CORLAC INC., NATIONAL-OILWELL CANADA LTD., v. NATIONAL OILWELL INCORPORATED, 2011 FCA 228

Federal Court of Appeal Cour d'appel fédérale Federal Court of Appeal Cour d'appel fédérale Date: 20110718 Docket: A-282-10 Citation: 2011 FCA 228 CORAM: NADON J.A. EVANS J.A. LAYDEN-STEVENSON J.A. BETWEEN: CORLAC INC., NATIONAL-OILWELL CANADA LTD., and NATIONAL OILWELL INCORPORATED Appellants and WEATHERFORD CANADA LTD., WEATHERFORD CANADA PARTNERSHIP, DARIN GRENKE, as Personal Representative of the Estate of EDWARD GRENKE, and GRENCO INDUSTRIES LTD. Respondent s and THE INTELLECTUAL PROPERTY INSTITUTE OF CANADA Intervener Heard at Toronto, Ontario , on June 13, 14, 15, 2011.

Judgment delivered at Ottawa, Ontario , on July 18, 2011. REASONS FOR JUDGMENT BY: LAYDEN-STEVENSON J.A. CONCURRED IN BY: NADON J.A. EVANS J.A. Date: 20110718 Docket: A-282-10 Citation: 2011 FCA 228

CORAM: NADON J.A. EVANS J.A. LAYDEN-STEVENSON J.A. BETWEEN: CORLAC INC., NATIONAL-OILWELL CANADA LTD., and NATIONAL OILWELL INCORPORATED Appellants and WEATHERFORD CANADA LTD., WEATHERFORD CANADA PARTNERSHIP, DARIN GRENKE, as Personal Representative of the Estate of EDWARD GRENKE, and GRENCO INDUSTRIES LTD.

Respondents and THE INTELLECTUAL PROPERTY INSTITUTE OF CANADA Intervener REASONS FOR JUDGMENT [ 1 ] This is an appeal from the judgment of Justice Phelan of the Federal Court (the judge) in an infringement action and counterclaim in relation to Canadian Letters Patent No. 2,095,937 (the '937 Patent) issued on December 22, 1998 and titled “Sealing Assembly for Rotary Oil Pumps and Method of Using Same.” [ 2 ] The respondents alleged infringement of the '937 Patent in the manufacture and sale of the appellants’ drive systems for rotary oil well pumps.

The appellants denied the allegations, attacked the validity of the patent and counterclaimed against the respondents. The appellants alleged that, by assignment or licence, they were the owners of the '937 Patent and the respondents had infringed the appellants’ patent rights. The proceeding was the subject of a bifurcation order under which damages were to be tried separately from liability. [ 3 ] The judge issued a declaration that the patent was valid and infringed by the appellants jointly and severally.

He ordered injunctive relief, damages to be assessed, pre- and post-judgment interest and costs to be determined. The judge’s reasons for judgment are reported as 2010 FC 602 , 84 C.P.R. (4th) 237 . [ 4 ] The appellants appeal from the judgment on several grounds. Intervener status was granted to the Intellectual Property Institute of Canada (IPIC) to make submissions with respect to a single issue. For the reasons that follow, I would allow the appeal regarding the judge’s finding of infringement with respect to claim 17 of the '937 Patent. In all other respects, I would dismiss the appeal.

For ease of reference, a table of contents is provided.

TABLE OF CONTENTS Paragraph Number Background................................................................................................... 5 Standard of Review..................................................................................... 18 Statutory Provisions..................................................................................... 19 Issues.......................................................................................................... 20 Claims Construction..................................................................................... 21 Anticipation (Prior Disclosure)..................................................................... 36 Obviousness................................................................................................ 66 Grenke’s Credibility..................................................................................... 88 Inventorship................................................................................................. 96 Engelen ........................................................................................ 100 Torfs ............................................................................................. 104 Misrepresentations to the Patent Office...................................................... 111 Subsection 53(1) .......................................................................... 113 Paragraph 73(1)(a) ...................................................................... 130 Injunctive Relief ........................................................................... 152 Adverse Inferences.................................................................................... 155 Conclusion................................................................................................ 172

Schedule “A” ..................................................................................... page 68

Background [ 5 ] The factual background is lengthy and complex. It is set out in detail in the judge’s reasons for judgment (reasons). The parties identified 27 issues at trial; there are seven issues on appeal. Only the facts essential to an understanding of the issues before this Court will be summarized here. Further background may be provided throughout these reasons as necessary. The

summary below is a much- abbreviated version of the factual background provided by the judge. [ 6 ] Conventional oil wells were operated by vertically-reciprocating pumps that were constructed in such a way that a stuffing box protected against leakage and loss of oil. When rotary progressive cavity pumps (PC pumps) came on the scene, the conventional stuffing boxes did not work well.

The stuffing box (stuffed with compressed packing) caps the flow tee (which diverts oil into pipes leading it to storage) and seals the rotating polished rod of the PC pump. [ 7 ] In the 1980s, Canadian oil producers were experiencing a common problem. The oil being pumped from the ground was not pure; it contained dirt, salt and sand. The debris created friction and pressure.

These forces caused the stuffing boxes on the PC pumps to fail, which resulted in loss of oil, environmental damage, and unplanned shutdowns of the wells to allow for repairs. [ 8 ] Oil producers were interested in a technology that would either stop stuffing boxes from failing, or would allow them to anticipate a failure in order to

schedule planned maintenance. In late 1990, H&R Valve (H&

R) was testing a prototype stuffing box employing a static seal against the polished rod. Art Britton (Britton), a maintenance crew foreman at Amoco (an oil producer), had watched the prototype run. The basic idea was that the wear and tear on the polished rod and packing could be alleviated by turning the polished rod and packing together.

Britton discussed the H&R concept with his maintenance crew (known as the EI or CI crew), but nothing came of the discussions. [ 9 ] Edward Grenke (Grenke), a machinist by trade and the controlling shareholder of GrenCo Industries Ltd. (GrenCo), was working on solving the stuffing box problem. In early 1991, Grenke and Britton discussed the problem and a potential solution.

Grenke had his son, Wes Grenke, prepare a drawing of Grenke’s concept of a sleeve having static seals around the polished rod, both contained within a recess in stationary housing where dynamic seals could be placed against the sleeve. [ 10 ] At Grenke’s request, Britton prepared a video of the sites and wells experiencing the stuffing box failures. In the spring of 1991, Grenke and Britton travelled to Hamburg , Germany to discuss the various types of available seals with Martin Merkel GmbH (Merkel), a German engineering company.

Grenke discussed his proposal with Michael Engelen (Engelen), the seal expert at Merkel, and with other Merkel personnel. Engelen provided suggestions regarding the types of seals that could be used in the device. [ 11 ] While in Germany , Grenke tried unsuccessfully to connect with Walter Torfs (Torfs), the Canadian representative of A. Friedr. Flender AG (Flender), a manufacturer of drive heads for various pumps. After returning to Canada , Grenke met with Torfs to discuss making a drive unit incorporating the seal assembly.

Around the same time, Merkel modified Grenke’s drawings to show an additional apparatus so that when the seals failed, the static seals could be converted to dynamic seals and vice versa. [ 12 ] Grenke built a prototype of the sealing arrangement. On June 21, 1991, the first prototype was installed on one of Amoco’s oil wells. A second prototype was installed in August. Around the same time, Grenke met Torfs and David Scott to discuss the drive components. An off-the-shelf gearbox was not successful and Flender agreed to design a gearbox for GrenCo.

Grenke and Torfs discussed joint inventorship and a 50-50 ownership of the ensuing patents. Grenke continued to work on the device throughout the fall of 1991 and the spring of 1992. [ 13 ] In April and May, 1992, Britton was involved in sales negotiations with Pan Canadian (another oil producer) and disclosed the inner workings of the prototype to the Pan Canadian representatives. The negotiations resulted in the installation of a prototype on one of Pan Canadian’s wells.

On or about June 19, 1992, an invoice relating to a packing slip, work order and credit note was issued by GrenCo to Pan Canadian. [ 14 ] On May 11, 1993, Grenke filed an application for a patent with respect to his device. The claimed invention includes a plurality of dynamic seals with a leak passage for each seal and teaches a method by which the passages are monitored for leaks. The initial petition named Grenke and Torfs as co-inventors. On November 3, 1993, Torfs died. Flender agreed that Grenke would take over any patents filed on its behalf by Torfs and those jointly filed.

The formal assignment from Flender is dated March 24, 1994. By February 14, 1994, Magda Torfs, the widow of Torfs, agreed to assign any rights to the patent to Grenke. The formal assignment from Magda Torfs is dated November 11, 1994. On August 17, 1994, Grenke swore an affidavit stating that he was the true sole inventor of the patent and that Torfs should not have been named in the initial petition. This affidavit was sent to the Commissioner of Patents (the

Commissioner) on December 8, 1994. [ 15 ] Sometime in 1999, Corlac Equipment Ltd. began to manufacture (and in 2000 sell) a rotating stuffing box under the name “Enviro.” The respondents brought an action against the appellants alleging that the Enviro product infringed the '937 Patent. [ 16 ] As for the identification of the various parties, the judge provides detailed information in this respect at paragraphs 9 through 17 of his reasons. Briefly, Grenke is the owner and named inventor of the '937 Patent, which he licensed to GrenCo.

The patent rights were sublicensed to Weatherford Canada Ltd. and subsequently to Weatherford Canada Partnership (collectively Weatherford). National Oilwell Incorporated (now National Oilwell Varco Inc.) is the parent company of National-Oilwell Canada Ltd. (collectively National). National purchased the shares of Corlac Equipment Ltd. (responsible for the manufacture and sale of drive heads and stuffing boxes). Corlac Inc. was the parent company of Corlac Equipment Ltd. (collectively Corlac).

Although there were issues at trial regarding corporate structure, control, licensing and standing, no such issues arise on this appeal. [ 17 ] The trial began on April 20, 2009, concluded on June 1, 2009 and involved 21 witnesses. The reasons comprise 380 paragraphs covering multiple issues of a wide variety. The issues on appeal are significantly narrower than those at trial.

Notably, the judge stated at paragraph 8 of his reasons that although there were numerous and complex technical and legal issues, the root of the matter was an “assessment of credibility in respect of inventorship and a consideration of the behaviour of the key actors in this case.” The judge’s reasons will be referenced as required in relation to the issues on appeal. “Grenke” and “GrenCo” are frequently used interchangeably throughout the judge’s reasons. I will follow suit. Standard of Review [ 18 ] The standard of review is articulated in Housen v. Nikolaison , 2002 SCC 33 , [2002] 2 S.C.R. 235 .

There, the Supreme Court reiterated that an appeal is not a re-trial of a case. Questions of law are to be determined on a standard of correctness. This means that if a trial judge errs in law, an appellate court is at liberty to replace the opinion of the trial judge with its own. The standard of review for findings of fact is palpable and overriding error, that is, the factual findings cannot be reversed in the absence of a material error that is plainly seen.

Findings of mixed fact and law are also to be reviewed for palpable and overriding error unless there is an extricable question of law, which is reviewed for correctness. Statutory Provisions [ 19 ] The applicable statute is the Patent Act , R.S.C. 1985, c. P-4 (the Act). The Patent Rules , SOR/96-423 are also relevant. The text of the provisions referred to in these reasons is attached as

Schedule “A”. Issues [ 20 ] The appellants define seven issues, several of which contain one or more subsidiary issues. The subsidiary issues will be addressed as necessary in the discussion regarding each of the main issues. Broadly speaking, the issues can be summarized under the following headings: claims construction; prior disclosure (anticipation); obviousness; Grenke’s credibility; inventorship; misrepresentations to the Patent Office; and adverse inferences (inducement). Claims Construction [ 21 ] The appellants’ claims construction argument contains three distinct components.

The first component is that the judge failed to construe the claims of the '937 Patent; the second is that he did not construe the claims correctly; the third is that he did not identify any essential elements. [ 22 ] It seems to me somewhat illogical to suggest the judge incorrectly construed what he allegedly failed to construe. The appellants’ submission that the claims were not correctly construed was not developed in their written submissions or at the hearing of the appeal. The argument constitutes a bare assertion and the appellants do not identify a specific error on the part of the judge.

In the absence of any particular alleged error, I do not intend to dwell on this argument. [ 23 ] Although the submissions that the judge failed to construe the claims and did not identify any essential elements contain more substance, they did not factor heavily into the appellants’ arguments on appeal. Any analysis of these assertions requires that they be examined in the context in which the issues were pursued at trial.

[ 24 ] To be sure, claims construction is a question of law: Whirlpool Corp. v. Camco Inc ., 2000 SCC 67 , [2000] 2 S.C.R. 1067 , para. 76 ( Whirlpool ) . However, in construing the claims, the judge will be assisted (but not bound) by evidence from expert witnesses in order to be able to construe the claims in a knowledgeable way: Whirlpool , para. 57 . The judge’s assessment of the expert evidence as well as his factual conclusions as to the state of the art are factual findings that will not be reversed on appeal absent palpable and overriding error: Halford v.

Seed Hawk Inc ., 2006 FCA 275 , 54 C.P.R. (4th) 130 , para. 11 ; Whirlpool , para. 62 . [ 25 ] Notably, the appellants do not take issue with the judge’s recitation of the applicable legal principles regarding claims construction as set out at paragraphs 116 through 120 of his reasons. [ 26 ] It is true that the trial judge did not specifically delineate the essential elements of the claims.

At trial, the appellants argued that their experts had identified elements essential to the invention and that the failure of the respondents’ experts to do likewise constituted a “calculated attempt” to “escape limitations in a claim that [the inventor] specifically and intentionally included.” Relying upon Free World Trust v.

Électro Santé Inc ., 2000 SCC 66 , [2000] 2 S.C.R. 1024 ( Free World Trust ) , the appellants described the respondents’ omission as a “self-inflicted wound.” Referring specifically to paragraph 57 of Free World Trust , the appellants informed the judge that the patentee bears the onus of proving the non-essentiality of particular words or phrases in a claim. [ 27 ] A review of the expert evidence reveals that none of the experts suggested that any of the words or phrases contained within the claims are not essential.

The respondents concur with the appellants’ articulation of the proposition that, unless a party maintains that a claim element is not essential, it will be considered to be essential. I agree with the parties in this respect, see: Catnic Components Ltd. v. Hill and Smith Ltd . (1980), [1982] R.P.C. 183, p. 237 (H.L.); Eli Lilly & Co. v. O’Hara Manufacturing Ltd . (1989), 99 N.R. 60 , 26 C.P.R. (3d) 1 , paras. 19 , 20 (F.C.A.); Free World Trust , paras. 31, 57 ; McKay v . Weatherford Canada Ltd ., 2008 FCA 369 , 74 C.P.R. (4th) 1 , para. 18 .

Consequently, in this case, all elements were regarded and treated as essential. [ 28 ] Although the appellants maintain that the judge failed to construe the terms “leak passage” and “plurality”, the appellants pleaded only ambiguity in relation to those terms and did not advance their argument at trial. To the contrary, they advised the judge in closing submissions that the ambiguity argument was not being pursued: appeal book, vol. 20, tab 297, p. 6253.

Moreover, and in any event, the judge specifically found that the appellants had not provided any cogent evidence suggesting that the terms were obscure or ambiguous: reasons, para. 353.

I see no error on the judge’s part. [ 29 ] The appellants also argue that the judge was required to construe the “geometry of the seal cartridges and leak passages.” This issue arose in relation to the debate regarding the meaning of “seal cartridge.” The judge succinctly described the dispute as “whether the term seal cartridge describes a function or describes an article.” He reviewed the evidence and concluded that the term means a sub- assembly of elements that perform a sealing function: reasons, paras. 128-137.

The judge did not fail to construe the geometry of the seal cartridge and no error has been demonstrated with respect to his construction of this term. [ 30 ] Next, the appellants say that the judge construed only claims 1, 6, 9, 11 and 14. They assert that because they attacked the validity of the '937 patent, all claims had to be construed. The grounds of invalidity advanced by the appellants related to anticipation (allegedly as a result of the sales of prototypes to Amoco and Pan Canadian), material misrepresentation under subsection 53(1) of the Act , abandonment under paragraph 73(1)(

a) of the Act and obviousness. Of these, only obviousness relates to claim construction. [ 31 ] Concerning obviousness, the appellants attack claim 1 on the basis of three pieces of prior art and the prototype. At paragraph 127 of his reasons, the judge construed claim 1 as follows: Claim 1 describes and means an annular space formed between a housing (the stationary first member) and a sleeve (the rotary second member) where seal cartridges are stacked within that annular space and where there are leak passages in the housing for detecting seal failures and where a plug closes at least one passage.

Claims 2 through 16 directly or indirectly depend on claim 1. Claim 17 is a stand-alone claim to which I will return. The construction of claims 18 and 19 is not in issue on this appeal.

[32] As noted earlier, the judge reviewed the evidence with respect to “seal cartridge” (in claim 1) and construed the term. He didlikewise for the term “dynamic seal” listed as element (

a) of the cartridge in claim 1: reasons, paras. 138-147. The meaning of the term“closed” in claim 5 was in issue and the judge construed that term: reasons, paras. 149-154. In claim 9, the phrase “packing elementscompressed within said annular cavity” was in issue and the judge construed that term: reasons, paras. 156-164. [33] The appellants acknowledge that the inventiveness of claims 2 through 13 and 17 to 19 depends on the inventiveness of claim 1:appellants’ memorandum of fact and law, para. 73.

They maintain, however, that no feature of claims 14 through 16 is inventive.Consequently, they say the claims would have been obvious to a person skilled in the art. The judge found that claims 14 and 15 dependon claim 1: reasons, para. 192. That conclusion, in my view, is correct. The judge was aware that he was dealing with a combinationpatent. The stationary framework (claim 14) and the drive means (claim 15) are included because of use in conjunction with the elementsof the invention described in claim 1. Additionally, the judge stated that claim 16 relied on claim 9 (which he construed): reasons, para.198.

Again, I think the judge was correct for essentially the same reason. I would add that claim 16 depends on claim 9 which, in turn,depends on claim 1. In these circumstances, and given the manner in which the parties approached the construction issue, the judge wasnot required to further construe what was not in issue. [34] The appellants’ argument with respect to claim 17 is not one of construction. They state that claim 17 is “a method claim forusing the sealing system of claim 1”: appellants’ memorandum of fact and law, paras. 7, 73.

This indicates that the construction of claim17 relates largely to the construction of claim 1. However, the appellants’ real quarrel in relation to claim 17 is that the judge was wrongto conclude that infringement of the claim existed without the production of evidence that the appellants’ customers actually used theirstuffing boxes in a manner that infringed the method described by the claim: appellants’ memorandum of fact and law, paras. 153-155,157. That argument will be addressed later in these reasons. [35] In sum, the judge addressed all claims construction issues raised by the parties.

There was no issue regarding the essentiality ofclaim elements. The meaning of “plurality” and “leak passage” was not in issue; the judge addressed the geometry of the seal cartridgesand leak passages in his analysis dealing with the construction of the term “seal cartridge.” The appellants have not demonstrated anyerror of law or principle, or any palpable or overriding error of fact or mixed fact and law on the judge’s part. The fact that the judgepreferred the expert evidence of the respondents’ witnesses (Dr. Salant in particular) and adopted their views does not constitute, in andof itself, an error of law.

Here, the judge examined the evidence (on the contentious words or phrases) of all experts before indicating hispreferences. He did not delegate the task of construction to the respondents’ experts. Anticipation (Prior Disclosure) [36] Anticipation is a question of mixed fact and law: Consolboard Inc. v. MacMillan Bloedel (Sask.) Ltd., (SCC),[1981] 1 S.C.R. 504, p. 533; Baker Petrolite Corp. v. Canwell Enviro-Industries Ltd., 2002 FCA 158, [2003] 1 F.C. 49, para. 46 (BakerPetrolite).

The appellants contend that the trial judge erred in finding that the RSB (rotating stuffing box) was not disclosed to the publicmore than one year before the filing date of the '937 Patent. Relying on this Court’s decision in Baker Petrolite, they submit that the saleof prototypes to Amoco and Pan Canadian resulted in the disclosure of the subject matter of the patent. [37] The same argument was made to the trial judge.

He found that, although it may have been unwise for Grenke not to haveestablished a confidentiality regime with either company, there was an expectation of confidentiality in view of the relationship he(Grenke) had with each company. Because such confidentiality implicitly existed, GrenCo’s sales of prototypes to Amoco and PanCanadian did not constitute disclosure “to the public” and therefore did not anticipate the patent: reasons, paras. 297-298. The judgerelied on International Corona Resources Ltd. v.

LAC Minerals Ltd., (SCC), [1989] 2 S.C.R. 574 (LAC Minerals), tosupport his finding of implied confidentiality in the circumstances: reasons, paras. 298-318. [38] In particular, the judge concluded that the parties shared a “common cause” (solving the stuffing box problem) and had arelationship of trust and co-operation that led to an expectation of confidence: reasons, paras. 294, 298. The disclosure to Amoco and PanCanadian was “for a limited purpose and certainly not disclosure to the public”: reasons, para. 297.

There was no evidence with respectto what third parties may have been told and observation of the units would not have disclosed anything about its inner workings:reasons, para. 307. Although the people working in the field generally did not think there was a confidentiality obligation, those furtherup the corporate ladder thought there was confidentiality: reasons, paras. 293, 301. Both Amoco and Pan Canadian knew that Grenkelacked the ability to test his device and provided testing facilities to him: reasons, para. 294.

Grenke’s disclosure was part of the processhe had to undertake so that he could conduct field tests, establish utility, make the necessary improvements to the design and finalize theinvention: reasons, para. 301. Both companies behaved as if the units were confidential by not disclosing them to others: reasons, para.297. [39] Amoco’s relationship with Grenke was closer than the one with Pan Canadian. Amoco, represented by Britton, was involved inthe early development discussions with Merkel.

Nonetheless, Pan Canadian had the same stuffing box problem as Amoco and knew orought to have known that the sale of the device to it was for a limited purpose related to development and was not intended as a publicdisclosure: reasons, paras. 295, 305. Applying LAC Minerals, the judge found that since the sales of the prototypes took place incircumstances giving rise to a duty of confidentiality, the sales could not constitute prior disclosure under the Act: reasons, para. 298.

[ 40 ] The appellants argue that LAC Minerals is inapplicable because it does not involve the sale of confidential information or the concept of public disclosure in the Act .

They emphasize the absence of an oral or written agreement between GrenCo and Amoco or Pan Canadian. [ 41 ] According to the appellants, “title to these products was transferred to these companies without restriction and they were disclosed to the public.” Further, they state the respondents neither led evidence regarding industry practice of confidentiality nor demonstrated that industry practice could serve as the basis for an implied term of contract. Consequently, in the appellants’ view, this was not an appropriate case to impose such an implied term.

Even if it were otherwise, the respondents had to demonstrate there was an “implied term of contract arising from a notorious custom that is so well known in the market in which it is alleged to exist that those who conduct business in the market contract with the usage as an implied term”: appellants’ memorandum of fact and law, para. 78. Grenke’s assumption that the prototypes would be kept confidential “is not sufficient to impose an obligation of confidence”: appellants’ memorandum of fact and law, para. 86.

Since the respondents failed in this respect, imposing an obligation of confidence in such circumstances constitutes an “error of law” in that the judge failed to appreciate the legal test for imposing an implied contractual term. [ 42 ] If the appellants are correct in their position that the prototypes were sold to Amoco and Pan Canadian without restriction (unconditionally), the patent may be invalid for anticipation.

Section 2 of the Act stipulates that an invention must be novel. When approaching an inquiry as to novelty, the invention must not have been anticipated. To succeed in invalidating a patent on grounds of anticipation, an alleged infringer must satisfy the requirements of prior disclosure and enablement, considered separately: Apotex Inc. v. Sanofi-Synthelabo Canada Inc ., 2008 SCC 61 , [2008] 3 S.C.R. 265 ( Sanofi ) . If there is no disclosure, there can be no enablement. The evidence to be considered is comprised solely of the prior art (here the prototype) as the skilled person would understand it. [ 43 ]

Section 28.2 of the Act is the governing

section with respect to disclosure. Among other things, it requires that the invention not be disclosed “in such a manner that it became available to the public in Canada or elsewhere” more than one year before the patent was filed.

Although at trial there was some question as to whether the sale to Pan Canadian occurred prior to the one-year grace period, on this appeal the respondents did not seriously contest that the sales to both Amoco and Pan Canadian occurred more than one year before the filing date. [ 44 ] In Baker Petrolite , this Court, at paragraph 97 , stated as follows: [I]t is the unconditional sale of the [invention] to the purchaser that makes the product available to the public. If the purchaser is free to perform reverse engineering, that is sufficient.

How a purchaser chooses to treat the analysis, i.e. to keep it confidential or not, is not a relevant consideration. (my emphasis) [ 45 ] There are two aspects to the Baker Petrolite reasoning. Since the Act contains a presumption of validity, it was for the appellants to establish: (1) the sales; and (2) that the sales were unconditional. As noted, the existence of the sales is common ground. The debate centres on whether the sales were unconditional. [ 46 ] The appellants accept (correctly in my view) that they bore the burden of establishing prior disclosure.

In this case that burden translates into establishing the unconditional nature of the sales. The appellants, however, argue that once they led evidence of unfettered sales to independent parties (that is, no oral or written agreement), the tactical burden then shifted to the respondents to demonstrate that the sales were restricted. The appellants maintain that the respondents failed in this respect. However, the judge concluded otherwise.

In circumstances where a judge engages in a weighing of the evidence and arrives at a factual determination on the basis of the totality of that evidence, appellate interference is impermissible absent palpable and overriding error, irrespective of tactical onus. [ 47 ] With respect to the “unconditional sales”, as stated earlier, the judge turned to LAC Minerals for guidance as to whether confidentiality existed. If it did, he reasoned that the prototypes would not have been disclosed to the public.

Put another way, if confidentiality existed, the sales would not be regarded as “unconditional.” It seems to me that this is ultimately a factual determination or, at its highest, a question of mixed fact and law.

[ 48 ] LAC Minerals involved divided opinions in the Supreme Court. Despite disagreement among the five-member panel of the Court regarding the existence of a fiduciary duty, the Court unanimously approved and implicitly adopted the English ‘reasonable man test’ described in Coco v. A.N. ( Engineers ) Ltd ., [1969] R.P.C. 41 (Ch.) ( Coco ), for ascertaining whether an obligation of confidence exists in a given situation: LAC Minerals , paras. 10-11, 161-162 .

Information will be considered to have been exchanged in a confidential relationship where “any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence”: Coco , pp. 47, 48.

The following passage from Coco (p. 51) was also referred to by Sopinka J. in LAC Minerals and cited by the judge in this case: In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint venture or the manufacture of articles by one party for the other, I would regard the recipient as carrying a heavy burden if he seeks to repel a contention that he was bound by an obligation of confidence. [ 49 ] I agree with the appellants that the facts in LAC Minerals are not similar to those in this case.

There, the issues related to a breach of confidence and potential breach of fiduciary duty. However, I do not read the judge’s reasons as suggesting that he considered this case to be analogous to LAC Minerals . Rather, he turned to that authority to extract general principles in relation to confidential communications, including the factors to be considered in ascertaining whether confidentiality exists. No subsequent authority derogates in substance from the principles articulated in LAC Minerals regarding confidentiality.

Given its generality in this respect, I see no principled reason (and the appellants have not advanced any) why the judge should not have relied upon it for the purpose that he did. [ 50 ] The appellants themselves rely on LAC Minerals to support their assertion that any obligation of confidentiality based on industry practice must be clearly “notorious.” In my view, such an assertion is overstated and incorrect.

The comments of La Forest J. were responsive to the arguments of the parties and he was addressing the distinction between “custom” (which he interpreted broadly and effectively equated to “practice” in Canada ) and “usage.” The word “notoriety” appeared in a definition of “usage” from Halsbury’s Laws of England , vol. 12, 4th ed., para. 445.

La Forest J. expressed reservation regarding portions of the definition and specifically refrained from deciding whether the “practice” established by the evidence of LAC’s executives and experts amounted to a legal “usage.” Nonetheless, he found the evidence of industry practice was sufficient to ground an expectation of confidentiality in that case.

If applied to the concept of confidentiality generally, the extract, at its highest, suggests that the level of notoriety of an industry practice may be relevant with respect to whether the reasonable person considers himself to have an obligation of confidentiality. There is no enunciation of a separate “notoriety” test. The test for confidentiality is the Coco test adopted by the Court and cited previously in these reasons. [ 51 ] The judge did not specifically state the ‘reasonable man test’ in determining whether the prototypes were sold in circumstances giving rise to an obligation of confidentiality.

He did refer to the above-quoted passage from Coco at paragraph 315 of his reasons. Although he was there dealing with the issue of disclosure to Merkel and Flender (not in issue on this appeal), it is clear that the judge was aware of the Coco test.

Further, in view of his specific reliance on LAC Minerals in this respect and his references to “reasonable” at paragraphs 297 through 299 of his reasons, I am satisfied that the judge approached the issue of confidentiality from the perspective of the reasonable man in accordance with the Coco test. [ 52 ] The receipt of information in circumstances of confidentiality establishes a duty not to use that information for any purpose other than that for which it was conveyed: LAC Minerals , para. 16 .

In my view, information received in circumstances of confidentiality cannot be considered to have been publicly disclosed for purposes of the Act . Consequently, as noted earlier, if the judge’s conclusion – that the sales of the prototypes to Amoco and Pan Canadian were made in circumstances in which they had an obligation to keep the invention confidential – was not palpably wrong, the appellants’ anticipation argument must fail. [ 53 ] There is no doubt that the judge considered the absence of an oral or written communication concerning confidentiality to be significant, but not dispositive.

Equally, in my view, there is no doubt that the prototype had a quality of confidence about it. It was the result of the work and development of Grenke in early 1991; it was not available to the public; no such device was on the market. The crux of the matter is whether GrenCo sold the prototypes to Amoco in circumstances in which an obligation of confidence arose. The judge’s various findings on this issue are summarized above.

For present purposes, it suffices to reiterate his finding that both Amoco and Pan Canadian shared a “common cause” with Grenke and had a relationship of trust and co-operation that led to an expectation of confidence: reasons, paras. 294, 298. The appellants do not seriously dispute the existence of a common cause – everyone in the industry was concerned about the stuffing box problem. Rather, it is the finding of a relationship of trust and confidence that the appellants

contend was palpably wrong because it was not supported by the evidence. [ 54 ] Regarding Amoco, there was certainly evidence to negate an expectation of confidentiality surrounding the units.

This evidence includes the testimony contained at appeal book, volume 17 of Amoco EI maintenance team member George (tab 283, transcript pp. 19, 20); Amoco EI maintenance team member Krucik (tab 287, transcript pp. 61-63); Amoco Elk Point worker Fair (tab 283, transcript p. 100); Amoco Elk Point production engineer Urich (tab 287, transcript pp. 59-61, 68); and Amoco Elk Point district foreman Johnson (tab 287, transcript p. 52).

Generally, this evidence suggests that Amoco could do what it wanted with the prototype and there was no confidentiality attached to it. [ 55 ] There was also evidence pointing to the opposite conclusion. Amoco was heavily involved in the development of the patent. An internal Amoco memo discussed the testing of the prototypes and solutions for fixing the problems: appeal book, vol. 5, tab 113, pp. 1581-1585. A letter from Britton thanked Amoco staff for their involvement with the development: appeal book, vol. 9, tab 252, p. 3018.

Amoco paid for Britton’s trip to Germany to discuss the device with Merkel: appeal book, vol. 16, tab 279, transcript p. 32. Urich said Amoco was involved in the development of the device: appeal book, vol. 17, tab 287, transcript pp. 57, 71, 83. [ 56 ] Further, Wes Grenke’s testimony indicates that he understood the prototypes were test units and were confidential: appeal book, vol. 16, tab 277, transcript p. 116. Grenke’s testimony was the same: appeal book, vol. 16, tab 280, transcript pp. 48, 63, 64.

Amoco production foreman Dudley testified that a confidentiality obligation existed with respect to test units: appeal book, vol. 17, tab 281, transcript pp. 102-105. [ 57 ] Johnson testified in chief that there were no express confidentiality conditions concerning Amoco’s purchase, that the prototype was not a test unit and that Amoco could do what it wanted with the unit.

He also testified that he wouldn’t provide it “from an ethical and moral sense…to another drive head competitor” and “wouldn’t have taken it apart and given it to [GrenCo’s competitors].” He acknowledged that the industry was trying to work together to solve a problem: appeal book, vol. 17, tab 287, transcript pp. 17-20.

On cross-examination, he testified that the use of the prototype was a “private test within Amoco”, Amoco had funded the project, was doing the work, would do it for itself and had not turned it into a “joint industry project where everybody helped fund it and we had big meetings about it”: appeal book, vol. 17, tab 287, transcript pp. 37-40, 49-56. [ 58 ] The appellants point to the evidence of Matthews, the respondents’ expert on industry practice, to support the assertion that if a test unit was sold, the selling party must set up a confidentiality regime by at least having verbal discussions with respect to confidentiality.

The assertion is overstated. Matthews states that he would “assume that there should be at least a verbal understanding, verbal agreement.” He also stated that “it was not uncommon at the time, and still today, for companies conducting trials, the oil companies in particular, to pay for the prototype development and to support the vendors.” Further, it “is known that the vendor owns the rights to it. The operator, of course, is the one using it.

So they do what they want with it in the field, but there is an understanding that goes beyond the simple payment or purchase of the device”: appeal book, vol. 15, tab 271, transcript pp. 195, 196. [ 59 ] The judge’s task was to balance the evidence and come to a determination. It was he who observed the witnesses and heard their testimony. There is evidence in the record to support the judge’s finding that Amoco and Grenke shared a common cause and had a relationship of trust and co-operation.

Since “parties acting in a common cause and those using the prototypes…expected and received confidential treatment” (reasons, para. 300), the judge’s conclusion that the disclosure to Amoco was for a limited purpose and certainly not a disclosure to the public cannot be said to be palpably wrong. [ 60 ] The evidence in relation to Pan Canadian is thin. There was no confidentiality agreement and Pan Canadian was not involved in the development of the device. The judge found that Britton disclosed the inner workings of the prototype to the Pan Canadian representatives during their negotiations: reasons, para. 304.

Former Pan-Canadian maintenance foreman and mechanic Derewynka testified that he thought Pan Canadian could have dismantled the unit for servicing or replacement of the seals and could have allowed other oil producers to come onto its site and observe the prototype. Notably, he did not say that Pan Canadian would have allowed others to view the inner workings of the prototype: appeal book, vol. 17, tab 286, transcript pp. 33-34, 42, 46-47.

I agree with the appellants that there was no evidence to directly support a relationship of trust and co-operation between Grenke or GrenCo and Pan Canadian. [ 61 ] Notwithstanding, the trial judge was satisfied that the units sold to or discussed with Pan Canadian were test units and that industry practice required that test units be kept confidential. There is evidence in the record to support that conclusion. Pan Canadian’s letter dated February 8, 1994 acknowledged (albeit after the fact) that GrenCo’s device had “new features and design concepts”: appeal book, vol. 5, tab 88, p. 1399.

Both Wes and Ed Grenke emphasized the prototypes were test units: appeal book, vol. 16, tab 278, transcript p. 25; tab 279, transcript pp. 65-66; appeal book, vol. 17, tab 281, transcript pp. 17-18. Britton testified that the units were test units (appeal book, vol. 17, tab 184, transcript p. 190) and that testing extended into mid-1992 (reasons, para. 296). The units were a limited production: reasons, para. 296. Dudley agreed test units were meant to be confidential: appeal book, vol. 17, tab 281, transcript pp. 103-104.

[ 62 ] There was also Matthews’ evidence that simply looking at a prototype externally would not enable an observer to know its inner workings: appeal book, vol. 5, pp. 1605-1607; that having these pumps out in the field or installed by particular rig crews would not constitute disclosure of confidential information; that it was dangerous for observers to simply go onto drilling lands to see the equipment; and that test units could be out in the field for any period of time without losing their confidentiality: appeal book, vol. 15, tab 271, transcript pp. 137-138, 141, 143-144, 172-173, 199-201. [ 63 ] On balance, although another judge could have concluded otherwise, given the judge’s extensive exposure to the evidence and the fact that he had the benefit of seeing and hearing the witnesses, it was open to him to conclude that the prototypes sold to or discussed with Pan Canadian were test units and that there was a general industry practice that such units were considered confidential.

There was evidence in the record to support the determinations he made. On the basis of those findings, it was also open to him to find that the sales to or discussions with Pan Canadian in April 1992 did not constitute prior disclosure within the meaning of

section 28.2 of the Act . [ 64 ] It follows from the judge’s findings and my conclusions in relation to them that Baker Petrolite does not assist the appellants in this case. [ 65 ] Finally, and not insignificantly, there is the judge’s finding that the prototypes supplied to Amoco and Pan Canadian were not the same as the RSB described in the '937 Patent. There were changes made before the design was finalized.

Mindful of Grenke’s evidence that he believed the prototype had essentially solved the problem and that the improvements were insignificant (evidence heavily relied upon by the appellants), the judge concluded otherwise. The evidence of Skoczylas as to the nature of the improvements (appeal book, vol. 6, tab 129, pp. 1969, 1987-1990) and Salant that the improvements were inventive (appeal book, vol. 5, tab 123, pp. 1661, 1662; vol. 14 tab 272, transcript pp.17-44, 57-59) supports the judge’s conclusion.

Indeed, the judge commented, “there is a difference between believing that one has the solution to the problem and finalizing the design and function so that the invention operates as intended.” He then found as a fact that “[t]he balance of work to the final design was improvements but they were significant”: reasons, para. 309. This finding (which in my view is an implicit finding of inventiveness) was open to the judge on the evidence before him. In and of itself, it too is sufficient to dispose of the appellants’ anticipation argument.

Obviousness [ 66 ] The appellants contend that the judge “did not conduct an obviousness analysis and/or provided insufficient reasons for his conclusion on obviousness”: appellants’ memorandum of fact and law, para. 41. More specifically, they assert that he erred in law by failing to conduct a “ Pozzoli analysis.” Further, he erred in accepting the respondents’ expert evidence without resolving evidentiary conflicts and thereby failed to come to an independent determination on obviousness. [ 67 ] The appellants’ assertion with respect to the “ Pozzoli analysis” is overstated.

In Sanofi , the Supreme Court stated, “[i]t will be useful in an obviousness inquiry to follow the four-step approach first outlined by Oliver L.J. in Windsurfing International Inc. v. Tabur Marine ( Great Britain ) Ltd … [and] recently updated by Jacob L.J. in Pozzoli SpA v. BDMO SA ”: Sanofi , para. 67 (citations omitted, my emphasis). The Court did not establish a compulsory legal test.

To the contrary, its approval of existing jurisprudence warned against adopting an “overly rigid rule that limits the obviousness inquiry.” Rothstein J. explained that “in most matters in which a judge or a jury is called upon to make a factual determination, rigid rules are inappropriate unless mandated by statute”: Sanofi , para. 63 . Indeed, the “correctness of a decision upon an issue of obviousness does not depend upon whether or not the decider has paraphrased the words of the Act ” or made use of “some particular verbal formula”: Sanofi , para. 61 .

Rather, an “expansive and flexible approach that would include ‘any secondary considerations that [will] prove instructive’ will be useful”: Sanofi , para. 63 . [ 68 ] Although Sanofi identifies and recommends the Pozzoli framework as a helpful tool, failure to explicitly follow the structure does not, in and of itself, constitute an error of law.

In oral argument the appellants indicated that the Pozzoli steps need not be expressly addressed if they are considered “in substance.” Here, the judge should be presumed to have understood the purpose of the Pozzoli approach since he specifically referred to Sanofi as having modified the “test” from Beloit Canada Ltée/Ltd. v. Valmet Oy (1986), 64 N.R. 287 , 8 C.P.R. (3d) 389 (F.C.A.) ( Beloit ) : reasons, para. 320. [ 69 ] The appellants agree that the judge adequately addressed the first step: the identification of the notional person skilled in the art.

Although they maintain that the judge did not specifically identify the inventive concept of the patent (as contemplated at Pozzoli step two), they acknowledge that he did refer to the patent’s three “key concepts” in his reasons. In any event, the second step indicates that it will be sufficient to construe the patent if the inventive concept is not readily discernible from its claims. As indicated earlier in these reasons, the judge properly construed the patent’s claims. Moreover, the '937 Patent is a combination patent.

Therefore, its essence lies in the unique combination claimed even though individual elements of the invention, considered in isolation, may not have been inventive. As recently explained by this Court, “[i]t is not fair to a person claiming to have invented a combination invention to break the combination down into its parts and find that, because each

part is well known, the combination is necessarily obvious”: Bridgeview Manufacturing Inc. v. 931409 Alberta Ltd. , 2010 FCA 188 , 87 C.P.R. (4th) 195 , para. 51 ( Bridgeview ) , leave to appeal dismissed, [2010] S.C.C.A. No. 346; Free World Trust , para. 27 . The judge referred to that principle: reasons, paras. 240, 241. On the whole, in my view, the judge’s analysis demonstrates that he implicitly considered the substance of the first two Pozzoli steps.

[ 70 ] The thrust of the appellants’ argument is directed to the judge’s purported failure to consider the third and fourth Pozzoli steps. The appellants further maintain there was insufficient discussion in the judge’s reasons to allow this Court to ascertain how or why he reached his conclusions. This omission is said to effectively preclude meaningful appellate review. [ 71 ] As was the case with claims construction, an appreciation of the judge’s analysis requires an examination of the manner in which the appellants approached the issue of obviousness at trial.

Although the appellants explicitly acknowledged that the “issues of obviousness and anticipation are quite different”, their arguments concerning both were combined under the single subject “invalidity”: appeal book, vol. 20, tab 297, pp. 6308-6355. It is hardly surprising that the judge chose to examine obviousness as a reflection of the appellants’ submissions on anticipation, particularly when the appellants relied on the “same disclosure” and the “same prior art” for both: reasons, paras. 321, 322. The appellants’ submissions concerning the prior art were similarly interdependent.

They claimed that the invention was rendered obvious by virtue of the public disclosure of GrenCo’s prototype, by the API reference, and by the combination of the two: appeal book, vol. 20, tab 297, pp. 6342-6343, 6347-6348, 6354-6355. The appellants also claimed that United States Patent No. 3,913,752 (the '752 Patent) only rendered the invention obvious in “combination with the API seal structures and/or the [prototype]”: appeal book, vol. 20, tab 297, pp. 6350, 6355.

Similarly, on this appeal, the appellants maintained that United States Patent No. 4,372,379 (the '379 Patent) rendered only claims 14 to 16 of the '937 Patent obvious. Consequently, the judge was not required to expressly consider the effect of these pieces of prior art separately from the prototype or the API seal structures. [ 72 ] The third Pozzoli step focuses on an identification of the differences between the prior art and the inventive concepts of the claim, or the claim as construed.

Given the structure of the appellants’ arguments, if the judge had specifically tracked the Pozzoli framework, he would have directly considered the prototype and the API reference. The judge’s reasons show he clearly considered the prototype. However, in view of my earlier conclusion that the judge did not err in finding that the sales of GrenCo’s prototype to Amoco and Pan Canadian did not constitute public disclosure of the invention, the prototype is not prior art and is immaterial to the issue of obviousness.

The API reference warrants further discussion. [ 73 ] The judge did not expressly refer to the API reference in his obviousness analysis. However, he did explain that the appellants relied on the same prior art for purposes of obviousness as they had for anticipation, namely, “ U.S. patents, industry handbooks and other publications”: reasons, paras. 317, 318, 322 (my emphasis). The API reference is properly described as an industry handbook included in the prior art addressed at trial.

The '752 Patent is a U.S. patent. [ 74 ] The appellants argue that the API reference is “a sealing system where dynamic seals are used to seal outside a sleeve that rotates with a pump shaft.” They note that it teaches the use of “two mechanical dynamic seals…and an auxiliary bushing…which may also be a dynamic seal such as a lip seal” (my emphasis). They further assert that connections placed between the seals may be used to detect leaks: appellants’ memorandum of fact and law, paras. 59, 60.

The respondents emphasize that the '937 Patent claims non-mechanical dynamic seals: respondents’ memorandum of fact and law, para. 33. [ 75 ] In view of the record, the judge’s acceptance of the respondents’ expert evidence and his construction of the '937 Patent, the respondents’ position is correct: reasons, paras. 127, 128, 133, 137, 138, 140, 142, 147.

See also: Salant affidavit, appeal book, vol. 5, tab 123, pp. 1646, 1647, para. 32; Salant examination in chief, appeal book, vol. 15, tab 272, transcript pp. 32,33; Skoczylas rebuttal report, appeal book, vol. 6, tab 129, p. 1998, para. 123; Nelson cross-examination, appeal book, vol. 18, tab 288, transcript pp. 52-53.

Further, the respondents’ evidence stipulates that the sealing system taught by the API reference will only operate to create redundant sequential seals if the initial detection port is closed after the initial seal fails: Skoczylas cross-examination, appeal book, vol. 16, tab 276, transcript pp. 53-60.

The redundant sealing system taught by the '937 Patent requires no such external intervention. [ 76 ] With respect to the '752 Patent, the appellants’ evidence establishes that this piece of prior art teaches the use of a dynamic sealing system on a sliding plunger pump rather than on a rotary PC pump: Nelson affidavit, appeal book, vol. 11, tab 261, pp. 3416- 3418, paras. 128-130.

Nelson also testified that the '752 Patent teaches the use of two seals, one leak detection passageway, and a further leak passageway that indicates the complete failure of the sealing system: Nelson cross-examination, appeal book, vol. 18, tab 288, transcript pp. 153-159. The '937 Patent teaches the use of a plurality of annular dynamic seals with a leak passageway for each seal. [ 77 ] The appellants submit that the '379 Patent teaches a type of rotary wellhead drive that discloses almost all features of claims 14 to 16 of the '937 Patent.

Those claims teach the incorporation of a stationary framework, drive, and connection means with the patent’s redundant dynamic seal system. They are unlikely to be relevant to the obviousness analysis if the combination of the remaining elements of the invention are not rendered obvious by the referenced prior art.

There is no suggestion that the '379 Patent would lead one to combine the drive head and the sealing system as in the '937 Patent. [ 78 ] Taking the above-noted pieces of prior art together, the Pozzoli framework then asks whether the differences identified at step three constitute steps that would have been obvious to the person skilled in the art, without knowledge of the invention as claimed. If the differences require some degree of inventiveness, the prior art in question does not render the invention obvious. The judge’s cryptic

dismissal of the appellants’ obviousness argument was based on the expert evidence he considered and accepted earlier in his reasons. The brevity of his comments, in my view, suggests that he considered the appellants’ submissions regarding obviousness to have little merit. [ 79 ] The judge generally preferred the respondents’ evidence to that of the appellants. Significantly, the judge summarized Salant’s evidence and explained why he preferred it to that of the appellants’ experts: reasons, paras. 37-40, 53.

The appellants have not demonstrated palpable and overriding error in the judge’s assessment of the witnesses. [ 80 ] The respondents’ experts reviewed the relevant prior art and concluded, while it contained elements similar to those taught by the '937 Patent, none of the prior art included the combination and application of the elements contained in the invention.

They were of the view that combining the prior art in the manner taught by the '937 Patent required a significant degree of inventiveness: Salant report, appeal book, vol. 5, tab 123, pp. 1661-1662, paras. 85-90, 92; Salant cross-examination, appeal book, vol. 15, tab 273, transcript pp. 36- 38; Skoczylas report, appeal book, vol. 6, tab 128, pp. 1770-1780, paras. 85-106; Skoczylas rebuttal report, appeal book, vol. 6, tab 129, pp. 1990-2003, paras. 92-141. The judge committed no reviewable error in preferring Salant’s evidence over that of Nelson.

In fact, Nelson considered Salant to be a recognized authority on rotary seals: Nelson cross-examination, appeal book, vol. 18, tab 288, transcript pp. 91-92. [ 81 ] The judge also noted that Nelson was unable to explain why, if the solution of the '937 Patent was so obvious, no one had discovered it previously: reasons, para. 50.

The judge found that the stuffing box problem had been experienced by heavy oil producers since at least the early 1980s, there was increasing concern in relation to the problem by at least the late 1980s and it plagued the heavy oil industry prior to the introduction of Grenke’s invention: reasons, paras. 68, 264.

Moreover, contrary to the appellants’ assertion that Grenke solved the problem on his first attempt, the judge found that it took Grenke more than two years to advance from his initial idea (through the production of the prototype and the testing phase) to the patenting of the invention: reasons, paras. 71- 91. As stated earlier, in my view, the judge implicitly found that the post-prototype improvements to the final design were inventive. No reviewable error has been demonstrated with respect to any of these findings.

The judge had the benefit of seeing and hearing the witnesses and he considered the respondents’ witnesses to be clear, credible and to have held up significantly better under cross-examination than the appellants’ witnesses.

The above-noted references provide sufficient support for the judge’s conclusions on obviousness. [ 82 ] With the benefit of hindsight, it is not totally unreasonable to suggest that combining the system of redundant mechanical seals and limited leak detection passageways (taught by the API reference) with the multiple dynamic seal plunger pump system (taught by the '752 Patent) renders the invention obvious. Arguably, the invention of the '937 Patent seems a short step from those pieces of prior art combined, particularly when both were used in the oil industry.

However, key differences exist between the prior art and the invention of the '937 Patent. [ 83 ] The use of mechanical seals in the API reference was problematic for the appellants. Their expert Nelson testified that mechanical seals are used in a different field than centrifugal and reciprocating pumps; mechanical seals “cannot operate with a particulate such as sand”; and they would not be used in the heavy oil field: Nelson cross-examination, appeal book, vol. 18, tab 288, transcript pp. 109-111.

Britton stated that he would sooner return to using conventional packing than use a mechanical seal in sandy, sloppy oil: Britton cross-examination, appeal book, vol. 17, transcript pp. 148-149. The judge considered the evidence and accepted “a mechanical seal could not properly seal against a cylindrical surface”: reasons, para. 142. [ 84 ] The '752 Patent claims application only in respect of a reciprocating pump, which is fundamentally different from the rotary pump system used in the '937 Patent.

Additionally, the redundant seal system of the '752 Patent is activated only if the initial leak port is closed, unlike the automatic redundancy created by the seals in the '937 Patent. [ 85 ] The oft-cited passage at page 295 of Beloit is apt: Every invention is obvious after it has been made, and to no one more so than an expert in the field. Where the expert has been hired for the purpose of testifying, his infallible hindsight is even more suspect.

It is so easy, once the teaching of a patent is known, to say “I could have done that”; before the assertion can be given any weight, one must have a satisfactory answer to the question, “Why didn’t you?”

[ 86 ] In this case, the respondents’ experts examined the prior art and concluded that combining the previously known elements of the invention into the combination claimed in the '937 Patent would not have been readily apparent to the notional person skilled in the art. Considering the evidence in totality and the judge’s assessment of the witnesses, I am unable to conclude that he erred in a manner that warrants this Court’s intervention. [ 87 ] The judge’s reasons regarding the issue of obviousness are terse.

The Supreme Court has instructed that “courts of appeal considering the sufficiency of reasons should read them as a whole, in the context of the evidence, the arguments and the trial, with an appreciation of the purposes or functions for which they are delivered”: R. v. R.E.M. , 2008 SCC 51 , [2008] 3 S.C.R. 3 , para. 16 ( REM ) . Read in the context of the record and the submissions on the live issues in the case, the reasons must show that the judge has seized the substance of the matter: REM , para. 43 .

An appellate court should adopt a deferential stance based on the propositions that the trial judge is in the best position to determine matters of fact and is presumed to know the basic law: REM , para. 54 . The critical question is whether the trial judge’s reasons, considered in the context of the evidentiary record, the live issues as they emerged at trial and the submissions of counsel, deprive the appellant of the right to meaningful appellate review: REM , para. 57 .

For the reasons provided in relation to the issue of obviousness, it is readily apparent that, in this case, the answer to the critical question is no. Grenke’s Credibility [ 88 ] The appellants submit the judge made palpable and overriding errors or provided insufficient reasons for finding that Grenke was a credible witness. Specifically, there were instances where Grenke admitted having made misstatements in his past correspondence and recanted evidence he had earlier provided under oath.

According to the appellants, the judge failed to address the inconsistencies in Grenke’s testimony or explain how they were resolved in Grenke’s favour. Consequently the appellants were prevented from understanding why the judge accepted his evidence and were deprived of “an informed consideration of the grounds of appeal”: appellants’ memorandum of fact and law, para. 151. The Supreme Court has spoken on this issue at least three times since 2006: R. v. Gagnon , 2006 SCC 17 , [2006] 1 S.C.R. 621 ( Gagnon ) ; R. v.

Dinardo , 2008 SCC 24 , [2008] 1 S.C.R. 788 ( Dinardo ) ; REM . [ 89 ] In Gagnon , at paragraph 20 , the Court stated: Assessing credibility is not a science. It is very difficult for a trial judge to articulate with precision the complex intermingling of impressions that emerge after watching and listening to witnesses and attempting to reconcile the various versions of events.

That is why this Court decided, most recently in H.L ., that in the absence of palpable and overriding error by the trial judge, his or her perceptions should be respected. [ 90 ] In Dinardo , the Court cautioned, at paragraph 26: Where a case turns largely on determinations of credibility, the sufficiency of the reasons should be considered in light of the deference afforded to trial judges on credibility findings.

Rarely will the deficiencies in the trial judge’s credibility analysis, as expressed in the reasons for judgment, merit intervention on appeal. [ 91 ] In REM , the Court reiterated the proposition expressed in Dinardo that “there is no general requirement that reasons be so detailed that they allow an appeal court to retry the entire case on appeal.

There is no need to prove that the trial judge was alive to and considered all of the evidence, or answered each and every argument of counsel”: REM , para. 32 . [ 92 ] As noted early in these reasons, the judge identified the “root” of the matter as an “assessment of credibility in respect of inventorship and a consideration of the behaviour of the key actors”: reasons, para. 8. In general terms, he described Grenke’s testimony as “vague about some details”: reasons, para. 43.

The judge stated that he approached Grenke’s evidence “with some caution”, but found the “core of his narrative was consistent with other evidence and was more believable than that of other witnesses”: reasons, para. 44.

[ 93 ] For example, the judge explained that Grenke’s evidence was supported by: (1) his visits to Germany to meet Merkel and Flender: reasons, para. 245; (2) the fact he sought out others for advice: reasons, para. 245; (3) his leadership role in the project: reasons, para. 246; (4) the documents supporting the position that he came up with the idea and turned it into a practical device: reasons, para. 246; (5) his redesign of the units in late 1992 and 1993: reasons, para. 251. [ 94 ] The judge did not always accept Grenke’s evidence. One rejection of his evidence is discussed later in these reasons.

Further, there is a “recantation” addressed at paragraphs 308 and 309 of the judge’s reasons. [ 95 ] The appellants have not established that the judge made palpable and overriding errors in his credibility assessment or that the deficiency in his reasons (if any) with respect to Grenke’s credibility fall within the category of those rare cases that merit intervention on appeal. Inventorship [ 96 ] The appellants submit that the judge incorrectly required a demonstration of utility for purposes of inventorship.

They argue that if the judge had not required Engelen to be able to demonstrate utility, he would have found that Engelen is an inventor of the '937 Patent because of his contribution to the sealing arrangement and his suggestion of multiple leak detection passageways. They further submit it was Torfs who conceived of and developed the integration of the drive and sealing system set out in claims 14-16 of the patent. [ 97 ] The respondents take issue with the judge’s finding that Torfs is a co-inventor of the '937 Patent.

The crux of their argument is based on the judge’s statement that “[w]ere it not for Grenke’s arrangement with Torfs that they would share in the patents equally, the Court would be uncomfortable with concluding that Torfs contributed any creative concept to the '937 Patent”: reasons, para. 281.

The respondents contend that the judge erred in law in relying on an agreement between Grenke and Torfs to resolve the issue of inventorship in relation to them. [ 98 ] Both the appellants’ and the respondents’ arguments in this respect can be addressed summarily. [ 99 ] The judge did not misapprehend the law regarding inventorship. Although he misspoke at paragraph 239 of his reasons with respect to utility, the misstep did not factor into his analysis. The judge in all other respects correctly cited the law regarding inventorship as articulated in Apotex v.

Wellcome Foundation Ltd ., 2002 SCC 77 , [2002] 4 S.C.R. 153 , paras. 97 , 98 ( Wellcome ): reasons, paras. 236, 237. Briefly, the ultimate question – who is responsible for the inventive concept – was specifically identified: reasons, para. 236. The judge recognized that a person “who contributes to the inventive concept may be a co-inventor while those who help the invention to completion, but whose ingenuity is directed to verification rather than original inventive concept, are not co-inventors”: reasons, para. 237.

He noted the necessity of reducing the idea to a definite and practical shape and considered it inappropriate to break the combination into its various elements (and attribute contribution by various persons to each of those elements) in resolving the issue of inventorship: reasons, paras. 239, 241. The appellants have not persuaded me that the judge failed to appreciate and apply the proper law with respect to inventorship.

Engelen [ 100 ] After reviewing Grenke’s evidence and that of Reincke, Engelen, Britton and the evidence with respect to Torfs (the appellants took the position that all except Grenke are co-inventors), the judge concluded that Grenke is one of the inventors of the '937 Patent. The others (except Torfs) are not. In arriving at his conclusion, he made a number of factual determinations. [ 101 ] Specifically, the judge found Engelen was asked to suggest the appropriate type of dynamic seal after Grenke contacted Merkel to discuss his idea.

However, he (Engelen) did not contribute to the core inventive concept of using dynamic seals around the rotating sleeve. The seals he proposed came from Merkel’s standard catalogue: reasons, para. 256. Although Engelen met with Grenke, it was Grenke who made the changes to the proposal that eventually led to the design to be tested: reasons, para. 257.

While Engelen discussed with Grenke the possibility of using multiple leak detection passageways, he confirmed that, at the time, the prevailing view was that a single leak detection port was sufficient and having more than one such port had several disadvantages: reasons, para. 258. While Engelen made some suggestions, he did not contribute “inventive concepts”: reasons, para. 260. Grenke’s role in coming up with the idea and turning it into a practical device is supported by the documents: reasons, para. 246 (including references to the specific

documents). [ 102 ] On cross-examination, Engelen acknowledged that he did not contribute the idea of using dynamic seals in the annular space to seal around the rotating sleeve, but was asked by Grenke to specify a type of dynamic seal: appeal book, vol. 17, tab 282, transcript pp. 112-114, 143. Engelen said that he was of the opinion that one leak passage was sufficient because using multiple leak passages would require the use of multiple seals which had the disadvantage of increasing friction: appeal book, vol. 17, tab 282, transcript pp. 135-136.

He may have suggested the idea of multiple leak passages, but he did not advocate it. Further, he stated that Grenke made all the design decisions as to how many seals would be included: appeal book, vol. 17, tab 282, transcript pp. 109-112. [ 103 ] This court’s interference with the judge’s finding on the evidence that Engelen is not an inventor of the '937 Patent is warranted only if palpable and overriding error in the judge’s assessment of the facts is established. That is not the case.

Torfs [ 104 ] As noted above, the respondents’ submissions relating to Torfs focus on the role that the arrangement between Torfs and Grenke played in the judge’s analysis. I agree with the respondents that an “agreement” between the parties does not resolve the issue of inventorship. An individual either contributes an inventive idea or does not. If the judge concluded that Torfs was an inventor by virtue of his agreement with Grenke, then the judge erred. The question is whether that is what the judge did.

My review of the judge’s reasons leads me to conclude that the respondents’ criticism is misplaced. [ 105 ] The judge’s description of the evidence concerning Torfs as “enigmatic” and the fact that the judge viewed a great deal of it as “speculation” suggests that his conclusion that Torfs was a co-inventor fell near the figurative midpoint of the balance of probabilities. However, the judge’s analysis of the agreement between Torfs and Grenke does not indicate that he considered the agreement to be determinative in law for the purpose of deciding inventorship.

To the contrary, it was the totality of the evidence, including the factual significance of the agreement, that led the judge to his conclusion. [ 106 ] Although Grenke did not have in mind a connection between the sealing system and drive means prior to his first attempt to meet with Torfs in Germany, the judge found that Grenke initiated the work on the integration by making that attempt: appeal book, vol. 16, tab 279, transcript pp. 35-37; reasons, paras. 79, 276.

Read in context, the judge’s finding implies that the inventive aspects of claims 14- 16 were not completed as a result of Grenke merely having commenced his working relationship with Torfs. The judge accepted that the two worked together in developing the manner of integration claimed in the '937 Patent: reasons, para. 250.

He also considered Torfs’ drive head expertise to be “essential” to integrating the drive head with the sealing assembly: reasons, para. 276. [ 107 ] Further, the fact that Grenke and Torfs agreed to share equally in patents that resulted from their work, and that this agreement survived the course of their working relationship, constitutes evidence of each individual’s recognition of the other’s contribution.

Indeed, under cross-examination, Grenke himself recognized Torfs’ involvement in inventing the device: reasons, para. 98; appeal book, vol. 16, tab 280, transcript pp. 135-136, 149-150, 155-156, 159; see also: Grenke affidavit, appeal book, vol. 5, tab 91, p. 90, paras. 4, 5; letter from Grenke to Flender, appeal book, vol. 9, tab 233, pp. 2765-2767. I determined earlier that there was no palpable and overriding error in the judge’s appreciation of Grenke’s evidence. [ 108 ] Whether Grenke believed that it was possible to agree to co-inventorship or merely to co-ownership is immaterial to this ground of appeal.

The evidence before the judge provides a reasonable basis from which to infer that Torfs was a co-inventor. Since the judge did not regard the arrangement between Torfs and Grenke as governing the issue of inventorship, he did not err in the manner the respondents suggest. [ 109 ] The respondents also claim that Torfs’ involvement was “merely the application of… common general knowledge” in the art: respondents’ memorandum of fact and law, para. 65. The judge found otherwise.

As discussed earlier in these reasons, it is the unique combination of the device’s essential elements that constitutes the invention in a combination patent. The integration of claims 14-16 in the '937 Patent is essential to the invention in this case. Although the evidence on the issue of inventorship may have been lacking in several respects, the judge found that it was consistent with the conclusion that Torfs was a co-inventor given his contribution to the integration of the drive head.

This finding reflects the judge’s view that Grenke and Torfs worked together to reduce the invention to a definite and practical shape. [ 110 ] The judge’s findings were open to him on the evidence. The respondents have not demonstrated any error in his conclusion that warrants intervention.

Misrepresentations to the Patent Office [ 111 ] The appellants allege that the trial judge erred in failing to find that the misrepresentations made by Grenke in his August 17, 1994 affidavit and in the petitions for the '937 Patent had no impact on the validity, abandonment or enforceability of the '937 Patent or the entitlement to an injunction.

This submission is founded on two discrete subsidiary issues both of which rely on provisions of the Act , specifically subsection 53(1) and paragraph 73(1)( a ). [ 112 ] The issue concerns Grenke’s affidavit regarding one United States and three Canadian patent applications. The Canadian patent applications related to: (1) the flow-tee; (2) the sealing system; and (3) the drive which turns the rod string: Grenke affidavit, appeal book, vol. 8, tab 227, p. 2635. Paragraphs 8 - 10 of the affidavit state as follows: THAT Mr. Torfs indicated to Mr.

Rieder that he was himself the sole inventor of the Canadian and U.S. patent applications entitled “Improvements in Rotary Drive Assemblies, and that he and myself were joint inventors for the other applications. Mr. Torfs and I had previously agreed that Flender and GrenCo would jointly own all patent rights, and I believe it was that agreement which led Mr. Torfs to erroneously indicate himself as joint or sole inventor (as the case may be), despite the fact that I had already reduced the various inventions to practice at a time prior to my first meeting with Mr. Torfs. THAT the inclusion of Mr.

Torfs as a sole or joint inventor, and the failure to identify me as the sole inventor on all of the applications, were the result [sic] inadvertence or mistake, and were not for the purpose of delay. THAT Mr. Walter Torfs passed away during the month of June, 1993, and it is therefore not possible to obtain his Affidavit. Since this case concerns only the '937 Patent, the consequences of Grenke’s statements with respect to any other patents are not relevant to this appeal.

Subsection 53(1) [ 113 ] Subsection 53(1) provides, among other things, that a patent is void if any material allegation in the petition of the applicant in respect of the patent is untrue. The appellants argue that Grenke intentionally misled the Patent Office by removing Torfs and by failing to list Engelen as inventors of the '937 Patent.

Given my conclusion that the judge did not err in his determination that Engelen is not a co-inventor, nothing further need be said about Engelen. [ 114 ] The judge rejected the notion that Grenke’s affidavit was based on Grenke’s confusion between “inventorship” and “ownership” and found that it was motivated by Grenke’s perception that Torfs had ‘cut him out’ of the other patents which he believed should be in their joint names: reasons, para. 335.

The judge noted that “[w]hile there may be debate that s. 53(1) always requires willfulness to mislead, the weight of authority suggests that the focus is on materiality”: reasons, para. 331. After considering the evidence before him, the judge concluded that Grenke’s misstatement was not material for purposes of subsection 53(1) . His conclusion was based in part on his finding that Grenke had acquired whatever interest Torfs or his employer Flender had in the patent at the time it was issued.

The judge suggested that naming Torfs as a co-inventor (after his death) would be “a nice gesture of recognition” but would have “no relevance to the validity of the Patent, its ownership or any rights of inventorship”: reasons, para. 337. It is implicit in the judge’s conclusion that naming Torfs as a co-inventor would

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