On November 18, 2022, the Supreme Court of Canada issued its judgment in Nova Chemicals Corporation v. Dow Chemical Company (2022 SCC 43). In an 8-1 majority ruling, the Supreme Court affirmed the earlier decisions of the Federal Court (2017 FC 350) and Federal Court of Appeal (2020 FCA 141), wherein Dow was awarded $645 million as a result of Nova’s infringement of Dow’s patent relating to Metallocene Linear Low-Density Polyethylene.
Cohen Hamilton Steger & Co. was retained by Dow’s Counsel as damages quantification experts in the reference action before the Federal Court and estimated Nova’s profits earned from its infringement of Dow’s patent. The award remains the largest ever reported in a Canadian patent infringement case.
The Supreme Court’s majority decision considered the chief principles involved in calculating an accounting of profits remedy and concluded that: “When a patentee cho[o]ses an accounting of profits as a remedy for patent infringement, the infringer must disgorge all the profits they gained that are causally attributable to the invention. This may involve consideration of the hypothetical profits that an infringer could have earned by selling a non‑infringing option. Springboard profits may also be available.”
Writing for the Supreme Court majority, Rowe J. described a three-step approach to be used in calculating an accounting of profits remedy:
Step 1: Calculate the actual profits earned by selling the infringing product — i.e., revenue minus (full or differential) costs. When calculating the infringer’s profits in Step 1, courts should only consider actual revenues and costs.
Step 2: Determine whether there is a non-infringing option that can help isolate the profits causally attributable to the invention from the portion of the infringer’s profits not causally attributable to the invention — i.e., differential profits. It is at this step that judges should apply the principles of causation. A “non‑infringing option” is any product that helps courts isolate the profits causally attributable to the invention from the profits not causally attributable to the invention. It is not an infringer’s “most profitable” alternative sales product that it “would have” and “could have” sold had it not infringed.
Step 3: If there is a non-infringing option, the court should subtract the profits the infringer could have made had it used the non-infringing option from its actual profits, to determine the amount to be disgorged.
In the case at hand, the Supreme Court majority found that the Federal Court did not err in its decision that:
- The market price of ethylene should not be deducted as a cost incurred by Nova in making the patented plastics (rather, only its actual cost should be deducted); and,
- All of Nova’s profits earned from the sales of its infringing product were causally attributable to Dow’s invention, as supported by two facts: (1) Nova’s customers only purchased its infringing plastics because they contained the features captured by Dow’s patent; and (2) Nova did not establish that there were relevant non-infringing options that would help the court isolate the profits causally attributable to Dow’s invention from profits attributable to non-inventive features of the infringing product.
The Supreme Court majority also found that the Federal Court was correct in its ruling that Dow was entitled to an accounting of Nova’s “springboard profits”, i.e., profits that arise post-patent expiry, but that are causally attributable to infringement of the invention during the period of patent protection. The majority concluded that, “[b]y infringing Dow’s patent, Nova entered the market created by the invention early, built market share, and used that market advantage to earn profits post‑patent‑expiry that were causally attributable to infringement of the invention.”
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