Docket:
T-1236-01
Citation:
2012 FC 76
BETWEEN:
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WEATHERFORD CANADA LTD.
WEATHERFORD CANADA PARTNERSHIP,
EDWARD GRENKE and
GRENCO INDUSTRIES LTD.
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Plaintiffs/
Defendants
to the Counterclaim
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and
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CORLAC INC.,
NATIONAL-OILWELL CANADA LTD.
and NATIONAL OILWELL INCORPORATED
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Defendants/
Plaintiffs by Counterclaim
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REASONS FOR JUDGMENT
PHELAN J.
[1]
This
is the redetermination of the issue of inducement returned to this Court by the
Federal Court of Appeal.
[2]
In
this Court’s decision concerning infringement of the Plaintiffs’ '937 Patent,
the Court found that Claim 17, a method claim, had been infringed by the
Defendants.
[3]
The
Court of Appeal, having largely upheld the Court’s decision on other issues,
expressed concern for this Court’s finding of infringement by inducement of
Claim 17. The Court of Appeal held that the Defendants did not directly
infringe Claim 17 because they did not, themselves, practice Claim 17.
[4]
In
paragraph 34, the Court of Appeal defined the Defendants’ position on
infringement of Claim 17 as an objection to the lack of evidence that the
Defendants’ customers used their stuffing boxes in a manner that infringed the
method described by the claim.
34 The appellants' argument with respect to
claim 17 is not one of construction. They state that claim 17 is "a method
claim for using the sealing system of claim 1": appellants' memorandum of
fact and law, paras. 7, 73. This indicates that the construction of claim 17
relates largely to the construction of claim 1. However, the appellants' real
quarrel in relation to claim 17 is that the judge was wrong to conclude that
infringement of the claim existed without the production of evidence
that the appellants' customers actually used their stuffing boxes in a manner
that infringed the method described by the claim: appellants' memorandum of
fact and law, paras. 153-155, 157. That argument will be addressed later in
these reasons.
[Emphasis in original]
Weatherford Canada Ltd v Corlac Inc, 2011 FCA 228
[5]
The
Trial Judgment specifically found that the Defendants’ instruction manual
instructs the practice of the method in Claim 17. This finding was not
disturbed on appeal. (Reasons on Appeal, para. 164)
[6]
The
Defendants’ argument now, that its instruction manuals do not teach the Claim
17 method because it teaches a closed oil port versus the Plaintiffs’ open
port, is an effort to argue a point found against it and not overturned on
appeal. That point is res judicata.
[7]
The
Court of Appeal held that since the Defendants did not practice its instruction
method which would infringe Claim 17, the Defendants could only be liable for
inducing infringement of Claim 17. It was this single issue of inducement which
was sent to this Court for redetermination. (Reasons on Appeal, para. 171)
[8]
Given
the instruction from the Court of Appeal, this Court is to consider those facts
needed to support a conclusion that third parties used the method of Claim 17
and did so because they were induced by the Defendants.
[9]
The
test for inducement, as confirmed by the Court of Appeal, is three-fold:
1. The
act of infringement must be completed by the direct infringer.
2. The
completion of the acts of infringement must be influenced by the acts of the
alleged inducer to the point that, without the influence, direct infringement
would not take place.
3. The
influence must knowingly be exercised by the inducer, that is, the inducer
knows that this influence will result in the completion of the act of inducement.
[10]
While
the Court of Appeal described the test variously as a “difficult one to meet”,
“a stringent test”, a “strict” test, I do not interpret these comments as
suggesting that the standard of proof in the determination of inducement is
different from any other civil case, i.e. to be decided on the balance of
probabilities.
[11]
The
Supreme Court has confirmed that there are only two evidentiary standards –
“balance of probabilities” and “beyond reasonable doubt” (see F.H. v
McDougall, 2008 SCC 53). It has further held that the civil standard is
“more likely than not”.
… In all civil cases, the trial judge must
scrutinize the relevant evidence with care to determine whether it is more
likely than not that an alleged event occurred. (para. 49)
[12]
Other
standards or different evidentiary screening have been rejected by the Supreme
Court (F.H., above, paras. 39 and 40).
[13]
The
Court of Appeal outlined a non-exhaustive but helpful list of the type of
questions to consider for the purposes of an inducement analysis:
·
Were
the oil well operators customers of the Defendants?
·
Who
was the end user?
·
Was
the instruction manual provided to the end user?
·
Was
the instruction manual provided in the normal course of business?
[14]
As
to the actual use of the Claim 17 method found to be taught in the
operating/maintenance manuals (the infringing acts), there are three key facts:
(a) The
Defendants’ customers were the oil companies on whose rigs the infringing parts
were placed. In the trial evidence from both parties, it was confirmed that
this technology was purchased directly by end user oil companies from the
manufacturer/supplier. This evidence was also contained in the Read-ins from
the Defendants’ discovery.
(b) The
trial evidence included photographs of Corlac drive units in the field with
Enviro stuffing boxes attached. The Agreed Facts stated that the Defendants
started selling Enviro stuffing boxes in 2000, years before the trial.
(c) The
operating/maintenance manuals were provided at discovery, as confirmed by the
Read-ins, in answer to a question related to “stuffing box maintenance
procedures”. There was no suggestion that these procedures were not followed by
the oil companies. Further, given the other evidence of the importance of the
stuffing boxes to the oil companies’ operations and potential environmental
liabilities from spills and leaks, it is more likely than not that these
procedures would be followed in practice. There is no suggestion that another
method was available and the operation and maintenance of the device would be
the only reason for purchasing it.
[15]
Therefore,
I find that the practice of Claim 17 was completed by the direct infringer oil
companies/end users. The Court is aware that a plaintiff may face difficulties
in calling as witnesses potential customers to confirm that they infringed a
claim but this does not alleviate the evidentiary burden. I find that the
Plaintiffs did enough in this particular case by way of other direct and
circumstantial evidence to meet that burden.
[16]
Regarding
influence by the Defendants over the customer/end user oil companies, the
following facts are important:
(a) The
evidence of both parties confirmed that the Defendants’ operating/maintenance
manual was the basis for how the wellhead drive was actually operated in the
field by the oil companies.
(b) The
operating/maintenance manual was addressed to customers who were told to
contact their nearest “National Oilwell Varco representative” if there was a
problem.
(c) The
operating/maintenance manual contained warnings about operating outside the
manual’s parameters:
The operation of these units beyond the parameters
outlined in this manual without the manufacturers approval may be damaging to
the equipment and/or personnel in which case National Oilwell Varco cannot
accept any responsibility whatsoever and disclaims all liability thereof.
Source: National Oilwell Varco Preface: Disclaimer (Electric Wellhead Drive Operation and Maintenance Manual)
(d) The
warranty given by the Defendants is for first end users and contains coverage
and waivers of coverage (as above) clearly designed to ensure compliance with
the operating/maintenance manual and to punish for non-compliance. The
following disclaimer and warranty was used by the Defendants:
Repairs or alterations made to the goods “without
Company’s written or verbal consent”, the use of unsuitable fuel or lubricants,
and the operation of the goods in excess of rated capacity, failure resulting
from neglect of or maintenance practice or under conditions detrimental to the
goods, will invalidate this warranty.
Source: National Oilwell Varco Warranty Statement
(Hydraulic Wellhead Drive & Skid Operation and Maintenance Manual)
National Oilwell Varco hereby warrants all new Electric Wellhead Drive units, excluding externally manufactured components for 12 months
covering parts and labor for repairs that result from defects in material or
workmanship. Warranty covering externally manufactured components will fall
under external manufacturer’s warranty. This warranty is extended to first end
user only. Warranty covering Integral and Retrofit stuffing box is 3 months
covering parts and labor for repairs that result from defects in material or
workmanship. Warranty does not include abrasion damage. In no
event will National Oilwell Varco be liable for
incidental, consequential, special, indirect or other damages of any nature.
Source: National Oilwell Varco Warranty Statement (Electric Wellhead Drive Operation and Maintenance Manual)
[17]
On
a balance of probabilities, and based on the overall evidence including that
cited above, it is more likely than not that customers purchased the infringing
products and used them in accordance with the operating/maintenance manual
provided to the end user oil companies.
[18]
It
is not just the manual alone which leads to this conclusion but also the
evidence of expert witnesses, the bargain of warranty protection and loss
thereof for failure to comply with the manual and the nature of large and
sophisticated customers who, in the absence of any other evidence, can be taken
to comply with these directions in their own interests.
[19]
With
respect to whether this influence was knowing, it is relevant that in or about
1999, Corlac hired Glenn Schneider and intentionally set out to create a
product which they knew or ought to have known would infringe the '937 Patent.
[20]
It
is impossible to believe that the Defendants produced an operating/maintenance
manual and attached warranty and warranty exclusion provisions if the manual
was not followed without intending that its customers would act in accordance
with the manual and the method of operation outlined in it.
[21]
The
inferences drawn as to the practice of the Claim 17 method are supported by
expert evidence, the documents issued by the Defendants, the nature of the
customer and by common sense. A reasonable deduction from the evidence has the
validity of legal proof. (Reasons on Appeal, para. 169)
[22]
I
accept the Plaintiffs’ submission based on the authorities cited that where a
patent has both product and method claims, and the defendant manufacturer has
manufactured and sold articles to customers that are covered by product claims
together with instructions that articles are to be used in accordance with the
patented method, the manufacturer will also be held liable with customers for
infringement of the method claims. This is particularly so where the
manufacturer offers inducements for compliance with its instructions and
penalties for non-compliance.
[23]
The
sample questions suggested by the Court of Appeal have all been answered:
·
The
Defendants’ customers were oil companies.
·
The
end users were the oil companies which, in this case, were Amoco and Pan
Canadian.
·
The
instruction manual was provided to the end user along with the warranty
provisions.
·
The
instruction manual was provided in the ordinary course of business as confirmed
by the Defendants’ own expert.
[24]
Therefore,
this Court finds that the Defendants have infringed Claim 17 of the '937 Patent
by inducing their customers to practice the method of Claim 17.
“Michael L. Phelan”
Ottawa, Ontario
January 19,
2012
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