remained central and legally relevant in thereference judge’s analysis. Second, it does not take into account the reference judge’s conclusion that the differential profit approach waslegally unavailable because the non-infringing option had to be a true substitute. Third, the majority is equivocal and unclear about thelegal requirements for a non-infringing option.

Whether such an option exists cannot be a question of fact alone. It must be a question ofmixed fact and law. Even though the reference judge made specific findings about what Nova could have and would have done but for theinfringement, he applied case law which required a true consumer substitute, thereby preventing the use of the differential profitapproach.

This distorted the causation analysis by preventing a comparison between Nova’s actual profits and its hypothetical profits hadit not infringed, and forces Nova to disgorge millions of dollars in profits that have not been shown to be causally attributable to itsinfringement of Dow’s patent. Nor should Nova’s concession that there were no direct non-infringing alternatives to its infringing products deny it therelief it seeks. This concession was based on the understanding that a non-infringing alternative had to be a true consumer substitute inorder for the differential profit approach to apply.

As the reference judge erred in law by holding that a non-infringing option needed tobe a true consumer substitute for the purposes of the differential profit approach, Nova’s concession is not determinative of the outcome. Finally, Dow should be entitled to an accounting of all profits that Nova earned as a result of its infringement, includingspringboard profits. The causation analysis for any post-expiry period should be based on the same hypothetical “but for” reasoningembodied in the differential profit approach.

However, on the record available, the Court cannot determine how to apply the differentialprofit approach to the facts, and the springboard profits were not properly calculated. The application of the differential profit approachand the calculation of springboard profits should be remitted to the Federal Court. Cases Cited By Rowe J. Applied: Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, [2004] 1 S.C.R. 902; considered: Monsanto Canada Inc. v.Rivett, 2009 FC 317, [2010] 2 F.C.R. 93, rev’d in

part 2010 FCA 207, [2012] 1 F.C.R. 473; Monsanto Canada Inc. v. Janssens, 2009 FC318, 343 F.T.R. 234, rev’d in

part 2010 FCA 207, [2012] 1 F.C.R. 473; Lubrizol Corp. v. Imperial Oil Ltd., (FCA),[1997] 2 F.C. 3; referred to: AlliedSignal Inc. v. Du Pont Canada Inc. (1998), (FC), 78 C.P.R. (3d) 129; UnileverPLC v. Procter & Gamble Inc. (1993), 47 C.P.R. (3d) 479; Apotex Inc. v. ADIR, 2020 FCA 60, 172 C.P.R. (4th) 1; AlliedSignal Inc. v.Du Pont Canada Inc. (1995), 61 C.P.R. (3d) 417; Bayer Inc. v. Cobalt Pharmaceuticals Co., 2016 FC 1192, 142 C.P.R. (4th) 374;Seedlings Life Science Ventures, LLC v. Pfizer Canada ULC, 2021 FCA 154; Beloit Canada Ltée v. Valmet Oy (1994), 55 C.P.R. (3d)433; Merck & Co., Inc. v.

Apotex Inc., 2015 FCA 171, [2016] 2 F.C.R. 202, aff’g 2013 FC 751, [2015] 1 F.C.R. 405; Snell v. Farrell, (SCC), [1990] 2 S.C.R. 311; Apotex Inc. v. Sanofi-Synthelabo Canada Inc., 2008 SCC 61, [2008] 3 S.C.R. 265; TevaCanada Ltd. v. Pfizer Canada Inc., 2012 SCC 60, [2012] 3 S.C.R. 625; Apotex Inc. v. Wellcome Foundation Ltd., 2002 SCC 77, [2002] 4S.C.R. 153; Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19; Bayer Aktiengesellschaft v. Apotex Inc. (2001), (ON SC), 10 C.P.R. (4th) 151; Laboratoires Servier v. Apotex Inc., 2008 FC 825, 67 C.P.R. (4th) 241, aff’d 2009 FCA 222, 75 C.P.R.

(4th) 443; Cinar Corporation v. Robinson, 2013 SCC 73, [2013] 3 S.C.R. 1168; AFD Petroleum Ltd. v. Frac Shack Inc., 2018 FCA 140,157 C.P.R. (4th) 195; AstraZeneca Canada Inc. v. Apotex Inc., 2015 FC 671; Teva Canada Limited v. Janssen Inc., 2018 FCA 33, 420D.L.R. (4th) 493; Apotex Inc. v. Eli Lilly and Company, 2018 FCA 217, 161 C.P.R. (4th) 411. By Côté J. (dissenting) Warman International Ltd. v. Dwyer (1995), 182 C.L.R. 544; Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, [2004] 1S.C.R. 902; Apotex Inc. v. Wellcome Foundation Ltd., 2002 SCC 77, [2002] 4 S.C.R. 153; Teva Canada Ltd. v.

Pfizer Canada Inc., 2012SCC 60, [2012] 3 S.C.R. 625; Free World Trust v. Électro Santé Inc., 2000 SCC 66, [2000] 2 S.C.R. 1024; Bristol-Myers Squibb Co. v.Canada (Attorney General), 2005 SCC 26, [2005] 1 S.C.R. 533; Merck & Co., Inc. v. Apotex Inc., 2015 FCA 171, [2016] 2 F.C.R. 202;Lubrizol Corp. v. Imperial Oil Ltd., (FCA), [1997] 2 F.C. 3; Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19;Southwind v. Canada, 2021 SCC 28; Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177; Beloit Canada Ltd. v.Valmet-Dominion Inc., (FCA), [1997] 3 F.C. 497; Bayer Aktiengesellschaft v.

Apotex Inc. (2002), (ON CA), 16 C.P.R. (4th) 417; Bayer Inc. v. Cobalt Pharmaceuticals Co., 2016 FC 1192, 142 C.P.R. (4th) 374, aff’d 2018 FCA 32,[2018] 4 F.C.R. 58; AlliedSignal Inc. v. Du Pont Canada Inc. (1995), 61 C.P.R. (3d) 417; Pfizer Canada Inc. v. Teva Canada Ltd., 2016FCA 161, 400 D.L.R. (4th) 723; AFD Petroleum Ltd. v. Frac Shack Inc., 2018 FCA 140, 157 C.P.R. (4th) 195; Apotex Inc. v. Eli Lillyand Company, 2018 FCA 217, 161 C.P.R. (4th) 411; Apotex Inc. v. ADIR, 2017 FCA 23, 406 D.L.R. (4th) 572; Apotex Inc. v. ADIR,2020 FCA 60, 172 C.P.R. (4th) 1; Pettkus v.

Becker, (SCC), [1980] 2 S.C.R. 834; Philip Morris Products S.A. v.Marlboro Canada Ltd., 2015 FC 364, [2015] F.C.J. No. 1564 (QL); Hodgkinson v. Simms, (SCC), [1994] 3 S.C.R. 377;Canadian Aero Service Ltd. v. O’Malley, (SCC), [1974] S.C.R. 592; Lac Minerals Ltd. v. International CoronaResources Ltd., (SCC), [1989] 2 S.C.R. 574; Canson Enterprises Ltd. v. Boughton & Co., (SCC),[1991] 3 S.C.R. 534; Cadbury Schweppes Inc. v. FBI Foods Ltd., (SCC), [1999] 1 S.C.R. 142; ADIR v. Apotex Inc.,2015 FC 721, 482 F.T.R. 276; Reading & Bates Construction Co. v.

Baker Energy Resources Corp., (FCA), [1995] 1F.C. 483; Constellation Brands US Operations Inc. v. Société de vin internationale ltée, 2021 QCCA 1664; Wellcome Foundation Ltd. v.Apotex Inc., (FCA), [2001] 2 F.C. 618; Celanese International Corp. v. BP Chemicals Ltd, [1999] R.P.C. 203;Monsanto Canada Inc. v. Schmeiser, 2002 FCA 309, [2003] 2 F.C. 165; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; CinarCorporation v. Robinson, 2013 SCC 73, [2013] 3 S.C.R. 1168; Monsanto Canada Inc. v. Rivett, 2009 FC 317, [2010] 2 F.C.R. 93, rev’din

part 2010 FCA 207, [2012] 1 F.C.R. 473; Monsanto Canada Inc. v. Schmeiser, 2001 FCT 256, 12 C.P.R. (4th) 204. Statutes and Regulations Cited Patent Act, R.S.C. 1985, c. P-4, ss. 42, 55(1), (2), 57. Authors Cited Andrews, Kurtis, and Jeremy de Beer. “Accounting of Profits to Remedy Biotechnology Patent Infringement” (2009), 47 Osgoode HallL.J. 619. Bently, L., et al. Intellectual Property Law, 5th ed. New York: Oxford University Press, 2018. Charles, Michael E. “Monetary Remedies in Intellectual Property Litigation”, [2007] J. Bus. Valuation 159. Cotter, Thomas F.

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Smith, Lionel, and Jeff Berryman. “Disgorgement of Profits in Canada”, in Ewoud Hondius and André Janssen, eds., Disgorgement ofProfits: Gain-Based Remedies throughout the World. New York: Springer, 2015, 281. Snell’s Equity, 34th ed. by John McGhee and Steven Elliott. London: Thomson Reuters, 2020. APPEAL from a judgment of the Federal Court of Appeal (Stratas, Near and Woods JJ.A.), 2020 FCA 141, [2021] 1 F.C.R.551, 452 D.L.R. (4th) 318, 177 C.P.R. (4th) 145, [2020] F.C.J. No. 928 (QL), 2020 CarswellNat 3799 (WL), affirming a decision of

Fothergill J., 2017 FC 350 , [2018] 2 F.C.R. 154, [2017] F.C.J. No. 441 (QL), 2017 CarswellNat 1891 (WL). Appeal dismissed, Côté J. dissenting. Andrew Bernstein , Sheila Block , Nicole Mantini and Jonathan Silver , for the appellant. Steve Garland , Jeremy Want , Daniel Davies and Matthew Burt , for the respondents. Audrey Boctor and Danielle Marcovitz , for the interveners Bell Canada, Rogers Communications Canada Inc., TELUS Communications Inc. and Vidéotron ltée. Andrew Brodkin , Harry Radomski and Jordan Scopa , for the intervener the Canadian Generic Pharmaceutical Association.

The judgment of Wagner C.J. and Moldaver, Karakatsanis, Brown, Rowe, Martin, Kasirer and Jamal JJ. was delivered by Rowe J. — I. Introduction [ 1 ] This appeal concerns proper calculation of the quantum payable by the appellant (“Nova”) to the respondents (“Dow”) as a remedy for patent infringement. Central to this appeal is the patent law remedy labelled an “accounting of profits”.

An accounting of profits requires that a party who infringes a patent (the “infringer”) disgorge all the profits they gained that are causally attributable to the invention. [ 2 ] Nova asks this Court to deduct theoretical profits that it could have earned on an entirely unrelated product had it not infringed, from the profits that the company earned by selling products that infringed Dow’s patent. The difference between these values, Nova submits, should be the quantum payable to Dow. [ 3 ] I disagree.

While in certain circumstances the hypothetical profits that an infringer could have earned by selling a non-infringing option are relevant to a calculation of an accounting of profits, this is not such a case. A “non-infringing option” is any product that helps courts isolate the profits causally attributable to the invention from the profits which arose at the same time the infringing product was used or sold, but which are not causally attributable to the invention. Whether there is a relevant non-infringing option that can assist the court in this calculation is a question of fact.

The infringer has the onus of establishing that there is a relevant non-infringing option. On the basis of the record before the reference judge, there were no relevant non-infringing options to consider. He therefore fairly determined that all of Nova’s profits were causally attributable to Dow’s invention. I see no reason to disturb this factual finding. [ 4 ] Additionally, for the first time in Canadian law, the reference judge awarded “springboard profits” to Dow.

Springboard profits are profits that arise post-patent-expiry but that are causally attributable to infringement of the invention during the period of patent protection. Nova appeals this award, which was upheld at the Federal Court of Appeal. On this point, too, Nova’s appeal must fail. Springboard profits are an extension of the fundamental principle that, in calculating an accounting of profits, the infringer must disgorge all profits causally attributable to infringement of the invention. It is irrelevant when the profits arise, provided they are causally connected to infringement.

Like non-infringing options, whether profits that arise post-patent-expiry are causally attributable to infringement of the invention, during the period of patent protection, is a question of fact.

On the basis of the record before him, the reference judge determined that some of Nova’s post-patent-expiry profits were causally attributable to infringement of the invention: by infringing Dow’s patent, Nova had entered the market created by the invention early, built market share, and used that market advantage to earn profits post-patent-expiry that were causally attributable to infringement of the invention during the period of patent protection. I see no reason to disturb his factual findings on this point. [ 5 ] It follows that I would dismiss Nova’s appeal. II.

Introduction to Patent Law Remedies [ 6 ] To understand this decision, an introduction to three concepts is needed: (1) remedies in patent law; (2) the calculation methods for the remedy at issue in this appeal (an “accounting of profits”); and (3) this Court’s leading authority on calculating an accounting of profits ( Monsanto Canada Inc. v. Schmeiser , 2004 SCC 34 , [2004] 1 S.C.R. 902). I explain each below. After introducing these topics, I will (4) clarify the methods of calculating an accounting of profits. A.

Remedies in Patent Law [ 7 ] Below I define three patent law remedies and explain how they relate to each other. The three statutory remedies I define are (1) reasonable compensation, (2) damages, and (3) an accounting of profits. Term Definition

ReasonableCompensation Reasonable compensation can be granted for any loss caused by theinfringer’s use of the invention between the patent’s publication andthe grant of the patent. This remedy is authorized by s. 55(2) of the Patent Act, R.S.C. 1985,c. P-4. This remedy typically entitles a patentee to a “reasonable royalty”(S. J. Perry and T. A. Currier, Canadian Patent Law (4th ed. 2021),at §§17.93-17.94). A reasonable royalty is “that which the infringer would have had topay if, instead of infringing the Patent, [the infringer] had come to belicensed under the Patent” (AlliedSignal Inc. v.

Du Pont Canada Inc.(1998), (FC), 78 C.P.R. (3d) 129 (F.C. (T.D.)), atpara. 199, quoting Unilever PLC v. Procter & Gamble Inc. (1993),47 C.P.R. (3d) 479 (F.C. (T.D.)), at p. 571 (text in brackets inoriginal)). “The test is what rate would result from negotiationsbetween a willing licensor and a willing licensee” (para. 199). Damages Damages compensate the patentee for all pecuniary losses causallyattributable to infringement after the grant of the patent. This remedy is authorized by s. 55(1) of the Patent Act.

Damages can include lost profits on sales or due to depression ofprices, and lost income from licensing opportunities, among others(Perry and Currier, at §17.9). Accounting ofProfits An accounting of profits requires that the infringer disgorge allprofits causally attributable to infringement of the invention after thegrant of the patent. This remedy is authorized by s. 57(1)(

b) of the Patent Act. This remedy is an alternative to an award of damages (Apotex Inc. v.ADIR, 2020 FCA 60, 172 C.P.R. (4th) 1, at para. 35). It is anequitable, discretionary remedy (AlliedSignal Inc. v. Du PontCanada Inc. (1995), 61 C.P.R. (3d) 417 (F.C.A.), at pp. 444-46).Judges may consider practical consequences, including expediency,misbehaviour by litigants, and whether the patentee practices theinvention itself when exercising this discretion (K. Andrews andJ. de Beer, “Accounting of Profits to Remedy Biotechnology PatentInfringement” (2009), 47 Osgoode Hall L.J. 619, at p. 641; BayerInc. v.

Cobalt Pharmaceuticals Co., 2016 FC 1192, 142 C.P.R. (4th)374, at paras. 6 and 10; Seedlings Life Science Ventures, LLC v. Pfizer Canada ULC, 2021 FCA 154, at paras. 76 and 79-81). Term Definition B. Calculating an Accounting of Profits

[ 8 ] As previously stated, this appeal addresses the correct method of calculating an accounting of profits. Courts have calculated an accounting of profits in three ways: (1) differential costs, (2) full costs, and (3) differential profits. I explain each below. Term Definition Differential Costs The differential costs approach requires the infringer to disgorge the difference between actual revenues earned by selling the infringing product and the actual costs associated with producing the infringing product. Infringers can deduct any expense incurred because of the infringing activity.

Any category of expense, so long as it is directly attributable to the infringing activity, is deductible. These can be thought of as “direct” expenses: “. . . all expenses — variable, current, increased, fixed, or capital — that are directly attributable to the infringement, are deductible” (Andrews and de Beer, at p. 646). Infringers cannot deduct expenses they would have incurred in the absence of infringement ( Monsanto Canada Inc. v. Rivett , 2009 FC 317 , [2010] 2 F.C.R. 93, at para. 30 ; Andrews and de Beer, at pp. 643-44).

Full Costs The full costs approach also requires the infringer to disgorge the difference between actual revenues earned by selling the infringing product and the actual costs associated with producing the infringing product. But, unlike the differential costs approach, the full costs approach allows infringers to deduct all direct costs and a portion of the indirect expenses incurred to make the infringing product.

Indirect expenses are costs which did not arise solely because the infringer manufactured the infringing goods (i.e., expenses that would have been incurred in the absence of infringement) ( Rivett , at para. 32; Andrews and de Beer, at pp. 643 and 646). Simply put, infringers can deduct more costs from their revenue (and thus reduce the profits payable to the patentee) under the full costs approach as opposed to the differential costs approach.

Differential Profits The differential profits approach requires an infringer to disgorge the difference between the actual profits (revenue minus costs) earned by selling the infringing product and the profits it could have earned had it sold the best “non-infringing option” ( Schmeiser , at para. 102). As I will explain, the main issue in this appeal is the appropriate scope of a non-infringing option. I will expand on this concept in the next section. The onus is on the infringer to prove that there is a non-infringing option (see Beloit Canada Lt é e v.

Valmet Oy (1994), 55 C.P.R. (3d) 433 (F.C. (T.D.)), at p. 456). C. Schmeiser

[9] Schmeiser is this Court’s leading authority on calculating an accounting of profits. The decision addressed analleged patent infringement and the appropriate remedy flowing from that infringement. Most relevant to this decision was the Court’sacceptance of the differential profits approach and its use of a non-infringing option. [10] By way of background, Monsanto brought a patent infringement claim against Mr. Schmeiser. Monsanto held apatent on a genetic modification to canola seeds, marketed as Roundup Ready Canola.

The genetic modification to the canola“dramatically” increased the plant’s tolerance to herbicides containing glyphosate (para. 8). Farmers could spray the crop with aglyphosate herbicide after the plants had emerged from the soil without killing the crop. [11] This Court determined that Monsanto’s patent was valid and that Mr. Schmeiser infringed that patent by plantingRoundup Ready Canola without a licence. Monsanto requested and was granted an accounting of profits as a remedy. The companyargued Mr.

Schmeiser was required to disgorge profits he earned from selling the harvested canola seeds. [12] This Court disagreed. It stressed it was “settled law” that, under an accounting of profits, a patentee “is only entitledto that portion of the infringer’s profit which is causally attributable to the invention” (para. 101). The preferred means of determiningthis was the “value-based or ‘differential profit’ approach” (para. 102). To determine which portion of Mr. Schmeiser’s profits werecausally attributable to Monsanto’s invention, this Court compared the profits Mr.

Schmeiser earned from the sale of Roundup Readycanola with the profits he could have earned had he used the best non-infringing option: regular, non-genetically modified canola seeds.The difference between these two values was zero: Mr. Schmeiser did not spray the crop with a glyphosate herbicide and, therefore, didnot benefit from the increased yields that Monsanto’s patent offered. The entirety of Mr. Schmeiser’s profits were attributable to non-patented features of the product — the canola seed itself.

None of the profits he earned were causally attributable to the invention. [13] From Schmeiser, it can be understood that a non-infringing option is any product that helps courts isolate the profitscausally attributable to the invention from the profits which arose at the same time the infringing product was used or sold, but which arenot causally attributable to the invention. As stated by the Court, a patentee is only entitled to profits “causally attributable to theinvention” (para. 101). D.

Simplified Method of Calculating an Accounting of Profits [14] An accounting of profits is sometimes presented as a choice between the (1) differential costs, (2) full costs, and (3)differential profits approaches (see Rivett, at para. 28). But these approaches are not completely distinct. The starting point of analysisfor all three methods is determining the infringing product’s actual revenues and costs.

Even in the differential profits approach, courtsmust first calculate the infringer’s actual profits earned by selling the infringing product (i.e., deduct the actual cost of producing theinfringing product from actual revenue).

This calculation must precede the comparison between actual profits earned on the infringingproduct and the profits an infringer could have earned had they sold the best non-infringing option. [15] It is therefore more appropriate to conceptualize an accounting of profits as a three-step test: Step 1: Calculate the actual profits earned by selling the infringing product — i.e., revenue minus (full or differential) costs.

Step 2: Determine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from theportion of the infringer’s profits not causally attributable to the invention — i.e., differential profits. It is at this step that judges shouldapply the principles of causation. Causation “need not be determined by scientific precision: it is ‘essentially a practical question of factwhich can best be answered by ordinary common sense’” (Merck & Co., Inc. v. Apotex Inc., 2015 FCA 171, [2016] 2 F.C.R. 202, atpara. 44, quoting Snell v.

Farrell, (SCC), [1990] 2 S.C.R. 311, at para. 328). Step 3: If there is a non-infringing option, subtract the profits the infringer could have made had it used the non-infringing option fromits actual profits, to determine the amount to be disgorged. [16] Step 2 is the principal issue in this appeal. As I will set out, we are called on to clarify what is a non-infringingoption. We are not called on to resolve whether differential costs or full costs is the preferred method for calculating an infringer’s costsin Step 1.

While this was dealt with in the decision under appeal, we did not receive submissions on this issue (see 2020 FCA 141, [2021]1 F.C.R. 551, at paras. 143-64). Accordingly, I do not deal further with this issue. III. Facts [17] Nova and Dow are competitors in the plastics industry. In 1994, Dow filed a patent for new plastics (“patentedplastics”). The patented plastics were metallocene linear low-density polyethylenes that had superior strength and processabilitycharacteristics as compared to conventional linear low-density polyethylenes.

In plain language, the patented plastics are thin but strongplastics, used in items like garbage bags and food wrappings. The patented plastics serviced a market demand for items with thesecharacteristics. Dow’s patent was issued in 2006 and expired in 2014. [18] Nova made and sold plastics covered by Dow’s patent. Dow brought an infringement claim against Nova. In theinfringement proceedings, Nova challenged the validity of Dow’s patent on a variety of grounds.

The Federal Court rejected thesearguments, holding that the patent was valid and that Nova had infringed the patent (2014 FC 844, 129 C.P.R. (4th) 199, aff’d 2016 FCA216, 142 C.P.R. (4th) 339). As a remedy, Dow was permitted to seek an accounting of profits, to be assessed by a subsequent reference. [19] The infringement decision is not at issue. This appeal relates only to the remedy. IV. Decisions Below A. Federal Court, 2017 FC 350, [2018] 2 F.C.R. 154 [20] The main issue before the reference judge was the proper approach to assessing the quantum of profit that Nova had

to disgorge as a result of infringement. Nova argued it should be permitted to subtract the market cost of ethylene from the revenues it earned selling the patented plastics. [ 21 ] Ethylene is the main ingredient in the patented plastics. Nova produces its own ethylene at a cost that is lower than market price. Consequently, Nova’s cost to manufacture the patented plastics was significantly less than if the company had purchased the ethylene at market price. [ 22 ] The reference judge rejected Nova’s argument.

He held that only the actual costs incurred to produce the patented plastics were appropriately deductible in Step 1. The market price of ethylene was not a “cost” that Nova incurred (paras. 137-40). [ 23 ] Notably, Nova did not argue that selling ethylene at market prices was a non-infringing option for the purposes of the differential profits approach.

Nova conceded that there were no direct non-infringing options to the patented plastics (para. 146). [ 24 ] Instead, in the alternative, Nova argued that the reference judge should deduct the “full cost” it incurred to manufacture the patented plastics (para. 134). The reference judge accepted this argument.

The reference judge awarded Dow a sum equal to Nova’s actual revenue from selling the patented plastics minus its actual full costs (as described in para. 8 above) associated with producing the patented plastics. [ 25 ] Also relevant to this appeal is the reference judge’s decision to award springboard profits. Dow argued that some of the profits Nova earned by selling the patented plastics after patent expiry were causally attributable to Nova’s patent infringement. Had Nova not infringed the patent, it would have taken time to reach the same level of sales that it enjoyed after the patent’s expiry.

As a result, Dow argued, these profits were causally attributable to Nova’s infringement and, accordingly, had to be disgorged. [ 26 ] Nova advanced two arguments in response. First, it argued that springboard profits could not be awarded under Canadian law. Second, it argued, in the alternative, that, if springboard profits were permissible, then an award of reasonable compensation under s. 55(2) (as described in para. 7 above) was sufficient to account for the company’s post-patent-expiry sales. [ 27 ] The reference judge concluded that Dow was entitled to springboard profits.

Some of Nova’s post-patent-expiry profits were causally attributable to Nova’s infringement of the invention during the period of patent protection and they were not covered by the compensation award under s. 55(2) (paras. 123 and 130). Those profits had to be disgorged. Regardless of when profits materialize, the law demands that infringers disgorge all profits causally attributable to infringement of the invention. B.

Federal Court of Appeal, 2020 FCA 141 , [2021] 1 F.C.R. 551 [ 28 ] On appeal, Nova again argued that the court should use the market price of ethylene, rather than the actual costs it incurred to manufacture ethylene, when calculating the profits payable to Dow. However, the company’s submissions as to why this was the correct calculation differed from those at trial. [ 29 ] At trial, Nova asked to deduct the market price of ethylene as a “cost”. On appeal, Nova advanced two new arguments.

First, Nova argued that, had it not used the ethylene to make the patented plastics, it could have earned a profit by selling that ethylene to third parties. It was therefore entitled to deduct the profits it could have earned by selling ethylene to third parties from the profits payable to Dow (paras. 90˗92). Second, and in the alternative, Nova argued that a portion of the profits earned by selling the patented plastics were due to its own manufacturing efficiencies, rather than Dow’s patent.

The court should thus apportion those profits out of the amount awarded to Dow (para. 98). [ 30 ] Finally, Nova argued that springboard profits were inappropriate. [ 31 ] A majority of the Federal Court of Appeal rejected Nova’s arguments and upheld the entirety of the award to Dow. [ 32 ] The dissenting judge disagreed on the issue of whether Nova could reduce the profits payable to Dow because it manufactures ethylene at below-market cost.

In her view, Nova did not need to disgorge the profits attributable to its below-market-cost manufacturing of ethylene because those profits were not caused by making and selling the patented plastics. The profits earned from ethylene therefore needed to be “apportioned” from the profits earned by selling the patented plastics. V. Issues [ 33 ] This appeal raises two issues:

(1) Did the lower courts err in calculating the profits payable to Dow under an accounting of profits?

(2) Is Dow entitled to springboard profits? VI. Analysis A. Issue 1: Did the Lower Courts Err in Calculating the Profits Payable to Dow Under an Accounting of Profits? [ 34 ] Before this Court, Nova again changed its argument as to why the quantum awarded to Dow was inappropriately high. While previously the company focused its arguments on “Step 1” of the accounting of profits calculation, before this Court it focused on “Step 2”. [ 35 ] My analysis of this issue proceeds as follows. First, I explain why the reference judge did not err in refusing to deduct the market price of ethylene as if it were a cost that Nova had incurred. Second, I provide a brief

summary of Nova’s new arguments before this Court. In the third and fourth sections, I set out the conceptual underpinnings of an accounting of profits and non- infringing options, respectively. An understanding of these topics is necessary to assess Nova’s new arguments. Fifth, I apply these principles to the facts of this case and explain why Nova’s arguments must fail.

(1) The Market Price of Ethylene Was Not a Deductible Cost [36] Nova effectively conceded before this Court that the reference judge did not err in refusing to deduct the marketprice of ethylene as a true cost associated with making the patented plastics. This was sensible. When calculating the infringer’s profitsin Step 1, courts should consider only actual revenues and costs. [37] This conclusion flows from the principle that a patentee must take the infringer as they find them.

If an infringer isan inefficient manufacturer, and, as a result, makes less profit than theoretically possible, the patentee cannot claim profits that theinfringer “should have” made (N. V. Siebrasse, A. J. Stack et al., “Accounting of Profits in Intellectual Property Cases in Canada (2007)”(2008), 24 C.I.P.R. 83, at p. 87). The opposite is also true. If an infringer is an efficient manufacturer, the patentee is entitled to all theprofits actually made, even if the patentee could not have achieved similar profit levels.

Accordingly, the reference judge did not err byrefusing to deduct the market price of ethylene as a “cost” in Step 1 (F.C. reasons, at paras. 139-40).

(2) Nova’s New Argument: Pail and Crate Plastics Were Valid Non-infringing Options [38] Nova advances new arguments before this Court, which focus on Step 2. Nova argues that had it not manufacturedthe patented plastics, it would have used its manufacturing capacity to make and sell entirely different plastics: high˗densitypolyethylenes, which are inflexible plastics used to make items like pails, crates, and buckets (“pail and crate plastics”).

The sales of pailand crate plastics would have generated profit that Nova argues is properly deductible from the profits earned by infringing. [39] The pail and crate plastics markets and patented plastics markets do not overlap.

A potential buyer interested in thepatented plastics would not purchase pail and crate plastics as an alternative (F.C. reasons, at paras. 146-49; F.C.A. reasons, at para. 97).Nevertheless, Nova says the only way to determine which of its profits are causally attributable to Dow’s invention is by subtracting theprofits it would have made had it sold pail and crate plastics from the profits it made from the patented plastics.

Nova submits that thisapproach follows from Schmeiser. [40] As discussed, Schmeiser held that the differential profits approach is the “preferred” means of determining whatprofits are causally attributable to the invention. Under differential profits, courts subtract the profits the infringer could have made usingthe “best non-infringing option” from the “profit[s] attributable to the invention” (Schmeiser, at para. 102).

The patentee is entitled to thedifference between these two sums. [41] Nova submits that an infringer’s “best non-infringing option” is synonymous with the infringer’s “most profitable”alternative option. Under their reading of Schmeiser, courts would determine the profits payable to the patentee by subtracting (

a) theprofits the infringer could have made had they pursued any other alternative course of conduct from (

b) the infringing product profits(i.e., profits payable = (

b) minus (a)). My colleague endorses Nova’s approach, as do several interveners. The Canadian GenericPharmaceutical Association, for example, suggested that if a drug manufacturer earned $1 million a year selling pain medication, butswitched some pain medication production capacity to make a patented cancer drug that generated $2 million in yearly profits, theinfringer would only need to disgorge $1 million per year under the differential profits approach. This flows from the fact that thecompany would have made $1 million on their pain medication had they never infringed.

If an infringer proves on a balance ofprobabilities that they would have made other profits (had they never infringed), they can deduct that sum from the profit gained byinfringing, even if the products are entirely unrelated. [42] I disagree. To explain why, it is necessary to understand the purpose of (1) an accounting of profits and (2) non-infringing options.

(3) Purpose of an Accounting of Profits [43] The Patent Act is designed to encourage research and development (Apotex Inc. v. Sanofi-Synthelabo Canada Inc.,2008 SCC 61, [2008] 3 S.C.R. 265, at para. 64). It does this through the “patent bargain”: an inventor discloses their useful invention tothe public in exchange for a time-limited market monopoly on that invention (Teva Canada Ltd. v. Pfizer Canada Inc., 2012 SCC 60,[2012] 3 S.C.R. 625, at para. 32; Apotex Inc. v. Wellcome Foundation Ltd., 2002 SCC 77, [2002] 4 S.C.R. 153, at para. 37; Perry andCurrier, at §3.1; R. T. Hughes and D. P.

Clarizio, Hughes & Woodley on Patents (2nd ed. (loose-leaf)), at §1). This bargain mutuallybenefits the public and the inventor. The public benefits by receiving innovations in science and technology. The inventor benefitsbecause they receive a time-limited market monopoly. The inventor can use the monopoly to generate profits and compensate themselvesfor the time, effort, and risk associated with making the invention. [44] An accounting of profits is a remedial tool designed to protect the patent bargain.

It does this by (1) disgorging theprofits earned from patent infringement to the patentee and (2) ensuring that infringers are deterred but not punished for infringement(ADIR, at para. 37; Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, at para. 24). [45] Disgorgement is necessary because allowing infringers to appropriate the benefits of the patent monopoly forthemselves “discourages research and development, and the disclosure of useful inventions” (Merck, at para. 42).

If infringers couldkeep the profits earned from patent infringement, they could appropriate the time, effort, and risk associated with making the inventionfor their own benefit. This would make disclosure less likely, and the public would receive fewer innovative products. [46] To fulfill the purpose underlying an accounting of profits, the infringer must disgorge to the patentee the “portion ofthe infringer’s profits which is causally attributable to the invention” (Schmeiser, at para. 101 (emphasis added)). Courts isolate “thevalue that the invention has brought to the product” (Rivett, at para. 61).

They then ensure that the defendant will “disgorge any profitsimproperly received by the defendant as a result of its wrongful use of the plaintiff’s property. Such profits, having been earned throughthe use of the plaintiff’s property, rightly belong to the plaintiff” (Bayer Aktiengesellschaft v. Apotex Inc. (2001), (ON SC), 10 C.P.R. (4th) 151 (Ont. S.C.J.), at para. 12; see also Laboratoires Servier v. Apotex Inc., 2008 FC 825, 67 C.P.R. (4th) 241,at para. 504, aff’d 2009 FCA 222, 75 C.P.R. (4th) 443). [47] Deterrence flows from disgorgement.

The incentive to infringe is minimized if an infringer has to disgorge all profits

causally attributable to the invention (Andrews and de Beer, at p. 640). To be clear, an accounting of profits is not the only remedial tool available to deter infringement and protect the patent bargain. Alternative remedies, including damages, elevated costs, injunctive relief, and punitive damages, may also be available to counterbalance any incentive to infringe. An accounting of profits, alongside these other remedial tools, protects the patent bargain.

For example, it discourages efficient infringement: when an infringer’s profits exceed the damages suffered by the patentee. [ 48 ] But deterrence should not be conflated with punishment. An infringer can be liable for patent infringement even if they had no knowledge of the patent or genuinely believed that the patent was invalid ( Schmeiser , at para. 49). An accounting of profits should therefore discourage infringement but do no more. This requires disgorging only the profits causally attributable to the invention.

Requiring infringers to disgorge anything more would constitute punishment and risk chilling public innovation and competition.

Disgorging anything less would reduce the incentive to invent ( Merck , at para. 42; ADIR , at para. 39). [ 49 ] I would pause to note that Justice Côté and I agree on many points, including that an accounting of profits is an equitable remedy (although I would underscore that, in these circumstances, the remedy must serve the purposes of the Patent Act ); that “[t]he remedy should not punish potential competitors for competing in areas they reasonably believe are not properly covered by a patent”, as I indicate in my preceding paragraph; and that differential profits should isolate profits attributable to “unauthorized use of the patentee’s invention” (paras. 148 and 157).

Our major difference relates to the methodology by which to isolate such profits. While we agree that this requires having regard to a non-infringing option, if there is one, where we disagree is how to give practical effect to that term. That is our fundamental point of difference. I will seek to explain the way in which the jurisprudence, read in the context of the scheme and purposes of the Patent Act , calls for that term to be given effect.

(4) Purpose of Non-infringing Option [ 50 ] In my view, Schmeiser ’s use of the term “non-infringing option” should be interpreted with the goals of an accounting of profits in mind: (1) to disgorge the “portion of the infringer’s profit which is causally attributable to the invention” and (2) to deter, but not to punish, infringers ( Schmeiser , at para. 101). [ 51 ] Understood in this light, a non-infringing option helps courts isolate the profits causally attributable to the invention from the profits which arose at the same time the infringing product was used or sold, but which are not causally attributable to the invention.

For example, when a company sells a product with a component that infringes a patent, courts need to determine the profit generated by (1) the patented invention and (2) the rest of the non-patented product. To generate these sums, courts should compare the profits generated from the sale of the infringing product with the patented feature — i.e., the actual profits — with the profits the infringer would have made on the sale of a similar product without the patented feature — i.e., the non-infringing option (Perry and Currier, at §17.50).

Non-infringing options are “generally used in cases where an infringement allows the infringer to commercialize a good in a more profitable manner than [they] could have without the infringement” ( Cinar Corporation v. Robinson , 2013 SCC 73 , [2013] 3 S.C.R. 1168 , at para. 80 ).

The concept helps courts recognize the limited nature of a patent, as “a patent does not confer a complete monopoly if a defendant could make or sell a non-infringing version of the patented invention” ( ADIR , at para. 40). [ 52 ] Schmeiser , this Court’s leading authority on accounting of profits, affirms that this is the purpose of non-infringing options. As discussed, in Schmeiser , Monsanto’s patent related to a particular canola gene that permitted a farmer to spray the crop with a glyphosate˗based herbicide, which promised to increase harvesting yields. To determine which portion of Mr.

Schmeiser’s profits were causally attributable to this invention, this Court compared the profits Mr. Schmeiser earned from the sale of the patented Roundup Ready canola with the profits he could have earned had he used the best non-infringing option: regular, non-genetically modified canola seeds. Since Mr. Schmeiser never sprayed his seeds with herbicide, none of his profits were causally attributable to the invention. All the profits earned were causally attributable to non-patented features of the sold product — the canola seed itself.

The use of a non- infringing option therefore helped this Court determine that, despite infringing the patent, none of Mr. Schmeiser’s profits were causally attributable to the invention. [ 53 ] Non-infringing options can also help courts determine when some, but not all, of the infringer’s profits are causally attributable to the invention. For example, in Rivett and the related judgment in Monsanto Canada Inc. v.

Janssens , 2009 FC 318 , 343 F.T.R. 234, the Federal Court required the defendants to disgorge a portion of their soybean profits because some of their profits were causally attributable to Monsanto’s invention. The defendants infringed Monsanto’s patent by planting genetically modified soybean seeds without licence. Like Schmeiser , the genetically modified crop allowed producers to spray a particular herbicide on soybean plants without killing them. However, the defendants, unlike Mr.

Schmeiser, profited from the invention by spraying their crop with herbicide and increasing harvesting yields ( Rivett , at para. 95; Janssens , at para. 27 ). [ 54 ] As instructed by Schmeiser , the trial judge in both Rivett and Janssens used a non-infringing option — non- genetically modified soybean seeds — to determine how much of the defendants’ profits were causally attributable to Monsanto’s invention.

The Federal Court of Appeal, which heard the appeals together, agreed and relied on evidence demonstrating that farmers who planted Monsanto’s genetically modified soybean and sprayed the crop with herbicide earned 18 percent higher profits than farmers using traditional soybean seeds ( 2010 FCA 207 , [2012] 1 F.C.R. 473).

The defendants therefore had to disgorge 18 percent of their profits. [ 55 ] Schmeiser , Rivett , and Janssens reveal the utility of non-infringing options: the concept helps courts isolate profits causally attributable to the invention from profits causally attributable to non-inventive aspects of the infringing product. Since Mr. Schmeiser did not spray his canola with herbicide, none of his profits were causally attributable to Monsanto’s invention. All of Mr. Schmeiser’s profits were generated by the sale of canola seeds.

Monsanto did not invent or hold a patent on canola seeds ( Schmeiser , at paras. 16-17 and 21). Similarly, in Rivett and Janssens , a non-infringing option helped the court isolate the profits causally attributable to Monsanto’s invention from the profits attributable to non-inventive features of the infringing product, e.g. the profits attributable to the extra yield caused by the herbicide˗resistant gene versus the profits attributable to the soybean seed itself (Andrews and de Beer, at p. 625).

Said differently, considering a non-infringing option ensured that the court did not erroneously extend Monsanto’s patent by entitling it to profits generated by product features it did not invent. Demanding that infringers disgorge profit that was not causally attributable to the invention would undermine the patent bargain by granting the patentee a windfall and punishing the infringer.

[56] Courts recognized the need to consider non-infringing options in this manner before Schmeiser. In Lubrizol Corp. v.Imperial Oil Ltd., (FCA), [1997] 2 F.C. 3 (C.A.), for example, Imperial Oil sold motor oil containing a patenteddispersant additive.

The Federal Court of Appeal concluded that the infringer might not need to disgorge all of its profits derived fromthe sale of the infringing product because some of the profits may be causally attributable to the motor oil itself, which the patentee didnot invent: It may be possible for Imperial to show that some part of the profits made on the infringing sales are not profits “arising from” theinfringement in that they are not caused by but simply made on the occasion of such infringement. . . . . . . Form must not be allowed to triumph over substance.

While motor oil containing the dispersant additive was properly claimed in thepatent (it would seem likely that the dispersant is useless except as an additive to motor oil) and while that claim was properly found tohave been infringed, the reality is that Lubrizol did not invent motor oil and that Imperial’s motor oils contain other additives than theone here in issue.

The terms of the judgment quoted by the Prothonotary in the above extract from his reasons make it plain that it is thepresence of the additive (“carboxylic derivative compositions”) claimed in the Meinhardt patent which caused Imperial’s motor oils toinfringe. Thus, it is possible that such oils have achieved their market share and attendant profits for reasons other than the presence ofLubrizol’s patented additive.

A finding that Imperial’s motor oils infringed the Lubrizol patent does not necessarily amount to a findingthat all the profits from the sales of such motor oils are profits arising from the infringement. That is an issue of fact to be decided on thereference. . . . . . . to allow Lubrizol to take profits which Imperial succeeds in showing were solely attributable to some non-infringing feature of itsmotor oil would be to judicially sanction Lubrizol’s unjust enrichment at Imperial’s expense. [Emphasis added; paras. 9-15.] [57] The Federal Court of Appeal in Imperial Oil did not have the benefit of Schmeiser.

However, its reasoning accordswith that in Schmeiser.

To isolate the profits causally attributable to the invention from the profits attributable to non-inventive featuresof the infringing product, the court would compare the infringer’s profits from the infringing product with what they would have earnedwith a non-infringing option: motor oil without the patented additive. [58] In sum, a non-infringing option is any product that helps courts isolate the profits causally attributable to theinvention from the profits which arose at the same time the infringing product was used or sold, but which are not causally attributable tothe invention. [59] A non-infringing option is not, as Nova and my colleague contend, an infringer’s “most profitable” alternative salesproduct that it “would have” and “could have” sold had it not infringed.

This approach is flawed for two reasons. [60] First, it is contrary to Schmeiser. Nova and my colleague’s argument is grounded on the incorrect premise that anaccounting of profits is designed to ensure that the infringer ends up no worse off than had it never infringed (Côté J.’s reasons, atpara. 146). But Schmeiser did not hold that the purpose of an accounting of profits was to determine what profits the infringer “couldhave earned” but for the infringement.

Nor did it ever suggest that the focus was on the “value of the invention in the hands of theinfringer” (Côté J.’s reasons, at para. 91; see also para. 118). These phrases are never used in Schmeiser. Nor are they present in theapplication of the law to the facts of Schmeiser¸ as there is no discussion in Schmeiser about what Mr. Schmeiser “could have earned”using non-infringing canola seeds.

Instead, Schmeiser affirmed that the goal of an accounting of profits is to ensure that all profitscausally attributable to the invention are disgorged to the patentee: It is settled law that the inventor is only entitled to that portion of the infringer’s profit which is causally attributable to the invention . . . . . . . The difficulty with the trial judge’s award is that it does not identify any causal connection between the profits the appellants were foundto have earned through growing Roundup Ready Canola and the invention.

On the facts found, the appellants made no profits as a resultof the invention. [Emphasis in original; paras. 101-3.] [61] My colleague dismisses Schmeiser’s clear instruction that courts must focus on isolating the profits “causallyattributable to the invention” (Schmeiser, at para. 101; see also para. 102). She suggests this explicit phrasing is an inadvertent ambiguity(Côté J.’s reasons, at para. 173). I cannot accept this. The language in Schmeiser is clear, unambiguous, and binding on this Court.

I donot believe it would be appropriate for this Court to ignore this instruction from Schmeiser and adjust the focus of an accounting ofprofits to align with new terminology not used in the judgment. [62] Second, this reading of non-infringing options would distort the purpose of an accounting of profits and, in turn,undermine the patent bargain underlying the Patent Act. If an infringer is allowed to use any prior profitable business venture as a non-infringing option, an infringer would always be incentivized to switch its business capacity to a more profitable infringing product.

Atworst, the infringer would keep all the profits they would have earned selling the non-infringing products that they sold before. At best,the infringer keeps some or all of the extra profits earned from infringement.

Reading “non-infringing option” as Nova and my colleaguesuggest would have the effect of creating a form of business insurance for infringers: an infringer could always use their previous productlines as a non-infringing option and protect those profits in the event their new product infringes a patent. [63] This distortion of the purpose of an accounting of profits gives rise to unacceptable consequences, one being that thequantum of profits to be disgorged would vary with the size of the infringing business and the breadth of its product lines.

Nova’ssuggested approach disproportionately benefits large corporations (like itself) that have diverse product lines. Such businesses havemultiple products that they “could have” and “would have” produced had they not infringed. Nova, for example, produces numerousnon-infringing plastics. In circumstances like these, my colleague’s reasons would provide no incentive not to infringe. At best, Novawould retain all profits from infringement.

At worst, Nova could keep the profits it would have made on any of its other product lines.Nova’s approach would allow it and other large enterprises to infringe with relative impunity. This undermines the bargain provided for

in the Patent Act . [ 64 ] By contrast, smaller businesses would be disproportionately disadvantaged by Nova’s approach. The facts of Rivett are instructive. Mr. Rivett was unable to establish that he “could have” planted regular soybean seeds, as they were not available for purchase in his locale ( Rivett , at para. 63). Despite this unavailability, under the reading of Schmeiser adopted in these reasons and by the Federal Court in Rivett , it was appropriate to consider regular soybean seeds as a relevant non-infringing option. Considering what profits Mr.

Rivett would have earned with regular soybean seeds allowed the courts to isolate the “portion of the infringer’s profit which [was] causally attributable to the invention” (the patented genes that made the plants glyphosate herbicide˗resistant) from the profits attributable to non-patented features of the sold product (the soybean seed itself), as per the instructions in Schmeiser (para. 101). [ 65 ] My colleague sees no issue with such consequences. In fact, she implies that Rivett was wrongly decided. In her view, Mr.

Rivett should have been forced to disgorge all of his profits to Monsanto, including those not causally attributable to Monsanto’s invention (Côté J.’s reasons, at paras. 198-99). I cannot endorse such an outcome. This approach is detached from the Patent Act . It ties the profits to be disgorged to the size of the infringer’s business, while ignoring the value of a patent. [ 66 ] In sum, I see no reason to depart from Schmeiser and adopt the definition of “non-infringing option” proposed by Nova and adopted by my colleague.

While the approach advanced by Nova is in its interests, it has the result of favouring the strong and adversely affecting the weak, a consequence that accords with no principle of equity of which I am aware. [ 67 ] Whether there is a non-infringing option that can assist courts in isolating the profits causally attributable to the invention is a question of fact. There are no strict rules around this factual exercise. Despite my colleague’s assertions that I hold otherwise, the non-infringing option need not be a strict market substitute for the patented product.

The onus is on the infringer to adduce sufficient evidence to satisfy the court that the profits from its infringing product arose by virtue of features other than the patentee’s invention and that there is a non-infringing option that can help the courts isolate this value ( Beloit , at p. 457; Bayer Aktiengesellschaft , at paras. 15-16; AFD Petroleum Ltd. v. Frac Shack Inc . , 2018 FCA 140 , 157 C.P.R. (4th) 195, at paras. 62-63 ). Typically, non˗infringing options will be most relevant when a patent covers only part of the product sold.

In those situations, the profits generated by the sale of the infringing product may be attributable to inventive and non-inventive features of the product. But non-infringing options may also be relevant when the entire product sold is patented. Ultimately, “the question is whether the patent contributes the whole value of the thing that was sold, or merely a part”, “not whether the patent is the whole thing that was sold, or merely a part” (N.

Siebrasse, “A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms” (2004), 20 C.I.P.R. 79, at p. 109 (emphasis in original)).

(5) Application [ 68 ] In my view, the reference judge did not err when he concluded that all the profits Nova earned by selling the patented plastics were causally attributable to Dow’s invention. This is supported by two facts. [ 69 ] First, the reference judge found that customers only purchased Nova’s infringing plastics because they contained the features captured by Dow’s patent, i.e., Nova sold the unique, patented thin and durable plastics covered by Dow’s patent. Dow’s invention had created a distinct market and Nova could only service that market because it sold infringing plastics.

The two companies were the only companies serving the distinct market created by the patented plastics (F.C. reasons, at paras. 70 and 73-76). [ 70 ] Second, Nova did not establish that there were relevant non-infringing options that would help the court isolate the profits causally attributable to Dow’s invention from profits attributable to non-inventive features of the infringing product. As explained earlier, the existence of an appropriate non-infringing option is a question of fact. Nova bore the evidentiary onus to establish this fact. It failed to discharge this onus.

Before the reference judge, Nova conceded that there were no non-infringing options available for the purpose of applying the differential profits approach (F.C. reasons, at para. 146). This is also confirmed by the trial transcripts: [Reference judge]: Now, here Nova is not seeking to deduct profits on foregone plastics. It merely wants to satisfy the court that the fixed costs would have been covered and therefore should be deducted. [Nova’s trial counsel]: Right. That’s true. (R.R., at p. 27) [ 71 ] Nova reiterated this position at the Federal Court of Appeal.

In Nova’s responding factum on cross-appeal, it wrote: In Schmeiser , the Supreme Court recognized that the “preferred method” for achieving this goal is the differential profits approach — “where profits are allocated according to the value contributed to the defendant’s wares by the patent.” This method allocates only profits that the defendant derived as a result of the invention ( i.e. , profits that are causally attributable to the invention) by comparing them with profits that would have been earned on a true substitute or direct “non-infringing alternative” product.

All parties agreed that the differential profits method was not the appropriate method in this case. [Footnotes omitted.] [ 72 ] Nova’s concession before the reference judge is sufficient to dispose of the appeal on this issue. Nova’s concession at trial is underscored by its continued concession at the Federal Court of Appeal. Permitting Nova to fundamentally alter its argument here would allow the company to treat this Court as one of first instance.

It is not our role to make factual findings as to whether hypothetical profits from pail and crate plastics sales could assist with determining what portion of Nova’s profits were causally attributable to Dow’s invention. To evaluate Nova’s argument properly, this Court would need to re-evaluate the whole of the factual record. This is not our role.

[73] I also do not accept Nova’s request that we send this matter back to the reference judge for reconsideration. Thisdecision affirms established law on an accounting of profits, as set out in Schmeiser. The reference judge did not misapply Schmeiser.There is no basis for sending the matter back for redetermination in these circumstances. B. Issue 2: Is Dow Entitled to Springboard Profits? [74] An accounting of profits requires that the infringer disgorge all profits causally attributable to infringement of theinvention, regardless of when the profits materialize.

For example, if an infringer earns additional profits after the patent expires becauseof an accelerated entry into the market, the infringer should disgorge those post-patent-expiry profits. This principle is known as“springboard profits” or “springboard relief”. [75] For the first time in Canadian law, the reference judge awarded springboard profits to Dow.

The Federal Court ofAppeal upheld this decision, agreeing with the reference judge that “springboard profits ‘are nothing more than a type of [gain] to beproven with evidence’” (F.C.A. reasons, at para. 126 (text in brackets in original), citing F.C. reasons, at para. 124). [76] Nova challenges the decision to award springboard profits on three grounds.

The company argues (1) thatspringboard profits are not legally permissible; (2) that Nova has already compensated Dow for its “ramp-up” into the market through itspayment of a reasonable royalty (as described in para. 7 above); and (3) alternatively, that if springboard profits are legally permissible,the springboard profits should be reduced to account for the fact that Nova would have earned profits by selling pail and crate plasticshad it not infringed. [77] None of these arguments are persuasive.

As I explain below, (1) springboard profits are legally permissible; (2)whether post-patent-expiry profits are causally attributable to patent infringement is a question of fact and Nova has not shown palpableand overriding error in the reference judge’s findings; and (3) for the reasons given above, Nova is not entitled to deduct the profits itcould have earned from pail and crate plastics. There is therefore no basis to interfere with this part of the reference judge’s award toDow.

(1) Springboard Profits are Legally Permissible [78] Nova submits that Canadian courts have never awarded springboard profits before. That is true. But Canadian courtshave recognized and awarded springboard damages (AstraZeneca Canada Inc. v. Apotex Inc., 2015 FC 671, at para. 7 ; TevaCanada Limited v. Janssen Inc., 2018 FCA 33, 420 D.L.R. (4th) 493, at paras. 107-12; Merck & Co., Inc. v. Apotex Inc., 2013 FC 751,[2015] 1 F.C.R. 405, at para. 183, aff’d 2015 FCA 171, [2016] 2 F.C.R. 202; Apotex Inc. v.

Eli Lilly and Company, 2018 FCA 217, 161C.P.R. (4th) 411, at para. 114; see also Siebrasse, Stack et al., at pp. 96-97). [79] The purpose underlying springboard damages is sound, having regard to the scheme and purposes of the Patent Act.A patent provides a time-limited monopoly to make, use, and sell an invention during the life of the patent (Patent Act, s. 42). Thismonopoly gives the patentee the right to build sales capacity and market share without any market competition. The patentee can then

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