IP Monitor: Federal Court of Appeal confirms presumptive entitlement to injunctive relief and accounting of profits in patent infringement cases

In two companion decisions, the Federal Court of Appeal has provided a sweeping review of the remedies for patent infringement in Canada and clarified the law concerning equitable relief (e.g., an infringer’s profits and injunctive relief). 

One of the Court’s key findings is that a patentee is presumptively entitled to permanent injunctive relief for infringement under Canadian law if successful on the merits after a trial – even in cases where the patentee licenses its invention, rather than selling it in the form of a product or service. The Court of Appeal was unpersuaded by the trial judge’s concerns about “patent holdup” and rejected the American test for injunctive relief in patent cases, which includes a “balancing” element and consideration of “irreparable harm” – factors that are not relevant in Canada after a finding of liability (as opposed to the test for interlocutory injunctions).¹

Meanwhile, in the United States, proposed legislation would amend U.S. patent law to state that the patent owner “shall be entitled to a rebuttable presumption” that courts will issue a permanent injunction following an infringement ruling – potentially shifting U.S. law closer to the Canadian approach.

Background

In 2017–2018, Rovi Guides, Inc. (Rovi) alleged infringement of six patents relating to interactive television program guide (IPG) and Internet protocol television (IPTV) technologies.² In a pair of 2022 decisions, the Federal Court held that all of the asserted claims were invalid and several of them were not infringed.³

Although Rovi was not entitled to any relief as a result of the Federal Court’s invalidity and non-infringement findings, the trial judge accounted for the possibility that these findings might be overturned: it conducted a detailed analysis of the remedies it would have been prepared to award if it had found for Rovi on infringement.

Rovi’s appeals with respect to the validity of the asserted claims were unsuccessful. However, the Court of Appeal disagreed with aspects of the trial judge’s remedies analysis. Though the remedies findings were not necessary to the outcome of either case – obiter dicta, in legal terms – the Court of Appeal still chose to correct the Federal Court’s errors and clarify the law.

These are the key points from the Court of Appeal’s summary of the law concerning patent infringement remedies and its findings on the facts of these cases.⁴

Damages

The plaintiff may claim compensatory damages under section 55 of the Patent Act. These may be quantified in a number of ways, including based on:

• Lost sales or price suppression suffered by the plaintiff.
• Lost licensing income, often based on the patentee’s own licence fees where it typically enters into such arrangements.
• A “reasonable royalty,” in cases where the plaintiff establishes neither lost sales nor a practice of licensing the invention. Notably, the “reasonable royalty” is based on a hypothetical negotiation between the parties, as opposed to actual royalty rates. The Court must consider both the amount the licensor would have been willing to receive and the amount the licensee would have been willing to pay.

A defendant may argue that it should not be liable for damages, or that it should not be required to disgorge (some or all) of its profits, on the basis that it could have adopted a non-infringing alternative (NIA). For example, it may be possible to argue that damages should be limited to the amount it would have cost to design around the patented feature. However, the defendant must have been able and willing to use the NIA. It is an error to base a damages analysis on the existence of an NIA without first finding (i) what the NIA was, (ii) that it would have been a “true substitute,” and (iii) whether it would have been accepted by consumers.

Accounting of profits

Instead of compensatory damages, the plaintiff may elect to claim an accounting of profits from the defendant. The Court of Appeal recognised that this is the “dominant monetary remedy for patent infringement in Canada,” and explained when it ought to be available.

• An accounting of profits is intended to deter infringement and protect the patent bargain; it is not compensatory. It can be awarded on either an interlocutory or a final basis.
• The Court has discretion with respect to both the availability of the accounting and its terms. In exercising this discretion, “a court is not required to rely on the maxims of equity” and “compelling reasons are required to deny the remedy.”
• When considering whether to award an accounting of profits is warranted, the Court should start from the premise that the plaintiff is presumptively entitled to this relief and focus on whether there are sufficient reasons to deny the relief as inequitable. The Federal Court failed to adopt this perspective, leading it to err by discounting certain factors as “neutral.”
• Reasons to refuse an accounting of profits could include:
  • Delay in bringing proceedings once the plaintiff becomes aware of the infringement.
  • “Unclean hands” directly related to the claim for infringement or litigation conduct.
  • Infringement following a finding that the patent was invalid, which is later reversed on appeal.
  • Undue complexity of the calculation, “especially where the infringing items were only a very small portion of the product sold by the defendant." While complexity alone cannot justify denying accounting of profits, the Court may deny this remedy if it is unlikely to arrive at a reliable and appropriate amount (e.g., if isolating the impact of infringing features would be too difficult).
  • The plaintiff was a non-exclusive licensee.
  • The plaintiff did not practice the invention in Canada. While the facts may weigh against an accounting of profits if “the plaintiff has made no attempt and has no plans to commercialize the invention,” this must be distinguished from situations where the plaintiff licences (or intends to licence) the patent in Canada. The latter is to be given no weight when determining whether to award an accounting of profits.

• Factors that could favour an accounting of profits include:
  • The defendant knowingly infringed the patent (a.k.a. “wilful infringement”). However, the Court may decline to make such a finding if there is no evidence that the particular patents or claims at issue in the litigation were the focus of the negotiation.
  • The defendant was aware that the plaintiff was likely to enforce its patent.

• Factors that are not relevant to whether an accounting of profits is awarded could include:
  • Staunchly defending patent rights or adopting a business practice of licensing patents.
  • Failure to send a cease and desist letter or failure to identify which claims are infringed prior to filing a statement of claim. The Court of Appeal noted that a defendant is presumably in the same or better position to evaluate infringement with respect to its own products, and can always concede once it is served with a statement of claim.
  • The weakness of a patent’s claims. If the claims are invalid, no remedy will be awarded.

• The Court of Appeal left open the possibility that delay in patent prosecution could be relevant to refusing an accounting of profits, pointing to a hypothetical where “a plaintiff had unclean hands in seeking to extend the prosecution time to allow a defendant to accumulate profits that the plaintiff would then obtain.” However, this would need to be supported by evidence.

Injunctions

Courts also have the power to grant an injunction in cases of patent infringement in Canada, typically together with a final accounting of profits where the patent is still in force.

“A plaintiff can generally expect to receive injunctive relief in Canada,” explaining that it is “generally accepted in this country” as “the principal preventive remedy in patent law” and should be denied “only in very rare circumstances” – even in cases where the patent is close to expiry. Examples of reasons to deny an injunction include delay, unclean hands, hardship, and impossibility of performance.

In this case, the Court of Appeal rejected the existence of a separate requirement for irreparable harm or an explicit requirement for a balancing test in respect of a permanent injunction. In doing so, the Court of Appeal found that Canadian Courts “have not endorsed the American approach to permanent injunctions or any related principles derived from” the U.S. Supreme Court in eBay.

The Court of Appeal noted that under eBay, whether a patentee practices its invention – or is merely seeking licensing income – could be relevant to whether it meets the “irreparable harm” prong of the test for an injunction. The Court of Appeal declined to adopt a similar principle in Canadian law, holding that, “the fact that a patentee licences its invention does not, in and of itself, disentitle a patentee to injunctive relief.”

Developments in the United States

In the United States, proposed legislation known as the “Realizing Engineering, Science and Technology Opportunities by Restoring Exclusive Patent Rights Act” (RESTORE Act) was recently introduced in both houses of Congress (see here). This bill would amend U.S. patent law to state that the patent owner “shall be entitled to a rebuttable presumption” that courts will issue a permanent injunction following an infringement ruling. If enacted, this change would alter the current standard set by the U.S. Supreme Court in eBay, which requires courts to apply a four-factor test to determine if an injunction should be issued in a patent case (see here).

The RESTORE Act aims to make injunctions more readily available to patent owners, potentially shifting U.S. law closer to the Canadian approach. However, the bill faces an uncertain path to passage, having been introduced late in an election year. That is, similar language has been part of broader patent bills in recent years that have not advanced in Congress. While the proposed legislation has attracted attention in patent circles, its ultimate impact would depend significantly on how courts interpret and apply the new presumption in practice, including how the presumption could be rebutted.