2017 FC 350, 2017 FC 350

[2018] 2 F.C.R. 154 T-2051-10 2017 FC 350 The Dow Chemical Company, Dow Global Technologies Inc. and Dow Chemical Canada ULC ( Plaintiffs/Defendants by Counterclaim ) v. Nova Chemicals Corporation ( Defendant/Plaintiff by Counterclaim ) Indexed as: Dow Chemical Company v. Nova Chemicals Corporation Federal Court, Fothergill J.—Toronto, December 5–9, 12–16, 20–22, 2016 and January 11-13, 2017; Ottawa, April 7 (confidential judgment and reasons) and April 19, 2017 (public judgment and reasons).

Patents — Infringement — Damages — Reference addressing assumptions, other considerations informing the calculations of damages, profits owed by defendant/plaintiff by counterclaim (defendant) to plaintiffs/defendants by counterclaim (plaintiffs) — Defendant infringing plaintiffs’ Canadian Patent No. 2160705 ('705 patent) — Plaintiffs entitled to damages under Patent Act , s. 55(2) — Plaintiffs manufacturing products made of metallocene linear low-density polyethylene (mLLDPE) under name ELITE — Patent allowing for thinner polyethylene films with improved strength properties — Defendant infringing '705 patent by manufacturing, distributing, selling film-grade polymers under name SURPASS — Plaintiffs electing accounting of defendant’s profits — Questions raised regarding disputed polymer grades pursuant to order ( 2016 FC 361 ) wherein Court determining plaintiff failed to amend statement of claim to include additional film-grade polymers used by defendant — Court in 2016 FC 361 concluding, inter alia, that just, expeditious determination of issues not justifying forever precluding plaintiffs from putting before Court disputed grades as designated, nor should it preclude defendant from raising defences — Defendant arguing, inter alia, that disputed grades barred by doctrine of res judicata, abuse of process, limitations — Principal issues (1) whether disputed grades, off-grades should be included in calculation of damages, accounting of profits; (2) how profits, damages payable to plaintiffs pursuant to Act ss. 55(1),(2) should be calculated — Court retaining residual discretion not to apply res judicata if this would produce outcome that is not fair, just — Granting plaintiffs remedies for disputed grades not oppressive or vexatious — As to accounting of profits, Court’s role to assess actual profits made by defendant resulting from infringement — Plaintiff entitled only to portion of infringer’s profit causally attributable to invention — Here, revenues attributable to defendant’s infringement of the '705 patent extending to those earned from disputed grades, infringing off-grades — Defendant’s contention that payment of royalty, disgorgement of profits amounting to condonation of infringer’s activities finding support in case law — Failure to explicitly plead condonation in statement of issues not precluding defendant from defending against plaintiffs’ claim of springboard profits on this basis — Notion of condonation implicit in any analysis of reasonable royalty or accounting of defendant’s profits — Not connoting form of approval of infringer’s actions — Rather, acknowledgment that “defalcating trustee” having to account fully for infringement — Accounting of profits to be assessed in relation to “but-for” world — Springboard damages type of loss to be proven with evidence; no reason why this principle should operate differently to plaintiff’s gains in context of accounting of profits — In “but-for” world, defendant would have taken some time to overcome long-established presence of plaintiffs’ ELITE products, ramp up sales to levels it enjoyed in real world — As a result, scenario using monthly ramp up percentages fair, balanced approach — Costs incurred by defendant to produce ethylene appropriately deducted — Case law not foreclosing availability of full cost or absorption approach in appropriate circumstances — Defendant permitted to deduct certain fixed, capital costs from revenues generated by sales of infringing products — Defendant’s profits calculated using annual compounding, converted to Canadian dollars as of date of judgment.

Practice — Res Judicata — Reference addressing assumptions, other considerations informing calculations of damages, profits owed by defendant/plaintiff by counterclaim (defendant) to plaintiffs/defendants by counterclaim (plaintiffs) — Defendant infringing plaintiffs’ Canadian Patent No. 2160705 ('705 patent) — Plaintiffs entitled to damages under Patent Act , s. 55(2) — Questions raised regarding disputed polymer grades pursuant to order ( 2016 FC 361 ) wherein Court determining plaintiff failed to amend statement of claim to include additional film-grade polymers used by defendant — Court in 2016 FC 361 concluding, inter alia, that just, expeditious determination of issues not justifying forever precluding plaintiffs from putting before Court disputed grades as designated, nor should it preclude defendant from raising defences — Defendant arguing, inter alia, that disputed grades barred by doctrine of res judicata, abuse of process, limitations — Whether disputed grades, off-grades should be included in calculation of damages, accounting of profits — Conclusion in 2016 FC 361 not precluding finding herein that defences do not apply because disputed grades already encompassed by Court decision finding that defendant infringing patent — Defendant’s conduct militating against accepting equitable defence in these circumstances — Court retaining residual discretion not to apply res judicata if this would produce outcome that is not fair, just — Denying remedy to plaintiffs on ground of res judicata would have effect of sanctioning, rewarding defendant’s obfuscatory tactics.

This was a reference to determine the assumptions and other considerations that would inform the calculations of damages and profits owed by the defendant/plaintiff by counterclaim (defendant) to the plaintiffs/defendants by counterclaim (plaintiffs). In Dow Chemical Company v. Nova Chemicals Corporation , 2014 FC 844 ( Dow v. Nova ), the Court found that the plaintiffs’ Canadian Patent No. 2160705 (the '705 patent) was infringed by the defendant. In that case, the Court heard only the liability phase of the action.

Pursuant to its judgment, the plaintiffs were entitled to damages under subsection 55(2) of the Patent Act and to elect either an accounting of the defendant’s profits or all damages sustained by reason of the defendant’s infringement. The plaintiffs manufacture products made of metallocene linear low-density polyethylene (mLLDPE) under the name ELITE. The '705 patent is directed to polyethylene used to make “film” products, such as plastic garbage bags and food wrapping. The patent allows for the production of polymers that can be formed into thinner films with improved strength properties.

The defendant infringed the '705 patent by manufacturing in Canada and distributing, offering for sale, selling or otherwise making available film-grade polymers under the name SURPASS. The plaintiffs elected an accounting of the defendant’s profits. The proceedings herein also concerned questions pertaining to disputed polymer grades pursuant to an order dated March 30, 2016 ( 2016

FC 361 ) wherein the Court agreed with the defendant that the plaintiff had failed to amend its statement of claim to include additional film-grade polymers used by the defendant. The Court concluded, inter alia , that a just and expeditious determination of the issues between the parties did not justify forever precluding the plaintiffs from putting before the Court the further disputed grades as designated, nor should it preclude the defendant from raising defences (i.e. res judicata , abuse of process, limitation and prescription) that it believed to be proper.

The defendant argued, inter alia , that the disputed grades were barred by the doctrine of res judicata , particularly cause of action estoppel. It also pleaded abuse of process and limitations.

Section 55.01 of the Patent Act provides that no remedy shall be awarded for

an act of infringement committed more than six years before commencement of the action. The defendant maintained that sales of the disputed grades occurred more than six years before they were added to the plaintiffs’ statement of claim by an amendment. The main issues were (1) whether the disputed grades and off-grades should be included in the calculation of damages and the accounting of profits, and (2) how the profits and damages payable to the plaintiffs pursuant to subsections 55(1) and (2) of the Act should be calculated.

Held , the calculation of damages and profits payable by the defendant to the plaintiffs is to include the disputed grades and all of the off- grades identified in 2016 FC 361 , a “springboard period”, and the defendant’s variable costs. The Court’s conclusion in 2016 FC 361 that the defendant should be given an opportunity to advance defences of res judicata , abuse of process, limitation and prescription did not preclude a finding herein that they did not apply because the disputed grades were already encompassed by the decision in Dow v. Nova .

In the alternative, assuming that cause of action estoppel was available to the defendant as a defence, there were aspects of the defendant’s conduct that militated against accepting the equitable defence in these circumstances. The Court retained a residual discretion not to apply res judicata if this would produce an outcome that is not fair and just. There was a danger that denying the plaintiffs a remedy for the admitted infringement of the '705 patent on the ground of res judicata would have the effect of sanctioning and rewarding the defendant’s obfuscatory tactics.

Granting the plaintiffs remedies for the disputed grades, which were admitted to infringe the '705 patent, would not be oppressive or vexatious, and would not violate the community’s sense of fair play and decency. The defendant should not benefit from a limitations defence merely because it sold a pleaded grade under a slightly different name. An accounting of profits is an equitable remedy within the discretion of the trial Judge. Once an accounting is granted and elected, the Court’s role is to assess the actual profits made by the defendant as a result of the infringement.

A plaintiff is entitled only to that portion of the infringer’s profit that is causally attributable to the invention. The revenues attributable to the defendant’s infringement of the '705 patent extended to those earned from the disputed grades and the infringing off-grades. The defendant’s contention that the payment of a royalty and disgorgement of profits amounted to condonation of an infringer’s activities finds some support in Canadian case law.

The defendant’s failure to explicitly plead condonation in its statement of issues did not preclude it from defending against the plaintiffs’ claim of springboard profits on this basis. In the same way that springboard damages are potentially available even if not specifically addressed at the liability phase, the notion of condonation is implicit in any analysis of reasonable royalty or an accounting of a defendant’s profits as the patent-holder’s agent. Condonation in this context does not connote a form of approval of the infringer’s actions.

Rather, it is an acknowledgment that the “defalcating trustee” must account fully for the infringement. An accounting of profits is to be assessed in relation to a “but-for” world in which the defendant has not infringed the plaintiff’s patent. Springboard damages are nothing more than a type of loss to be proven with evidence, and there is no reason why this principle should operate differently to a plaintiff’s gains in the context of an accounting of profits.

In the “but-for” world, where the defendant was unable to enter the mLLDPE market until the expiry of the '705 patent, it would have taken the defendant some time to overcome the long-established presence of the plaintiffs’ ELITE products and ramp up its sales to the levels it enjoyed in the real world. As a result, a scenario using monthly ramp up percentages was a fair and balanced approach. The defendant enjoyed an economic advantage with respect to the cost of ethylene it used to manufacture the infringing products, the benefit of which must be passed on to the plaintiffs.

The costs actually incurred by the defendant to produce the ethylene were appropriately deducted as a variable cost of the infringing products. Canadian case law does not foreclose the availability of the full cost or absorption approach in appropriate circumstances. The law governing the accounting of profits consistently warns against punitive awards.

Given the circumstances of this case, particularly the distinct manufacturing model of the polyethylene business, it would have been punitive not to permit the defendant to deduct a proportion of certain fixed and capital costs from the revenues generated by sales of the infringing products. The defendant was therefore permitted to deduct a proportional amount of certain costs against the applicable revenues during the period for which the accounting of profits applied. Interest is recoverable in an accounting of profits.

The Court’s jurisdiction in equity and subsection 55(1) of the Patent Act allow it to award compound interest. In this case, the defendant’s profits were to be calculated using annual compounding. This was consistent with the case law. The defendant retained the profits from the infringing grades primarily in U.S. dollars. It presumably used those profits to make investments in U.S dollars, pay down U.S. dollar debt, pay dividends to its parent company in U.S. dollars, among other things. The defendant’s profits were therefore converted to Canadian dollars as of the date of the judgment.

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, ss. 36(4)(b),(f). Federal Courts Rules , SOR/98-106, r. 399. Patent Act , R.S.C., 1985, c. P-4, ss. 55(1), (2) , 55.01 . CASES CITED APPLIED:

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;White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 S.C.R. 182; Danyluk v. Ainsworth TechnologiesInc., 2001 SCC 44, [2001] 2 S.C.R. 460; AlliedSignal Inc. v. du Pont Canada Inc. (1998), (FC), 78 C.P.R. (3d) 129,[1998] F.C.J. No. 190 (QL) (T.D.), affd (1999), (FCA), 86 C.P.R. (3d) 324, [1999] F.C.J. No. 38 (QL) (C.A.);Monsanto Canada Inc. v. Rivett, 2009 FC 317, [2010] 2 F.C.R. 93; Lubrizol Corp. v.

Imperial Oil Ltd., (FCA), [1997]2 F.C. 3, (1996), 71 C.P.R. (3d) 26 (C.A.); Dart Industries Inc. v. Decor Corporation Pty Ltd., [1993] HCA 54 (AustLII), (1993), 179C.L.R. 101; Eli Lilly and Company v. Apotex Inc., 2014 FC 1254, [2015] 4 F.C.R. 601 CONSIDERED: Dow Chemical Company v. Nova Chemicals Corporation, 2016 FC 361, Hughes J., order dated March 30, 2016; Xerox of Canada Ltd. v.IBM Canada Limited, (FC), [1979] 1 F.C. 138, (1977), 43 C.P.R. (2d) 60 (T.D.); Dow Chemical Company v. NovaChemicals Corporation, 2016 FC 706, Russell J., order dated June 23, 2016; Monsanto Canada Inc. v.

Schmeiser, 2004 SCC 34, [2004]1 S.C.R. 902; AstraZeneca Canada Inc. v. Apotex Inc., 2015 FC 671; Bayer Cropscience KK v. Charles River Laboratories PreclinicalServices Edinburgh Limited & Albaugh Inc., [2010] CSOH 158; Gerber Garment Technology Inc. v. Lectra Systems Ltd., [1995] R.P.C.383, affd [1997] R.P.C. 443 (C.A.); Ductmate Industries Inc. v. Exanno Products Ltd. (1987), 16 C.P.R. (3d) 15, 12 F.T.R. 37(F.C.T.D.); Beloit Canada Ltd. v. Valmet-Dominion Inc., (FCA), [1997] 3 F.C. 497, (1997), 73 C.P.R. (3d) 321(C.A.); Cala Homes (South) Ltd. v. Alfred McAlpine Homes East Ltd., [1996] F.S.R. 36 (Ch.

D.); Reading & Bates Construction Co. v.Baker Energy Resources Corp., (FCA), [1995] 1 F.C. 483, [1994] F.C.J. No. 1514 (QL) (C.A.); Beloit Canada Ltd. v.Valmet Oy (1992), 45 C.P.R. (3d) 116, [1992] F.C.J. No. 825 (QL) (C.A.); Apotex Inc. v. ADIR, 2017 FCA 23, 406 D.L.R. (4th) 572;Merck & Co., Inc. v. Apotex Inc., 2015 FCA 171, [2016] 2 F.C.R. 202; Hollister Incorporated Dansac AS v. Medik Ostomy Supplies Ltd.,[2012] EWCA Civ. 1419 (BAILII). REFERRED TO: Dow Chemical v. Nova Chemicals, No. 10-1526 (Fed. Cir. 2012); Dow v. Nova, No. 05-737-LPS (DI 760) (U.S. Dist. Ct.

Del.); Dow v.Nova, Nos. 2014-1431, 2014-1462 (Fed. Cir. 2015); Grandview v. Doering, (SCC), [1976] 2 S.C.R. 621, (1975), 61D.L.R. (3d) 455; Henderson v. Henderson (1843), 3 Hare 100, 67 E.R. 313 (Ch.); CSI Manufacturing and Distribution Inc. v. AstroflexInc. (1993), 52 C.P.R. (3d) 483, 71 F.T.R. 18 (F.C.T.D.); Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77;Dhaliwal v. Canada (Minister of Citizenship and Immigration), 2001 FCT 1425, [2001] F.C.J. No. 1943 (QL); Glenko Enterprises Ltd.v. Keller, 2008 MBCA 24 , 290 D.L.R. (4th) 712; British Columbia (Workers’ Compensation Board) v.

Figliola, 2011 SCC 52,[2011] 3 S.C.R. 422; Jay-Lor International Inc. v. Penta Farm Systems Ltd., 2007 FC 358, 59 C.P.R. (4th) 228; Morguard InvestmentsLtd. v. De Savoye, (SCC), [1990] 3 S.C.R. 1077, (1990), 76 D.L.R. (4th) 256; Teledyne Industries Inc. v. Lido IndustrialProducts Ltd. (1982), 68 C.P.R. 204, [1982] F.C.J. No. 1024 (QL) (T.D.); AlliedSignal Inc. v. Du Pont Canada Inc. (1995), 61 C.P.R.(3d) 417, [1995] F.C.J. No. 744 (QL) (C.A.); Diversified Products Corp. v. Tye-Sil Corp. (1990), 32 C.P.R. (3d) 385, [1990] F.C.J. No.952 (QL) (T.D.); Athey v.

Leonati, (SCC), [1996] 3 S.C.R. 458, (1996), 140 D.L.R. (4th) 235; LED Builders Pty Ltd. v.Eagle Homes Pty Ltd., [1999] FCA 584 (AustLII); Design & Display Ltd. v. Ooo Abbot & Anor, [2016] EWCA Civ. 95 (BAILII);Collette v. Lasnier (1886), 1886 CanLII 54 (SCC), 13 S.C.R. 563; Beloit Canada Ltd. v. Valmet Oy (1995), 61 C.P.R. (3d) 271, [1995]F.C.J. No. 733 (QL) (C.A.); Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601; Kuehne + Nagel Ltd. v.Agrimax Ltd., 2010 FC 1303, 382 F.T.R. 47; Bocimar S.A. v. Century Insurance Co. of Canada (1984), 7 C.C.L.I. 165, [1984] F.C.J.

No.510 (QL) (C.A.), revd on other grounds (SCC), [1987] 1 S.C.R. 1247, (1987), 39 D.L.R. (4th) 465; SchweizerischeMetallwerke Selve & Co. v. Atlantic Container Line Ltd. (1985), 63 N.R. 104, [1985] F.C.J. No. 1039 (QL) (C.A.). AUTHORS CITED Siebrasse, Norman J. and Alexander J. Stack. “Monetary Relief – Quantum” in Ronald E. Dimock. Intellectual Property Disputes:Resolutions & Remedies, loose-leaf. Toronto: Thomson Reuters, 2016.

REFERENCE to determine the assumptions and other considerations that would inform the calculations of damages and profits owed bythe defendant/plaintiff by counterclaim (defendant) to the plaintiffs/defendants by counterclaim (plaintiffs). The calculation of damagesand profits payable by the defendant to the plaintiffs is to include the disputed grades and all of the off-grades identified in 2016 FC 361,a “springboard period”, and the defendant’s variable costs. APPEARANCES Steven B. Garland, Jeremy E. Want, Colin B. Ingram, Daniel S. Davies and Kevin K. Graham for plaintiffs/defendants by counterclaim. Ryan T.

Evans for plaintiffs/defendants by counterclaim. Robert H. C. MacFarlane, Michael E. Charles, Andrew I. McIntosh, Adam Bobker, Michael Burgess and Jerry Chen fordefendant/plaintiff by counterclaim. SOLICITORS OF RECORD Smart & Biggar, Ottawa, for plaintiffs/defendants by counterclaim. DLA Piper (Canada) LLP, Toronto, for plaintiffs/defendants by counterclaim. Bereskin & Parr LLP, Toronto, for defendant/plaintiff by counterclaim. Table of Contents Sections: Paragraph

I. Overview 1 II. Introduction to Polyethylene 8 III. Patent in Issue 16 IV. Procedural History 18 A. United States Proceedings 18 B. Liability Phase 22 C. Motion re Disputed Grades 23 V. Evidence 25 A. General Observations 25 B. Preliminary Objections 26 C. Fact and Expert Witnesses 36 VI. Issues 41 VII. Disputed Grades 42 A. Res Judicata 45 B. Abuse of Process 59 C. Limitations and Prescription 62 VIII. Damages 63 A. Reasonable Royalty 63 B. Dow’s Minimum Willingness to Accept 68 C. Nova’s Maximum Willingness to Pay 82 D. Nova’s Additional Arguments 90 E. Products Subject to Reasonable Royalty 98 F.

Pre-judgment Interest 101 IX. Profits 106 A. General Principles 108 B. Revenues from Sales 110 C. Disputed Grades and Infringing Off-grades 111 D. Springboard Profits 112 E. Deductible Costs 131

(1) Cost of Ethylene 134

(2) Fixed Costs and Capital Depreciation 141 F. Pre-judgment Interest and “Profits on Profits” 166 X. Currency Conversion 175 XI. Conclusion 190 XII. Postscript 193 The following are the public reasons for judgment and judgment rendered in English by Fothergill J. : I. Overview [ 1 ] In these reasons, I refer to the plaintiffs Dow Chemical Company, Dow Global Technologies Inc. and Dow Chemical Canada ULC collectively as “Dow”.

I refer to the defendant Nova Chemicals Corporation as “Nova”. [ 2 ] On September 5, 2014, Justice O’Keefe found that Dow’s Canadian Patent No. 2160705, “Fabricated Articles Made From Ethylene Polymer Blends” (the '705 patent), was valid and infringed by Nova ( Dow Chemical Company v. Nova Chemicals Corporation , 2014 FC 844 , 129 C.P.R. (4th) 199 ( Dow v. Nova )). These conclusions were affirmed by the Federal Court of Appeal on September 6, 2016 ( Nova Chemicals Corporation v. Dow Chemical Company , 2016 FCA 216 ( Dow v. Nova ( FCA ))). [ 3 ] Justice O’Keefe heard only the liability phase of the action.

Pursuant to his judgment, Dow was entitled to damages under subsection 55(2) of the Patent Act , R.S.C., 1985, c. P-4, and to elect either an accounting of Nova’s profits or all damages sustained by reason of Nova’s infringement of the '705 patent under subsection 55(1) of the Patent Act . The quantum of the award was to be assessed by reference preceded by discovery if requested. [ 4 ] This reference was commenced by requisition accompanied by Dow’s Statement of Issues on October 20, 2014. Nova filed its Revised Response to Statement of Issues on April 22, 2016. Particulars were exchanged by the parties.

Dow made its election in respect of the recovery of Nova’s profits on June 24, 2016 pursuant to an order of this Court dated June 10, 2016. [ 5 ] These proceedings also concern questions pertaining to disputed grades pursuant to the order of Justice Hughes dated March 30, 2016 ( 2016 FC 361 ). [ 6 ] By agreement of the parties, these reasons address only the assumptions and other considerations that inform the calculations of damages and profits.

The parties’ accountants will calculate the sums owed by Nova to Dow based on the conclusions reached by the Court in this stage of the reference. [ 7 ] The assumptions and other considerations that are to inform the calculations of damages and profits payable by Nova to Dow are those included in the judgment that follows these reasons. II. Introduction to Polyethylene [ 8 ] Polyethylene is a common form of plastic. Its commercial uses include grocery bags, food wraps and films, beverage bottles, heavy-duty sacks, plastic pipes, pails and crates.

Polyethylene is manufactured using different processes, usually involving solution, gas

phase or slurry reactors. Solution reactors may be single reactor or dual reactor systems. [ 9 ] Some polyethylene products are made with ethylene that has been copolymerized with other hydrocarbons, typically butene, hexene, or octene. These are referred to as comonomers. [ 10 ] Catalysts play an important role in the production of polyethylene, because they permit the formation of polymers under milder conditions. Catalysts create reactive sites that facilitate the linking of thousands of small ethylene molecules into long, large polyethylene molecules.

A “single-site catalyst”, which generates reactive sites that are all the same, produces a molecular weight distribution of the polymer that is approximately 2. A “multi-site catalyst”, which generates reactive sites that perform differently from one another, produces a molecular weight distribution of the polymer that is approximately 3.5 or more. [ 11 ] Polymer blends with a narrow molecular weight distribution exhibit desirable properties such as high impact strength and toughness.

However, they may be more difficult to process into films. [ 12 ] High-density polyethylene (HDPE) tends to be rigid and is used to manufacture products such as plastic pipes, pails or crates. Commodity HDPE products are referred to generally as “pail and crate”. Commodity HDPE is characterised by its relatively low cost and low profit margin. [ 13 ] HDPE may be contrasted with low-density polyethylene (LDPE). LDPE tends to be more flexible than HDPE, and is used to make plastic films such as those used in bread bags. [ 14 ] Over time, LDPE has evolved into linear low-density polyethylene (LLDPE).

The structure of LLDPE differs from LDPE, resulting in improved properties. Examples of LLDPE products include DOWLEX, made by Dow, and SCLAIR, made by Nova. Both products are made in a single reactor using a “Ziegler Natta” (ZN) catalyst. DOWLEX and SCLAIR may be described as “conventional” LLDPE products, and have been on the market for many years. [ 15 ] A more recent innovation is metallocene linear low-density polyethylene (mLLDPE). ELITE, manufactured by Dow, and SURPASS, manufactured by Nova, are both mLLDPE products.

They may be distinguished from conventional LLDPE products such as DOWLEX and SCLAIR by their superior performance characteristics, particularly in relation to their strength and ease of processability. III. Patent in Issue [ 16 ] Dow filed its application for the '705 patent on April 19, 1994. The '705 patent was published on November 10, 1994, but was not issued until August 22, 2006. The '705 patent expired on April 22, 2014, and was in effect for approximately eight years. [ 17 ] In Dow v.

Nova ( FCA ), the Federal Court of Appeal [at paragraphs 5, 6, 8 and 9] described the '705 patent as follows: The patent is directed primarily to polyethylene used to make “film” products, i.e. sheets of plastic, like plastic garbage bags and food wrapping. Some film applications do not have demanding strength requirements, but others do. One solution for these demanding applications was to make thicker “films” so that they are stronger. That requires the use of more plastic, however, leading to higher costs and more waste when the plastic film is disposed of.

The patent identifies the need to develop polymers that can be formed into thinner films with improved strength properties …. … The claimed invention and Dow’s commercial embodiment of it (ELITE) allows for source reduction to make thicker films thinner, but just as strong. Whereas prior art efforts to create improved polymers and polymer blends were largely trial and error, Dr.

Lai (one of the inventors) testified at trial that Dow’s researchers took a different approach to identify the optimal blend based on polymer density, molecular weight, and strain hardening (the latter being a property wherein a material becomes harder as it is stretched). This work is disclosed in the '705 Patent, including the creation of the slope of strain hardening coefficient (SHC) to identify polymers of interest…. Each of the 46 claims of the '705 Patent is directed to a blend having at least these two components, with each component having certain requirements, depending on the particular claim…. IV.

Procedural History A. United States Proceedings [ 18 ] Prior to the litigation in Canada, Dow sued Nova in respect of its sales of SURPASS in the United States under two U.S. patents that correspond to the Canadian '705 patent. The U.S. litigation was commenced in 2005, and resulted in a jury verdict dated June 15, 2010. Dow was awarded US$76 million in damages and interest for lost sales and reasonable royalties resulting from Nova’s sales of SURPASS in the U.S. up to December 31, 2009. That decision was upheld by the U.S. Federal Circuit (jury verdict dated June 15, 2010, U.S.

Proceeding CA No. 05-737 (JJF) (U.S. Dist. Ct. Del.); Dow Chemical v. Nova Chemicals , No. 10-1526 (Fed. Cir. 2012); Dow v. Nova , Civ. No. 05-737-LPS (DI 760) (U.S. Dist. Ct. Del.)). [ 19 ] Dow was denied an injunction in the U.S. litigation. As a result, a “supplementary damages” trial was conducted in April and May 2013 based on the jury’s finding of infringement. This resulted in a further decision granting Dow US$30 million in damages and interest for lost ELITE sales and reasonable royalties resulting from Nova’s sales of SURPASS in the U.S. until the expiry of the U.S. patents on October 15, 2011 ( Dow v.

Nova , Nos. 2014-1431, 2014-1462 (Fed. Cir. 2015); Dow v. Nova , C.A. No. 05-737 (LPS), Order of Final Judgment (US Dist. Ct. Del.)). [ 20 ] The supplementary damages award was subsequently overturned on appeal to the U.S. Federal Circuit due to a change in the U.S. law of insufficiency. This particular insufficiency argument was not raised in the Canadian litigation.

[ 21 ] Dow does not seek damages or an accounting of profits in respect of the U.S. sales of Nova’s SURPASS that were the subject of the U.S. proceedings. B. Liability Phase [ 22 ] The liability phase of the current proceedings was summarized by the Federal Court of Appeal in Dow v. Nova ( FCA ) as follows [at paragraphs 10 and 11]: Dow filed a Statement of Claim on December 9, 2010, alleging that Nova was infringing the '705 Patent. Nova counterclaimed on the grounds of invalidity and unjust enrichment, but eventually dropped its unjust enrichment claims.

In its opening statement at trial, Dow restricted the litigation to only eight composition claims, being claims 11, 29, 30, 33, 35, 36, 41 and 42; Nova similarly restricted its invalidity counterclaim to these same claims. As a result, the Judge erred in holding that Claim 15 was valid and infringed; Dow dropped its allegations in relation to that claim, and reference to it in paragraph 1 of the Judgment should be deleted. ….

The Judge found that all the claims at issue were valid, and that Nova infringed these claims by manufacturing in Canada and distributing, offering for sale, selling or otherwise making available film-grade polymers under the name SURPASS. C. Motion re Disputed Grades [ 23 ] Subsequent to Justice O’Keefe’s judgment in the liability phase, but prior to the Federal Court of Appeal’s decision in Dow v. Nova ( FCA ), Dow brought a motion before this Court for an order: A.

Declaring that: “The phrase “film-grade polymers under the name SURPASS”, as found in paragraph 1 of the trial judgment of Justice O’Keefe, dated May 7, 2014 includes within its scope and meaning the film-grade SURPASS polymers: FPs016-A, EX-FPs016- A01, EX-FPs225-A01 and FPs417-A”; and B.

Requiring Nova to disclose and produce all relevant documents pertaining to these film-grade SURPASS polymers. [ 24 ] Justice Hughes agreed with Nova that Dow had failed to amend its statement of claim to include the additional film-grade SURPASS polymers (the disputed grades), despite Nova’s disclosure of three of the disputed grades in the U.S. proceedings in February 2012. He also found that rule 399 of the Federal Courts Rules , SOR/98-106 [the Rules], did not apply because Dow was aware of the disputed grades prior to trial.

He disposed of Dow’s motion as follows ( 2016 FC 361 , at paragraphs 31 to 34 ): At the hearing, I asked Defendant’s Counsel whether there was any prohibition against the Plaintiffs to prevent them from starting a new action in which the four designated films sought to be included in the reference could be put in issue in such a new action. Presumably, res judicata would apply to Justice O’Keefe’s findings as to claim construction, validity and at least certain matters as to infringement.

Nova could raise defences as to non-infringement at least in respect of FPs417-A film and defences as to res judicata , abuse of process, limitation and prescription. A new action is a waste of the resources of this Court. While I agree with the Defendant in respect of its arguments as set out in paragraphs 1 and 2 above, I do not believe that a just, most expeditious and least expensive determination of the issues between the parties justifies forever precluding the Plaintiffs from putting before the Court the four further films as designated.

Nor should it preclude the Defendant from raising defences that it believes to be proper. The parties have been through extensive discoveries and a trial. There have been many facts adduced and many findings of the Trial Judge. They should not be wasted. I will permit the Plaintiffs, effective the day they filed this motion, January 20, 2016, to further Amend their Statement of Claim to include, in Appendix A, films designated as FPs016, FPs117, FPs225, and FPs317. The Defendant may amend its Defence in response thereto.

All previous discoveries and evidence adduced at trial may continue to be used and evidence adduced on this motion before me, can be used by the parties as if it had been given on discovery. In addition they may have such further discovery as reasonably necessary. V. Evidence A. General Observations [ 25 ] The witnesses who were called to testify in this reference were generally credible. The expert witnesses presented impressive qualifications, and all witnesses testified in a manner that was forthright and responsive to the questions asked.

My reasons for preferring some witnesses’ testimony over that of others are explained in the analysis that follows. B. Preliminary Objections [ 26 ] To their credit, the parties largely agreed on the qualifications of the expert witnesses who were called to testify in this reference. The one exception was Dr. Eric Kelusky. Dr. Kelusky testified as a fact witness during the liability phase before Justice O’Keefe, and he also testified as a fact witness in this reference.

Dow did not object to his testimony as a fact witness in either phase of the proceedings. [ 27 ] However, Dow took the position in this reference that Dr. Kelusky lacked the necessary impartiality to be received by this Court as an objective expert. Dr. Kelusky’s opinion evidence concerned the steps that Nova would hypothetically have taken to bring its SURPASS line of products to market if it had waited until the '705 patent expired in 2014.

He was permitted to provide his expert testimony subject to this Court’s ruling on the objection, which the Court took under reserve. [ 28 ] Immediately following his retirement from Nova, Dr. Kelusky was engaged as a consultant to assist Nova’s litigation counsel in this matter. His contract began in 2010 and was still in effect when he testified in this reference. He also assisted with the U.S. litigation in his capacity as a Nova employee. His only involvement in the polyethylene industry since his retirement was in his role as a consultant

for this litigation. He was not involved in Nova’s business decisions or product development after 2010. [ 29 ] Dr. Kelusky was deposed in the U.S. proceedings as Nova’s corporate representative. He was involved in providing answers on discovery in this litigation, and also in the experimental testing that was done on behalf of Nova. He was present at the trial before Justice O’Keefe, and he interacted regularly with Nova’s counsel, particularly with respect to technical issues. Justice Hughes noted in his order dated March 30, 2016, at paragraph 15 that Dr.

Kelusky gave “very careful answers” to questions posed during the discovery process. [ 30 ] Nova maintains that Dr. Kelusky is almost uniquely qualified to address how Nova would have prepared to launch its SURPASS line of products if it had awaited the expiry of the '705 patent in 2014. He worked at Nova during the actual launch of SURPASS in 2002, and no other witness called in these proceedings could offer a comparable perspective. Nova complains that Dow did not object to Dr.

Kelusky’s expert report until five weeks after its receipt, despite the requirement in subsection 52.5(1) of the Federal Courts Rules that objections to proposed expert evidence be made as soon as possible. Dow responds that it raised its objection to Dr. Kelusky’s report prior to the deadline agreed by the parties. [ 31 ] Nova argues that it would be prejudiced if Dr. Kelusky’s testimony were rejected. Nova says that any concerns regarding Dr. Kelusky’s allegiance to Nova should affect only the weight accorded to his testimony. [ 32 ] In White Burgess Langille Inman v.

Abbott and Haliburton Co. , 2015 SCC 23 , [2015] 2 S.C.R. 182 ( White Burgess ), the Supreme Court of Canada held at paragraph 10 that expert witnesses have a duty to the court to give fair, objective and non-partisan opinion evidence. They must be aware of this duty and able and willing to carry it out. If they do not meet this threshold requirement, their evidence should not be admitted.

Once this threshold is met, however, concerns about an expert witness’ independence or impartiality should be considered as part of the overall weighing of the costs and benefits of admitting the evidence. [ 33 ] The Supreme Court provided the following additional guidance in White Burgess , at paragraph 49: This threshold requirement [to give fair, objective and non-partisan opinion evidence] is not particularly onerous and it will likely be quite rare that a proposed expert’s evidence would be ruled inadmissible for failing to meet it.

The trial judge must determine, having regard to both the particular circumstances of the proposed expert and the substance of the proposed evidence, whether the expert is able and willing to carry out his or her primary duty to the court. For example, it is the nature and extent of the interest or connection with the litigation or a party thereto which matters, not the mere fact of the interest or connection; the existence of some interest or a relationship does not automatically render the evidence of the proposed expert inadmissible.

In most cases, a mere employment relationship with the party calling the evidence will be insufficient to do so.… Similarly, an expert who, in his or her proposed evidence or otherwise, assumes the role of an advocate for a party is clearly unwilling and/or unable to carry out the primary duty to the court. I emphasize that exclusion at the threshold stage of the analysis should occur only in very clear cases in which the proposed expert is unable or unwilling to provide the court with fair, objective and non-partisan evidence.

Anything less than clear unwillingness or inability to do so should not lead to exclusion, but be taken into account in the overall weighing of costs and benefits of receiving the evidence. [ 34 ] Having considered Dr. Kelusky’s testimony, I am satisfied that he recognized and accepted his duty to give fair, objective and non-partisan opinion evidence to the Court. His answers to questions were forthright and responsive, both during examination in chief and in cross-examination. I have no hesitation in qualifying him as an expert to testify in these proceedings.

The weight to be given to his testimony is another matter, and this is discussed at the appropriate juncture below. [ 35 ] Both parties also objected to certain portions of the expert reports filed on behalf of the opposing party. Many objections were raised in the course of the witnesses’ testimony and were ruled on accordingly. In these reasons, I have based my conclusions on evidence that I found to be both admissible and probative.

I have disregarded evidence that, in my view, exceeded an expert witness’ qualifications, and I have placed no weight on viewpoints that were unsupported by the evidence or unduly speculative. My reasons for accepting some evidence and opinions, and rejecting others, may be found in the analysis that follows. C. Fact and Expert Witnesses [ 36 ] This overview of the fact and expert witnesses called by the parties is based on the helpful

summary provided by Nova in its closing submissions. [ 37 ] The following fact witnesses testified on behalf of Dow: • Mr. Christopher (Kip) Thomson retired from Dow in 2013. Prior to his retirement, Mr. Thomson held a number of positions in sales and marketing, including product manager for food and specialty packaging applications. Mr. Thomson testified about the qualification of Dow’s products with its customers, film manufacturing, film properties, competition in the marketplace and licensing at Dow. • Mr. Gregory Bunker is Senior Global Marketing Director for Dow’s health and hygiene business.

He has held a number of technical and marketing roles at Dow, including marketing director for Dow’s food and specialty packaging market segment. Mr. Bunker testified about competition in the film marketplace, in particular with Exxon’s EXCEED, and customer qualification. [ 38 ] The following expert witnesses testified on behalf of Dow: • Mr. Ross Hamilton was qualified as an expert in the quantification of damages and profits in commercial and intellectual property disputes. Mr.

Hamilton offered his opinion on the quantification of Nova’s profits from the manufacture and sale of the infringing SURPASS products. • Mr. Thomas Dunn was qualified as an expert in the timing for the development of polyethylene resins, the qualification of polyethylene resins for use in flexible packaging products, processes and use by converters of polyethylene resins, and flexible packaging products and processes. He has been inducted into the U.S. National Packaging Hall of Fame. Mr. Dunn testified about the

development and qualification steps that Nova would need to complete before SURPASS products could be sold, and the timing of those steps in the hypothetical “but for” world. • Dr. Gregory Leonard was qualified as an expert economist specializing in applied microeconomics, the study of the behaviour of consumers and firms and econometrics. He offered his opinion on the quantification of damages, including reasonable royalty rates in patent infringement matters. Dr.

Leonard addressed the reasonable royalty rate payable to Dow, the length of time it would have taken Nova to “ramp up” sales of SURPASS products after expiry of the '705 patent and the mechanism for measuring pre-judgment interest. In his reply report and testimony, Dr. Leonard responded to Dr. Heeb’s report, as well as certain aspects of Dr. Soriano’s and Dr. Kelusky’s reports. • Dr. João Soares was qualified as an expert in polymer science and polymer engineering, the characterization of polymers, polymer compositions, including synthesis, analysis, testing, production and mathematical modeling. Dr.

Soares testified about the scope of the claims in the application for the patent as published in 1994 and the processability characteristics of ELITE and SURPASS. [ 39 ] The following fact witnesses testified on behalf of Nova: • Dr. Eric Kelusky joined DuPont Canada in 1984, where he was responsible for DuPont’s polyethylene research centre. After Nova acquired DuPont Canada in 1994, he was Director of Polyethylene Research and responsible for Nova’s polyethylene research and development programs.

In 2002, he became Vice-President for Advanced SCLAIRTECH (AST) Development, where he was responsible for the commercialization and profitability of AST products, including SURPASS. From late 2006 until his retirement in 2010, he was the Vice-President of Technology for Nova. Since then he has been a consultant for Nova. Dr.

Kelusky testified about Nova’s acquisition of DuPont’s catalyst technology, the development and commercialization of the SURPASS polymers at issue, the prior U.S. litigation, the product slate of the PE2 plant in Joffre, Alberta, product nomenclature, PE2 capital costs, and research and development costs associated with Nova’s SURPASS products. • Dr. Daryll Harrison has been employed at Nova since 1988, when he started as a polymer research scientist. In 1996, he became leader of the New Polymers Catalyst Group, a group of scientists who developed catalyst technology for the polyethylene business.

He has since held the positions of Director of Polyolefins Research and Development and Vice-President of Technology. He is currently Vice-President of the 1NOVA Program Management. He testified about the development and commercialization of the Emerald catalyst and SURPASS, as well as Nova’s product development capabilities since 2002. • Ms. Debra Van Holst is the Director of Logistics for Nova. She has worked for Nova and its predecessor, DuPont Canada, for approximately 28 years, with 20 years in Nova’s polyethylene business.

She testified about the history of the SCLAIR brand at Nova and DuPont, the capacity and product slate management of the PE2 plant, the identification of off-grades produced at the PE2 plant, as well as overall demand in the polyethylene market. • Mr. Mark Kay joined Nova as a market manager in 1999. He is the Market Group Leader for Performance Films at Nova, a group which manages sales of applications such as heavy-duty shipping sacks, food packaging, as well as specialty shrink wrap.

From 2005 to 2011, he was the Distribution Sales Leader at Nova and dealt with distributors and brokers involved in reselling Nova’s polyethylene and polystyrene products in North America. He testified about the PE2 plant’s product slate, opportunities and demand for Nova’s SCLAIR performance film and pail and crate grades, the marketing and sales of off-grade products produced at the PE2 plant, processability, and competition in the marketplace. • Mr. John Hotz is Vice President, Corporate Strategy at Nova.

He joined Nova in 2000 as Vice-President of the polyethylene business, and was responsible for profits, losses and product management. He testified about the early PE2 product slate, PE2 sales, opportunities and relationships with Nova’s customers, competition with Exxon and Dow, early pricing strategy for SURPASS grades, and the market for pail and crate grades. • Mr. Larry MacDonald was Nova’s Chief Financial Officer from 2002 until he retired in 2009. He worked at Nova or its predecessors for 30 years.

He testified about the corporate and business history of Nova, the ethylene business and Nova’s corporate structure. • Mr. Rocky Vermani has worked at Nova or its predecessors for over 25 years. Since 1990, he has held positions in Nova’s technology licensing business. He was the General Manager of licensing from 2004 to 2011. Between 2006 and 2011, he was also responsible for Nova’s polyethylene export business. From 2011 to 2014, he was the Director of Nova’s ethylene business.

Since 2014, he has been Nova’s Vice-President of Olefins Products, where he has overall responsibility for managing Nova’s ethylene business. [ 40 ] The following expert witnesses testified on behalf of Nova: • Dr. Eric Kelusky was qualified as an expert in Nova’s capabilities to develop and commercialize new polyethylene products and qualification at Nova’s customers, particularly for SURPASS. Dr.

Kelusky testified about the potential “but for” development and sales of SURPASS film products following expiry of the '705 patent, taking into account Nova’s historical capabilities for developing, testing and introducing SURPASS products, and its practices in selling and qualifying them with customers. • Dr. Randal Heeb was qualified as an expert on the economic value of intellectual property rights, including economic issues related to the assessment of damages and profits and the calculation of reasonable royalties in intellectual property disputes.

He is an economist with the consulting firm of Bates White, LLC. He has been a Senior Faculty Fellow at the Yale School of Management, where he taught MBA courses, including the economics of licensing related to the use of intellectual property and the efficiency and profitability of such licences. • Dr. Charles Speed was qualified as an expert in polymer science, polymerization techniques, process development, the characterization and testing of polymers and compositions, product application development including blending and film blowing, and product analysis.

He has over 40 years of experience in polymer technology with ExxonMobil Chemical Company and as a consultant. He retired from ExxonMobil as its Chief Scientist for Polyethylene Products. Dr. Speed explained polymer technology and discussed the

scope of the claims of the patent application as published on November 10, 1994, whether the patent teaches improved processability andwhich of Nova’s off-grade products were made with only a ZN catalyst. • Mr. Errol Soriano was qualified as an expert on the quantification of financial damages and profits, the evaluation of businessinterests and forensic accounting, including in the context of intellectual property disputes. He is a Managing Director at Duff & Phelps,a Chartered Professional Accountant, Chartered Business Valuator, and Certified Fraud Examiner.

He has testified in approximately 45damages and accounting of profits cases in Canada. He has authored books and educational materials for the Institute of CharteredProfessional Accountants and the University of Toronto. Mr. Soriano testified about the quantification of Nova’s profits from themanufacture and sale of the infringing SURPASS products. VI. Issues [41] The following issues are addressed in these reasons for judgment: A. Whether the disputed grades and off-grades should be included in the calculation of damages and the accounting of profits. B.

The manner in which the damages payable to Dow pursuant to subsection 55(2) of the Patent Act should be calculated. C. The manner in which the profits payable to Dow pursuant to subsection 55(1) of the Patent Act should be calculated. D. The applicable rates of pre-judgment interest. E. The manner in which currency conversion should be applied to the amounts payable to Dow as damages or profits. VII.

Disputed Grades [42] The disputed grades comprise four grades of SURPASS that Dow says are identical or nearly identical to those that werespecifically pleaded in its original statement of claim: FPs417-A, FPs016-A, EX-FPs016-A01 and EX-FPs225-A01. Nova concedes that,based upon Justice O’Keefe’s analysis in Dow v. Nova, the disputed grades infringe the '705 patent.

Accordingly, the only matters to beresolved are Nova’s defences of res judicata, abuse of process, limitations and prescription. [43] Dow says that the only difference between the disputed grades and the grades that have been found to infringe is their slightlydifferent product names. Dow argues that Nova can be neither surprised nor prejudiced by the inclusion of the disputed grades in thecalculation of damages and profits: Nova knew or ought to have known that the disputed grades infringed the '705 patent in the samemanner as the grades that were specifically pleaded in Dow’s original statement of claim.

Nova would have presented its arguments ofnon-infringement and invalidity in precisely the same way if the disputed grades had been included from the beginning. [44] Nova responds that the disputed grades were added to Dow’s statement of claim by an amendment effective as of January 20,2016. Nova argues that the disputed grades are barred by the doctrine of res judicata, particularly cause of action estoppel. Nova alsopleads abuse of process and limitations.

Section 55.01 of the Patent Act provides that no remedy shall be awarded for

an act ofinfringement committed more than six years before commencement of the action. Nova maintains that all sales of the disputed gradeEX-FPs225-A01 occurred in 2008 and 2009, which was more than six years before the effective date of January 20, 2016. A. Res Judicata [45] A plaintiff who asserts a cause of action is ordinarily expected to claim all possible relief at once. Otherwise, there is a dangerthat plaintiffs will conduct litigation in instalments (Grandview v. Doering, (SCC), [1976] 2 S.C.R. 621 (Grandview), atpages 637 and 638).

Cause of action estoppel applies not only to points upon which the court was actually required to decide, but to everypoint which properly belonged to the subject of the litigation, and which might have been brought forward at the time by exercisingreasonable diligence (see Grandview, at pages 634–639, citing Henderson v. Henderson (1843), 3 Hare 100, 67 E.R. 313 (Ch.), at page319). [46] In Appendix A to its original statement of claim, Dow identified 58 SURPASS grades that were alleged to infringe the '705patent. These grades were grouped into three general product categories: FPs016, FPs117 and FPs317.

On February 22, 2012, Dowamended its claim to include a fourth product category and a corresponding grade: FPs225-A. This brought the total number of pleadedgrades to 59. [47] Dow complains that in the liability phase of the trial before Justice O’Keefe, Nova intentionally concealed information regardingthe disputed grades and their relationship to the SURPASS grades that had been pleaded.

Nova refused to answer any questions that didnot relate to one of the SURPASS grade names that had been specifically included in Appendix A to the statement of claim, despite thefact that the broader product categories had also been pleaded. [48] Justice Hughes made the following observation in his order dated March 30, 2016 (2016 FC 361, at paragraph 15): The attitude of the parties throughout this litigation appears to be hostile, particularly on the part of the Defendant. Justice O’Keefe dealtwith this in his costs Order.

A transcript of part of the Plaintiffs’ Examination for Discovery of the Defendant held on October 31, 2011,has been put in the motion record before me […].

It shows that the Defendant’s Counsel was resisting giving answers in respect of anyfilm product not listed in Appendix A to the Statement of Claim, and very careful answers were given with respect to those that werelisted such as saying that it did not make a product called FPs317 but admitted that it did make a product called FPs317-A. [49] Nova redacted all references to the disputed grades from the documents it produced during the liability phase, including passagescomparing the disputed grades to the pleaded grades.

Dow maintains that some relevant documents were not produced at all. [50] During the supplemental damages phase of the U.S. litigation, and after completion of Dow’s discovery of Nova in the Canadian

action, Nova produced updated sales information that referenced three of the four disputed grades. Dow acknowledges that EX-FPs225-A01 was referenced in the documents that were produced in the initial phase of the U.S. litigation, but maintains that this grade was notin issue in those proceedings. [51] There is good reason to conclude that the disputed grades are already encompassed by Justice O’Keefe’s judgment in Dow v.Nova: (

a) FPs417-A was introduced by Nova in May 2010 as a “higher melt index [MI] version of FPs317-A”, a grade included in AppendixA to Dow’s original statement of claim. Nova’s internal documents characterized FPs417-A as “a minor variant” of FPs317-A, anddescribed the two as “virtually identical”. (

b) Nova’s MI specifications for FPs317-A and FPs417-A overlap. In the case of FPs317, the acceptable MI range is between 3.35and 4.65. In the case of FPs417, the acceptable MI range is between 3.8 and 5.0. Aside from the change in the target MI for the twoproducts, the FPs317-A and FPs417-A specification sheets are identical, including in respect of all of the reported tensile film properties. (

c) According to Dr. Kelusky’s examination for discovery, Nova did not test the film properties of FPs417-A for the purposes of thedata sheet, but assumed that they would be identical to FPs317-A. Dr. Kelusky admitted that FPs317-A and FPs417-A could have beenlabelled with the same grade designation (i.e., FPs417-A), based on Nova’s nomenclature convention. Since July 28, 2011, Nova hasregraded material originally made as FPs417-A with the FPs317-A designation. Nova has also re-designated lots of FPs317-A asFPs417-A. (

d) EX-FPs016-A01 and FPs016-A are identical. The “EX” prefix merely identifies a grade as experimental, even though it may besold commercially. Sales of EX-FPs016-A01 began in October 2010. Between June and August 2011, Nova stopped using the “EX”designation and began using the name FPs016-A. (

e) FPs016-A differs from grades that were included in Appendix A of Dow’s original statement of claim (FPs016-C and FPs016-D)only by virtue of the “additive package” which is combined with the FPs016 base resin after production in the reactors. The FPs016 baseresin was specifically pleaded and found to infringe the '705 patent. (

f) EX-FPs225-A01 is identical to, and the experimental precursor of, FPs225-A, which was specifically included in Appendix A toDow’s original statement of claim. [52] It has previously been held in the patent context that pleadings of infringement encompass variants that are not substantiallydifferent from one another, and to require a separate infringement claim on each variant would result in never-ending litigation (CSIManufacturing and Distribution Inc. v. Astroflex Inc. (1993), 52 C.P.R. (3d) 483 (F.C.T.D.), at paragraph 31). Moreover, JusticeO’Keefe [at paragraph 11] found in Dow v.

Nova that “film-grade polymers under the name SURPASS” infringed the '705 patent. Itwould be inconsistent with the intent and clear implication of that judgment to exclude infringing grades of SURPASS solely on theground that they were sold under slightly different names by the infringing party. [53] This Court was faced with a similar circumstance in Xerox of Canada Ltd. v. IBM Canada Limited, (FC),[1979] 1 F.C. 138, (1977), 43 C.P.R. (2d) 60 (T.D.). The statement of claim in that case identified the infringing device as an “IBMCopier I”, and judgment in the liability phase was granted accordingly.

In the subsequent reference on damages, the Court consideredwhether the defendant’s newer product, the Copier II, was sufficiently similar to the infringing device to merit its inclusion in thedamages phase. This Court held that the trial judgment was not confined to a single type of machine, but applied to any similarlyinfringing IBM copier. [54] Nova characterises Dow’s argument that the disputed grades are already encompassed in Justice O’Keefe’s judgment in Dow v.Nova as a collateral attack on Justice Hughes’ order dated March 30, 2016.

Nova notes that in paragraph 30, Justice Hughes acceptedNova’s argument that: … [Nova] did disclose three additional films in the context of the United States proceedings in February, 2012. Dow was aware of thisdisclosure and had access to it in the context of the Canadian proceeding but did nothing.

The Order of Prothonotary Milczynski ofMarch 11, 2011 made it quite clear that Appendix A of the Statement of Claim was to list the specific products at issue, and if any otherproducts come to light, the Statement of Claim could be amended as the Plaintiffs did on February 22, 2012. [55] Justice Hughes also agreed with Nova’s contention that the omission of the disputed grades from Justice O’Keefe’s judgment inDow v. Nova could not be rectified pursuant to rule 399.

However, he did not make any definitive findings on the merits of Nova’spotential defences of non-infringement, res judicata, abuse of process, limitation and prescription. He held only that Nova should begiven an opportunity to advance these defences (at paragraph 31). [56] Nova also relies on Justice Russell’s order dated June 23, 2016 (2016 FC 706), at paragraphs 38 to 39 and 75 to 76. However,these excerpts only describe aspects of Justice Hughes’ ruling. They do not purport to expand or otherwise alter them. [57] Nova has conceded infringement.

In my view, Justice Hughes’ conclusion that Nova should be given an opportunity to advancedefences of res judicata, abuse of process, limitation and prescription does not preclude a finding by this Court that they do not applybecause the disputed grades are already encompassed by Justice O’Keefe’s judgment in Dow v. Nova. [58] In the alternative, assuming without deciding that cause of action estoppel is available to Nova as a defence, there are aspects ofNova’s conduct that militate against accepting the equitable defence in these circumstances.

The Court retains a residual discretion not toapply res judicata if this would produce an outcome that is not fair and just (Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44,[2001] 2 S.C.R. 460, at paragraph 80). Here, the evidence establishes that Nova sought to conceal the disputed grades during the liabilityphase of this action, by redacting all references to the disputed grades in relevant documents and by offering “very careful answers” ondiscovery.

There is a danger that denying Dow a remedy for the admitted infringement of the '705 patent on the ground of res judicatawould have the effect of sanctioning and rewarding Nova’s obfuscatory tactics.

B. Abuse of Process [59] Although Nova pleaded abuse of process in its amended statement of defence dated April 22, 2016, it made no submissionsregarding this defence in its closing submissions.

Abuse of process may be established where the proceedings are oppressive orvexatious, and violate the fundamental principles of justice underlying the community’s sense of fair play and decency (Toronto (City) v.C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77 (Toronto (City)), at paragraph 35). [60] Re-litigation, in and of itself, is not a sufficient basis for a finding of abuse of process; an additional serious element, such asunjust harassment, is required (Dhaliwal v. Canada (Minister of Citizenship and Immigration), 2001 FCT 1425, [2001] F.C.J. No. 1943(QL), at paragraph 6).

It is a remedy to be applied sparingly and only in the clearest and most obvious cases (Glenko Enterprises Ltd. v.Keller, 2008 MBCA 24 , 290 D.L.R. (4th) 712, at paragraph 56). The overriding concern is a balance of fairness and finality(British Columbia (Workers’ Compensation Board) v. Figliola, 2011 SCC 52, [2011] 3 S.C.R. 422, at paragraphs 25 and 34; Toronto(City), at paragraphs 37 and 38). [61] I find that the disputed grades are already encompassed by Justice O’Keefe’s judgment in Dow v. Nova.

In the alternative, Iconclude that it would not be fair and just to give effect to the equitable defence of res judicata, given Nova’s deliberate concealment ofinformation pertaining to the disputed grades in the course of discovery. For similar reasons, I am satisfied that granting Dow remediesfor the disputed grades, which are admitted to infringe the '705 patent, would not be oppressive or vexatious, and would not violate thecommunity’s sense of fair play and decency. C. Limitations and Prescription [62] Nova raises a limitations defence only with respect to EX-FPs225-A01.

Dow acknowledges that Nova ended its sales of thisdisputed grade prior to January 20, 2010, i.e., more than six years before the effective date on which Dow added the disputed grades toits claim. However, Dow pleaded the same product under its commercial name FPs225-A before the limitation period expired onFebruary 22, 2012. Given that the two products are identical, I cannot accept Nova’s argument that it should benefit from a limitationsdefence merely because it sold the pleaded grade FPs225-A under a slightly different name. VIII. Damages A.

Reasonable Royalty [63] Subsection 55(2) of the Patent Act provides as follows: 55 (1) … … Liability damage before patent is granted

(2) A person is liable to pay reasonable compensation to a patentee and to all persons claiming under the patentee for any damagesustained by the patentee or by any of those persons by reason of any act on the part of that person, after the application for the patentbecame open to public inspection under

section 10 and before the grant of the patent, that would have constituted an infringement of thepatent if the patent had been granted on the day the application became open to public inspection under that section. [64] Dow and Nova agree that the proper measure of damages under subsection 55(2) of the Patent Act is a reasonable royalty forNova’s use of Dow’s patented technology from the time SURPASS was launched in 2002 until the '705 patent was issued in 2006.

Dowaccepts that it may be barred by limitations from claiming a reasonable royalty prior to 2004, and the relevant period for whichcompensation is sought is therefore December 9, 2004 to August 21, 2006. [65] The reasonable royalty is to be determined using a hypothetical negotiation between Dow and Nova for a licence authorizingNova’s use of the patented technology. The object of the exercise is to identify the royalty rate that would result from a negotiationbetween a willing licensor and a willing licensee (AlliedSignal Inc. v. du Pont Canada Inc. (1998), (FC), 78 C.P.R.(3d) 129, [1998] F.C.J.

No. 190 (QL) (T.D.) (AlliedSignal (FC)), at paragraph 199, affd (1999), (FCA), 86 C.P.R.(3d) 324, [1999] F.C.J. No. 38 (QL) (C.A.) (AlliedSignal (FCA)); Jay-Lor International Inc. v. Penta Farm Systems Ltd., 2007 FC 358,59 C.P.R. (4th) 228 (Jay-Lor), at paragraph 125). [66] The hypothetical negotiation occurs on the eve of the first infringement on January 1, 2002. The negotiation encompassesnumerous factors, but is primarily focused on Nova’s anticipated profits from the sale of products using Dow’s patented technology(Jay-Lor, at paragraphs 128 and 150). [67] Dr. Leonard and Dr.

Heeb, the experts called on behalf of Dow and Nova respectively, agreed on the framework to be applied tothe hypothetical royalty negotiation. The boundaries of the hypothetical negotiation are Dow’s “minimum willingness to accept”(MWTA), having regard to the anticipated impact of Nova’s sales of SURPASS on Dow’s sales of ELITE, and Nova’s “maximumwillingness to pay” (MWTP), having regard to the profit that Nova would expect to gain from sales of SURPASS. This is the bargainingrange of the negotiation.

The difference between Dow’s MWTA and Nova’s MWTP is referred to as the “gains to trade” (i.e., the jointbenefit of the hypothetical licence), which must be divided between the parties in a reasonable manner. B. Dow’s Minimum Willingness to Accept [68] Dr. Leonard and Dr. Heeb agreed that Dow’s MWTA would be the profits that Dow expected to lose from licensing itstechnology to Nova, i.e., the proportion of Nova’s sales of SURPASS that would be diverted from Dow’s sales of ELITE (diversionratio). Dow would seek to recoup its profits on those lost sales.

[ 69 ] Dr. Leonard conducted a review of the mLLDPE market in 2002, and concluded that the diversion ratio should be conservatively estimated at 50 percent. Dr. Heeb, using a logit simulation model, concluded that the diversion ratio would be 22 percent. [ 70 ] SURPASS and ELITE are close substitutes for each other, both in terms of their properties and their processability. They are both mLLDPE products, and occupy a distinct segment of the polyethylene market. They are direct competitors.

Conventional LLDPE products, such as Dow’s DOWLEX and Nova’s SCLAIR, are in a different market segment and compete primarily with other products in the same segment. Nova and its customers both understood SURPASS to be a “drop-in” for ELITE, which Justice O’Keefe observed in the liability phase was a driving feature behind its design ( Dow v. Nova , at paragraph 252 ). [ 71 ] Exxon’s EXCEED also competes in the mLLDPE category, and is considered a market leader. It is known for its strength, but its processability has sometimes been perceived as a weakness.

ELITE and SURPASS are both promoted as products that offer a superior combination of properties and processability compared to EXCEED. [ 72 ] Exxon’s EXCEED tends to be less expensive than SURPASS and ELITE. Customers who value the improved processability of ELITE and SURPASS are willing to pay a premium, while customers for whom processability is less important are likely to remain loyal to EXCEED. [ 73 ] Based on these market dynamics, Dr.

Leonard concluded that if SURPASS had not been available in 2002, then most of its customers would likely have purchased ELITE as the only other product offering the same characteristics. Between 2002 and 2006, ELITE and SURPASS were sold in the same limited market, with most of their customers in common. [ 74 ] Dow takes the position that during the period for which a reasonable royalty is sought, nearly 100 percent of SURPASS sales would have come at the expense of ELITE sales.

This is confirmed by Nova’s internal documents, which portrayed ELITE and SURPASS as the sole competitors in a premium market segment, distinct from both conventional LLDPE and Exxon’s EXCEED. Dow therefore maintains that the 50 percent diversion ratio proposed by Dr. Leonard is a conservative estimate. [ 75 ] Dr. Heeb’s diversion ratio of 22 percent was derived from a logit simulation model. Dr.

Heeb postulated that if Nova’s SURPASS were not available from 2002 to 2006, then those sales would have been diverted to a range of different alternative products based on the prices and market shares of selective market participants. Dr. Heeb admitted that he was forced to make assumptions about the pricing of alternative products and the respective market shares of other manufacturers, and to rely on questionable data provided by industry consultants, because these data are closely guarded trade secrets and are often difficult to obtain. [ 76 ] In my view, Dr.

Heeb’s logit simulation model suffers from a more fundamental flaw. He assumed that all of the alternative products he included in his simulation model were interchangeable and equally competitive. This failed to account for the fact that ELITE and SURPASS are the closest substitutes for each other, and many customers who purchase SURPASS would consider replacing it only with ELITE. Dr. Heeb even included some conventional LLDPE products in his simulation model, such as SCLAIR—which is made by Nova. But these are not plausible substitutes for SURPASS in most applications. [ 77 ] Dr.

Heeb’s logit simulation model assumed that the price of Dow’s ELITE would increase in the absence of Nova’s SURPASS, while the price of Nova’s SCLAIR would decrease. He concluded that approximately 45 percent of SURPASS sales would be diverted to the conventional LLDPE product SCLAIR, while only 22 percent would be diverted to Dow’s ELITE. These assumptions were inconsistent with the evidence that mLLDPE products form one distinct market segment, while conventional LLDPE products form another. [ 78 ] In closing argument, counsel for Nova candidly admitted that Dr. Leonard “got the better of” Dr.

Heeb with respect to his logit simulation model. I agree. For the reasons explained above, I prefer the analysis of Dr. Leonard. His estimate of a 50 percent diversion ratio is conservative, and I have no hesitation in adopting it. [ 79 ] Dr. Leonard and Dr. Heeb also differed in their opinions regarding the parties’ expectations of ELITE’s profitability in the hypothetical negotiation. Both used Dow’s historical profit margins for ELITE as a proxy for the parties’ expectations in 2002. However, Dr.

Heeb included profit margins for 2001, a recession year in which Dow realized the lowest profit margins for ELITE in the product’s history (1.4 percent). [ 80 ] Dow launched ELITE in 1997, and at the time of the hypothetical negotiation in 2002, historical profit margins would be available for only a four-year period: 1997 to 2001. Dr. Heeb’s decision to include the unusually low profit margin for 2001 had the effect of reducing the average profit margin for ELITE from 17.7 percent to 12.5 percent.

This may be contrasted with the average ELITE profit margin of 21.6 percent for the period 1997 to 2011, which included two recession years. Dr. Leonard excluded 2001 from his calculation and arrived at an average historical profit margin for ELITE of 17.7 percent. This accords more closely with what actually happened in the years following the hypothetical negotiation. Applying the 50 percent diversion ratio, Dr. Leonard estimated Dow’s MWTA to be 8.8 percent. [ 81 ] Again, I prefer Dr. Leonard’s analysis to that of Dr. Heeb.

The inclusion of 2001, a recession year, in the assessment of the parties’ expectations regarding ELITE’s profit margin at the time of the hypothetical negotiation artificially deflates the average. Excluding 2001 produces an average profit margin for ELITE of 17.7 percent. This is roughly consistent with, although somewhat lower than, 21.6 percent, i.e., the actual profit margin for ELITE over the period 1997 to 2011, which included two recession years. Dr. Leonard’s estimate of Dow’s MWTA of 8.8 percent is conservative, and I have no hesitation in adopting it. C.

Nova’s Maximum Willingness to Pay [ 82 ] Both parties agree that Nova’s maximum willingness to pay is the profit that Nova would expect to earn on SURPASS compared to the next best non-infringing alternative (NIA). The NIAs proposed by Nova are primarily pail and crate grade products. [ 83 ] Dr. Heeb assumed that at the time of the hypothetical negotiation, Nova would expect to be at full capacity at all times, and all SURPASS sales would therefore be replaced, at a minimum, by sales of pail and crate grades. He then used Nova’s actual profit margins

from its sales of the NIAs over the period 2002 to 2008 as a proxy for the expected profitability of the NIAs in the hypotheticalnegotiation. [84] According to Dr. Leonard, if NIAs are taken into account, one must consider the amount of time that Nova was actually atcapacity during the period 2002 to 2006. He calculated this to be only 37 percent of the time. He also said that for the periods whenNova was at full capacity, it would be necessary to determine the ratio of SURPASS profit margins to NIA profit margins per reactorhour. [85] In his reply to Dr. Leonard’s report, Dr.

Heeb accepted this approach in principle. However, he disagreed with Dr. Leonard’sestimate of how often Nova would expect its plant to be at full capacity, and his use of the lowest margin product as a proxy for theprofitability of Nova’s NIAs. According to Dr. Heeb, if Dr. Leonard used data from 2002 to 2008 (a full business cycle) and applied thecorrect margins per reactor hour, then the ratio of the NIAs’ profit margins to those of SURPASS would more than double. [86] In my view, the evidence supports Dr.

Heeb’s assertion that in 2002, the parties would assume that Nova could use the PE2 plantflexibly to replace all infringing products with NIAs. I discuss Nova’s operation of the PE2 plant and its business objective ofmaintaining full capacity below in the context of profits. I am more persuaded by Dr. Heeb’s margin ratio than I am by the one proposedby Dr. Leonard. Applying these assumptions, Dr. Heeb concluded that Nova’s MWTP would be lower than Dow’s MWTA. [87] If Nova’s MWTP is lower than Dow’s MWTA of 8.8 percent, then there is no bargaining range between the parties. As Dr.

Heebstated, “[s]ince a bargain is compulsory in this hypothetical negotiation, the reasonable royalty rate is simply Dow’s MW[T]A”. Dr.Leonard did not dispute this approach. There is therefore no need to consider the division of gains to trade. [88] Even if NIAs are not taken into account, then according to Dr. Heeb, Nova’s MWTP is still lower than 8.8 percent.

Accordingly,Nova’s proposed NIAs have no bearing on the determination of the reasonable royalty. [89] I therefore conclude that the appropriate rate for the reasonable royalty payable by Nova to Dow for the period 2004 to 2006,regardless of whether or not the pail and crate NIAs are taken into account, is 8.8 percent. D. Nova’s Additional Arguments [90] Nova advanced numerous additional arguments that the reasonable royalty payable to Dow should be reduced.

None of these waspersuasive, and they may be dealt with briefly. [91] Nova asserted that Dow’s MWTA should be reduced because “competition can expand a market by increasing productavailability and having an additional sales force from Nova would draw in more customers than Dow could on its own. Dow would seethat Nova could sell more easily than Dow to Nova’s existing customers of other products. Dow might realize it could still sell all itcould make and, in addition, receive a royalty from Nova for the expanded market”.

This speculative assertion was not discussed by anyof the expert witnesses who testified in these proceedings. It is therefore unsupported by evidence, and I do not accept it. [92] Nova criticized Dr. Leonard’s assessment of Nova’s MWTP on the ground that he largely ignored Nova’s licence negotiationsfor SCLAIRTECH. Mr. Vermani, who was responsible for Nova’s licensing agreements, testified that Nova valued its AST (used tomake the infringing products) only moderately more than SCLAIRTECH. Mr. Vermani suggested that Nova’s MWTP should thereforebe in the range of 1 percent to 2 percent.

However, the evidence establishes that SURPASS and ELITE occupy a distinct market segmentfrom conventional LLDPE products such as Nova’s SCLAIR. Neither Dow nor Nova has ever licensed ELITE or SURPASS technology,and I am unable to infer anything regarding the value of a hypothetical licence for ELITE technology based on the royalty obtained byNova for licensing SCLAIRTECH.

Furthermore, this is not the basis upon which either Nova’s or Dow’s experts assessed the reasonableroyalty payable to Dow for Nova’s infringement of the '705 patent during the relevant period. [93] Nova invoked the doctrine of comity to argue that this Court should respect the decision of the U.S. jury to apply an effectiveroyalty rate of 1.755 percent to calculate Dow’s damages resulting from Nova’s infringement of the equivalent U.S. patent over a similarperiod. It provided no authorities to support its position.

I am not persuaded that comity applies to the U.S. jury award, which did notaddress the question of a reasonable royalty per se (hence Nova’s use of the term “effective royalty”), and applied different law in adifferent jurisdiction (see Morguard Investments Ltd. v. De Savoye, (SCC), [1990] 3 S.C.R. 1077, at paragraph 29). [94] At the commencement of this reference, Nova informed the Court that when Dow’s application for the '705 patent was publishedin 1994: … it did not have any claim that included within its scope a homogeneously branched linear ethylene α-olefin interpolymer with an SHClimitation.

All of the claims Dow asserted were directed to a linear homogeneously branched component A (as found in SURPASS), witha specified SHC (which the trial judge found to be the inventive concept). The only claim in the published application that referencedSHC is Claim 4, but its Component A is substantially linear rather than linear. [Emphasis original.] [95] However, Dr.

Speed, the expert witness called by Nova to substantiate this assertion, acknowledged in cross-examination that hehad not been aware that Claim 4 of Dow’s application was amended on June 2, 1995 to include a homogeneously branched linearethylene α-olefin interpolymer with an SHC limitation. This was seven years before Nova began infringing the '705 Patent. [96] Nova maintained that Dow’s delay in prosecuting its patent application from 1994 to 2006 should be a relevant factor in theCourt’s determination of what compensation is “reasonable”.

However, this was premised on Nova’s assertion that none of the publishedclaims of the '705 Patent prior to its issuance were infringed by Nova. This turned out not to be true. [97] Finally, in closin

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