Supreme Court Of Canada Upholds Largest Canadian Patent Infringement Award

On November 18, 2022, the Supreme Court of Canada (SCC) issued its decision in Nova Chemicals Corp. v Dow Chemical Co., 2022 SCC 43, in which an eight to one majority affirmed the award of nearly $645 million and clarified the test for an accounting of profits.  The SCC also confirmed that springboard profits are legally permissible, and should be included in an accounting of profits because they are also causally attributable to infringement of the invention.

In 2017, the Federal Court of Canada awarded Dow Chemical Co. (Dow) the largest damages award in Canadian history for infringement of its patent relating to polyethylene plastic products on the basis of an accounting of profits of the infringer, Nova Chemicals Corp. (Nova).   The Federal Court of Appeal upheld the award, as previously reported by the E-TIPS® Newsletter here. 

On appeal to the SCC, Nova argued that had it not infringed, it would have manufactured and sold non-infringing ethylene, earning profits from those sales in any case, and that the profit attributable to patent infringement is the difference between the infringing ethylene and the non-infringing ethylene.  The SCC held, though, that this was not a case where the hypothetical profits that an infringer could have earned by selling a non-infringing option was relevant to a calculation of an accounting of profits since there was no evidence of relevant non-infringing options on the record before the lower courts.

Nova also argued that springboard profits were not legally permissible and that the reasonable compensation for the pre-grant period awarded to Dow already compensated Dow for Nova’s ramp-up period. The SCC rejected both of these arguments, stating that springboard profits were an extension of the principle that, in calculating an accounting of profits, the infringer must disgorge all profits causally attributable to the infringement.  Thus, the SCC held springboard profits are legally permissible.  The SCC also explained that, as the lower courts found, royalties paid for the post-filing, pre-grant period were  not related to the calculation of profits earned from infringement, during the period of patent protection.

In its reasons, the SCC set out a three-step test for determining an accounting of profits:

1. Calculate the actual profits earned by selling the infringing product.
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.
3. If there is a non-infringing option, 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 her dissent, Justice Côté noted that she would have allowed the appeal on the basis that a non‑infringing option does not have to be a true consumer substitute for the patented product, and that in an accounting of profits assessment the focus should be on what the infringer could have and would have done but for the infringement.

In dismissing the appeal, the SCC concluded that Dow was entitled to its costs throughout.

Summary By: Sharan Johal