Monsanto Canada Inc. v. Rivett

Monsanto Canada Inc. v. Rivett
Court (s) Database
Federal Court Decisions
Date
2009-03-26
Neutral citation
2009 FC 317
File numbers
T-1515-05
Notes
Reported Decision
Decision Content
Date: 20090326
Docket: T-1515-05
Citation: 2009 FC 317
Ottawa, Ontario, March 26, 2009
PRESENT: The Honourable Mr. Justice Zinn
BETWEEN:
MONSANTO CANADA INC. and
MONSANTO COMPANY
Plaintiffs
and
CHARLES RIVETT
Defendant
REASONS FOR JUDGMENT
[1] Mr. Rivett is a farmer. In 2004 he infringed Canadian Letters Patent No. 1,313,830 (“the ‘830 Patent”) by planting ROUNDUP READY® soybeans, and by harvesting and selling the resulting crop. These Reasons for Judgment address the remedy selected by the plaintiffs for the defendant’s breach – an accounting of profits.
Background
[2] Most of the relevant underlying facts are agreed upon by the parties and the following is largely reproduced from admitted allegations in the Statement of Claim and from an Agreed Statement of Facts filed at the commencement of trial.
[3] Monsanto Company is the owner of the ‘830 Patent issued February 23, 1993, for an invention entitled “Glyphosate-Resistant Plants”. Pursuant to the provisions of the Patent Act, R.S.C. 1985, c. P-4, and by virtue of its patent, Monsanto Company is granted the exclusive right, privilege and liberty of making, constructing, using and selling to others to be used the invention described and claimed in the ‘830 Patent. Monsanto Canada Inc. is related to Monsanto Company, and is a licensee under the ‘830 Patent. It sells Monsanto Company products in Canada. In these Reasons reference to both plaintiffs is made by the terms “Monsanto” or “the plaintiffs”.
[4] The invention described and claimed in the ‘830 Patent relates to a plant gene which, when expressed in a plant cell, confers a substantial degree of glyphosate resistance upon the plant cell and plants containing such cells. As a result, such cells are resistant to herbicides such as Monsanto’s ROUNDUP® which contains glyphosate as the active ingredient. The invention further relates to a method for producing dicotyledonous plants that are resistant to glyphosate-containing herbicides. In Canada, glyphosate-resistant seeds and plants containing genes or cells in accordance with the claims of the ‘830 Patent are sold under the trademark ROUNDUP READY®.
[5] Among the benefits of ROUNDUP READY® seed is that a farmer can use glyphosate herbicide on the plants once they have sprouted; this kills the weeds but not the crop. This results in a saving in herbicide use, frequency of application and an increased crop yield. As a consequence, ROUNDUP READY® seed has been widely accepted by farmers in Canada.
[6] ROUNDUP READY® seed is only sold pursuant to a license that is personal to the grower. The purchased seed can only be used by the grower for planting one crop which is only to be sold for consumption; the grower is not entitled to save seed for the purpose of replanting a second generation crop. These conditions are imposed as every cell of each plant produced from ROUNDUP READY® seed, as well as each resulting kernel or bean, contains the gene described in the ‘830 Patent.
[7] Mr. Rivett is a farmer in Beeton, Ontario. He grows, harvests and sells soybeans, corn and wheat. In 2004, without permission or a license, he planted ROUNDUP READY® soybeans and harvested the resulting crop. Mr. Rivett admits that in so doing he used, reproduced and created genes, cells and soybean seeds and plants containing genes and glyphosate resistant cells as claimed in each of claims 1, 2, 5, 6, 7, 22, 23, 26, 27, 28 and 47 of the ‘830 Patent.
[8] Mr. Rivett admits that he sprayed the ROUNDUP READY® soybean sprouts with a glyphosate herbicide to take advantage of the glyphosate tolerance imparted by ROUNDUP READY® soybeans. He sold all of the yield from the crop of infringing ROUNDUP READY® soybeans.
[9] Justice Simon Noël issued a consent Judgment on January 11, 2007, which granted certain declaratory relief, permanently enjoined the defendant from further infringing activities and required the defendant to deliver up any infringing seed and plants in his possession to Monsanto Canada Inc.
[10] That Judgment left a number of issues to be determined at the trial of this action. Some of those outstanding issues were dropped or not pursued. The plaintiffs were required under the terms of the Judgment to elect as between damages and an accounting of profits. The plaintiffs elected an accounting of profits. The only issues remaining to be determined by the Court, pursuant to the consent Judgment and the parties’ subsequent agreements, are the following:
a. An accounting of the defendant’s profits derived from the infringement;
b. Prejudgment and post-judgment interest; and
c. The costs of the proceedings.
[11] The following facts relevant to the accounting of profits were admitted by Mr. Rivett.
a. In 2004 he planted, cultivated and harvested 947 acres of ROUNDUP READY® soybeans.
b. The gross revenue he received for the sale of the yield from the 947 acres of ROUNDUP READY® soybeans was $233,311.73.
c. He did not pay another person to clean ROUNDUP READY® soybean seed.
d. He did not hire employees for the sole purpose of cultivating ROUNDUP READY® soybeans.
e. He did not pay a third party to plant ROUNDUP READY® soybeans.
f. He did not pay a third party to apply fertilizers or herbicides to his ROUNDUP READY® soybeans.
g. He did not pay a third party to harvest the ROUNDUP READY® soybeans.
h. He did not purchase equipment for the sole purpose of cultivating the ROUNDUP READY® soybeans.
i. Apart from the 947 acres of ROUNDUP READY® soybeans he planted, cultivated and harvested in 2004, he also planted, cultivated and harvested 811 acres of conventional soybeans, 1408 acres of corn, and 350 acres of winter wheat.
[12] In addition to these agreed facts, Michael McGuire, a vice-president of Monsanto Canada and the Director of its eastern Canadian seed and trade business, gave evidence for the plaintiffs. Mr. McGuire testified as to the benefits of ROUNDUP READY® seed and the additional profit that a farmer using this Monsanto product should expect to obtain. He also spoke to the enforcement mechanisms that have been put in place to track and deal with infringers of the ‘830 Patent. Mr. Rivett testified on his own behalf. Mr. Rivett did not dispute any of the evidence offered by Mr. McGuire. His testimony was directed to his farming operation, the reasons behind the infringement in 2004 and the costs of his farming operation. While he was vigorously cross-examined by counsel for the plaintiffs, the plaintiffs led no evidence to contradict his evidence other than, perhaps, evidence Mr. Rivett himself had given during his examination for discovery.
[13] After Mr. Rivett had given his evidence, the defendant proposed to call Gary Fisher as an expert witness. Mr. Fisher was described by the defendant’s counsel as an agrologist with training in economics. It was proposed that he speak to a document he had prepared relating to the defendant's farming operation entitled ‘Soybean Cost Estimation’. It purported to be “an independent estimation of the costs and returns of the production of roundup ready soybeans produced on the Charles Rivett’s farm in 2004” [sic]. Attached to the report was an unaudited Income Statement for the defendant comparing revenue and expenses for the years ended December 31, 2004 and December 31, 2005. The plaintiffs objected to the admission into evidence of the report and also objected to the evidence of Mr. Fisher relating to the content of the report. The Court upheld that objection; these are the reasons for that ruling.
[14] The defendant had not complied with Rule 258(5) of the Federal Courts Rules regarding Mr. Fisher’s evidence as an expert and, pursuant to Rule 279, the evidence was not admissible unless the Court ordered otherwise. The Court was not prepared to exercise its discretion to admit the evidence of Mr. Fisher for the following reasons. Mr. Fisher’s testimony was to be based on an Income Statement that had not previously been produced to the plaintiffs and thus there had been no opportunity for the plaintiffs to challenge its accuracy. The author of the Income Statement was not being called as a witness and, if the document was a business record, the provisions of the Canada Evidence Act had not been complied with. The Income Statement attached to the purported expert report was incomplete – it consisted of a single page from what appeared to be unaudited financial statements of the defendant. Further, the page directed the reader to ‘See Notice to Reader’, which notice was not included and which may have been critically relevant. Accordingly, even if Mr. Fisher was qualified as an expert, his opinion evidence would be based on hearsay evidence that, in some respects, appeared to be contrary to the direct evidence that had previously been given by the defendant when he was on the stand. Given these circumstances, permitting the defendant to file the report as an exhibit or call Mr. Fisher as a witness would be unfair to the plaintiffs who had not had and would not have an opportunity to test the underlying data. The evidence offered, being based on hearsay evidence, would be given very little, if any, weight and thus it would not assist the Court in reaching the decisions required in this action.
[15] It is relevant to mention one other ruling that was made in the course of trial. The defendant produced a document at his examination for discovery that he had prepared and that purported to reflect the expenses he incurred to grow soybeans. He gave evidence at trial with respect to this document (Exhibit D-12). He indicated that in some instances, the figures he had put down reflected the average costs he incurred for that item. As an example, the document reflected an average cost of the land he leased. Other figures in the document reflected information obtained from the Ontario Federation of Agriculture that reflected the results of its research into various farming costs, for example, the average cost to operate particular pieces of farm equipment. The plaintiffs objected to this evidence.
[16] The Court ruled that the defendant could speak to information contained in the document he had prepared but that any information contrary to direct evidence before the Court of actual expenses incurred, or contrary to any of the agreed facts, would be given no weight. Further, it was indicated that little weight was likely to be given the evidence insofar as it relied on information obtained from third party sources. However, as some of the information appeared to relate to the value of a farmer’s labour and given the submission of the defendant that he ought to be given some credit for his own labour, the evidence was accepted, subject to weight, for that limited purpose. In light of my decision herein on that issue, the defendant’s testimony regarding this document and Exhibit D-12, ultimately were not considered.
Issues
[17] The following are the issues requiring the Court’s determination:
a. What is the proper method to be employed by this Court in conducting an accounting of profits;
b. What expenses were proved by Mr. Rivett to have been incurred or were otherwise properly deductible from the gross revenue he obtained from the sale of the infringing ROUNDUP READY® soybean crop in 2004;
c. Applying that proper method of accounting of profits, what were the profits made by Mr. Rivett from the infringement that are to be disgorged;
d. Is the defendant liable to pay prejudgment and post-judgment interest and if so, in what amounts; and
e. Is the defendant liable to pay costs and if so, what is the quantum.
Analysis
a. What is the proper approach in this case to an accounting of profits?
[18] Section 57(1)(b) of the Patent Act, R.S.C. 1985, c. P-4, permits the Court, when there has been be an infringement of a patent, to “…make such order as the court or judge sees fit … for and respecting inspection or account.” It is under this provision that this Court may require the infringer to render an account of the profits made because of the infringement and to disgorge those profits by paying them over to the patent holder. This is the equitable remedy of an accounting of profits.
[19] The Supreme Court in Strother v. 3464920 Canada Inc., [2007] 2 S.C.R. 177, 2007 SCC 24 observed that an order requiring that the profits made as a consequence of the actions of the wrong-doer are to be disgorged may serve one or both of two equitable purposes. The first is described by the Court as a prophylactic purpose. Its focus is to deter the wrong-doer and others who might emulate his actions. The second is described by the Court as a restitutionary purpose. Its focus is to restore to the wronged party profit which properly belongs to him, but which has been wrongly appropriated by the wrong-doer.
[20] It is not necessary that both purposes be served in every case. If one assumes that the motive for the infringement is profit, then ordering a wrong-doer to hand over those profits to the person who has been wronged will generally serve to deter that wrong-doer and others who might be like-minded.
[21] Unlike a compensatory award, a restitutionary award is not focused on restoring the wronged party to the position he would have been in but for the breach. The measure of restitution is the defendant’s gain rather than the plaintiff’s loss. As the Supreme Court noted in Strother, there are situations where, although the wrong-doer has profited, the wronged party has not suffered a corresponding loss. In those instances, one might be tempted to claim that the wronged party is unjustly enriched if he is awarded a sum in excess of his actual loss. That position was unsuccessfully argued by the defendant in Bayer Aktiengesellschaft v. Apotex Inc. (2001), 10 C.P.R. (4th) 151 (Ont. S.C.J.); aff’d (2002), 16 C.P.R. (4th) 417 (Ont. C.A.) and was suggested by the defendant in this case. A trade news report was submitted in evidence in which it was asserted on behalf of the defendant that when caught by the plaintiffs he should only be required to compensate Monsanto for the sum he would otherwise have paid for the ROUNDUP READY® seed which includes the licensing fee. If that were the proper measure of the award, then it would be compensatory in that Monsanto would be placed in the position it would have been in had the infringement not occurred. However, it could also leave some of the profits in the hands of the wrong-doer, which is precisely the inequity - the unjust enrichment - the restitutionary remedy seeks to address.
[22] While there will be instances where the effect of the disgorgement order is to put the wronged party back into the same position he would have been but for the wrong, that is the exceptional situation. Frequently, such as in Strother, the wronged party will receive more than his loss. The other side of the coin is that in some instances, the wronged party will recover less than his actual loss if this remedy is elected. The proper description of this second purpose, in my view, is not to restore the wronged party to the position in which he would have otherwise been; rather, it is to put the wrong-doer in the position he would otherwise have been if he had not committed the wrong. In this sense, it is the wrong-doer who is being restored, through a disgorgement of profits, to the position that he would have been in had he not done the illegal act.
[23] Simply putting these plaintiffs back to the position they would have been but for the infringement is not appropriate in light of the remedy the plaintiffs have elected. If it were, then arguably neither equitable purpose would be achieved. At the level of principle, there is no deterrent from infringing the patent if what the infringer is required to hand over is the sum he would otherwise have paid to Monsanto to buy the seed and the licence. In fact, this would almost be counter to the purpose of deterrence. It is much like saying, as the plaintiffs put it in their oral submission, “Catch me if you can”. If caught, the defendant would be required to pay the sum he would have paid to use the patent in any event. When not caught, he is left with a windfall. The accounting remedy would lack any deterrent effect if defendants could use patented technology and retain the profits from such use subject only to paying a license fee as compensation if and when they are caught.
[24] It also fails to serve the second purpose of a disgorgement, namely returning the wrong-doer to the place he would have been but for wrongfully appropriating the property of the other. If the disgorgement of profits creates an alleged “windfall” to the patentee, the cause of that result is the illegal act of the infringer and it does not lie in his mouth to argue that it is he and not the patent holder who should retain any excess profits.
[25] Some time has been devoted to describing the purposes of this remedy as the plaintiffs made a number of submissions urging that the order of this Court must be a real deterrent to the defendant and others who may consider infringing the plaintiffs’ patent. This, it was argued, requires a consideration of the consequences of the actions from the perspective of a cost-benefit analysis. While deterrence is rightly one aspect of the remedy, one must not lose sight of the fact that the remedy is not intended to be punitive.
[26] The non-punitive nature of the accounting remedy was noted by Justice Rouleau in Beloit Canada Ltd. v. Valmet Oy (1994), 55 C.P.R. (3d) 433 at 455 (F.C.T.D.), var’d on other grounds (1995), 61 C.P.R. (3d) 271 (F.C.A.). He summarized the law in this regard and distinguished an accounting of profits from an award of damages as follows:
… damages may be compensatory or punitive according to whether they are awarded as a measure of the actual loss suffered by the plaintiff or as punishment for outrageous conduct and to deter future transgressions by the defendant. While an accounting of profits might serve to dissuade a defendant from pursuing its improper course of conduct, punishment does not play a role in its award. As an equitable remedy, its entire rationale is to redress wrongs, not to administer punishment. In Ruff v. Swan (1921), 20 O.W.N. 158 at p. 160, the Court noted ‘the object of the inquiry was to compensate the plaintiff, and not to punish the defendants.’
[27] Requiring the party at fault to disgorge the profits made from the infringement while ensuring that he is not being required to hand over more, requires that one focus on the causal connection between the act that infringes the invention and the profit, between the wrong and the remedy. Where there is no causal connection, there is no profit for which the infringer is required to account. An example of this situation is found in Monsanto Canada Inc. v. Schmeiser, [2001] F.C.J. No. 436; aff’d [2002] F.C.J. No. 1209; rev’d [2004] S.C.J. No. 29, about which much more will be said later in these reasons.
[28] It was submitted by the plaintiffs that there are three possible approaches to determining the profits of the infringer that are to be paid over to the patentee:
a. The value based or differential profit approach;
b. The variable cost or incremental cost or differential cost approach; and
c. The full absorption or full cost approach.
Differential Profit Approach
[29] The differential profit approach requires that the Court compare the profits made by the infringer that are attributable to the invention and the profits that the infringer would have made if he had used the best non-infringing option. Using this approach, the analysis required is as follows:
a. Is there a casual connection between the profits made and the infringement? If there is none, then there are no profits that require an accounting.
b. If there is a causal connection, then what were the profits made by the infringer as a result of the infringement? This amount I shall describe as the Gross Profits of Infringement.
c. Is there a non-infringing option that the infringer could have used?
d. If there is no non-infringing option, then the Gross Profits of Infringement are to be paid over to the patentee.
e. If there is a non-infringing option, then what profit would the infringer have made, had he used that option? This amount I shall describe as the Gross Profits of Non-Infringement.
f. Where there was a non-infringing option available, the amount to be paid over to the patentee is the difference between the Gross Profits of Infringement and the Gross Profits of Non-Infringement. This sum is the profit that is directly attributable to and that results from the infringement of the invention.
Differential Cost Approach
[30] The differential cost approach involves no comparison or consideration of what might have been. The differential cost approach requires that the Court deduct from the gross revenue received by the infringer the variable or current expenses directly attributable to the infringement and any increased, fixed or capital expenses that are directly attributable to the infringement. Using this approach, the analysis required is as follows:
a. What is the gross revenue the infringer received as a result of the infringement (the Gross Revenue)?
b. Did the infringer incur any current expenses in infringing the patent; if so what is the total of those expenses (the Current Expenses)?
c. Did the infringer incur any capital expenses directly related to infringing the patent; if so what is the total of those expenses (the Capital Expenses)?
d. The amount to be paid over to the patentee is the Gross Revenue less the sum of the Current Expenses and the Capital Expenses.
[31] A current expense is one that usually reoccurs after a short period. In the context of this action, current expenses incurred in growing, harvesting, and selling a farm crop could include the expenses incurred in leasing land, hiring contractors to plant, cultivate and harvest the crop, costs incurred in purchasing fertilizers and herbicides, and the costs incurred in purchasing crop insurance. A capital expense generally gives a lasting benefit or advantage. In the context of this action, capital expenses incurred in growing, harvesting, and selling a farm crop could include the expense of any machinery that was purchased specifically and only in order to plant, cultivate or harvest the crop. Where that capital expense has uses other than those directed to the patented invention, then it may be appropriate to deduct only a portion of the expense.
Full Cost Approach
[32] The full cost approach increases the deductible expenses in the differential cost approach by also deducting from the revenue earned the relevant portion of the common costs incurred by the infringer. In the context of this action, where the infringer is using a patented seed but is also growing, harvesting and selling other crops from conventional seed, he will have costs that are incurred as a consequence of his farming operations, such as general insurance on his buildings and equipment, capital depreciation of equipment, and expenses for water and electricity. Using the full costs approach, a portion of these common costs would be deducted from the revenue earned by the infringer.
[33] If the full cost approach has ever been endorsed by this Court, it has not been of late. It has been rejected in Teledyne Industries Inc. et al. v. Lido Industrial Products Ltd. (1982), 68 C.P.R. (2d) 204 (F.C.T.D.); Diversified Products Corp. et al. v. Tye-Sil Corp. Ltd. (1990), 30 C.P.R. (3d) 324, aff’d on this point (1990), 32 C.P.R. (3d) 385 (F.C.T.D.); Hancor Ltd. et al. v. Les Systèmes de Drainage Modernes Inc. (1991), 38 C.P.R. (3d) 62 (F.C.T.D.); and Wellcome Foundation Ltd. v. Apotex Inc. (1998), 82 C.P.R. (3d) 466. Neither party advocated using the full cost approach in this case.
The Appropriate Approach in This Case
[34] The plaintiffs submit that the appropriate approach to apply in this case is the differential cost approach. It is submitted that this approach has been followed in this Court and others for nearly 30 years since the decision in Teledyne. They acknowledge that the majority of the Supreme Court in Schmeiser stated that “the preferred means of calculating an accounting of profits is the differential profit approach” but submit that this statement must be limited to the particular facts of Schmeiser and could not have been intended by the Court to be an exposition of the whole of the law. In any event, the plaintiffs further submit that the statement must be seen in light of the fact that the Supreme Court ultimately did not apply the differential profit approach. The plaintiffs submit that applying the differential cost approach, the defendant must disgorge profit made in the amount of $159, 569.50.
[35] The defendant submits that this Court ought to use an approach similar to that used by Justice MacKay in his judgment at trial in Schmeiser. The plaintiffs submit that this is akin to the full cost approach discussed above. I do not think that is an accurate characterization of the approach urged on the Court by the defendant. The defendant has not submitted that all of the costs of his farming operation ought to be deducted from the gross revenue received from the sale of soybeans. Rather, the defendant urges the Court to credit him for some costs that were not directly incurred and paid, such as his own labour and expertise. The defendant described this as applying Teledyne in the manner Mr. Justice McKay did at trial in Schmeiser. Mr. Schmeiser was not paid a salary for his work in farming but Mr. Justice MacKay held that “his labour should be recognized in accounting of profits.” Applying its approach, the defendant submits that he has no profits to disgorge as he incurred a loss in his farming operations relating to the infringing crop.
[36] In my view, the decision of the Supreme Court in Schmeiser does not have the restricted application urged upon the Court by Monsanto.
[37] Schmeiser involved the same patent infringed by Mr. Rivett in this case. Mr. Schmeiser was a farmer in Saskatchewan. In 1998 he planted ROUNDUP READY® canola but did not purchase the seed from Monsanto nor did he execute the Monsanto technology use agreement. He claimed that his crop had been contaminated from neighbouring crops of ROUNDUP READY® canola and that he had not deliberately planted any seed containing the patented gene. However, the trial judge found that Mr. Schmeiser knew or ought to have known in 1998 when he planted the crop that the canola seed he planted was ROUNDUP READY® seed. In 1997 Mr. Schmeiser had saved seed from a road allowance adjacent to his fields which had survived herbicide spray and planted that seed and seed from his previous crop in 1998. He knew what he was planting and he knew that Monsanto had a patent on it. Accordingly, he was not an innocent infringer.
[38] The Supreme Court found that Mr. Schmeiser, in planting and cultivating the seed, had “used” the patented cell and gene technology contrary to Section 42 of the Patent Act. The Court was not inclined to the view that he was “making” or “constructing” anything in breach of the patent within the meaning of Section 42, but withheld a decided opinion on those questions.
[39] As noted, the benefit of ROUNDUP READY® seed is that the farmer can spray his field with glyphosate herbicide after the seed has sprouted and only the weeds will be affected. The plant growing from the ROUNDUP READY® seed, unlike the plant growing from a conventional seed, will not be affected. The evidence at trial was that although Mr. Schmeiser had planted ROUNDUP READY® canola seed he did not spray that crop with glyphosate herbicide after the seed sprouted. Therefore, in all respects he farmed the crop exactly as he would have if it had it been grown from conventional canola seed.
[40] At trial the defendant argued that he had made no profit from the sale of the canola crop that was grown from the ROUNDUP READY® canola because he earned the same from the sale of the crop as he would have had he planted conventional canola. The trial judge rejected that submission holding that Monsanto was entitled to recover the profit from the sale of the crop, not any increase in profit that might have resulted from the ROUNDUP READY® canola crop over a conventional seed crop.
For the defendants it is urged there were no measurable profits earned from sale of the 1998 crop even if it did include the plaintiffs' patented gene. The argument is based on the assumption that the defendants would have earned the same profits on sale of a canola crop that did not contain the gene. That is no answer to the issue of profits from sale of the crop which I have found contained the plaintiffs' patented gene and cells. It is the profit from sale of that crop that plaintiffs may claim, not the difference between sale of that crop and sale of an alternative crop that was not grown.
The Federal Court of Appeal endorsed this view at paragraph 79 of its Reasons for Judgment in Schmeiser.
[41] In allowing the appeal by Mr. Schmeiser, the Supreme Court rejected that approach and endorsed the differential profit approach to an accounting of profits in five short paragraphs that are worth reproducing in their entirety.
101 It is settled law that the inventor is only entitled to that portion of the infringer's profit which is causally attributable to the invention: Lubrizol Corp. v. Imperial Oil Ltd., [1997] 2 F.C. 3 (C.A.); Celanese International Corp. v. BP Chemicals Ltd., [1999] R.P.C. 203 (Pat. Ct.), at para. 37. This is consistent with the general law on awarding non-punitive remedies: "[I]t is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach" (Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534, at p. 556, per McLachlin J. (as she then was), quoted with approval by Binnie J. for the Court in Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142, at para. 93).
102 The preferred means of calculating an accounting of profits is what has been termed the value-based or "differential profit" approach, where profits are allocated according to the value contributed to the defendant's wares by the patent: N. Siebrasse, "A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms" (2004), 20 C.I.P.R. 79. A comparison is to be made between the defendant's profit attributable to the invention and his profit had he used the best non-infringing option: Collette v. Lasnier (1886), 13 S.C.R. 563, at p. 576, also referred to with approval in Colonial Fastener Co. v. Lightning Fastener Co., [1937] S.C.R. 36. (emphasis added)
103 The difficulty with the trial judge's award is that it does not identify any causal connection between the profits the appellants were found to have earned through growing Roundup Ready Canola and the invention. On the facts found, the appellants made no profits as a result of the invention.
104 Their profits were precisely what they would have been had they planted and harvested ordinary canola. They sold the Roundup Ready Canola they grew in 1998 for feed, and thus obtained no premium for the fact that it was Roundup Ready Canola. Nor did they gain any agricultural advantage from the herbicide resistant nature of the canola, since no finding was made that they sprayed with Roundup herbicide to reduce weeds. The appellants' profits arose solely from qualities of their crop that cannot be attributed to the invention.
105 On this evidence, the appellants earned no profit from the invention and Monsanto is entitled to nothing on their claim of account.
[42] The plaintiffs rely on what is claimed to be 30 years of jurisprudence applying the differential cost approach. They also referred the Court to an article written by David A. Aylen and Matthew J. Graff, “The ‘Differential Profit’ Approach in Monsanto” (2004), Return of the Six-Minute Intellectual Property Lawyer, Continuing Legal Education, The Law Society of Upper Canada, in support of their position. Aylen and Graff argue that the “best non-infringing option” has not been an established aspect to the accounting remedy, and question whether the Supreme Court intended for this approach to be broadly applied. They suggest that the Court fashioned this remedy in the Schmeiser case “to absolve the defendant of pecuniary liability since he appeared to the court as an ‘innocent user’.”
[43] The “innocent user” is a term used by Professor Norman Siebrasse in his paper, cited by the Supreme Court in Schmeiser, to describe someone who, through no fault of his own finds plants from patented seed growing on his land. This is said to be possible when dealing with higher life forms such as the ROUNDUP READY® seed which is more likely to escape from a planted field onto other land. He asks whether that innocent user, that farmer, ought to be liable for patent infringement in those circumstances. This, he writes “is the problem of the innocent user.” As we have seen, the findings of fact regarding Mr. Schmeiser and the ROUNDUP READY® canola growing on his farm remove him from the innocent user category. He planted the crop knowing what it was and he took active steps to ensure that most of the crop he planted was from ROUNDUP READY® seed. The Supreme Court at paragraph 95 of the majority Judgment writes: “[O]n the facts found by the trial judge, Mr. Schmeiser was not an innocent bystander; rather, he actively cultivated Roundup Ready Canola.” On this basis alone, one may reject the plaintiffs’ claim that Schmeiser has to be read as the Court fashioning a remedy to absolve the defendant of his innocent use of the patented seed.
[44] The plaintiffs, together with Messrs. Aylen and Graff, submit that had the Supreme Court intended to overrule 30 years of precedent it would have addressed Teledyne and subsequent jurisprudence. That the Court did not do so, they submit, supports their position that the Court was addressing the equity demanded in the particular facts in Schmeiser. I am not persuaded that the Supreme Court’s stated preference for the differential profit approach can or should be so narrowly construed.
[45] The Supreme Court relies heavily on and arguably adopts Professor Siebrasse’ analysis of an accounting of profits. He argues for the differential profits approach as the proper methodology to be used in an accounting of profits because it equitably addresses the innocent user problem. That does not mean that he limits its application only to the innocent user problem; rather, his thesis is that because this approach addresses the innocent user problem, it is the proper approach to follow when performing an accounting of profits in any situation.
[46] An appropriate starting point to the discussion, and that used by Professor Siebrasse, is the observation that it has long been held that there are occasions when, in spite of there being an infringement, an accounting of profits, to be equitable, requires an apportionment of the profits made between the infringer and the patentee. He writes:
It is uncontroversial that an apportionment is sometimes necessary. It is also universally acknowledged that the governing principle is that the patentee is entitled to that portion of the infringer’s profit which is casually attributable to the infringement.
[47] Sometimes, the patentee will be entitled to nothing because none of the profits are causally attributable to the invention. In this scenario it may be that notwithstanding that the wrong-doer used the patented product, none of the profits so earned were as a result of using the invention. The Schmeiser case is an illustration of this scenario as was subsequently explained by Justice Binnie in Bristol-Myers Squibb Company v. Canada (Attorney General), [2005] 1 S.C.R. 533, at paragraph 52. He noted there that linking the making of a profit to the use of the patented product is insufficient. When performing an accounting of profits the causal link must be between the profits made and the invention that is protected.
As pointed out by this Court in Monsanto Canada Inc. v. Schmeiser, [2004] 1 S.C.R. 902, 2004 SCC 34, the patented invention is not necessarily co-extensive with the patent claims. The distinction was critical in that case to the issue of remedy. While farmer Schmeiser had used the patented product (Roundup Ready Canola seed), he had not taken advantage of the patented invention (its herbicide resistant property) because he had not sprayed his crop with Roundup. The Court thus rejected Monsanto's claim to Schmeiser's profits from his canola crop.
The difficulty with the trial judge's award is that it does not identify any causal connection between the profits the appellants were found to have earned through growing Roundup Ready Canola and the invention. On the facts found, the appellants made no profits as a result of the invention. [Emphasis in original; para. 103.]
[48] Sometimes, the patentee will be entitled to all of the wrong-doer’s profits derived from the invention without any offset because all of the profits are casually attributable to the infringement of the invention. In this scenario it may be said that but for the infringement, the infringer would have earned no profits. The U.S. case of Manufacturing Co. v. Cowing (1881), 105 U.S. 253, discussed by Professor Siebrasse, is an example of this scenario. The patent there in issue was for an improvement to a pump. The Circuit Court had held that the defendants were only liable to disgorge the profits that would have been realized from the sale of the patented part separately. The U.S. Supreme Court rejected that view, holding that it is necessary to contrast the profits made by infringing the patent to those that otherwise would have been made. It found that the patented part was such an important improvement to the pump that but for that part, no other pump could, at that time have been sold. Thus, without the infringement, no sales could have been made and thus no profits made. Therefore, the Court awarded the entirety of the defendant’s profits to the plaintiff.
[49] A similar illustration may be found in Reading & Bates Construction Co. v. Baker Energy Resources Corp., [1995] 1 F.C. 483 (F.C.A.). In Reading & Bates the infringer had used the defendant’s patented method when installing a gas pipeline under the St. Lawrence River. It was found that alternative methods, if they were even capable of success, were likely to result in no profit being earned by the defendant given the contracted fee. Therefore, although the Court awarded all of the defendant’s profits to the plaintiff saying that one had to look at the profits actually made and not at the profits that could have been made if a non-infringing method had been used, the result was the same. As will be discussed below, Reading & Bates is also important in that the Court was prepared to consider the profits that would have been made had a hypothetical alternative been used, but in the event it did not, as the defendant failed to satisfy its burden of proof as to the profits likely to be generated from that hypothetical alternative.
[50] Sometimes the profits earned must be divided between the infringer and the patentee because, while the infringer earned profits, only a part of those profits are causally attributable to the invention. In this scenario it may be said that because of the infringement the infringer earned greater profits than would otherwise have been earned. This requires a comparison between the profits earned as a result of the infringement and the profits that would otherwise have been earned. An illustration of this scenario may be found in Lu