Corlac Inc. v. Weatherford Canada Inc.

Corlac Inc. v. Weatherford Canada Inc.
Court (s) Database
Federal Court of Appeal Decisions
Date
2011-07-18
Neutral citation
2011 FCA 228
File numbers
A-282-10
Decision Content
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.
Respondents
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.
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.
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 did likewise 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 elements compressed 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 depend on claim 1: reasons, para. 192. That conclusion, in my view, is correct. The judge was aware that he was dealing with a combination patent. The stationary framework (claim 14) and the drive means (claim 15) are included because of use in conjunction with the elements of 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 was not 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 for using the sealing system of claim 1”: appellants’ memorandum of fact and law, paras. 7, 73. This indicates that the construction of claim 17 relates largely to the construction of claim 1. However, the appellants’ real quarrel in relation to claim 17 is that the judge was wrong to conclude that infringement of the claim existed without the production of evidence that the appellants’ customers actually used their stuffing 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 of claim elements. The meaning of “plurality” and “leak passage” was not in issue; the judge addressed the geometry of the seal cartridges and leak passages in his analysis dealing with the construction of the term “seal cartridge.” The appellants have not demonstrated any error 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 judge preferred the expert evidence of the respondents’ witnesses (Dr. Salant in particular) and adopted their views does not constitute, in and of itself, an error of law. Here, the judge examined the evidence (on the contentious words or phrases) of all experts before indicating his preferences. 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., [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 (Baker Petrolite). The appellants contend that the trial judge erred in finding that the RSB (rotating stuffing box) was not disclosed to the public more than one year before the filing date of the '937 Patent. Relying on this Court’s decision in Baker Petrolite, they submit that the sale of 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 have established 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 Pan Canadian did not constitute disclosure “to the public” and therefore did not anticipate the patent: reasons, paras. 297-298. The judge relied on International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574 (LAC Minerals), to support 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 a relationship of trust and co-operation that led to an expectation of confidence: reasons, paras. 294, 298. The disclosure to Amoco and Pan Canadian was “for a limited purpose and certainly not disclosure to the public”: reasons, para. 297. There was no evidence with respect to 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 further up the corporate ladder thought there was confidentiality: reasons, paras. 293, 301. Both Amoco and Pan Canadian knew that Grenke lacked the ability to test his device and provided testing facilities to him: reasons, para. 294. Grenke’s disclosure was part of the process he had to undertake so that he could conduct field tests, establish utility, make the necessary improvements to the design and finalize the invention: 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 in the early development discussions with Merkel. Nonetheless, Pan Canadian had the same stuffing box problem as Amoco and knew or ought 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 public disclosure: reasons, paras. 295, 305. Applying LAC Minerals, the judge found that since the sales of the prototypes took place in circumstances 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 h