Angelcare Canada Inc. v. Munchkin, Inc.

Angelcare Canada Inc. v. Munchkin, Inc.
Court (s) Database
Federal Court Decisions
Date
2023-08-17
Neutral citation
2023 FC 1111
File numbers
T-151-16
Decision Content
Date: 20230817
Docket: T-151-16
Citation: 2023 FC 1111
Ottawa, Ontario, August 17, 2023
PRESENT: The Honourable Mr. Justice Roy
BETWEEN:
ANGELCARE CANADA INC. - and – EDGEWELL PERSONAL CARE CANADA ULC - and – PLAYTEX PRODUCTS, LLC
Plaintiffs/ Defendants by Counterclaim
and
MUNCHKIN, INC. - and – MUNCHKIN BABY CANADA, LTD.
Defendants/ Plaintiffs by Counterclaim
ORDER AND REASONS
[1] Four topics are made the subject of this Order and its Reasons:
entitlement to injunctive relief;
entitlement to accounting of profits;
entitlement to punitive damages; and
who, out of the three Plaintiffs, is entitled to a pecuniary remedy (damages or accounting of profits) and for what period of time.
[2] This matter comes before the Court as a result of an order issued on September 23, 2022, which came in the footsteps of another order, dated May 7, 2021, which provided for a hearing to take place for the matter of entitlement to remedies to be considered following this Court’s decision on the issue of claim construction, infringement and validity (Angelcare Canada Inc v Munchkin, Inc, 2022 FC 507). The original bifurcation order had been made on August 25, 2016.
[3] To be clear, the present order does not address per se the actual quantification of the compensation owed to the Plaintiffs to the extent of their success following a lengthy trial concerning 117 claims found in six different patents. The order is limited to the entitlement to certain remedies, as listed, and who is entitled to remedies.
[4] The entitlement to declaratory relief concerning the infringement of various claims by the Defendants’ cassettes and assemblies of cassettes and diaper pails has already been made the subject of adjudication. It is mainly generations 1, 2 and 3 of the Defendants’ cassettes which have been found to infringe various claims of the six patents-in-issue. The only exception is with respect to Munchkin’s cassettes of its fourth generation when assembled with diaper pails of the Defendants. That particular finding reads this way:
Declares that the Defendants’ Generations 1, 2, 3 and 4 cassettes infringe claims 11, 12, 13, 16, 18, 19, 22 and 23 of the 128 Patent when assembled with the Defendants’ PAIL and STEP diaper pails.
As I understand it, the possible compensation for assemblies including generation 4 cassettes and the Defendants’ PAIL and STEP diaper pails is likely to be very limited. Thus, and without necessarily excluding a further remedy concerning generation 4 cassettes, the quantification of compensation will likely focus on the earlier generations of the various cassettes produced by the Defendants.
[5] The Court will address the various issues raised by the parties seriatim.
I. Entitlement to injunctive relief [6] A permanent injunction was sought by the Plaintiffs concerning generation 4 cassettes when combined with the PAIL and STEP diaper pails. That injunction has already been granted. Consideration to be given to possible injunctive relief is therefore limited at this stage to a permanent injunction concerning generations 1, 2 and 3 cassettes.
[7] As for these three generations, the Defendants argue that they have been removed from Canada. There is therefore no need for an injunction, they say. On the other hand, the Plaintiffs contend that the injunction sought is for the purpose of ensuring that the Defendants’ cassettes will remain out of the Canadian market. At the hearing of the motion, the Court enquired whether there are still in existence generations 1, 2 and 3 cassettes outside of Canada. Counsel for the Defendants did not know. Insofar as I can tell, the Defendants suggest that the absence of evidence of imminent infringement militates in favour of not granting an injunction.
[8] Section 57 of the Patent Act, RSC 1985, c P-4 [the Act], provides specifically for the remedy of a permanent injunction. That appears to be the natural consequence from a finding that a defendant has been found to infringe patents with a product. In Eurocopter v Bell Helicopter Textron Canada Limitée, 2012 FC 113 [Eurocopter or Bell Helicopter], we read that the injunction “will be commonly granted for an infringement or threatened infringement, unless there is some equitable reason not to do so, such as acquiescence, long delay, lack of clean hands, unconscionability, or triviality” (para 397). The Defendants’ suggestion that there is no evidence of imminent patent infringement, such that the Court should refrain from granting an injunction, is less than convincing.
[9] For starters, if the Defendants have no intent to commercialize in Canada their cassettes of generations 1, 2 and 3, they should not be concerned that an injunction is issued until the various patents at issue have expired.
[10] Furthermore, a permanent injunction constitutes the natural remedy against infringement on a going forward basis. If compensation for past infringement (s 55), whether it be by way of damages or accounting of profits, is an essential remedy for past infringement, there must be a moral hazard going forward with respect to a product which has been found to be infringing. The existence of an injunction would allow the Plaintiffs to have available the ability to proceed by way of contempt of court in case of infringement of the order.
[11] Finally, the issuance of a permanent injunction against previous generations of infringing products is certainly not unprecedented. Our Court ordered such injunction in Bauer Hockey Corp v Easton Sports Canada Inc, 2010 FC 361, and in Eurocopter.
[12] In Jay-Lor International Inc v Penta Farm Systems Ltd, 2007 FC 358, 313 FTR 1, our Court declined to grant the requested injunction, stating that “(g)iven that the Defendants have not manufactured an infringing vertical feed mixer since May 1, 2005, there is no need, in my view, for an injunction or for an order for delivery up of infringing units” (para 263). In our case, it is not known if generation 1, 2 and 3 cassettes are still available outside of Canada and the injunction may serve a purpose.
[13] Finally, the six patents-in-suit will not expire until 2028 (the 128 Patent expires on May 2, 2028, while Patents 384, 159, 421, 312 and 415 expire on October 3, 2028). If an injunction was for a short period of a few months, there might be a better argument for refraining from granting an injunction whose effect could be seen as being diminished. But such is evidently not the case. The uncertainty concerning the existence of cassettes of generations 1, 2 and 3, together with patents that remain valid for many years, militates in favour of granting the natural remedy to patent infringement, which is the injunction provided for specifically at paragraph 57(1)(a) of the Act.
[14] As a result, the Plaintiffs are entitled to a permanent injunction concerning the generation 1, 2 and 3 cassettes which infringe the patents-in-suit.
II. Entitlement to elect between damages and accounting of profits [15] The Plaintiffs seek to have the faculty to decide at a later date, once discovery has been completed, to select between an award of damages and an accounting of profits for the purpose of establishing damages suffered because of infringement. While the Court was under the impression originally that the Plaintiffs would select one of the two at this stage, it was made abundantly clear during the hearing that such would not be the case. In effect, the financial information in order to make an enlightened choice between damages and an accounting of profits is said to be lacking.
[16] The issue is therefore whether the Court should deny the Plaintiffs the faculty to elect the accounting of profits method to assess the compensation of a pecuniary nature stemming from the infringement of the patents.
[17] Section 55 of the Act provides that the infringement of a patent “is liable to the patentee and to all persons claiming under the patentee for all damage sustained … ”. There is also the possibility of seeking the equitable remedy of accounting of profits, pursuant to paragraph 57(1)(b) of the Act.
[18] Damages are the loss sustained by a successful plaintiff: they are not the amount of profits earned by the infringer. The accounting of profits will attempt to measure the profits made by the infringer. As the Supreme Court of Canada stated in Nova Chemicals Corp v Dow Chemical Co, 2022 SCC 43 [Nova Chemicals], at paragraph 7, “Damages compensate the patentee for all pecuniary losses causally attributable to infringement after the grant of the patent. … Damages can include lost profits on sales or due to depression of prices, and lost income from licensing opportunities, among others”. The accounting of profits targets the profits made by the infringer. The Supreme Court spoke at paragraph 7 of Nova Chemicals of “(a)n accounting of profits requires that the infringer disgorge all profits causally attributable to infringement of the invention after the grant of the patent”.
[19] The Defendants insist that accounting of profits being an equitable remedy, there is nothing automatic in allowing plaintiffs to make an election between the two. The Court has the discretion to deny the choice and to force the Plaintiffs to seek damages instead of an accounting of profits.
[20] It is submitted on behalf of the Defendants that the following issues ought to be considered in making the determination that accounting of profits should be taken off the table:
a)the proceedings have already been complex and protracted; the trial had to address 117 claims, in six different patents; instead of focusing on stronger arguments, weak ones were carried by the Plaintiffs throughout a long trial including, for instance, concerning generation 4 cassettes which should have been recognized much earlier as not having an essential element (the chamfer);
b)the type of discovery implied in accounting of profits should not be allowed. The Defendants claim that the scope of discovery would double as it would include the Plaintiffs’ and the Defendants’ businesses;
c)the Plaintiffs did not disclose until the end of the trial all the facts as to title to infringements and damages; and
d)an accounting of profits produces unreliable results.
[21] The Plaintiffs, obviously, acknowledge the discretion of the Court in allowing the selection: they did not contend otherwise. However, the discretion is not to be exercised in an arbitrary fashion. The Supreme Court of Canada, in Nova Chemicals, found that judges “may consider practical consequences, including expediency, misbehaviour by litigants, and whether the patentee practices the invention itself when exercising this discretion”. As the Federal Court of Appeal stated in Apotex Inc v Bristol-Myers Squibb Co, 2003 FCA 263, at paragraph 14:
The fact that equitable remedies are discretionary means that the respondent cannot elect an accounting of profits as of right. That said, a discretionary remedy is not an arbitrary remedy. In the absence of proof of a bar to equitable relief, a claimant can expect to be granted the remedy it seeks in accordance with the principles governing its availability. Nor does the issue of a bar to equitable relief require the claimant to disprove every ground which could possibly disentitle it to that relief. It is not open to a party to argue that its opponent has not sufficiently disproven a given bar. All this to say that there is no reason why the issue of the respondent's right to elect an accounting of profits cannot be dealt with in the liability portion of the trial. The appellant having denied that it relies upon particular facts to say that the respondent is not entitled to an accounting, the trial judge can deal with the question of entitlement on the basis of the respondent's own evidence.
[22] In Bayer Inc v Cobalt Pharmaceuticals Company, 2016 FC 1192 [Bayer Inc], our Court spoke of the election between damages and accounting of profits as being “common practice in cases of patent infringement to allow a plaintiff to elect between damages and an accounting of profits”. That said, our Court “does not establish a right to an election”, but rather the exercise of discretion is “subject to the principles governing its availability” (para 6). Be that as it may, the “principles governing its availability” appear to be basically the same as those governing generally equitable relief: lack of “clean hands”, undue delay by the plaintiff in commencing or prosecuting the proceedings, complexity of an accounting of profits; the infringer’s conduct (para 10). In Bayer Inc, the Court allowed the election by the Plaintiffs.
[23] The case of Philip Morris Products S.A. v Marlboro Canada Limited, 2015 FC 364 [Marlboro], a case involving trademarks, is in my view instructive given the articulation of the principles governing the availability of the remedy. In particular, de Montigny J, then of this Court, found that, although successful parties do not have a right to an accounting of profits, “they should not be denied that option in the absence of any compelling reasons” (para 21). Indeed, the Court of Appeal (Philip Morris Products S.A. v Marlboro Canada Limited, 2016 FCA 55) fully and explicitly agreed with that approach at paragraphs 8 and 18 of its reasons, stating that the “Judge did not err when he stated that he would not deny the respondents (Marlboro) an accounting of profits in the absence of compelling reasons” (para 18). Thus, the starting point seems to be that the remedy is available, but the Court must consider the reasons given for denying an accounting of profits to assess whether these are compelling or not.
[24] In Marlboro, our Court did not find any compelling reason. Although the Marlboro case was concerned with an accounting of profits for trademarks infringement, the principles are the same in the context of patent infringements. The remedy is the same and the rules governing the equitable remedy are no different. In Marlboro, our Court did not find compelling reasons to deny the successful party an accounting of profits. None have been shown in this case before this Court.
[25] Here, the Defendants’ contention boils down to the complexity of the proceedings which, it is suggested, implies practical difficulties.
[26] There is no doubt that this infringement case has been complex: the numbers speak for themselves: six patents-in-suit, 117 claims alleged to have been infringed, four generations of Munchkin cassettes and multiple combinations of cassettes and diaper pails. However, these difficulties and complexities at trial have not been shown to translate into the same kinds of complexities and difficulties where the issues concern possible remedies if the Plaintiffs are allowed to elect an accounting of profits.
[27] The advantage of the accounting of profits, from a conceptual perspective, was eloquently described by the majority of the Federal Court of Appeal in Nova Chemicals Corporation v Dow Chemical Company, 2020 FCA 141, [2021] 1 FCR 441, a case that is binding on this Court, where we read:
[18] If the court’s remedial armoury were limited to an award of compensatory damages, in some cases infringers would have an incentive to infringe. For them, compensatory damages would be nothing more than a manageable fee to infringe the patent and earn benefits over and above the fee. Effectively, in such cases, inventors would no longer enjoy exclusive rights to benefit from their invention but rather merely a right to a fee for the unconsented-to use of their invention. Indeed, in some cases, infringers would have very strong economic incentives to invade the monopoly granted by the patent. The bargain under the Patent Act would be no more.
[19] Fortunately, the court’s remedial armoury is not so impoverished. It has another tool by which it can protect and vindicate the patentee’s right to exclusivity and, thus, the bargain under the Patent Act: an accounting of profits.
[20] The aim of an accounting of profits is not to compensate for injury but to remove the benefits the wrongdoer has made as a result of the infringement. By doing this, any economic incentive to infringe is removed. Potential infringers realize that they will not come out ahead if they infringe a patent and the infringement is detected—all benefits earned as a result of the infringement will be stripped from them. The availability of the remedy of an accounting of profits warns potential infringers that they had best steer clear of others’ rights of exclusivity under patents and, instead, spend their time in more profitable, lawful ways. In this way, an accounting of profits reinforces the bargain under the Patent Act. If infringers invade a patentee’s statutory monopoly with insufficient consequence, the Patent Act’s bargain crumbles, inventive spirit sputters, and a source of public wealth depletes.
[21] This is not unlike the role of an accounting of profits in preserving other important dynamics and relationships recognized by law. For example, an accounting of profits plays a key role in protecting and vindicating the relationship between fiduciaries and their beneficiaries and removing any incentives to dishonour the relationship. See, e.g., Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177 at para. 75; Hodgkinson v. Simms, [1994] 3 S.C.R. 377, 117 D.L.R. (4th) 161 at 453-454; I.M. Jackman, “Restitution for Wrongs” (1989) 48:2 Cambridge L.J. 302 at 304; James Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Portland, OR: Hart Publishing, 2002) at 83-86.
[28] The Court of Appeal warns against accounting of profits becoming punitive. The exemplary damages are additional awards added to other remedial responses. Indeed, as we shall see, the imposition of punitive damages is governed by its own rules. The purpose of the accounting of profits is for the patentee to receive “the benefits obtained by infringers as a result of the infringement of the patent, properly construed and understood, no more, no less” (para 33). The restitutionary purpose of the remedy must be acknowledged as a defendant may benefit from unjust enrichment through the infringement of the Plaintiffs’ patents by generations of Munchkin’s products.
[29] Without a demonstration by the Defendants of the complexities and difficulties to be encountered if the Plaintiffs select an accounting of profits – whether there is a presumptive entitlement to the remedy or it is a common practice to allow the election – the advantage of the accountability of profits, in terms of the protection of the Patent Act’s bargain, takes us to allowing the election.
[30] There is no doubt that there are cases where the election ought to be denied. Such was the conclusion reached in Rovi Guides, Inc v Bell Canada, 2022 FC 1388 [Rovi] (paras 582 to 643). In that case, our Court found that the infringement had not been established such that there was no need to discuss remedies. Nevertheless, the Court expressed views in case the Court of Appeal were to rule in favour of the plaintiffs on the infringement findings. Rovi provides for a useful analysis of remedies the plaintiff in that case may have been entitled to had it been successful.
[31] For our purposes, it is the analysis concerning the accounting of profits that is of interest. Over more than 50 paragraphs (paras 589 to 643), the Rovi Court examined Rovi’s contention that an accounting of profits should be available. Four factors were assessed: the complexity of calculating an accounting of profits, the conduct of the patentee, the good faith of the defendant, and whether the patentee does not compete with the defendants or routinely licenses its patents.
[32] The Court had available to it extensive expert evidence on the complexity of calculating an accounting of profits (leading to the argument of a lack of accuracy of the results). Rovi’s conduct was assessed as being less than stellar as to the delay in prosecuting patent applications “and the late amendments to some of its patents leads inexorably to the conclusion that delay in prosecution of the Patents was a deliberate and integral part of Rovi’s business strategy” (para 623). The Court found that Rovi attempted to “game the system” and that “goes against the restitutionary purpose of an accounting of profits” (para 625).
[33] The Court in Rovi also considered the conduct of the defendants. It concluded that the evidence did not demonstrate any wilful infringement which might call for deterrent measures. Finally, the fact that Rovi did not practice its own invention (assuming that there was an infringement for the sake of the argument) would not constitute a reason to refuse an election of an accounting of profits, citing Seedlings Life Science Ventures, LLC v Pfizer Canada ULC, 2021 FCA 154, at paras 75 to 80. This consideration is evidently not relevant in our case.
[34] Having considered fully the evidence offered by the parties, the Rovi Court found against allowing the accounting of profits, especially in view of the demonstrated complexity of calculating an accounting of profits in the circumstances of that case and Rovi’s conduct in the prosecution of its patents.
[35] In Marlboro, our Court, per de Montigny J, conducted the same kind of analysis. Without suggesting that there exists a right to the accounting of profits, or even a presumption, the Court viewed its role as granting the election unless there are compelling reasons to deny the equitable remedy. As already noted, that approach was explicitly endorsed by the Court of Appeal. Thus, the Marlboro court reviewed a number of factors.
[36] The claimant’s conduct was considered first. The delay in bringing a matter to trial was seen as showing a lack of clean hands. The complexity of an accounting of profits was considered next. The Court suggested that an accounting of profits may not be appropriate where the exercise would be complex and contentious, leading to lengthy and complicated procedures. But that, in and of itself, does not suffice. The complexity is to be measured against the amounts at stake as well as the complexity of the calculation of damages. Indeed that may be as complex as the accounting of profits. There is no reason to believe that either one of these methods will be significantly less complex or contentious. In Marlboro, the Court concluded that the complexity factor was neutral.
[37] The Court also considered the infringer’s conduct and the claimant’s damages. It was found that there was no blatant infringement of the trademark in view of a genuinely novel legal issue. As for the damages, it was acknowledged that their relevance to the question of an entitlement to elect is not usually great. After all, the purpose of an accounting of profits is to identify the profits wrongfully gained, thus restoring the improperly received profits to their rightful owners. What is of note in the Marlboro case, other than the circumstances of the case were quite different (as they usually are), is that the Court made it clear that the evidentiary issues are not to be decided at the entitlement stage.
[38] In the end, the Marlboro Court did not find the compelling reasons needed to deny the election:
[45] All things considered, I am of the view that ITL should be allowed the right to elect an accounting of profits. None of the factors or “bars” to be considered in exercising the discretion to allow the remedy of accounting of profits preclude this option. As a result, if the Defendants do elect an accounting of profits after discovery of the Plaintiffs, the burden will be on the Plaintiffs to establish which portion of its profits was not made as a result of the infringement of the Defendants’ rights.
As already noted, the Court of Appeal directly endorsed this conclusion, as it stated at paragraph 18 of its decision that “The Judge did not err when he raised that he would not deny the respondents an accounting of profits in the absence of compelling reasons (Judge’s reasons at paragraph 21).”
[39] In the case at bar, there is just no substantiated allegation of some reason for denying the Plaintiffs the ability to conduct, in due course, an accounting of profits. There is no demonstration concerning the alleged complexity and difficulties of the accounting of profits in this case. The alleged misconduct of the Plaintiffs stems largely from the fact that numerous claims in six different patents have been made the subject of litigation that was complex. Nevertheless, I am not prepared to accept that asserting rights to a patent, especially where there is a measure of success following litigation, leads as such to a finding of misconduct by the patentee. It is seldom that protracted litigation is the responsibility of only one party: it takes two to tango.
[40] As in Marlboro, I find myself incapable, on the record before the Court, to conclude that the accounting of profits, if it is to be selected, would lead to a more complex and less contentious process than an allocation of damages. There is simply no evidence sufficient to draw that sort of inference. Furthermore, it serves no useful purpose to seek to establish whether the infringements were blatant or not as the Defendants claim they sought to avoid infringement. I would rather consider the purpose of the accounting of profits serving adequately the circumstances of this case, that is restoring the improperly received profits to their rightful owners. The record before the Court is simply insufficient to conclude that the accounting of profits would be a method which would be unduly complex and contentious compared to the awarding of damages.
[41] As a result, the Plaintiffs are entitled to elect between damages and accounting of profits.
III. Entitlement to punitive damages [42] The Plaintiffs claim the right to punitive damages in this case. The Defendants strenuously argue that the case for punitive damages has not been made out. In my view, the Defendants are right. The law of punitive damages favours the Defendants in the circumstances in this case.
[43] There is no doubt that punitive damages are available in patent cases. As noted in Whiten v Pilot Insurance Co, 2002 SCC 18, [2002] 1 SCR 595 [Whiten], although punitive damages were not widely awarded until the 1970s, the Supreme Court recognized their availability as early as 1886 (Collette v Lasnier (1886), 13 SCR 563): a patent case appears to be a natural for punitive damages whose objectives are retribution, deterrence and denunciation (Whiten, para 43). As a matter of fact, the Federal Court of Appeal confirmed in Bell Helicopter Textron Canada Limitée v Eurocopter, société par actions simplifiée, 2013 FCA 219, 120 CPR (4th) 394, paras 163 et al, and more specifically, paras 180 to 184 [Bell Helicopter)], the awarding of punitive damages in a patent case, which ended up being $1,000,000 (Airbus Helicopters SAS v Bell Helicopter Textron Canada Limitée, 2019 FCA 29). Moreover, no one disputes that the issue of the granting of punitive damages ought to be addressed at this stage, whereas the quantification of damages has to be for another day.
[44] Bell Helicopter is the only decision known to the parties where punitive damages were awarded with respect to behaviour that was not characterized as being “in connection with litigation misconduct, or abuse of process, such as continuing activities found by the court to constitute infringement in disregard of a court order to cease such activities” (Dimplex North America Ltd v CFM Corporation, 2006 FC 586, at para 123 [Dimplex]). In Dimplex, the Court was referring to Lubrizol Corp v Imperial Oil Ltd, [1996] 3 FC 40, and Apotex Inc v Merck & Co, 2002 FCT 626, 219 FTR 259. I have not found other cases, other than Bell Helicopter, where punitive damages have been awarded for behaviour that does not involve the kind of litigation misconduct found in these two cases.
[45] That obviously does not mean that punitive damages cannot be awarded in patent cases. Bell Helicopter is a case in point. However, “[a]llegations of willful and knowing infringement are alone insufficient to support a claim to punitive damages” (Bauer Hockey Corp v Sport Maska Inc, (Reebok-CCM Hockey), 2014 FCA 158, at para 25 [Bauer]), in spite of the fact that punitive damages may be awarded without the presence of litigation misconduct.
[46] The question then becomes, in what situations should a punitive damages award be considered? The leading case continues to be the Supreme Court of Canada decision in Whiten; paragraph 367 consists of the oft-quoted statement of the test:
Punitive damages are awarded against a defendant in exceptional cases for “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency”: Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, at para. 196. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour. Because their objective is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed), punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment).
The Court of Appeal in Bauer provided its own articulation of the Whiten test at paragraph 19:
Punitive damages, as the name indicates, are designed to punish. As a result they constitute an exception to the general rule, in both common law and civil law, that damages are designed to compensate the injured, not to punish the wrongdoer. Punitive damages may be awarded in situations where the defendant’s misconduct is so malicious, oppressive and high-handed that it offends the court’s sense of decency. Punitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is the means by which the court expresses its outrage at the egregious conduct of the defendant where the defendant’s conduct is truly outrageous. Punitive damages are in the nature of a fine, which is meant to act as a deterrent to the defendant and to others from acting in the impugned manner: Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130 at paras. 196 to 199 (Hill); Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595 (Whiten) at para. 36.
[Emphasis in original]
[47] The level of blameworthiness, which may lead to punitive damages, may be influenced by various factors. The majority in Whiten identified seven of them, gleaned from the case law: “The more reprehensible the conduct, the higher the rational limits to the potential award” [emphasis in original] (para 112). These factors were summarized as follows in Bauer:
[20] The level of blameworthiness of the defendant's conduct leading to punitive damages may be influenced by many factors, which include (a) whether the misconduct was planned or deliberate; (b) the intent and motive of the defendant; (c) whether the defendant persisted in the outrageous conduct over a lengthy period of time; (d) whether the defendant concealed or attempted to cover up its misconduct; (e) the defendant's awareness that what it was doing was wrong; (f) whether the defendant profited from its misconduct; and (g) whether the interest violated by the misconduct was known to be deeply personal to the plaintiff: Whiten at para. 113.
[48] As already pointed out, the only patent case where punitive damages have been awarded remains the Bell Helicopter case, a decision in the Court of Appeal which came before Bauer (both decisions were penned by Mainville JA, for the Court of Appeal).
[49] In Bell Helicopter, the Court of Appeal noted that “the evidence revealed that concerns were raised by Bell Helicopter employees about these similarities [about the patented landing gear and that used by Bell Helicopter], but brushed away by management” (para 186). The Court refers specifically to paragraph 433 of the Federal Court’s decision (Eurocopter) from which it quotes “that there is clear evidence of bad faith and egregious conduct on the part of Bell”, “willful blindness or intentional and planned misappropriation of the claimed invention” and “that the infringement of the ´787 Patent by the making and use of the Legacy gear [developed by Eurocopter] was not innocent or accidental”.
[50] Both the trial court and the Court of Appeal stressed Bell Helicopter’s appropriation of the invention of someone else. In fact, Bell Helicopter used the invention as its own to promote its helicopter. We read at paragraphs 191 and 192 of the Court of Appeal’s decision of 2013:
[191] The evidence also shows that Bell Helicopter promoted the infringing Legacy landing gear as its own invention through an article by one of its senior technical staff specialists. That article (JB-224, AB Vol. 21 Tab 342 p. 5754) sets out that a “sleigh type skid landing gear has been designed for the first time by Bell Helicopter for use on its Model 429 civil helicopter. This type of landing gear was chosen for its improved dynamic behavior (ground resonance) and low weight” (emphasis added). Bell Helicopter also promoted the sale of its Bell 429 helicopter with the infringing Legacy landing gear: Reasons at para. 267.
[192] Where a person infringes a patent which it knows to be valid, appropriates the invention as its own, and markets it as its own knowing this to be untrue, punitive damages may be awarded when an accounting for profits or compensatory damages would be inadequate to achieve the objectives of retribution, deterrence and denunciation of such conduct. Indeed, such conduct departs to a marked degree from ordinary standards of decent behaviour. It must be denounced in a manner that deters similar misconduct in the future and marks the community’s collective condemnation.
[Emphasis in original]
[51] Clearly the federal courts justified the imposition of punitive damages by a measure of turpitude which went well beyond the fact that there was infringement of the patent in play in that case.
[52] The Plaintiffs, fairly, acknowledge that there is no such thing in the case at hand. They nevertheless argue punitive damages should remain an option that would be available at the quantification stage of damages. Their attempt at establishing the “misconduct that represents a marked departure from ordinary standards of decent behaviour”, so that punitive damages can be awarded “in exceptional cases for “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency”” (Whiten, para 36) is based on:
a)Munchkin saw an opportunity to profit from the Diaper Genie system, a pail which was developed by the Plaintiffs, by launching its own private label cassettes compatible with the Plaintiffs’ system. Indeed, the Diaper Genie pail was the dominant player and no other third party was supplying compatible cassettes. In a word, there was an obvious business opportunity;
b)the evidence showed that Munchkin conducted a patent search before launching its generation 1 cassettes. Its product designer was instructed to, in the words of the Plaintiffs’ memorandum of fact and law, “avoid copying one aspect of the Diaper Genie cassette’s cover due to a potential patent issue” (para 52). Nevertheless, the Plaintiffs claim misfeasance because later generations had chamfers that were adjusted to fit the Diaper Genie pails;
c)the existence of chamfers is raised because the generation 1 cassettes, which had a chamfer in spite of the fact that the Diaper Genie pail had a flat location on which the refill cassette was to be placed, were not able to be used once the Plaintiffs offered Diaper Genie pails with a snapped-in cone to interface with the chamfered cassettes [it will be recalled that the Plaintiffs created that new system to solve the cassette orientation problem which creeped up with the flat-bottom cassettes. It would not be uncharitable to note that this new system had the added advantage of rendering unusable flat-bottom cassettes or chamfered cassettes with the wrong angle]. In response to that development, the Plaintiffs raise two issues:
Munchkin communicated with a large retailer to suggest that the snapped-in ring could be easily removed, thus allowing for its generation 1 cassettes to continue to be used;
the Plaintiffs also took issue with the development of generation 2 cassettes which had the right angle allowing their use with the snapped-in ring, which eventually became an integrated feature of the Plaintiffs’ pail;
d)the Plaintiffs, finally, take issue with Munchkin’s “strategic commercialization” of its cassettes. That includes the fact that the labels on the Munchkin cassettes (which did not bear the Munchkin mark and were sold at a discount of around 25%) referred to their compatibility with the Plaintiffs’ pails, as well as the fact that the Defendants’ cassettes were offered at the same retail outlets as the Plaintiffs’ cassettes, in close proximity to the Diaper Genie products.
[53] In essence, the Plaintiffs complain that the intentional copying of their cassettes by the Defendants was not good faith commercial competition. The Defendants were “piggybacking” on the commercial efforts and success of the Plaintiffs. They sought to profit from the “installed base” of the Plaintiffs’ pails on the market.
[54] With respect, I fail to see how the position advanced by the Plaintiffs satisfies the requirements that the alleged misconduct represents a marked departure from ordinary standards of decent behaviour.
[55] As was acknowledged by the Plaintiffs, the evidence shows that the Defendants sought to create a product which would be compatible with the Plaintiffs’ pails. There is no doubt, in my view, that the Defendants sought to sell their product as refills usable in Diaper Genie pails. But that, in and of itself, does not make the failure to differentiate its product enough to avoid infringement of valid patents of the Plaintiffs, the kind of “marked departure from ordinary standards of decent behaviour” that may attract punitive damages.
[56] The Defendants argue, and I agree, that there is nothing inherently wrong with developing compatible products. Unless there is patent infringement, that constitutes valid innovation, and the patent system is not meant to discourage research and development: rather, it is designed to encourage broader economic activity (Free World Trust v Electro Santé Inc, 2000 SCC 66, [2000] 2 SCR 1024, para 42). The Defendants chose to compete with the Plaintiffs in an area they believed was not covered by the Plaintiffs’ patents. Their failure should be sanctioned by an accounting of profits or compensatory damages (together with an injunction). But there is a reason why the bar for punitive damages is set so high. It should not become that punitive damages are available once infringement has been shown.
[57] It was perfectly appropriate for the Defendants to stress the requirements that the following elements, taken from Whiten, at paragraph 94 be present:
To this end, not only should the pleadings of punitive damages be more rigorous in the future than in the past (see para. 87 above), but it would be helpful if the trial judge’s charge to the jury included words to convey an understanding of the following points, even at the risk of some repetition for emphasis. (1) Punitive damages are very much the exception rather than the rule, (2) imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour. … (5) Punitive damages are generally given only where the miscon