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Canadian Supreme Court confirms powerful remedy for patentees

November 21, 2022

One of the advantages of a Canadian patent is that Canadian patentees have the option of electing an “accounting of profits” instead of damages when pursuing an infringer. This remedy can result in a huge award to the patentee in the right circumstances. Rather than compensating the patentee for the damage done to it, the infringer has to hand over the profits it made from its infringing activity. The challenge is identifying what portion of the infringer’s profits are attributable to the patent infringement.

One question is whether the profits should include all profits from the sale of infringing product, or whether those profits should be offset by the legitimate profits that the infringer could have made if they had been selling a non-infringing version of the product. This is referred to as a “differential profits” test and looks at whether there is some non-infringing option or part of the product to which some portion of the profits is attributable.

A second question is whether the patentee can claim “springboard profits”. These are profits from non-infringing sales after expiry of the patent. They are included in the accounting of profits on the basis that the infringer only managed to make those legitimate post-expiry sales because they had engaged in infringing activity during the life of the patent that allowed them to build the manufacturing and market share that enabled the later sales. 

In Nova Chemicals Corp. v. Dow Chemical Co., 2022 SCC 43, released November 18, 2022 (“Nova”), the Supreme Court of Canada clarified how to identify a legitimate “non-infringing option” when applying the differential profits test, and confirmed that springboard profits are available. At trial, Dow had elected an accounting of profits and won a judgement of over $640 Million. The Nova decision confirms the largest patent infringement award in Canadian history, and one of the largest ever in North America. 

The Nova case related to sales of plastics. Dow had a patent on a certain low-density polyethylene. Nova infringed the patent by making and selling that plastic. When it came to assessing Nova’s profits, Nova argued that although there was no direct non-infringing option it could have used the main input ingredient (ethylene) to make some other type of plastic, like a high-density polyethylene, that it would have sold for non-infringing profits by selling pails and crates made from that plastic. Nova thought the court should deduct those theoretical profits from their actual profits from infringement. The Supreme Court disagreed.

The “differential profits” test looks at the profits from the infringing sales and tries to subtract that portion of the profits that would have been made from those sales in the absence of the infringement, i.e. where there is a “non-infringing option”. The purpose of this is to try to isolate those profits that are attributable to the patented invention. This makes some sense, in that a patentee may not be entitled to an infringer’s entire profit on sales of automobiles if the infringement relates to a patent on a cupholder design. The profits on sales of the automobiles are not wholly attributable to the inventive feature. However, in a case where the patent is on the whole of the product, the infringer cannot argue it would have made profits off some other theoretical product instead of the infringing product. It must disgorge all of its profit from the infringing sales.

The Supreme Court also confirmed that springboard sales are included in the accounting of profits. An infringer starts building sales capacity and market share for the patented product at a time when the patentee should have a monopoly on that activity. This can have a lasting impact beyond expiry of the patent. On that basis, if post-expiry profits can be shown to be tied to infringing activity during the life of the patent, such that they would not have been made otherwise, then they can be included in the accounting of profits.

The Nova decision will be welcomed by patentees as it confirms that accounting of profits can be powerful remedy to fight patent infringement in the right circumstances.