Dow Chemical Company v. Nova Chemicals Corporation

Dow Chemical Company v. Nova Chemicals Corporation
Court (s) Database
Federal Court Decisions
Date
2017-04-19
Neutral citation
2017 FC 350
File numbers
T-2051-10
Notes
Reported Decision
Decision Content
Date: 20170419
Docket: T-2051-10
Citation: 2017 FC 350
Ottawa, Ontario, April 19, 2017
PRESENT: The Honourable Mr. Justice Fothergill
BETWEEN:
THE DOW CHEMICAL COMPANY,
DOW GLOBAL TECHNOLOGIES INC. and DOW CHEMICAL CANADA ULC
Plaintiffs/Defendants by Counterclaim
and
NOVA CHEMICALS CORPORATION
Defendant/Plaintiff by Counterclaim
PUBLIC JUDGMENT AND REASONS
(Confidential Judgment and Reasons issued on April 7, 2017)
Table of Contents
I. Overview.. 3
II. Introduction to Polyethylene. 4
III. Patent in Issue. 6
IV. Procedural History. 7
A. United States Proceedings. 7
B. Liability Phase. 8
C. Motion re Disputed Grades. 9
V. Evidence. 10
A. General Observations. 10
B. Preliminary Objections. 10
C. Fact and Expert Witnesses. 14
VI. Issues. 21
VII. Disputed Grades. 21
A. Res Judicata. 22
B. Abuse of Process. 28
C. Limitations and Prescription. 29
VIII. Damages. 29
A. Reasonable Royalty. 29
B. Dow’s Minimum Willingness to Accept 31
C. Nova’s Maximum Willingness to Pay. 35
D. Nova’s Additional Arguments. 37
E. Products Subject to Reasonable Royalty. 40
F. Pre-judgment Interest 41
IX. Profits. 43
A. General Principles. 43
B. Revenues from Sales. 44
C. Disputed Grades and Infringing Off-grades. 44
D. Springboard Profits. 45
E. Deductible Costs. 52
(1) Cost of Ethylene. 53
(2) Fixed Costs and Capital Depreciation. 55
F. Pre-judgment Interest and “Profits on Profits”. 64
X. Currency Conversion. 67
XI. Conclusion. 72
XII. Postscript 73
I. Overview [1] In these reasons, I refer to the plaintiffs Dow Chemical Company, Dow Global Technologies Inc and Dow Chemical Canada ULC collectively as “Dow”. I refer to the defendant Nova Chemicals Corporation as “Nova”.
[2] On September 5, 2014, Justice O’Keefe found that Dow’s Canadian Patent No. 2,160,705, “Fabricated Products Made From Ethylene Polymer Blends” [the ’705 Patent], was valid and infringed by Nova (Dow Chemical Company v Nova Chemicals Corporation, 2014 FC 844 [Dow v Nova]). These conclusions were affirmed by the Federal Court of Appeal on September 6, 2016 (Nova Chemicals Corporation v Dow Chemical Company, 2016 FCA 216 [Dow v Nova (FCA)]).
[3] Justice O’Keefe heard only the liability phase of the action. Pursuant to his judgment, Dow was entitled to damages under s 55(2) of the Patent Act, RSC 1985, c P-4, and to elect either an accounting of Nova’s profits or all damages sustained by reason of Nova’s infringement of the ’705 Patent under s 55(1) of the Patent Act. The quantum of the award was to be assessed by reference preceded by discovery if requested.
[4] This reference was commenced by requisition accompanied by Dow’s Statement of Issues on October 20, 2014. Nova filed its Revised Response to Statement of Issues on April 22, 2016. Particulars were exchanged by the parties. Dow made its election in respect of the recovery of Nova’s profits on June 24, 2016 pursuant to an Order of this Court dated June 10, 2016.
[5] These proceedings also concern questions pertaining to disputed grades pursuant to the Order of Justice Hughes dated March 30, 2016 (2016 FC 361).
[6] By agreement of the parties, these reasons address only the assumptions and other considerations that inform the calculations of damages and profits. The parties’ accountants will calculate the sums owed by Nova to Dow based on the conclusions reached by the Court in this stage of the reference.
[7] The assumptions and other considerations that are to inform the calculations of damages and profits payable by Nova to Dow are those included in the judgment that follows these reasons.
II. Introduction to Polyethylene [8] Polyethylene is a common form of plastic. Its commercial uses include grocery bags, food wraps and films, beverage bottles, heavy-duty sacks, plastic pipes, pails and crates. Polyethylene is manufactured using different processes, usually involving solution, gas phase or slurry reactors. Solution reactors may be single reactor or dual reactor systems.
[9] Some polyethylene products are made with ethylene that has been copolymerized with other hydrocarbons, typically butene, hexene, or octene. These are referred to as comonomers.
[10] Catalysts play an important role in the production of polyethylene, because they permit the formation of polymers under milder conditions. Catalysts create reactive sites that facilitate the linking of thousands of small ethylene molecules into long, large polyethylene molecules. A “single-site catalyst”, which generates reactive sites that are all the same, produces a molecular weight distribution of the polymer that is approximately 2. A “multi-site catalyst”, which generates reactive sites that perform differently from one another, produces a molecular weight distribution of the polymer that is approximately 3.5 or more.
[11] Polymer blends with a narrow molecular weight distribution exhibit desirable properties such as high impact strength and toughness. However, they may be more difficult to process into films.
[12] High-density polyethylene [HDPE] tends to be rigid and is used to manufacture products such as plastic pipes, pails or crates. Commodity HDPE products are referred to generally as “pail and crate”. Commodity HDPE is characterised by its relatively low cost and low profit margin.
[13] HDPE may be contrasted with low-density polyethylene [LDPE]. LDPE tends to be more flexible than HDPE, and is used to make plastic films such as those used in bread bags.
[14] Over time, LDPE has evolved into linear low-density polyethylene [LLDPE]. The structure of LLDPE differs from LDPE, resulting in improved properties. Examples of LLDPE products include DOWLEX, made by Dow, and SCLAIR, made by Nova. Both products are made in a single reactor using a “Ziegler Natta” [ZN] catalyst. DOWLEX and SCLAIR may be described as “conventional” LLDPE products, and have been on the market for many years.
[15] A more recent innovation is metallocene linear low-density polyethylene [mLLDPE]. ELITE, manufactured by Dow, and SURPASS, manufactured by Nova, are both mLLDPE products. They may be distinguished from conventional LLDPE products such as DOWLEX and SCLAIR by their superior performance characteristics, particularly in relation to their strength and ease of processability.
III. Patent in Issue [16] Dow filed its application for the ’705 Patent on April 19, 1994. The ’705 Patent was published on November 10, 1994, but was not issued until August 22, 2006. The ’705 Patent expired on April 19, 2014, and was in effect for approximately eight years.
[17] In Nova v Dow (FCA), the Federal Court of Appeal described the ’705 Patent as follows:
[5] The patent is directed primarily to polyethylene used to make “film” products, i.e. sheets of plastic, like plastic garbage bags and food wrapping. Some film applications do not have demanding strength requirements, but others do. One solution for these demanding applications was to make thicker “films” so that they are stronger. That requires the use of more plastic, however, leading to higher costs and more waste when the plastic film is disposed of.
[6] The patent identifies the need to develop polymers that can be formed into thinner films with improved strength properties […]
[8] The claimed invention and Dow’s commercial embodiment of it (ELITE) allows for source reduction to make thicker films thinner, but just as strong. Whereas prior art efforts to create improved polymers and polymer blends were largely trial and error, Dr. Lai (one of the inventors) testified at trial that Dow’s researchers took a different approach to identify the optimal blend based on polymer density, molecular weight, and strain hardening (the latter being a property wherein a material becomes harder as it is stretched). This work is disclosed in the ’705 Patent, including the creation of the slope of strain hardening coefficient (SHC) to identify polymers of interest. […]
[9] Each of the 46 claims of the ’705 Patent is directed to a blend having at least these two components, with each component having certain requirements, depending on the particular claim. […]
IV. Procedural History A. United States Proceedings [18] Prior to the litigation in Canada, Dow sued Nova in respect of its sales of SURPASS in the United States under two U.S. patents that correspond to the Canadian ’705 Patent. The U.S. litigation was commenced in 2005, and resulted in a jury verdict dated June 15, 2010. Dow was awarded US$76 million in damages and interest for lost sales and reasonable royalties resulting from Nova’s sales of SURPASS in the U.S. up to December 31, 2009. That decision was upheld by the U.S. Federal Circuit (Jury Verdict dated June 15, 2010, U.S. Proceeding CA No 05-737 (JJF) (US Dist Ct, Del); Dow Chemical v Nova Chemicals, 2010-1526 (CAFC); Dow v Nova, Civ No 05-737-LPS (DI 760) (US Dist Ct, Del)).
[19] Dow was denied an injunction in the U.S. litigation. As a result, a “supplementary damages” trial was conducted in April and May 2013 based on the jury’s finding of infringement. This resulted in a further decision granting Dow US$30 million in damages and interest for lost ELITE sales and reasonable royalties resulting from Nova’s sales of SURPASS in the U.S. until the expiry of the U.S. patents on October 15, 2011 (Dow v Nova, 2014-1431, 2014-1462 (CAFC); Dow v Nova, CA No 05-737 (LPS), Order of Final Judgment (US Dist Ct, Del)).
[20] The supplementary damages award was subsequently overturned on appeal to the U.S. Federal Circuit due to a change in the U.S. law of insufficiency. This particular insufficiency argument was not raised in the Canadian litigation.
[21] Dow does not seek damages or an accounting of profits in respect of the U.S. sales of Nova’s SURPASS that were the subject of the U.S. proceedings.
B. Liability Phase [22] The liability phase of the current proceedings was summarized by the Federal Court of Appeal in Nova v Dow (FCA) as follows:
[10] Dow filed a Statement of Claim on December 9, 2010, alleging that Nova was infringing the ’705 Patent. Nova counterclaimed on the grounds of invalidity and unjust enrichment, but eventually dropped its unjust enrichment claims. In its opening statement at trial, Dow restricted the litigation to only eight composition claims, being claims 11, 29, 30, 33, 35, 36, 41 and 42; Nova similarly restricted its invalidity counterclaim to these same claims. As a result, the Judge erred in holding that Claim 15 was valid and infringed; Dow dropped its allegations in relation to that claim, and reference to it in paragraph 1 of the Judgment should be deleted.
[11] […] The Judge found that all the claims at issue were valid, and that Nova infringed these claims by manufacturing in Canada and distributing, offering for sale, selling or otherwise making available film-grade polymers under the name SURPASS.
C. Motion re Disputed Grades [23] Subsequent to Justice O’Keefe’s judgment in the liability phase, but prior to the Federal Court of Appeal’s decision in Nova v Dow (FCA), Dow brought a motion before this Court for an order:
A. Declaring that: “The phrase “film-grade polymers under the name SURPASS”, as found in paragraph 1 of the trial judgment of Justice O’Keefe, dated May 7, 2014 includes within its scope and meaning the film-grade SURPASS polymers: FPs016-A, EX-FPs016-A01, EX-FPs225-A01 and FPs417-A”; and
B. Requiring Nova to disclose and produce all relevant documents pertaining to these film-grade SURPASS polymers.
[24] Justice Hughes agreed with Nova that Dow had failed to amend its Statement of Claim to include the additional film-grade SURPASS polymers [the disputed grades], despite Nova’s disclosure of three of the disputed grades in the U.S. proceedings in February 2012. He also found that Rule 399 of the Federal Courts Rules, SOR/98-106, did not apply because Dow was aware of the disputed grades prior to trial. He disposed of Dow’s motion as follows (2016 FC 361 at paras 31 to 34):
[31] At the hearing, I asked Defendant’s Counsel whether there was any prohibition against the Plaintiffs to prevent them from starting a new action in which the four designated films sought to be included in the reference could be put in issue in such a new action. Presumably, res judicata would apply to Justice O’Keefe’s findings as to claim construction, validity and at least certain matters as to infringement. Nova could raise defences as to non-infringement at least in respect of FPs417-A film and defences as to res judicata, abuse of process, limitation and prescription.
[32] A new action is a waste of the resources of this Court. While I agree with the Defendant in respect of its arguments as set out in paragraphs 1 and 2 above, I do not believe that a just, most expeditious and least expensive determination of the issues between the parties justifies forever precluding the Plaintiffs from putting before the Court the four further films as designated. Nor should it preclude the Defendant from raising defences that it believes to be proper.
[33] The parties have been through extensive discoveries and a trial. There have been many facts adduced and many findings of the Trial Judge. They should not be wasted.
[34] I will permit the Plaintiffs, effective the day they filed this motion, January 20, 2016, to further Amend their Statement of Claim to include, in Appendix A, films designated as FPs016, FPs117, FPs225, and FPs317. The Defendant may amend its Defence in response thereto. All previous discoveries and evidence adduced at trial may continue to be used and evidence adduced on this motion before me, can be used by the parties as if it had been given on discovery. In addition they may have such further discovery as reasonably necessary.
V. Evidence A. General Observations [25] The witnesses who were called to testify in this reference were generally credible. The expert witnesses presented impressive qualifications, and all witnesses testified in a manner that was forthright and responsive to the questions asked. My reasons for preferring some witnesses’ testimony over that of others are explained in the analysis that follows.
B. Preliminary Objections [26] To their credit, the parties largely agreed on the qualifications of the expert witnesses who were called to testify in this reference. The one exception was Dr. Eric Kelusky. Dr. Kelusky testified as a fact witness during the liability phase before Justice O’Keefe, and he also testified as a fact witness in this reference. Dow did not object to his testimony as a fact witness in either phase of the proceedings.
[27] However, Dow took the position in this reference that Dr. Kelusky lacked the necessary impartiality to be received by this Court as an objective expert. Dr. Kelusky’s opinion evidence concerned the steps that Nova would hypothetically have taken to bring its SURPASS line of products to market if it had waited until the ’705 Patent expired in 2014. He was permitted to provide his expert testimony subject to this Court’s ruling on the objection, which the Court took under reserve.
[28] Immediately following his retirement from Nova, Dr. Kelusky was engaged as a consultant to assist Nova’s litigation counsel in this matter. His contract began in 2010 and was still in effect when he testified in this reference. He also assisted with the U.S. litigation in his capacity as a Nova employee. His only involvement in the polyethylene industry since his retirement was in his role as a consultant for this litigation. He was not involved in Nova’s business decisions or product development after 2010.
[29] Dr. Kelusky was deposed in the U.S. proceedings as Nova’s corporate representative. He was involved in providing answers on discovery in this litigation, and also in the experimental testing that was done on behalf of Nova. He was present at the trial before Justice O’Keefe, and he interacted regularly with Nova’s counsel, particularly with respect to technical issues. Justice Hughes noted in his Order dated March 30, 2016 at paragraph 15 that Dr. Kelusky gave “very careful answers” to questions posed during the discovery process.
[30] Nova maintains that Dr. Kelusky is almost uniquely qualified to address how Nova would have prepared to launch its SURPASS line of products if it had awaited the expiry of the ’705 Patent in 2014. He worked at Nova during the actual launch of SURPASS in 2002, and no other witness called in these proceedings could offer a comparable perspective. Nova complains that Dow did not object to Dr. Kelusky’s expert report until five weeks after its receipt, despite the requirement in Rule 55(2) that objections to proposed expert evidence be made as soon as possible. Dow responds that it raised its objection to Dr. Kelusky’s report prior to the deadline agreed by the parties.
[31] Nova argues that it would be prejudiced if Dr. Kelusky’s testimony were rejected. Nova says that any concerns regarding Dr. Kelusky’s allegiance to Nova should affect only the weight accorded to his testimony.
[32] In White Burgess Langille Inman v Abbott and Haliburton Co, 2015 SCC 23 [White Burgess], the Supreme Court of Canada held at paragraph 10 that expert witnesses have a duty to the court to give fair, objective and non-partisan opinion evidence. They must be aware of this duty and able and willing to carry it out. If they do not meet this threshold requirement, their evidence should not be admitted. Once this threshold is met, however, concerns about an expert witness’ independence or impartiality should be considered as part of the overall weighing of the costs and benefits of admitting the evidence.
[33] The Supreme Court provided the following additional guidance in White Burgess at paragraph 49:
This threshold requirement [to give fair, objective and non-partisan opinion evidence] is not particularly onerous and it will likely be quite rare that a proposed expert’s evidence would be ruled inadmissible for failing to meet it. The trial judge must determine, having regard to both the particular circumstances of the proposed expert and the substance of the proposed evidence, whether the expert is able and willing to carry out his or her primary duty to the court. For example, it is the nature and extent of the interest or connection with the litigation or a party thereto which matters, not the mere fact of the interest or connection; the existence of some interest or a relationship does not automatically render the evidence of the proposed expert inadmissible. In most cases, a mere employment relationship with the party calling the evidence will be insufficient to do so. […] Similarly, an expert who, in his or her proposed evidence or otherwise, assumes the role of an advocate for a party is clearly unwilling and/or unable to carry out the primary duty to the court. I emphasize that exclusion at the threshold stage of the analysis should occur only in very clear cases in which the proposed expert is unable or unwilling to provide the court with fair, objective and non-partisan evidence. Anything less than clear unwillingness or inability to do so should not lead to exclusion, but be taken into account in the overall weighing of costs and benefits of receiving the evidence.
[34] Having considered Dr. Kelusky’s testimony, I am satisfied that he recognized and accepted his duty to give fair, objective and non-partisan opinion evidence to the Court. His answers to questions were forthright and responsive, both during examination in chief and in cross-examination. I have no hesitation in qualifying him as an expert to testify in these proceedings. The weight to be given to his testimony is another matter, and this is discussed at the appropriate juncture below.
[35] Both parties also objected to certain portions of the expert reports filed on behalf of the opposing party. Many objections were raised in the course of the witnesses’ testimony and were ruled on accordingly. In these reasons, I have based my conclusions on evidence that I found to be both admissible and probative. I have disregarded evidence that, in my view, exceeded an expert witness’ qualifications, and I have placed no weight on viewpoints that were unsupported by the evidence or unduly speculative. My reasons for accepting some evidence and opinions, and rejecting others, may be found in the analysis that follows.
C. Fact and Expert Witnesses [36] This overview of the fact and expert witnesses called by the parties is based on the helpful summary provided by Nova in its closing submissions.
[37] The following fact witnesses testified on behalf of Dow:
• Mr. Christopher (Kip) Thomson retired from Dow in 2013. Prior to his retirement, Mr. Thomson held a number of positions in sales and marketing, including product manager for food and specialty packaging applications. Mr. Thomson testified about the qualification of Dow’s products with its customers, film manufacturing, film properties, competition in the marketplace and licensing at Dow.
• Mr. Gregory Bunker is Senior Global Marketing Director for Dow’s health and hygiene business. He has held a number of technical and marketing roles at Dow, including marketing director for Dow’s food and specialty packaging market segment. Mr. Bunker testified about competition in the film marketplace, in particular with Exxon’s EXCEED, and customer qualification.
[38] The following expert witnesses testified on behalf of Dow:
• Mr. Ross Hamilton was qualified as an expert in the quantification of damages and profits in commercial and intellectual property disputes. Mr. Hamilton offered his opinion on the quantification of Nova’s profits from the manufacture and sale of the infringing SURPASS products.
• Mr. Thomas Dunn was qualified as an expert in the timing for the development of polyethylene resins, the qualification of polyethylene resins for use in flexible packaging products, processes and use by converters of polyethylene resins, and flexible packaging products and processes. He has been inducted into the U.S. National Packaging Hall of Fame. Mr. Dunn testified about the development and qualification steps that Nova would need to complete before SURPASS products could be sold, and the timing of those steps in the hypothetical “but-for” world.
• Dr. Gregory Leonard was qualified as an expert economist specializing in applied microeconomics, the study of the behaviour of consumers and firms and econometrics. He offered his opinion on the quantification of damages, including reasonable royalty rates in patent infringement matters. Dr. Leonard addressed the reasonable royalty rate payable to Dow, the length of time it would have taken Nova to “ramp up” sales of SURPASS products after expiry of the ’705 Patent and the mechanism for measuring pre-judgment interest. In his reply report and testimony, Dr. Leonard responded to Dr. Heeb’s report, as well as certain aspects of Dr. Soriano’s and Dr. Kelusky’s reports.
• Dr. João Soares was qualified as an expert in polymer science and polymer engineering, the characterization of polymers, polymer compositions, including synthesis, analysis, testing, production and mathematical modeling. Dr. Soares testified about the scope of the claims in the application for the Patent as published in 1994 and the processability characteristics of ELITE and SURPASS.
[39] The following fact witnesses testified on behalf of Nova:
• Dr. Eric Kelusky joined DuPont Canada in 1984, where he was responsible for DuPont’s polyethylene research centre. After Nova acquired DuPont Canada in 1994, he was Director of Polyethylene Research and responsible for Nova’s polyethylene research and development programs. In 2002, he became Vice-President for Advanced SCLAIRTECH [AST] Development, where he was responsible for the commercialization and profitability of AST products, including SURPASS. From late 2006 until his retirement in 2010, he was the Vice-President of Technology for Nova. Since then he has been a consultant for Nova. Dr. Kelusky testified about Nova’s acquisition of DuPont’s catalyst technology, the development and commercialization of the SURPASS polymers at issue, the prior U.S. litigation, the product slate of the PE2 plant in Joffre, Alberta, product nomenclature, PE2 capital costs, and research and development costs associated with Nova’s SURPASS products.
• Dr. Daryll Harrison has been employed at Nova since 1988, when he started as a polymer research scientist. In 1996, he became leader of the New Polymers Catalyst Group, a group of scientists who developed catalyst technology for the polyethylene business. He has since held the positions of Director of Polyolefins Research and Development and Vice-President of Technology. He is currently Vice-President of the 1NOVA Program Management. He testified about the development and commercialization of the Emerald catalyst and SURPASS, as well as Nova’s product development capabilities since 2002.
• Ms. Debra Van Holst is the Director of Logistics for Nova. She has worked for Nova and its predecessor, DuPont Canada, for approximately 28 years, with 20 years in Nova’s polyethylene business. She testified about the history of the SCLAIR brand at Nova and DuPont, the capacity and product slate management of the PE2 plant, the identification of off-grades produced at the PE2 plant, as well as overall demand in the polyethylene market.
• Mr. Mark Kay joined Nova as a market manager in 1999. He is the Market Group Leader for Performance Films at Nova, a group which manages sales of applications such as heavy-duty shipping sacks, food packaging, as well as specialty shrink wrap. From 2005 to 2011, he was the Distribution Sales Leader at Nova and dealt with distributors and brokers involved in reselling Nova’s polyethylene and polystyrene products in North America. He testified about the PE2 plant’s product slate, opportunities and demand for Nova’s SCLAIR performance film and pail and crate grades, the marketing and sales of offgrade products produced at the PE2 plant, processability, and competition in the marketplace.
• Mr. John Hotz is Vice President, Corporate Strategy at Nova. He joined Nova in 2000 as Vice-President of the polyethylene business, and was responsible for profits, losses and product management. He testified about the early PE2 product slate, PE2 sales, opportunities and relationships with Nova’s customers, competition with Exxon and Dow, early pricing strategy for SURPASS grades, and the market for pail and crate grades.
• Mr. Larry MacDonald was Nova’s Chief Financial Officer from 2002 until he retired in 2009. He worked at Nova or its predecessors for 30 years. He testified about the corporate and business history of Nova, the ethylene business and Nova’s corporate structure.
• Mr. Rocky Vermani has worked at Nova or its predecessors for over 25 years. Since 1990, he has held positions in Nova’s technology licensing business. He was the General Manager of licensing from 2004 to 2011. Between 2006 and 2011, he was also responsible for Nova’s polyethylene export business. From 2011 to 2014, he was the director of Nova’s ethylene business. Since 2014, he has been Nova’s Vice-President of Olefins Products, where he has overall responsibility for managing Nova’s ethylene business.
[40] The following expert witnesses testified on behalf of Nova:
• Dr. Eric Kelusky was qualified as an expert in Nova’s capabilities to develop and commercialize new polyethylene products and qualification at Nova’s customers, particularly for SURPASS. Dr. Kelusky testified about the potential “but-for” development and sales of SURPASS film products following expiry of the ’705 Patent, taking into account Nova’s historical capabilities for developing, testing and introducing SURPASS products, and its practices in selling and qualifying them with customers.
• Dr. Randal Heeb was qualified as an expert on the economic value of intellectual property rights, including economic issues related to the assessment of damages and profits and the calculation of reasonable royalties in intellectual property disputes. He is an economist with the consulting firm of Bates White, LLC. He has been a Senior Faculty Fellow at the Yale School of Management, where he taught MBA courses, including the economics of licensing related to the use of intellectual property and the efficiency and profitability of such licences.
• Dr. Charles Speed was qualified as an expert in polymer science, polymerization techniques, process development, the characterization and testing of polymers and compositions, product application development including blending and film blowing, and product analysis. He has over 40 years of experience in polymer technology with ExxonMobil Chemical Company and as a consultant. He retired from ExxonMobil as its Chief Scientist for Polyethylene Products. Dr. Speed explained polymer technology and discussed the scope of the claims of the patent application as published on November 10, 1994, whether the patent teaches improved processability and which of Nova’s off-grade products were made with only a ZN catalyst.
• Mr. Errol Soriano was qualified as an expert on the quantification of financial damages and profits, the evaluation of business interests and forensic accounting, including in the context of intellectual property disputes. He is a Managing Director at Duff & Phelps, a Chartered Professional Accountant, Chartered Business Valuator, and Certified Fraud Examiner. He has testified in approximately 45 damages and accounting of profits cases in Canada. He has authored books and educational materials for the Institute of Chartered Professional Accountants and the University of Toronto. Mr. Soriano testified about the quantification of Nova’s profits from the manufacture and sale of the infringing SURPASS products.
VI. Issues [41] The following issues are addressed in these reasons for judgment:
A. Whether the disputed grades and off-grades should be included in the calculation of damages and the accounting of profits.
B. The manner in which the damages payable to Dow pursuant to s 55(2) of the Patent Act should be calculated.
C. The manner in which the profits payable to Dow pursuant to s 55(1) of the Patent Act should be calculated.
D. The applicable rates of pre-judgment interest.
E. The manner in which currency conversion should be applied to the amounts payable to Dow as damages or profits.
VII. Disputed Grades [42] The disputed grades comprise four grades of SURPASS that Dow says are identical or nearly identical to those that were specifically pleaded in its original Statement of Claim: FPs417-A, FPs016-A, EX-FPs016-A01 and EX-FPs225-A01. Nova concedes that, based upon Justice O’Keefe’s analysis in Dow v Nova, the disputed grades infringe the ’705 Patent. Accordingly, the only matters to be resolved are Nova’s defences of res judicata, abuse of process, limitations and prescription.
[43] Dow says that the only difference between the disputed grades and the grades that have been found to infringe is their slightly different product names. Dow argues that Nova can be neither surprised nor prejudiced by the inclusion of the disputed grades in the calculation of damages and profits: Nova knew or ought to have known that the disputed grades infringed the ’705 Patent in the same manner as the grades that were specifically pleaded in Dow’s original Statement of Claim. Nova would have presented its arguments of non-infringement and invalidity in precisely the same way if the disputed grades had been included from the beginning.
[44] Nova responds that the disputed grades were added to Dow’s Statement of Claim by an amendment effective as of January 20, 2016. Nova argues that the disputed grades are barred by the doctrine of res judicata, particularly cause of action estoppel. Nova also pleads abuse of process and limitations. Section 55.01 of the Patent Act provides that no remedy shall be awarded for an act of infringement committed more than six years before commencement of the action. Nova maintains that all sales of the disputed grade EX-FPs225-A01 occurred in 2008 and 2009, which was more than six years before the effective date of January 20, 2016.
A. Res Judicata [45] A plaintiff who asserts a cause of action is ordinarily expected to claim all possible relief at once. Otherwise, there is a danger that plaintiffs will conduct litigation in instalments (Grandview v Doering, [1976] 2 SCR 621 at 637-38 [Grandview]). Cause of action estoppel applies not only to points upon which the court was actually required to decide, but to every point which properly belonged to the subject of the litigation, and which might have been brought forward at the time by exercising reasonable diligence (see Grandview at 634-39, citing Henderson v Henderson (1843), 3 Hare 100, 67 ER 313 at 319 (Ch)).
[46] In Appendix A to its original Statement of Claim, Dow identified 58 SURPASS grades that were alleged to infringe the ’705 Patent. These grades were grouped into three general product categories: FPs016, FPs117 and FPs317. On February 22, 2012, Dow amended its claim to include a fourth product category and a corresponding grade: FPs225-A. This brought the total number of pleaded grades to 59.
[47] Dow complains that in the liability phase of the trial before Justice O’Keefe, Nova intentionally concealed information regarding the disputed grades and their relationship to the SURPASS grades that had been pleaded. Nova refused to answer any questions that did not relate to one of the SURPASS grade names that had been specifically included in Appendix A to the Statement of Claim, despite the fact that the broader product categories had also been pleaded.
[48] Justice Hughes made the following observation in his Order dated March 30, 2016 (2016 FC 361 at para 15):
The attitude of the parties throughout this litigation appears to be hostile, particularly on the part of the Defendant. Justice O’Keefe dealt with this in his costs Order. A transcript of part of the Plaintiffs’ Examination for Discovery of the Defendant held on October 31, 2011, has been put in the motion record before me […]. It shows that the Defendant’s Counsel was resisting giving answers in respect of any film product not listed in Appendix A to the Statement of Claim, and very careful answers were given with respect to those that were listed such as saying that it did not make a product called FPs317 but admitted that it did make a product called FPs317-A.
[49] Nova redacted all references to the disputed grades from the documents it produced during the liability phase, including passages comparing the disputed grades to the pleaded grades. Dow maintains that some relevant documents were not produced at all.
[50] During the supplemental damages phase of the U.S. litigation, and after completion of Dow’s discovery of Nova in the Canadian action, Nova produced updated sales information that referenced three of the four disputed grades. Dow acknowledges that EX-FPs225-A01 was referenced in the documents that were produced in the initial phase of the U.S. litigation, but maintains that this grade was not in issue in those proceedings.
[51] There is good reason to conclude that the disputed grades are already encompassed by Justice O’Keefe’s judgment in Dow v Nova:
(a) FPs417-A was introduced by Nova in May 2010 as a “higher melt index [MI] version of FPs317-A”, a grade included in Appendix A to Dow’s original Statement of Claim. Nova’s internal documents characterized FPs417-A as “a minor variant” of FPs317-A, and described the two as “virtually identical”.
(b) Nova’s MI specifications for FPs317-A and FPs417-A overlap. In the case of FPs317, the acceptable MI range is between 3.35 and 4.65. In the case of FPs417, the acceptable MI range is between 3.8 and 5.0. Aside from the change in the target MI for the two products, the FPs317-A and FPs417-A specification sheets are identical, including in respect of all of the reported tensile film properties.
(c) According to Dr. Kelusky’s examination for discovery, Nova did not test the film properties of FPs417-A for the purposes of the data sheet, but assumed that they would be identical to FPs317-A. Dr. Kelusky admitted that FPs317-A and FPs417-A could have been labelled with the same grade designation (i.e., FPs417-A), based on Nova’s nomenclature convention. Since July 28, 2011, Nova has re-graded material originally made as FPs417-A with the FPs317-A designation. Nova has also re-designated lots of FPs317-A as FPs417-A.
(d) EX-FPs016-A01 and FPs016-A are identical. The “EX” prefix merely identifies a grade as experimental, even though it may be sold commercially. Sales of EX-FPs016-A01 began in October 2010. Between June and August 2011, Nova stopped using the “EX” designation and began using the name FPs016-A.
(e) FPs016-A differs from grades that were included in Appendix A of Dow’s original Statement of Claim (FPs016-C and FPs016-D) only by virtue of the “additive package” which is combined with the FPs016 base resin after production in the reactors. The FPs016 base resin was specifically pleaded and found to infringe the ’705 Patent.
(f) EX-FPs225-A01 is identical to, and the experimental precursor of, FPs225-A, which was specifically included in Appendix A to Dow’s original Statement of Claim.
[52] It has previously been held in the patent context that pleadings of infringement encompass variants that are not substantially different from one another, and to require a separate infringement claim on each variant would result in never-ending litigation (CSI Manufacturing & Distribution Inc v Astroflex Inc (1993), 52 CPR (3d) 483 (FCTD) at para 31). Moreover, Justice O’Keefe found in Dow v Nova that “film-grade polymers under the name SURPASS” infringed the ’705 Patent. It would be inconsistent with the intent and clear implication of that judgment to exclude infringing grades of SURPASS solely on the ground that were sold under slightly different names by the infringing party.
[53] This Court was faced with a similar circumstance in Xerox v IBM (1977), 43 CPR (2d) 60 (FCTD). The Statement of Claim in that case identified the infringing device as an “IBM Copier I”, and judgment in the liability phase was granted accordingly. In the subsequent reference on damages, the Court considered whether the defendant’s newer product, the Copier II, was sufficiently similar to the infringing device to merit its inclusion in the damages phase. This Court held that the trial judgement was not confined to a single type of machine, but applied to any similarly-infringing IBM copier.
[54] Nova characterises Dow’s argument that the disputed grades are already encompassed in Justice O’Keefe’s judgment in Dow v Nova as a collateral attack on Justice Hughes’ Order dated March 30, 2016. Nova notes that in paragraph 30, Justice Hughes accepted Nova’s argument that:
[Nova] did disclose three additional films in the context of the United States proceedings in February, 2012. Dow was aware of this disclosure and had access to it in the context of the Canadian proceeding but did nothing. The Order of Prothonotary Milczynski of March 11, 2011 made it quite clear that Appendix A of the Statement of Claim was to list the specific products at issue, and if any other products come to light, the Statement of Claim could be amended as the Plaintiffs did on February 22, 2012.
[55] Justice Hughes also agreed with Nova’s contention that the omission of the disputed grades from Justice O’Keefe’s judgment in Dow v Nova could not be rectified pursuant to Rule 399. However, he did not make any definitive findings on the merits of Nova’s potential defences of non-infringement, res judicata, abuse of process, limitation and prescription. He held only that Nova should