FCA clarifies discretion to award accounting of profits
In parallel decisions, the Federal Court of Appeal dismissed Rovi’s appeals against Telus and Bell (the Telus appeal) and against Videotron (the Videotron appeal). The Court of Appeal confirmed Rovi’s patents were invalid, but it nonetheless seized the opportunity to note the Federal Court’s errors when dealing with remedies. This post will focus on accounting of profits.
In both cases, the Federal Court considered remedies for the sake of completeness, although it had dismissed Rovi’s claims for infringement. It found in both cases that Rovi would not have been entitled to an accounting of profits. In Videotron, the Federal Court found that Rovi would have been entitled to a reasonable royalty for the infringement of certain claims.
Before analyzing the lower Court’s findings, the Court of Appeal in Videotron reviewed the law of damages under the Patent Act. It noted that accounting of profits under paragraph 57(1)(b) focuses on the profits wrongfully earned by the infringer and not on the losses suffered by the plaintiff.
The Court of Appeal explained that patentees are not automatically entitled to an accounting of profits: they must elect an accounting of the infringer’s profits instead of seeking their own damages. The Court retains a discretion not to award an accounting where it would be inequitable to do so. However, “compelling reasons” are required to deny the remedy, and “reasoned regularity” is expected from the Court in its exercise of discretion.
In Videotron, the Court of Appeal agreed with Rovi that the lower Court’s approach started from the wrong premise when it “toted up” the factors it felt favoured and disfavoured an accounting of profits. The lower Court failed to recognize the need for compelling reasons to deny an accounting of profits and to consider factors that would render the remedy inequitable.
In Telus, the Court of Appeal agreed with Rovi that the lower Court erred in describing the goal of an accounting of profits as “compensatory”.
While the Court of Appeal in both cases found no reviewable errors on the factors of complexity and the respondents’ conduct, it disagreed with the lower Court’s approach to Rovi’s conduct, including how it prosecuted, licensed, and litigated the patents.
In both cases, the Court of Appeal declined to foreclose the possibility that a delay in prosecuting the patents could be relevant to refusing an accounting of profits on the basis of unclean hands. However, the Federal Court had no evidence about normal practice and delays typically seen before the Patent Office, nor about Rovi’s motives in prosecuting the patents the way it did.
In Telus, the Court of Appeal agreed that the choice to license a patent is not a principle on which to deny an accounting. It noted that “the mere fact that a patentee licenses or intends to license the patent should not disentitle the plaintiff to an accounting of profits”.
In Videotron, the Court of Appeal declined to decide whether a duty of good faith was applicable to the negotiations between Videotron and Rovi; and, even if such a duty existed, the Court found Rovi’s conduct did not provide any basis for denying an accounting of profits. Failing to identify specific claims of the patent that would be asserted did not violate any duty, because the patents were publicly available, and Videotron was in the best position to assess which claims it would infringe.
Similarly, the Court of Appeal found nothing inappropriate per se in a party’s staunch defence of its perceived patent rights. Because the lower Court was considering remedies in obiter “had the claims in suit been valid”, the weakness of the claims could not be a relevant factor.
The Court of Appeal also rejected that the failure to send a cease and desist letter could be considered a valid reason to deny an accounting of profits.
A copy of the Telus decision can be found here; and a copy of the Videotron decision can be found here.
