[1993] 2 F.C. 515
T-1350-86
J.M. Voith GmbH (Plaintiff)
v.
Beloit Corporation (Defendant)
T-1607-86
Beloit Canada Ltée/Ltd. and Beloit Corporation (Plaintiffs)
v.
J.M. Voith GmbH and Voith S.A. (Defendants)
T-1268-86
Valmet-Dominion Inc. (Plaintiff)
v.
Beloit Corporation (Defendant)
T-1450-86
Beloit Canada Ltée/Ltd. and Beloit Corporation (Plaintiffs)
v.
Valmet-Dominion Inc. (Defendant
T-2253-86
Beloit Canada Ltée/Ltd. and Beloit Corporation (Plaintiffs)
v.
General Electric Canada Inc. (Defendant)
Indexed as: J.M. Voith GmbH v. Beloit Corp. (T.D.)
Trial Division, Rouleau J.—Ottawa, October 19, 20 and 21, 1992 and February 16, 1993.
Patents — Infringement — Patent for new arrangement of rolls and felts in press section of paper machine — Patent Act, s. 44 conferring exclusive right and privilege on patentee of “making, constructing, using and vending to others” invention — Defendants contracting to sell complete machines, for installation in Canada and abroad, and component parts — S. 44 not warranting distinction between “sale” and “agreement to sell” — Unascertained goods (not yet manufactured, but to be supplied at future date) infringe — Sale of components for use and assembly in Canada, or assembly of parts in manner described in patent claims within Canada and export of finished product, infringement — Contracts for sale of component parts for assembly abroad not constituting infringement.
Patents — Practice — Infringement action — Limitation periods and remedies — Civil Code, Art. 2261 providing actions for damages resulting from offence must be brought within two years whenever other provisions not applicable — Patent infringement delict in Quebec law — Patent Act silent re: limitation periods for patent infringement actions — Federal Court Act, s. 39 providing law of province applies — Patentee seeking accounting of profits or damages — Accounting of profits remedy, not cause of action — Art. 2261 describing situations giving rise to cause of action, not to remedy — Once necessary elements giving rise to cause of action established, action must be brought within two years — Contracts made more than two years prior to date action instituted i.e. 1986 prescribed — Accounting of profits inappropriate remedy given complexity of dispute, delay in bringing action, some contracts undertaken when patent declared invalid — Damages appropriate — Principle of restoration applied — Plaintiff entitled to profits would have made in infringing sales.
Practice — References — Prior to dismissal of patent infringement action A.S.P. ordering reference to determine extent of infringement, damages — Court of Appeal setting aside dismissal, declaring action valid, referring infringement issue back to Trial Division — Purpose of this hearing — Whether sufficient for plaintiff to show one instance of infringement, extent to be determined at reference — Reference to conduct inquiry into question of fact — Never used to solve question of law by anyone other than judge — Reference under R. 500 not to determine whether infringement occurred, but to ascertain damages.
Federal Court jurisdiction — Trial Division — Plaintiff in patent infringement action seeking damages or accounting of profits — Federal Court court of equity under Federal Court Act, ss. 3, 20 — Within jurisdiction to award equitable remedy of accounting provided otherwise having jurisdiction over subject-matter and appropriate in circumstances — Plaintiff’s election neither binding Court nor removing discretion.
In this patent infringement action, the plaintiff was seeking an injunction, damages or an accounting of profits, an order directing the delivery up of all infringing articles, pre- and post-judgment interest, and costs. The patent was for a new arrangement of rolls and felts in the press section of a paper machine. Patent Act, section 44 confers the exclusive right and privilege on the patentee of “making, constructing, using and vending to others” the invention.
Between 1979 and 1985 the defendants contracted to sell complete machines for installation both in Canada and abroad, as well as press-section rebuilds (component parts) for installation only in Canada. In 1986, Valmet-Dominion Inc. (VDI) and J.M. Voith GmbH commenced actions against Beloit Corporation, impeaching the validity of Beloit’s patent, based on prior knowledge and prior publication. Beloit countered with its own infringement actions against those parties and also against General Electric Canada (GEC). Prior to trial, Giles A.S.P. ordered that the extent of any infringement, damages and profits were to be the subject-matter of a reference after trial under Rule 500. At trial Beloit’s infringement actions were dismissed, the impeachment actions allowed, and the patent declared invalid. The Court of Appeal set aside the dismissal of Beloit’s infringement action, declared Beloit’s patent valid, and referred the matters back for a continuance of the trial on the issue of infringement. A preliminary issue was raised as to the purpose of this hearing. The plaintiff argued that once it had shown one instance of infringement, the extent thereof and any damages would be determined at a reference. The defendants contended that the plaintiff had to prove each allegation of infringement as well as its entitlement to damages.
The defendants argued that the actions on the four contracts made in Quebec between 1979 and 1983 were prescribed by Civil Code of Lower Canada, Article 2261. That Article provides that actions for damages (dommages) resulting from offences are prescribed by two years whenever other provisions do not apply. The Patent Act is silent with respect to limitation periods during which one can institute an action for infringement. Federal Court Act, subsection 39(1) states that in such cases the law of the relevant province applies. The plaintiffs relied on Reeves Bros. Inc. v. Toronto Quilting & Embroidery Ltd., in which it was held that if an accounting of profits was elected, Article 2261 did not apply. Instead Article 2242, which imposes a 30-year prescription period on actions not otherwise prescribed would apply.
GEC contracted for the manufacture and sale of two complete machines for assembly and use abroad, and later assigned the contract to VDI, which performed the contract. GEC argued that the contracts were for the sale of unascertained goods because they had not yet been manufactured at the time the contracts were entered into. It was argued that contracting for unascertained goods is not a sale, and since infringement takes place at the time of sale, section 44 was not contravened. The plaintiff argued that GEC had infringed the patent by entering into the agreement to provide the material contracted for. The defendant argued that there is a distinction between a “sale” and an “agreement to sell”.
The contract for the sale of a complete paper machine may be divided among different manufacturers for different sections of the machine. VDI did not assemble whole press sections in the machines which it sold. It assembled one roll and checked for fit at each location. It was assumed that the other rolls were identical. The plaintiff argued that the contracts for the sale of component parts of a patented invention in Canada, delivered for assembly and use outside Canada constituted infringement because infringement takes place at the time of sale and again at the time of manufacture, whether for use in Canada or for export. The defendants argued that section 44 limited patent protection to the operable assembly of the whole invention. Therefore, production of parts of patented machines and their shipment in less than fully assembled form, for construction and use abroad, would not constitute infringement.
As to remedies, the plaintiff maintained that it had the right to elect either damages or an accounting of profits. The defendants argued that the Court had no jurisdiction to award an accounting of profits because it was not a remedy available pursuant to the Patent Act.
The issues were whether some of the causes of action were prescribed by Article 2261; whether a contract for the sale of unascertained goods constituted infringement; whether the sale of component parts of a patented invention in Canada constituted infringement; whether those machines manufactured by the defendants, but delivered for assembly and use outside of Canada were infringement; and, what remedies were available.
Held, the action should be allowed in part.
The plaintiff could not rely on the order for a reference to relieve it of the burden of proof. Since the hearing was a continuation of the trial commenced by Beloit, the onus was on it to prove the allegations of infringement. Secondly, there were a number of legal issues to be determined which were properly the subject-matter of a trial. The issue of infringement involved several complex and novel issues. It was a factual and legal question not properly to be decided on a reference, the purpose of which is to conduct an inquiry into questions of fact. A reference is never used for solving questions of law by anyone other than a judge of the Court. A reference under Rule 500 is not to determine whether infringement has occurred, but rather, if infringement is found at trial to have occurred, to ascertain what damages have been suffered.
The authorities cited by Gibson J. in Reeves Bros. did not sustain his analysis. They stood for the proposition that once a patentee has succeeded at trial, he cannot claim both damages as well as an accounting of profits, but must elect one or the other. What Gibson J. concluded had the effect of creating a cause of action out of a remedy, extending prescription to 30 years. An accounting of profits is not a cause of action, but a remedy. Article 2261 describes situations which give rise to a cause of action (“dommages”), and not the remedy of “dommages et intérets”. Once the necessary elements have been established which give rise to a cause of action, it must be brought within two years. Patent infringement is a tort or delict under the law of Quebec and an action for patent infringement must be instituted within two years. Rights were totally extinguished and could not be revived according to Article 2267 by some of the defendants commencing actions against Beloit. Because no action was initiated until 1986, contracts made in Quebec between 1979 and 1983 were prescribed.
In order to adopt the notion that the sale of unascertained goods is not an infringement of a patent already issued, the words “vending to others” in section 44 would have to be interpreted as including a “sale”, but not “an agreement to sell”. Nothing in the Act warranted such a fine distinction. Therefore it was irrelevant that the contract entered into by GEC and assigned to VDI was an “agreement to sell” because the transfer of the property in the goods was dependent upon the goods being manufactured at some future date. GEC’s actions with respect to the machines destined for abroad were “vending to others”, and contravened section 44.
The sale in Canada of component parts of a patented invention constituted infringement of the patent, but the only such sales herein involved contracts, actions based upon which were prescribed by Article 2261.
The contracts for sale of component parts to be assembled abroad did not constitute infringement. Rights conferred under the Patent Act are territorially confined to Canada. The grant of the patent prohibited the defendants in Canada from making, constructing, using or selling to others to be used the plaintiff’s invention. That invention embodied the marriage of old, previously known parts, into a new configuration. Therefore, the only protection afforded by the Patent Act is with respect to the amalgamation of those parts in a new and innovative fashion which comprises the essence of the invention. The singular parts of the invention were not protected. When the defendants shipped the unassembled parts in question out of the country, they did not make, construct, use or sell to others, in Canada, the plaintiff’s invention. To have infringed Beloit’s patent, the defendants must have sold the components of the invention for use and assembly in Canada, or they must have assembled those parts in the manner described within the claims of the patent, within the boundaries of this country, and later exported the finished products.
The Court had the jurisdiction to award the equitable remedy of an accounting of profits. The Federal Court is a court of equity (Federal Court Act, sections 3 and 20), and as such it is always open to it to grant that award if it otherwise has jurisdiction over the subject-matter and it is appropriate in the circumstances. That the Patent Act does not specifically refer to an award of an accounting of profits did not deprive the Court of jurisdiction. Nor did the plaintiff’s election for an accounting of profits bind the Court or strip it of its discretion as to whether the remedy should be awarded. But an accounting of profits herein would be an inappropriate remedy because of the complexity and inordinate length of time during which these actions have been ongoing and the time and expense involved in this intricate procedure. Other factors mitigating against the award of an accounting of profits were the plaintiff’s delay in instituting proceedings and the fact that the patent had been declared invalid when some of the contracts were undertaken. The appropriate remedy was an award of damages. The principle of restoration should be applied in determining an equitable and just amount. Beloit was entitled to the profits it would have made on those items sold by the defendants, which have been found to constitute an infringement of its patent. The award of damages should not be limited to the press section of a paper machine where the defendants actually sold an entire machine. The case law did not support a restriction of damages to the loss of profits attributable to the patented article itself. If, in the normal course of a patentee’s trade, the patented article is sold by itself, this may be all he is entitled to. Where the patented article is not necessarily sold by itself, it is reasonable to assume that the damage to the patentee lies, not merely in loss of profits attributable to the article itself, but in selling the articles in which he trades, i.e. paper machines with triple-nip press sections. At the reference, the plaintiff must show what profit it would have made on sales of machines and component parts pursuant to infringing contracts.
The plaintiff was entitled to pre- and post-judgment interest. In the circumstances, including plaintiff’s undue delay, simple pre-judgment interest at 10% per annum from the date action was commenced to December 31, 1990 should be awarded and thereafter at 7% until payment.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Civil Code of Lower Canada, Arts. 2242, 2261, 2267.
Federal Court Act, R.S.C., 1985, c. F-7, ss. 3, 20, 39(1).
Federal Court Rules, C.R.C., c. 663, R. 500.
Industrial Design Act, R.S.C. 1970, c. I-8.
Patent Act, R.S.C., 1985, c. P-4, ss. 27(1), 44, 58, 61(1).
CASES JUDICIALLY CONSIDERED
NOT FOLLOWED:
Reeves Brothers Inc. v. Toronto Quilting & Embroidery Ltd. (1978), 43 C.P.R. (2d) 145 (F.C.T.D.).
APPLIED:
Sibo Inc. et al. v. Posi-Slope Enterprises Inc. (1984), 5 C.P.R. (3d) 111 (F.C.T.D.); American Cyanamid Co. v. Berk Pharmaceuticals Ltd., [1976] R.P.C. 231 (Ch. D.); Hydro-Québec c. Dableh, judgment dated November 25, 1991, Montréal 500-09-001071-919, J.E. 92-32 (Que. C.A.), not yet reported; Mastini v. Bell Telephone Co. of Canada et al. (1971), 18 D.L.R. (3d) 215; 1 C.P.R. (2d) 1 (Ex. Ct.); Windsurfing Int. Inc. v. Trilantic Corp. (1985), 7 C.I.P.R. 281; 8 C.P.R. (3d) 241; 63 N.R. 218 (F.C.A.) on issue of whether sale of component parts in Canada constitutes infringement; Dole Refrigerating Products Ltd. v. Can. Ice Machine Co. & Amerio Contact Plate Freezers Inc. (1957), 28 C.P.R. 32; 17 Fox Pat. C. 125 (Ex. Ct.); Deepsouth Packing Co., Inc. v. Laitram Corp. (1972), 173 USPQ 769 (Sup. Ct.); Teledyne Industries, Inc. et al. v. Lido Industrial Products Ltd. (1982), 68 C.P.R. (2d) 204 (F.C.T.D.); Global Upholstery Co. Ltd. v. Galaxy Office Furniture Ltd. (1976), 29 C.P.R. (2d) 145 (F.C.T.D.); Consolboard Inc. v. MacMillan Bloedel (Saskatchewan) Ltd. (1978), 39 C.P.R. (2d) 191 (F.C.T.D.); affd [1981] 1 S.C.R. 504; Watson, Laidlaw, & Co. Ld. v. Pott, Cassels, & Williamson (1914), 31 R.P.C. 104 (H.L.); Colonial Fastener Co. Ltd. v. Lightning Fastener Co. Ltd., [1937] S.C.R. 36; [1937] 1 D.L.R. 21; Neilson and Others v. Betts (1871), L.R. 5 H.L. 1.
DISTINGUISHED:
Lido Industrial Products Ltd. v. Teledyne Industries Inc. et al. (1981), 57 C.P.R. (2d) 29; 39 N.R. 561 (F.C.A.); British Motor Syndicate, Ld. v. John Taylor & Sons, Ld. (1900), 17 R.P.C. 189 (Ch. D.); Windsurfing Int. Inc. v. Trilantic Corp. (1985), 7 C.I.P.R. 281; 8 C.P.R. (3d) 241; 63 N.R. 218 (F.C.A.) on issue of whether assembly outside of Canada of Canadian manufactured component parts constitutes infringement.
CONSIDERED:
United Horse Nail Co. v. Stewart (1888), 5 R.P.C. 260 (H.L.); Dubiner, Samuel v. Cheerio Toys & Games Ltd., [1966] Ex. C.R. 801; (1966), 55 D.L.R. (2d) 420; 49 C.P.R. 155; 32 Fox Pat. C. 76; Siddell v. Vickers (1892), 9 R.P.C. 152 (C.A.).
referred to:
Beloit Can. Ltée/Ltd. v. Valmet Oy (1986), 7 C.I.P.R. 205; 8 C.P.R. (3d) 289; 64 N.R. 287 (F.C.A.); J.M. Voith GMBH v. Beloit Corp. (1989), 26 C.I.P.R. 22; 27 C.P.R. (3d) 289; 30 F.T.R. 35 (F.C.T.D.); J.M. Voith GmbH et al. v. Beloit Corp. et al. (1991), 36 C.P.R. (3d) 322 (F.C.A.); leave to appeal to the Supreme Court of Canada refused [1992] 1 S.C.R. viii; Algonquin Mercantile Corp. v. Dart Industries Canada Ltd., [1987] 2 F.C. 373; (1986), 11 C.I.P.R. 221; 12 C.P.R. (3d) 289; 7 F.T.R. 81 (T.D.); R.W. Blacktop Ltd. v. Artec Equipment Co. (1991), 39 C.P.R. (3d) 432 (F.C.T.D.).
AUTHORS
Baudoin, J.-L. La responsabilité civile délictuelle, 3rd ed., Cowansville, Quebec: Editions Y. Blais, 1990.
Friedman, G. H. L. Sale of Goods in Canada, 3rd ed., Toronto: Carswell, 1986.
ACTION for infringement of patent for new arrangement of rolls and felts in the press section of a paper machine. Action allowed in part.
COUNSEL:
Donald J. Wright, Q.C. for Beloit Canada and Beloit Corporation.
James D. Kokonis and A. David Morrow for Valmet-Dominion Inc. and General Electric Canada Inc.
Roger T. Hughes and Timothy M. Lowman for J.M. Voith GmbH and Voith S.A.
SOLICITORS:
Ridout & Maybee, Toronto, for Beloit Canada and Beloit Corporation.
Smart & Biggar, Ottawa, for Valmet-Dominion Inc. and General Electric Canada Inc.
Sim, Hughes, Dimock, Toronto, for J.M. Voith GmbH and Voith S.A.
The following are the reasons for judgment rendered in English by
Rouleau J.: In this action [T-1607-86] the plaintiff seeks relief from infringement of its patent, which involves a new arrangement or disposition of rolls and felts in the press section of a paper machine in such a manner as to create a succession of three de-watering nips in close proximity, conveying a supported web, before an open draw. The increased de-watering which came about as a result of the structural change in a press section strengthened the web, permitting the speeding up of paper machines and thus increasing productivity. The speed aspect, although referred to in the disclosure of the patent, is not specifically mentioned in the claims under attack.
The plaintiff seeks an injunction restraining the defendants from manufacturing, using, selling or inducing or assisting others to manufacture, use or sell tri-nip press sections; damages or an accounting of profits; an order directing the defendants VDI [Valmet Dominion Inc.] and GEC [General Electric Canada Inc.] to deliver up all infringing articles; as well as pre- and post-judgment interest and costs.
This action has a lengthy history, a summary of which is in order. The defendant VDI initially filed a statement of claim on June 4, 1986 in action number T-1268-86, impeaching the validity of the plaintiff’s patent on the basis of prior knowledge and prior publication pursuant to subsection 27(1) and section 61 of the Patent Act, R.S.C., 1985, c. P-4. The plaintiff subsequently initiated its own claim against VDI, action number T-1450-86, filed on June 24, 1986, seeking a declaration that claims 1, 2 and 4 through 11 of its patent were valid and infringed, an injunction, and damages or an accounting of profits. The plaintiff argued that VDI was estopped by reason of res judicata and abuse of process from asserting the invalidity of its patent or denying infringement, since VDI was a privy of Valmet Oy, against whom Beloit had, in an earlier action, obtained a declaration of validity and injunction restraining the infringement of the patent in issue (Beloit Can. Ltée/Ltd. v. Valmet Oy (1986), 7 C.I.P.R. 205 (F.C.A.).
The defendant Voith [J.M. Voith GmbH] filed a statement of claim against the plaintiff on June 6, 1986, in action number T-1350-86, also impeaching the validity of the patent on the basis of prior knowledge and prior publication under subsections 27(1) and 61(1) of the Patent Act. Beloit in turn commenced action number T-1607-86 against Voith on July 11, 1986, seeking a declaration of validity of claims 1, 2 and 4 through 12 of their patent, as well as damages and injunctive relief against Voith for infringement.
In October 1986, the plaintiff initiated proceedings against the defendant GEC [General Electric Canada], action number T-2253-86, seeking a declaration that claims 1, 2 and 4 through 11 of its patent were valid and infringed by GEC. Once again, Beloit sought an injunction as well as damages and an accounting of profits. GEC counterclaimed, impeaching the validity of the plaintiff’s patent on the same grounds as the other two defendants.
By order dated October 20, 1988, Giles A.S.P., ordered that the questions of the extent of the infringement of any rights of the plaintiff, the damages flowing from any infringement of any rights of Beloit, and, the profits arising from the infringement of the plaintiff’s rights, if any, be, after trial the subject-matter of a reference under Rule 500 of the Federal Court Rules [C.R.C., c. 663], if necessary.
When this action originally went to trial, it was combined for the sake of expediency, with actions T-1350-86, T-1450-86, T-1268-86 and T-2253-86. On November 17, 1989 I issued a decision dismissing Beloit’s infringement actions no. T-1450-86 against VDI, no. T-1607-86 against Voith, and no. T-2253-86 against GEC [(1989), 26 C.I.P.R. 22]. I further allowed the impeachment actions by VDI (T-1268-86) and by Voith (no. T-1350-86) against the plaintiff’s patent, and the counterclaims against the plaintiff. In addition, a declaration was granted that Beloit’s Canadian patent no. 1,020,383 was invalid.
Appeals were taken in each of the five actions. By judgment dated June 4, 1991, the Federal Court of Appeal:
1. set aside the dismissal of Beloit’s action for infringement, the expungement of Beloit’s Canadian letters patent 1,020,383 and the awards of cost to Voith, VDI and GEC;
2. declared Canadian letters patent 1,020,383 and claims 1, 2 and 4 to 12 thereof to be valid; and,
3. referred these matters back for a continuance of the trial on the issue of infringement.
The defendants’ applications for leave to appeal to the Supreme Court of Canada were dismissed [[1992] 1 S.C.R. viii].
PRELIMINARY ISSUE
The issues now before me are whether the plaintiff’s patent has been infringed by the defendants and if so, what remedies are available to it as a result. In this respect, there appeared to be some dispute between the parties as to the purpose of the three-day hearing before me on October 19, 20 and 21, 1992.
The plaintiff’s position was that, in light of the order of Giles A.S.P., it was only required to show that infringement of its patent had occurred and the matter would then be turned over for a reference in order to determine the extent of that infringement and the damages arising therefrom.
The defendants, on the other hand, contended that the plaintiff had the onus of proving each and every allegation of infringement contained within its statement of claim, as well as its entitlement to damages. It is not sufficient, according to the defendants, for the plaintiff to merely show one instance of infringement and then rely upon the order of Giles A.S.P. for a reference in order to determine the extent of the infringement and whether the plaintiff incurred damages as a result.
With due respect, it is my opinion that the plaintiff’s position as to the purpose of this hearing and the function of the reference which has been ordered, is erroneous. In this respect, it is imperative to consider the finding of the Court of Appeal in its decision of June 4, 1991 [(1991), 36 C.P.R. (3d) 322], wherein it made the following finding at page 341:
In the result, the appeals against the judgments in the impeachment actions should be allowed and the expungement of Canadian patent No. 1,020,383 set aside.
The appeals against the judgments in the infringement actions should also be allowed and, pursuant to s. 52(b)(iii) of the Federal Court Act, R.S.C. 1985, c. F-7, the matters referred back for a continuance of the trials on the issue of infringement.
Having considered these directions from the Court of Appeal, I have reached the following conclusions. First, the hearing before me constituted a continuation of the trial, commenced by the plaintiff in these actions by way of statement of claim. As such, the onus is on the plaintiff, upon whom carriage of these proceedings rests, to prove the allegations of infringement contained within those claims. The plaintiff cannot, in other words, rely upon the order of Giles A.S.P. for a reference, as relieving it of the burden of proof which it has in these infringement actions.
Second, as I understand the arguments raised by the defendants in answer to the allegations of infringement made against them, there are a number of legal issues to be determined here, which are properly the subject-matter for a trial and not for a reference. Indeed, the issue of whether the patent in question has been infringed is a factual and legal question, not properly decided on a reference. In the present case, the inquiry into whether infringement has occurred included a number of complex and novel matters, for example, construing the patent, whether contracts for the sale of unascertained goods constitutes infringement, whether assembly outside of Canada constitutes infringement, and whether the plaintiff is estopped from the remedy it seeks by the expiration of prescription periods, to mention a few.
Clearly, these are not issues which are properly the subject-matter of a reference pursuant to Rule 500 of the Federal Court Rules which provides as follows:
Rule 500. (1) The Court may, for the purpose of taking accounts or making inquiries, or for the determination of any question or issue of fact, refer any matter to a judge nominated by the Associate Chief Justice, a prothonotary, or any other person deemed by the Court to be qualified for the purpose, for inquiry and report.
Accordingly, the purpose of a reference is to conduct an inquiry into questions of fact. As held by this Court in Sibo Inc. et al. v. Posi-Slope Enterprises Inc. (1984), 5 C.P.R. (3d) 111, the very wording of the Rule limits it to purely factual matters and it is never considered or used for solving questions of law by anyone other than a judge of the court. The function of a reference under Rule 500 is not to determine whether infringement has occurred but rather, if infringement is found to have taken place after trial, to turn over to a referee the task of ascertaining what damages, if any, have been suffered.
I am satisfied therefore, that the plaintiff clearly bears the onus of proving those allegations of infringement contained within its statements of claim and it is restricted, for the purpose of determination of damages on the reference, to those instances of infringement which it successfully proves during trial. I turn now to the question of infringement.
CONSTRUING THE PATENT
Before dealing with the question of infringement, the Court must first construe the patent, bearing in mind that the patent is not addressed to members of the public generally, but to persons skilled in the art. In this regard, courts have generally been guided by the law as expressed by Whitford J. in American Cyanamid Co. v. Berk Pharmaceuticals Ltd., [1976] R.P.C. 231 (Ch. D.) at page 234:
The first task in any patent action is to decide exactly what monopoly the patentee has been granted … One of the important features of the claims is to make it clear to other people what they are not entitled to do during the life of the patent, and the Patents Act expressly provides that the claims must be clear and succinct and must be fairly based upon the matter disclosed in the specification … In the same way, when you get to the claims you ought to be able to know what you may do and what you may not do, and if the claims are incomprehensible or ambiguous, or do not really relate to the invention which has been disclosed in the body of the patent specification, the patent again should not stand valid …
An understanding of the claims, a determination as to their scope—what lawyers call the construction of the claims—is necessarily the first task to be undertaken, and it must be done dispassionately.
The construction of the claims in the patent in this case were the subject of discussion in my decision of November 17, 1989 and by the Court of Appeal in its decision of June 4, 1991. The proper starting point therefore, is to examine what these decisions said concerning the claims in issue.
In construing the patent in my previous decision I stated as follows at page 73:
Claim 1 is the underpinning for what is alleged to have been invented; there is no doubt that it is a combination of previously known elements as stated in the pleadings. The essential ingredients are three nips on common rolls before an open draw, the first nip being double felted and the web supported on both sides throughout. There is nothing mysterious about the expression “open draw” since this followed all press sections on commercial paper machines. What is essential is that there be three nips on closely related common rolls. Though emphasized, speed or increased productivity is not claimed nor does it form part of the monopoly as enunciated. Speed is an issue that, if included in the claims, would lead to ambiguity since the three nip configuration, from all the evidence, was adaptable to high speed as well as slow speed machines; the configuration of rolls and felts can be applied to the production of newsprint and fine papers as well as board or heavy weight papers.
It was my view, that the plaintiff’s invention had been anticipated by a prior publication of Mr. Christian Schiel (“the Schiel Paper”). The Court of Appeal, disagreed with this finding, but approved the construction I had attributed to the patent with the following comments at pages 339 and 340 of its decision:
In considering the Schiel paper and what the trial judge had to say about it, it is important to remember that while the figure plainly shows a tri-nip configuration, the text relates to that only when discussing configuration “c”: the use of press nips I, II and III.
…
The remaining paragraphs quoted from the Schiel paper are at best ambivalent in recommending a double-felted first nip. Newsprint is produced on high speed machines. Its production, as found in Valmet and unquestioned here, is “the most common application of the invention in suit”. While the double-felted first nip of arrangement “b” was good for reducing two-sidedness, better dryness—the objective of the Beloit invention—could be achieved with arrangement “a”, which has no double-felted nips.
A fair reading of the entire Schiel paper, without the benefit of inadmissible parol evidence, leads only to the conclusion that its author had no thought that a three-nip configuration with a double felted first nip could be used in a high speed press section. Those essential elements of claim 1 of the patent, the claim upon which all other claims depend, are not taught by the Schiel paper.
This then is the proper construction to be given to the claims of the patent in question.
At the continuation of the trial, a substantial amount of time was spent debating whether “high speed” forms part of the claims at issue. The defendants argue that the Court of Appeal’s decision leads to the conclusion that “high speed” is an essential element of the claims, and because there is no clear evidence as to what “high speed” meant as of the date the patent was applied for, the patent is ambiguous and not inherently capable of being precisely interpreted.
I cannot accept this reasoning. There is nothing in either of the above quotations which would lead to the inference that high speed is an essential element of the plaintiff’s patent. What is protected by claim 1 of the patent is a three-nip configuration with a double-felted first nip before an open draw. The fact that the invention also serves to increase speed, does not make high speed part of the invention nor am I persuaded that the plaintiff must accept high speed as part of its patent. For this reason, I can only reiterate what I stated in my previous decision, and which was approved by the Court of Appeal, that the speed aspect, although referred to in the disclosure of the patent, is not specifically mentioned in the claims under attack.
Accordingly, the claims in issue are not limited to high speed press sections and the defendants’ argument, that the patent is ambiguous on the point of high speed and cannot be construed, must fail.
INFRINGEMENT
Having determined what monopoly is covered by the patent, it remains to be decided whether the defendants have infringed it. There are eleven contracts in issue here which the plaintiff maintains constitute infringement of its patent:
1. One complete machine except headbox, sold by the defendant GEC to Midtec Paper Corporation. Offer, acceptance and contract made in Montréal, Quebec in June, 1979. Installation of machine in Kimberly, Wisconsin.
2. One complete machine sold by the defendant GEC to Donohue-Normick Inc. Offer, acceptance and contract made in Montréal, Quebec on August 13, 1980. Installation of machine in Amos, Quebec.
3. A press-section rebuild sold by the defendant GEC to Consolidated-Bathurst Inc. Offer, acceptance and contract made in Montréal, Quebec on July 11, 1980. Installation in Shawinigan, Quebec.
4. Two complete machines sold by defendant VDI to Klockner Stadler Hunter Ltd. Offer, acceptance and contract made in Montréal, Quebec on April 29, 1983. Installation of machines in South Sabah, Malaysia.
5. One press-section with minor dryer rebuild sold by the defendant VDI to Great Lakes Forest Products Limited. Offer, acceptance and contract made in Montréal, Quebec in February, 1985. Installation in Thunder Bay, Ontario.
6. One complete machine except dryer sold by defendant VDI to Corner Brook Pulp & Paper Limited. Offer, acceptance and contract made in Montréal, Quebec on September 12, 1985. Installation in Corner Brook, Newfoundland.
7. One complete machine sold by defendant VDI to Donohue Malbaie Inc. Offer, acceptance and contract made in Montréal, Quebec on September 18, 1985. Installation made in Clermont Mill, Quebec.
8. One complete machine sold by defendant VDI to Repap N.B. Inc. Offer, acceptance and contract made in Montréal, Quebec on January 31, 1985. Installation made in Newcastle, New Brunswick.
9. A press section rebuild sold by defendant Voith to Canadian International Paper (Gatineau).
10. A press section rebuild sold by defendant Voith to British Columbia Forest Products.
As previously mentioned, these are the contracts which the plaintiff has proven during trial and it is therefore restricted in its quest for damages to those incidents, should it succeed in showing that infringement has occurred. It is not open to the plaintiff to produce other evidence of infringement during the course of the reference.
PRESCRIPTION
I intend to deal first with the preliminary issue of whether all claims against the defendant GEC and those against VDI in relation to the two South Sabah machines are prescribed under Article 2261 of the Civil Code of Lower Canada.
In the case at bar, the plaintiffs rely on Gibson J. in Reeves Brothers Inc. v. Toronto Quilting & Embroidery Ltd. (1978), 43 C.P.R. (2d) 145 (F.C.T.D.). They submit that their claim for some contracts arising in Quebec and executed well beyond the two-year prescription period are not barred as argued by the defendants. Gibson J. wrote the following at page 167:
A claim for damages and a claim for an accounting of profits are not reconcilable. Only one may be had: Neilson et al. v. Betts (1871), L.R. 5 H.L. 1 at p. 22; The United Horse Shoe and Nail Co., Ltd. v. Stewart & Co. (1888), 5 R.P.C. 260 at p. 266.
If instead of damages, an account of profits is had, art. 2261 of the Civil Code of the Province of Quebec does not apply. Instead, the omnibus prescription provision of art. 2242 applies which is thirty (30) years.
The Patent Act, R.S.C., 1985, c. P-4, is silent with respect to limitation periods during which one can institute an action for infringement. Subsection 39(1) of the Federal Court Act [R.S.C., 1985, c. F-7] states that in such cases the law of the relevant province applies. In Mastini v. Bell Telephone Co. of Canada et al. (1971), 1 C.P.R. (2d) 1 (Ex. Ct.), the issue was addressed by Jackett J., then President of the Court. The following is taken from the headnote:
The second question related to the extent any Statute of Limitations or any law of prescription operates to bar any par[t] of the plaintiff’s infringement claim that arises in Ontario or Quebec. The plaintiff contended that the Patent Act, R.S.C. 1952, c. 208, did not contain a period of prescription or limitation and that there was, therefore, no applicable time limit to the bringing of the action.
…
As to the second question: Infringement of a patent is a tort or wrong at common law and delict or offence under the law of Quebec.
In Quebec, art. 2261 of the Civil Code of Quebec that came into force August 1, 1866, required that actions for damages resulting from “offences” be instituted within two years. That law was continued in force in Quebec by s. 129 of the B.N.A. Act, 1867 subject to repeal or alteration by the appropriate jurisdiction of Canada or Quebec. Under the present Civil Code of Quebec, art. 2261 is to the same effect.
I have reviewed the authorities cited by Gibson J., Neilson and Others v. Betts (1871), L.R. 5 H.L. 1 and United Horse Nail Co. v. Stewart (1888), 5 R.P.C. 260 (H.L.). They do not sustain the analysis he performed. In United Horse Nail Co., supra, Lord Watson wrote at page 266:
It was held by this House in Neilson v. Betts, that a patentee cannot claim both profits and damages, but must choose between them; and the Appellants have made their election by raising the present action.
In Neilson, supra, the House of Lords wrote, at page 22:
My Lords, I have only farther to observe that the decree of the Court below directed not only an inquiry as to damages, but also an account of profits. The two things are hardly reconcilable, for if you take an account of profits you condone the infringement. I therefore think, my Lords, that we were right in calling upon the Respondent’s Counsel to elect between the two .…
It is apparent to me that these two cases stand for the proposition that once a patentee has succeeded at trial he cannot claim both damages as well as an accounting of profits but must elect one or the other. As I see it, what Gibson J. concluded has the effect of creating a cause of action out of a remedy (accounting of profit), extending prescription to 30 years.
Lending further support to my finding is the case of Hydro-Québec c. Dableh, judgment dated November 25, 1991, J.E. 92-32 (Que. C.A.). This was a patent infringement action in which the plaintiff claimed damages or in the alternative an accounting of profits. On motion that went to the Quebec Court of Appeal, Hydro-Quebec sought to have the plaintiff elect, prior to the pursuit of the infringement action, one or the other of the two remedies claimed. The Quebec Court of Appeal maintained that a patent infringement action was a single cause of action and no two remedies could be claimed; the plaintiff was ordered to elect one or the other of the remedies claimed. This further emphasizes the fact that an accounting of profits cannot be a cause of action but only a remedy.
Article 2261 of the Civil Code of Lower Canada in French reads as follows:
Art. 2261. L’action se prescrit par deux ans dans les cas suivants:
1. Pour séduction et frais de gésine;
2. Pour dommages résultant de délits et quasi-délits, à défaut d’autres dispositions applicables;
3. Pour salaires des employés non réputés domestiques et dont l’engagement est pour une année ou plus;
4. Pour dépenses d’hôtellerie et de pension.
The English translation is the following:
Art. 2261. The following actions are prescribed by two years:
1. For seduction, or lying-in expenses;
2. For damages resulting from offences or quasi-offences, whenever other provisions do not apply;
3. For wages of workmen not reputed domestics and who are hired for a year or more;
4. For hotel or boarding-house charges.
My reading of the French and English versions do not give rise to inconsistencies but, apparently, there have been problems with respect to interpreting the word “dommages” or “damages”.
In some situations “actions en dommages” have been construed to have the same meaning as “actions en dommages et intérêts”. It is generally agreed that an action for “damages” is prescribed by two years; on the other hand, it may be suggested that the remedy, an accounting of profit, is not prescribed because it is not specifically dealt with in the Code under Article 2261; it would only be barred after 30 years under Article 2242 which is an omnibus section which reads as follows in French and in English:
Art. 2242. Toutes choses, droits et actions dont la prescription n’est pas autrement réglée par la loi, se prescrivent par trente ans, sans que celui qui prescrit soit obligé de rapporter titre et sans qu’on puisse lui opposer l’exception déduite de la mauvaise foi.
Art. 2242. All things, rights and actions the prescription of which is not otherwise regulated by law, are prescribed by thirty years, without the party prescribing being bound to produce any title, and notwithstanding any exception pleading bad faith.
Throughout the Civil Code of Lower Canada the word “damages” in the English version is used interchangeably and gives rise to two different definitions: (1) harm or prejudice caused due to a faulty act or delict; or (2) the compensation or indemnity that can be recovered if harm has been done.
The first definition is that which establishes the right to a cause of action. The second is the remedy which can be recovered because of the wrong committed, hence “dommages et intérêts”.
In La responsabilité civile délictuelle, 3rd ed., Cowansville, Quebec: Yvon Blais, 1990, J.-L. Baudoin wrote, and I summarize and paraphrase: reviewing of course the French version of the Code, he submits that when the word “dommage(s)” is used on its own, it generally describes a prejudice, injury or harm resulting from a delict or faulty act (tort), that which is done and gives rise to a cause of action. When in the Code we find the combination of words “dommages et intérêts” it is generally dealing with articles designating pecuniary compensation or remedy.
Article 2261 describes situations which give rise to a cause of action and not the remedy of “dommages et intérêts”. Under paragraph 2 of Article 2261, once a plaintiff establishes that he has suffered a loss, injury or “dommages”, then liability may be determined. Therefore, because of the delictual act of a person, one is entitled to “compensation” or “indemnity”; in other words a remedy (accounting of profits, loss of profits, royalties).
As outlined in Article 2261, once the necessary elements have been established which give rise to a cause of action, it must be brought within two years.
Returning now to President Jackett in Mastini, supra, he determined that an infringement of a patent is a tort or delict under the law of Quebec and, in order to pursue an action for patent infringement, it must be instituted within two years and I so find.
It may be argued that actions by some of the defendants, who in fact were the initiators of some of these proceedings, could have either revived the right of the plaintiff or extended the prescription period. This cannot be so; rights were totally extinguished (“prescription extinctive”) and cannot be revived according to Article 2267 of the Code:
Art. 2267. Dans tous les cas mentionnés aux articles 2250, 2260, 2260a, 2260b, 2261 et 2262 la créance est absolument éteinte, et nulle action ne peut être reçue après l’expiration du temps fixé pour la prescription.
Art. 2267. In all the cases mentioned in articles 2250, 2260, 2260a, 2260b, 2261 and 2262 the debt is absolutely extinguished and no action can be maintained after the delay for prescription has expired. [My emphasis.]
If we accept Gibson J.’s approach taken in Reeves Brothers, supra, in patent infringement cases in which the remedy sought would be an accounting of profits, a party could wait until the 29th year to institute proceedings which is patently inequitable and totally unreasonable.
I therefore conclude that, because no action was initiated by any of the parties in these proceedings until 1986, the following contracts are prescribed:
1. One complete machine except headbox, sold by the defendant GEC to Midtec Paper Corporation. Offer, acceptance and contract made in Montréal, Quebec in June, 1979. Installation of machine in Kimberly, Wisconsin.
2. One complete machine sold by the defendant GEC to Donohue-Normick Inc. Offer, acceptance and contract made in Montréal, Quebec on August 13, 1980. Installation of machine in Amos, Quebec.
3. A press-section rebuild sold by the defendant GEC to Consolidated-Bathurst Inc. Offer, acceptance and contract made in Montréal, Quebec on July 11, 1980. Installation in Shawinigan, Quebec.
4. Two complete machines sold by defendant VDI to Klockner Stadler Hunter Ltd. Offer, acceptance and contract made in Montréal, Quebec on April 29, 1983. Installation of machines in South Sabah, Malaysia.
THE REMAINING CONTRACTS
There were three other arguments raised by the defendants GEC and VDI relating to why the remaining contracts do not constitute infringement of the plaintiff’s patent. The three arguments are closely interwoven and involve a discussion of whether a contract for the sale of unascertained goods is infringement, whether the sale of component parts of a patented invention in Canada constitute infringement, and finally, but of most significance, whether those machines manufactured by the defendants, but delivered for assembly and use outside of Canada, are an infringement of the plaintiff’s Canadian patent.
(i) Sale of Unascertained Goods
This argument was raised by the defendant GEC in relation to the two DEW [Dominion Engineering Works] triple-nip press sections sold to South Sabah. The history of this transaction is that on April 26, 1984, GEC contracted for the manufacture and sale of two triple-nip press sections for assembly and use in South Sabah, Malaysia. The contract was then assigned from GEC to VDI on April 28, 1984, the date on which VDI acquired the assets of GEC relating to its paper machine business. As of that date, GEC ceased all its activities concerning DEW triple-nip press sections.
GEC argues that when contracted for, the South Sabah press section components were unascertained in that they had not yet been manufactured. Contracting for unascertained goods cannot be a sale, and GEC, it is argued, has not infringed the plaintiff’s patent by executing those contracts since it did not “make, use or vend to others to be used”, the South Sabah machines, as prohibited by section 44 of the Patent Act. It merely entered into a contract which was later assigned and performed by the defendant VDI.
The plaintiff maintains that GEC, by entering into the agreement to provide the material contracted for, infringed the patent since infringement takes place at the time of the sale. The offer and acceptance of the contract occurred in Canada and is, according to the plaintiff, a clear violation of its rights under the Patent Act.
Section 44 of the Act provides as follows:
44. Every patent granted under this Act shall contain the title or name of the invention, with a reference to the specification, and shall, subject to the conditions prescribed in this Act, grant to the patentee and his legal representatives for the term therein mentioned, from the granting of the patent, the exclusive right, privilege and liberty of making, constructing, using and vending to others to be used the invention, subject to adjudication in respect thereof before any court of competent jurisdiction. [Emphasis added.]
Counsel for the defendant put forward the argument that a distinction is to be made between a “sale” and an “agreement to sell.” This distinction is described in the following manner in Fridman on Sale of Goods in Canada, 3rd ed., 1986, pages 11-13, at page 11:
Where under a contract of sale “the property in the goods is transferred from the seller to the buyer, the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell.” Such an agreement to sell becomes a sale “when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”
I accept the defendant’s contention that the contract we are dealing with here relating to the South Sabah machines fits within the above definition of an “agreement to sell”. Clearly, the transfer of the property in the goods was dependent upon the goods being manufactured at some future date.
I am not, however, persuaded that this distinction assists the defendant under the circumstances of the present case. In order to adopt the notion that the sale of unascertained goods is not an infringement of a patent already issued, one would have to interpret the words in section 44 of the Act, “vending to others”, as including a contract called a “sale”, but not including a contract called “an agreement to sell”. There is nothing in the wording of the Act which would warrant such a fine distinction being made. Whether GEC entered into a sale or whether it entered into an agreement to sell does not deter from the fact that its actions with respect to the South Sabah machines can only be seen as “vending to others”; an exclusive right and privilege conferred upon a patentee pursuant to section 44 of the Patent Act.
Furthermore, this situation is not the same as the one in Lido Industrial Products Ltd. v. Teledyne Industries Inc. et al. (1981), 57 C.P.R. (2d) 29 (F.C.A.), upon which the defendants rely in support of the argument advanced. In that case, the plaintiff sought relief from infringement of a patent for an invention for a shower nozzle. The defendant imported and sold in Canada a large quantity of shower heads which infringed the plaintiff’s patent. Some of the units bought by the defendant were found not to have been in existence at the time the plaintiff’s patent issued, but the orders were subsequently filled and the shower heads were brought into Canada and sold by the defendant. The defendant asserted that it was immune from suit in respect of all the units by virtue of section 58 of the Patent Act [R.S.C. 1970, c. P-4]. Urie J.A. writing for the majority, held that in order for the defendant to have infringed the plaintiff’s patent, the infringing product must have been in existence on the date the patent issued. He stated at page 54 as follows:
Clearly s. 58 applies to a person other than the patentee who uses or sells an article or machine after the grant of the patent. In this case the critical date is December 14, 1976. It must therefore be determined as at that date, whether or not the specific articles or machines which the appellant used or sold were articles or machines that it purchased, constructed or acquired before the grant of patent. It is my view that because of its evident purpose s. 58 contemplates that the particular articles or machines must actually be in existence at the date of the grant to fall within its purview. As I see it, their actual existence at that date is essential to the application of the section.
Although, I accept that finding as appropriate in the fact situation of the Teledyne case, it is clearly distinguishable from the situation now before me. The question here does not centre around section 58 [now section 56] of the Act which is concerned with the purchase, construction, or acquisition of an invention, prior to the issuing of a patent. There is no dispute as to whether, at the time the defendant GEC entered into the agreement to sell these unascertained goods, the plaintiff’s patent had issued; the evidence is that it had. Accordingly, GEC must be considered to have known that the articles it was agreeing to sell infringed upon Beloit’s patent.
For these reasons, the fact that the goods were not yet manufactured, but were to be supplied at some future date, does not, in and of itself, mean there was no infringement.
(ii) Sale of Component Parts in Canada
I am satisfied that this issue has been decided by the Federal Court of Appeal in Windsurfing Int. Inc. v. Trilantic Corp. (1985), 7 C.I.P.R. 281. There, the patentee sought relief for infringement of its invention for a sailboard. All of the elements of the combination claims relied upon by the patentee were admitted to be old, but the novel concept resided in the combination of the elements, much in the same manner as the case at bar. The defendant sold its sailboards in Canada in unassembled form. It contended that the mere making, using or vending of components which afterwards entered into a combination is not prohibited where the patent is limited to the combination itself. The Court of Appeal unequivocally rejected this argument, stating at pages 308-309 as follows:
In my view, there is no substance whatsoever to the argument that the respondent, being a supplier of parts as opposed to being a supplier of the assembled sailboard, cannot have infringed the patent .…
No one has ever alleged in this case infringement by the components of the invention. They are acknowledged to be old. The invention is the combination of the old components or elements. The respondent clearly is not selling parts. It is selling parts for the purpose of making a sailboard. Without assembly there can be no sailboard. Without assembly there can be no purpose in a purchaser buying the unassembled parts since, unassembled, they cannot be used for the purpose for which they are purchased, that is, to sail. To suggest that a patent infringement suit can be successfully avoided by selling parts as components of a kit in contradistinction to their sale assembled is, in my view, errant nonsense.
Clearly therefore, the sale in Canada of the component parts of a patented invention is infringement of the patent. In any event, this question is not seriously in contention in the present case since the argument only applies to the DEW triple-nip press sections sold by the defendant GEC to Donohue and Consolidated Bathurst. As stated above, it is my view that the plaintiff is precluded from recovering damages in relation to those two contracts because of the prescription period contained within the Civil Code of Lower Canada.
(iii) Assembly Outside of Canada
This issue applies to the DEW triple-nip press sections sold and manufactured by the defendant GEC to Midtec and the two DEW triple-nip press sections sold by GEC, and provided by the defendant VDI, to South Sabah.
When press sections are contracted for, there are many portions of the press sections, such as felts and electric motors, that are supplied by third parties directly to the paper mill. Generally, the press sections are not assembled, with all felts and rolls in place, until this is done on the site of the purchaser. They are shipped to the purchaser as unassembled components. Indeed, the plaintiff’s expert witness, Mr. Schmitt testified at the earlier hearing of this matter, that the press sections in issue in this case would have been partially assembled at the manufacturing site and partially at the final installation site.
Accordingly, a contract for the sale of a complete paper machine may be divided among different manufacturers for different sections of the machine. The defendant VDI, for example, did not assemble the whole press section in the machines which it sold. It does not normally assemble the rolls at all, except to assemble one roll and check for fit at each location. It is then assumed that the other rolls are identical. This was the practice followed for the South Sabah machines.
The evidence supports the finding therefore, that while there may have been pre-assembly of some parts of the machines in question, the general practice was to assemble the machines at the site of the purchaser. The question before the Court now is whether the manufacture and sale of component parts, delivered for assembly and use outside of Canada, constitutes an infringement of the plaintiff’s patent.
The plaintiff’s position is that the infringement takes place at the time of the sale and again at the time of manufacture, even if the machine is assembled out of the country at some later date. Selling or manufacturing, it is argued, are both infringements whether it is for use in Canada or for export. In the present case, it is maintained that the substance of the plaintiff’s invention has been used for the benefit of the defendants in Canada.
The defendants argue however, that the exclusive rights conferred by a Canadian patent are limited territorially to Canada, and are further limited by section 44 of the Patent Act to the “making, constructing, using and vending to others to be used the invention”. A patent protects only against the operable assembly of the whole invention and not the manufacture of its parts. Therefore, the production of parts of patented machines and their shipment, in less than fully assembled form, for construction and use abroad, does not, it is submitted, constitute infringement.
Neither side was able to produce any Canadian case law dealing with this point. Indeed, it appears to be a novel issue and in my opinion, is an altogether different one from the sale of component parts within Canada, as discussed above. Although, the plaintiff did rely on a number of authorities in support of its position, as I read those cases, the fact situations contained therein are not on all fours with the facts of the case at bar.
For example, in British Motor Syndicate, Ld. v. John Taylor & Sons, Ld. (1900), 17 R.P.C. 189 (Ch. D.), the infringing article was transported out of the country in assembled form, not in component parts to be assembled outside the country, as is the fact situation here. Similarly, the Windsurfing case, supra, did not deal with the issue of whether sale of component parts, for assembly and use outside of Canada, constitutes infringement.
After carefully considering the arguments put forth by the parties and examining the authorities in this area, I am satisfied that the answer to this question depends upon the proper interpretation to be accorded to section 44 of the Patent Act; the statutory enactment which bestows upon the patentee the “exclusive right, privilege and liberty of making, constructing, using and vending to others to be used the invention”.
It is true that the rights conferred upon a patentee under the Patent Act are territorially confined to Canada. In Dole Refrigerating Products Ltd. v. Can. Ice Machine Co. & Amerio Contact Plate Freezers Inc. (1957), 28 C.P.R. 32 (Ex. Ct.), Thurlow J. made the following comments in this regard at page 36:
I think it is also important to bear in mind that the exclusive rights conferred by a Canadian patent are limited territorially to Canada and are further limited by s. 46 [now s. 44] of the Patent Act, R.S.C. 1952, c. 203, to those of “making, constructing, using, and vending to others to be used the said invention”. A person who, beyond Canada, makes, constructs, uses, or sells the invention commits no breach of the Canadian patent.
The question therefore is what activities are the defendants prohibited from doing by reason of the grant of patent to the plaintiff? The answer, quite simply is that they cannot, in Canada, make, construct, use or sell to others to be used, the plaintiff’s invention. What then is the plaintiff’s invention? There is no dispute that Beloit’s invention embodies the marriage of old, previously known parts, into a new configuration. Accordingly, the only protection which the Patent Act affords to the plaintiff—the exclusive monopoly Beloit enjoys—is with respect to the amalgamation of those parts in a new and innovative fashion which comprises the essence of its invention. The singular parts of the invention are not protected.
In this respect, I must agree with the findings of the United States Supreme Court in Deepsouth Packing Co., Inc. v. Laitram Corp. (1972), 173 USPQ 769. There, the question was whether the defendant Deepsouth was prohibited by patent law from exporting its product, in less than fully assembled form, for use abroad, on the grounds that once assembled, the product infringed the plaintiff’s patent. The Supreme Court upheld the defendant’s right to engage in the activities in which it was involved making the following comments, at pages 770-774:
“None of the parts referred to are new, and none are claimed as new; nor is any portion of the combination less than the whole claimed as new, or stated to produce any given result. The end in view is proposed to be accomplished by the union of all, arranged and combined together in the manner described. And this combination, composed of all the parts mentioned in the specification, and arranged with reference to each other, and to other parts of the [machine] in the manner therein described is stated to be the improvement, and is the thing patented.” ….
As is usual in combination patents, none of the elements in either of these patents were themselves patentable at the time of the patent, nor are they now.
…
The statute makes it clear that it is not an infringement to make or use a patented product outside of the United States … Thus in order to secure the injunction it seeks Laitram must show a . 271(a) direct infringement by Deepsouth in the United States, that is, that Deepsouth “makes,” “uses,” or “sells” the patented product within the bounds of this country.
Laitram does not suggest that Deepsouth “uses” the machines. Its argument that Deepsouth sells the machines … cannot carry the day unless it can be shown that Deepsouth is selling the “patented invention.” The sales question thus resolves itself into the question of manufacture: did Deepsouth “make” (and then sell) something cognizable under the patent law as the patented invention, or did it “make” (and then sell) something which fell short of infringement?
…
We cannot endorse the view that the “substantial manufacture of the constituent parts of a machine” constitutes direct infringement when we have so often held that a combination patent protects only against the operable assembly of the whole and not the manufacture of its parts.…
…
In sum: the case law and statutory law resolves this case against the respondent. When so many courts have so often held what appears so evident—a combination patent can be infringed only by combination—we are not prepared to break the mould and begin anew. [Emphasis added.]
In the present case, when the defendants shipped the unassembled parts in question out of the country, they cannot be said to have made, constructed, used or sold to others, in Canada, the plaintiff’s invention. In order to be considered to have infringed Beloit’s patent, the defendants must have sold the components of the invention for use and assembly in Canada, as held by the Court of Appeal in Windsurfing, supra, or they must themselves have assembled those parts in the manner described within the claims of the patent, within the boundaries of this country, and later exported the finished product, as in British Motors, supra. The evidence is clear that this is not what happened and for this reason the contracts in question do not constitute an infringement under Canadian patent laws.
I am not by any means questioning the findings of the Court of Appeal in the Windsurfing decision. Indeed, I whole-heartedly accept the findings made therein for the reasons stated above. However, it is my opinion that the decision is limited to the particular facts upon which it was based, namely, an infringer selling unassembled parts of an invention for use in Canada. It would be a grave error to extend that finding to the present situation. What the plaintiff is in fact seeking here, is an extension of the protection granted to it by the Patent Act, beyond the boundaries of this country. If Beloit is in need of protection in mark other than those in Canada, it must seek that protection through the patent laws of those countries where its invention is being used.
As stated previously, having found and determined that the contract between VDI and Klockner Stadler Hunter Ltd. for installation of machines in South Sabah, Malaysia being prescribed by the Civil Code of Lower Canada, no damages are recoverable in relation to this contract.
For these reasons, the sale and manufacture of the DEW Triple-Nip press section sold and manufactured by the defendant GEC to Midtec does not constitute an infringement of the plaintiff’s patent. Had I not already concluded that the plaintiff’s claim with respect to the two South Sabah machines was prescribed, they would also not constitute an infringement on the basis that they were assembled outside of Canada.
REMEDIES AVAILABLE
This leaves for consideration the final issue of what remedies are available to the plaintiff. Beloit maintains that it has the right to elect either damages or an accounting of profits. It is in fact seeking an accounting of profits and argues that since it has now made the election, the Court no longer has the discretion to refuse the award. The defendants take the position that an accounting of profits is not a remedy available to the plaintiff pursuant to the Patent Act, and accordingly the Court has no jurisdiction to make such an award.
Faced with such extreme views, it is not surprising that I am unable to agree with either one. First, I am satisfied that this Court has the jurisdiction to award the equitable remedy of an accounting of profits, should the circumstances of a particular case so warrant. Sections 3 and 20 of the Federal Court Act provide as follows:
3. The court of law, equity and admiralty in and for Canada now existing under the name of the Federal Court of Canada is hereby continued as an additional court for the better administration of the laws of Canada and shall continue to be a superior court of record having civil and criminal jurisdiction.
…
20. (1) The Trial Division has exclusive original jurisdiction, between subject and subject as well as otherwise,
(a) in all cases of conflicting applications for any patent of invention, or for the registration of any copyright, trade-mark or industrial design, and
(b) in all cases in which it is sought to impeach or annul any patent of invention, or to have any entry in any register of copyrights, trade-marks or industrial designs made, expunged, varied or rectified.
(2) The Trial Division has concurrent jurisdiction in all cases, other than those mentioned in subsection (1), in which a remedy is sought under the authority of any Act of Parliament or at law or in equity respecting any patent of invention, copyright, trade-mark or industrial design.
The effect of these provisions was succinctly stated by Addy J. in Teledyne Industries, Inc. et al. v. Lido Industrial Products Ltd. (1982), 68 C.P.R. (2d) 204 (F.C.T.D.) at page 227:
Section 3 of the Federal Court Act constitutes the Federal Court of Canada a court of law, equity and admiralty. Furthermore, s. 20 of the Federal Court Act, among other things, also specifically grants this court jurisdiction in equity respecting patents of invention, copyright, trade mark and industrial design. Notwithstanding that the Federal Court of Canada is a creature of statute and not a court of general jurisdiction since it is a court of equity, when the subject-matter is otherwise within its jurisdiction and where equitable principles are applicable to the issue, it may exercise all the powers and enforce all the remedies available to a court of equity dealing with that same issue. The right of its predecessor, the Exchequer Court of Canada, to apply equitable principles and enforce equitable remedies has always been recognized. [Emphasis added.]
A similar finding was made in Algonquin Mercantile Corp. v. Dart Industries Canada Ltd., [1987] 2 F.C. 373 (T.D.) and in R.W. Blacktop Ltd. v. Artec Equipment Co. (1991), 39 C.P.R. (3d) 432 (F.C.T.D.). Furthermore, in Global Upholstery Co. Ltd. v. Galaxy Office Furniture Ltd. (1976), 29 C.P.R. (2d) 145, this Court held that it had jurisdiction to award an accounting of profits arising from the infringement of a copyright and industrial design registration, notwithstanding the absence of an express provision allowing for such an accounting in the Industrial Design Act [R.S.C. 1970, c. I-8]. Accordingly, I cannot accept the defendants’ argument, which was not supported by any authorities, that because the Patent Act does not specifically refer to an award of an accounting of profits, this Court is without jurisdiction to grant that equitable remedy. It is always open to this Court, as a court of equity, to grant that award should the circumstances deem it appropriate and the Court otherwise has jurisdiction over the subject-matter. Indeed, the authorities relied upon by the defendants relate to the Court’s jurisdiction over a particular subject-matter rather than its jurisdiction to grant an equitable remedy not provided for by statute.
However, neither do I agree with plaintiff’s submission that its election for an accounting of profits is binding on this Court and in some way strips this Court of its discretion as to whether the remedy should be awarded. The Court is never bound to grant an equitable remedy; that is a matter which remains entirely within its own discretion.
The issue is not whether it is available, but whether an accounting of profits is an appropriate remedy in this case. It is certainly not a remedy commonly chosen by a patentee against an infringer because it is exceedingly difficult to handle. The complications of ascertaining how much profits have been made by the infringer in respect of an invention and how much of his profits are attributable to any one source, is an arduous task. It involves an expensive, time-consuming procedure which is rarely rewarded by the end result. In Dubiner, Samuel v. Cheerio Toys & Games Ltd., [1966] Ex. C.R. 801, Noël J. observed that the remedy was not often sought by litigants because of the difficulties it posed. He quoted [at page 813] the following passage from Lindley L.J. in the case of Siddell v. Vickers (1892), 9 R.P.C. 152 (C.A.) at pages 162-163:
The plaintiff therefore was perfectly within his right in electing, as he did in this case, to have an account of profits; but I do not know any form of account which is more difficult to work out than an account of profits.… The litigation is enormous, the expense is great, and the time consumed is out of all proportion to the advantage ultimately attained; so much so that in partnership cases I confess I never knew an account in that form worked out with satisfaction to anybody. I believe in almost every case people get tired of it and get disgusted.
The history of these actions, namely their complexity and the inordinate length of time for which they have been ongoing, is sufficient reason, in my opinion to deny the plaintiff an accounting of profits. I cannot foresee that the intricate procedure which an accounting would involve here would be worth the time and expense that would undoubtedly occur.
Furthermore, there are other factors which will mitigate against the award of an accounting of profits. In Consolboard Inc. v. MacMillan Bloedel (Saskatchewan) Ltd. (1978), 39 C.P.R. (2d) 191 (F.C.T.D.); affd [1981] 1 S.C.R. 504, Collier J. stated at pages 221-222:
This Court has, as I see it, a discretion as to whether it will or will not grant an accounting of profits in a suit of this kind. In all the circumstances here, the appropriate remedy, in my view, is damages.
The Electrolux case, earlier cited, is of some assistance. As always, the facts there are not quite the same as here. The action was for infringement of a trade mark. The plaintiffs had been aware, for a long period, the defendants were using the mark complained of. They succeeded in their action. But the Court granted damages rather than an accounting. Lloyd-Jacob, J., said at p. 159:
…
The principle upon which the Court grants an account of profits, as I have always understood it to be, is this, that where one party owes a duty to another, the person to whom that duty is owed is entitled to recover from the other party every benefit which that other party has received by virtue of his fiduciary position if in fact he has obtained it without the knowledge or consent of the party to whom he owed the duty. Had the present case fallen within that principle, in that the Defendants had secured profit to themselves without the knowledge of the Plaintiffs, I should have felt it my duty to leave to the Plaintiffs the election for which they prayed in their statement of claim; but on the facts as I found them (and indeed, as the evidence, I think, clearly showed without question) the Plaintiffs were aware for some period—a considerable period, if my recollection serves me aright—of the fact that the Defendants were utilising the mark complained of, and in those circumstances any profit that accrued to the Defendants by reason of that user could not have been profit accruing to them without the knowledge of the Plaintiffs. [Emphasis added.]
The evidence before me supports the conclusion that the plaintiff, at least with respect to the defendant GEC, was aware of its allegedly infringing activities since approximately 1975. However, the plaintiff took no action and made no complaint until GEC instituted its action impeaching Beloit’s patent on October 9, 1986. This in my view, constitutes a very lengthy delay, and further warrants the Court’s refusal to grant an accounting of profits against the defendant GEC.
It is also noteworthy, that the three-nip press section contracts entered into by the defendant VDI were all undertaken at a time when the patent had been held invalid by the Trial Division of this Court.
For all of these reasons, I am satisfied that damages, rather than an accounting of profits, is the appropriate remedy. However, an award of damages is not without its own peculiar difficulties, most of which arise from attempting to estimate the damages incurred by a patentee due to the illegal sales of an infringer. It is virtually impossible in cases of this nature to arrive at the amount of damages with mathematical exactitude; no two cases are identical and each case presents its own unique facts and complexities.
Clearly, the precise dollar amount of the plaintiff’s loss in the present case, cannot be determined with utter certainty nor would it be prudent for the Court to attempt such an exact calculation. Indeed, this limitation has long been recognized by the Courts. In United Horse Nail Co. v. Stewart, supra, Lord Watson made the following comments, at page 267:
The object of inquiry, in a case like the present, is the quantum of injury done to the trade of the patentee by the illegal sales of the infringer. That must always be more or less matter of estimate, because it is impossible to ascertain with arithmetical precision, what, in the ordinary course of business, would have been the amount of the patentee’s sales and profits.
Nevertheless, these difficulties are no reason for a court to refuse judgment. As said by Lord Shaw in Watson, Laidlaw, & Co. Ld. v. Pott, Cassels, & Williamson (1914), 31 R.P.C. 104 (H.L.) at page 118, “restoration by way of compensation is therefore accomplished to a large extent by the exercise of a sound imagination and the practice of a broad axe.” Although various methods have been used by the courts in arriving at an amount which represents an equitable and just award, the underlying principle is that of restoration. In Watson, Laidlaw, & Co. Ld. v. Pott, Cassels, & Williamson, supra, Lord Shaw stated at pages 117-118:
In my opinion, the case does raise sharply an important question as to the assessment of damages in patent cases, and with that question I proceed to deal. It is probably a mistake in language to treat the methods usually adopted in ascertaining the measure of damages in patent cases as principles. They are practical working rules which have seemed helpful to Judges in arriving at a true estimate of the compensation which ought to be awarded against an infringer to a patentee. In the case of damages in general, there is one principle which does underlie the assessment. It is what may be called that of restoration. The idea is to restore the person who has sustained injury and loss to the condition in which he would have been had he not so sustained it. [Emphasis added.]
What is required therefore, is that the Court allow such damages as it considers, on the evidence, a fair and reasonable compensation for any loss suffered by the plaintiff as a result of the wrongful acts of the defendants. The simple question is what would have been the plaintiff’s position if the defendants had acted properly; the answer to that will lead to a reasonably accurate measure of the plaintiff’s loss.
Based upon my review of the authorities, I am satisfied that the correct approach to awarding damages in this case, is to compensate the plaintiff for the loss sustained by it as a result of the defendants’ infringing sales of a patented product, which, but for the infringement, the plaintiff would have made thereby realizing a profit which was ultimately lost. Since the measure of damages is the profit the plaintiff would have made on the sale of each infringing item sold by the defendants, Beloit is entitled to the profits it would have made on those items sold by the defendants, which have been found to constitute an infringement of its patent.
I cannot accept the defendants’ contention that an award of damages to the plaintiff should be limited to the press section of a paper machine and not beyond, in those instances where the defendants actually sold an entire machine. The case law does not support a restriction of the measure of damages to the loss of profits attributable to the patented article itself. If, in the normal course of a patentee’s trade, the patented article is sold by itself, this may well be all he is entitled to. However, where the patented article is not always or necessarily sold by itself, it is reasonable to assume that the damage to the patentee lies, not merely in loss of profits attributable to the article itself, but in selling the articles in which he trades, in the present case, paper machines with triple-nip press sections. Indeed, this was the position taken by the Supreme Court of Canada in Colonial Fastener Co. Ltd. v. Lightning Fastener Co. Ltd., [1937] S.C.R. 36 at pages 41-42:
(b) As to this branch of the defendants’ contention, it suffices to remark that when one bears in mind that the object of the patentee’s invention was, as expressed in his claims and specifications, to manufacture stringers to be used in fasteners, the plaintiff could not properly be compensated by reference only to the manufacturer’s cost and sale price of stringers and without regard to the cost and sale price of the completed article. As has been pointed out previously, the stringers are of importance only in their use in fasteners and what the plaintiff lost was sales of fasteners. The principle set forth in Meters Ld. v. Metropolitan Gas Meters Ld. should be applied. There the Court of Appeal had to consider the amount of damages the plaintiff was entitled to where the defendant infringed plaintiff’s patents, one of which related to a particular kind of cam and spindle for opening the gas valve in a prepayment gas meter. It had been shown before the Master and Eve J., to whom an appeal had been taken, that the plaintiff would have sold many more meters but for the defendant’s intervention, and it was, therefore, awarded 13s. 4d. for the loss of profit on each of such meters. The Court of Appeal confirmed the judgment and made it clear that they agreed with the Master and with Eve J. that the proper method of assessing the damages was to take the profit on the sale price of the meters and not merely to consider the parts upon which the plaintiff held patents. Adopting this principle, the defendants’ contention fails. [Emphasis added.]
The end result is that at the reference, the plaintiff must show what profit it would have made on the sale of the three machines sold by the defendant VDI to Corner Brook Pulp & Paper Limited, Donohue Malbaie Inc., and Repap N.B. Inc., respectively, the two press section rebuilds sold by the defendant Voith to Canadian International Paper (Gatineau) and to British Columbia Forest Products, and the one press section sold by the defendant VDI to Great Lakes Forest Products Limited, all of which have been found to infringe the patent.
I turn now to the issue of pre- and post-judgment interest.
In my view, the plaintiff is entitled to an award of both pre- and post-judgment interest, although the rate of such interest is within the discretion of the Court. In light of the plaintiff’s undue delay and the fact that some of the defendants’ infringing acts took place during periods when the patent in question had been declared invalid by this Court, I am prepared to award simple pre-judgment interest from the date the plaintiff commenced its actions to December 31, 1990, at the rate of 10% per annum, and thereafter simple interest at the rate of 7% per annum until payment in full.
Because the defendant GEC raised the defence of prescription in paragraph 16 of its statement of defence dated October 13, 1988, I am satisfied it should be awarded costs throughout.
With respect to the defendants VDI and Voith, they are responsible for costs in the cause to the plaintiff Beloit.
CONCLUSION
For the above reasons, the plaintiff’s action for infringement of its patent succeeds in relation to the following contracts entered into by the defendants:
1. The press section (with minor dryer rebuild) sold by the defendant VDI to Great Lakes Forest Products Limited.
2. The machine (except dryer) sold by defendant VDI to Corner Brook Pulp& Paper Limited.
3. The machine sold by defendant VDI to Donohue Malbaie Inc.
4. The machine sold by defendant VDI to Repap N.B. Inc.
5. The press section rebuild sold by defendant Voith to Canadian International Paper (Gatineau).
6. The press section rebuild sold by defendant Voith to British Columbia Forest Products.
In all other respects, the plaintiff’s action is dismissed.