Date: 20090326
Docket:
T-1515-05
Citation:
2009 FC 317
Ottawa, Ontario,
March 26, 2009
PRESENT: The
Honourable Mr. Justice Zinn
BETWEEN:
MONSANTO CANADA INC. and
MONSANTO
COMPANY
Plaintiffs
and
CHARLES
RIVETT
Defendant
REASONS FOR
JUDGMENT
[1]
Mr.
Rivett is a farmer. In 2004 he infringed Canadian Letters Patent No. 1,313,830
(“the ‘830 Patent”) by planting ROUNDUP READY® soybeans, and by
harvesting and selling the resulting crop. These Reasons for Judgment address
the remedy selected by the plaintiffs for the defendant’s breach – an
accounting of profits.
Background
[2]
Most
of the relevant underlying facts are agreed upon by the parties and the
following is largely reproduced from admitted allegations in the Statement of
Claim and from an Agreed Statement of Facts filed at the commencement of trial.
[3]
Monsanto
Company is the owner of the ‘830 Patent issued February 23, 1993, for an invention
entitled “Glyphosate-Resistant Plants”. Pursuant to
the provisions of the Patent Act, R.S.C. 1985, c. P-4, and by virtue of
its patent, Monsanto Company is granted the exclusive right, privilege and
liberty of making, constructing, using and selling to others to be used the
invention described and claimed in the ‘830 Patent. Monsanto Canada Inc. is
related to Monsanto Company, and is a licensee under the ‘830 Patent. It sells
Monsanto Company products in Canada. In these Reasons reference to both plaintiffs is made by the
terms “Monsanto” or “the plaintiffs”.
[4]
The
invention described and claimed in the ‘830 Patent relates to a plant gene
which, when expressed in a plant cell, confers a substantial degree of
glyphosate resistance upon the plant cell and plants containing such cells. As
a result, such cells are resistant to herbicides such as Monsanto’s ROUNDUP®
which contains glyphosate as the active ingredient. The invention
further relates to a method for producing dicotyledonous plants that are
resistant to glyphosate-containing herbicides. In Canada,
glyphosate-resistant seeds and plants containing genes or cells in accordance
with the claims of the ‘830 Patent are sold under the trademark ROUNDUP READY®.
[5]
Among
the benefits of ROUNDUP READY® seed is that a farmer can use
glyphosate herbicide on the plants once they have sprouted; this kills the
weeds but not the crop. This results in a saving in herbicide use, frequency
of application and an increased crop yield. As a consequence, ROUNDUP READY®
seed has been widely accepted by farmers in Canada.
[6]
ROUNDUP
READY® seed is only sold pursuant to a license that is personal to
the grower. The purchased seed can only be used by the grower for planting one
crop which is only to be sold for consumption; the grower is not entitled to
save seed for the purpose of replanting a second generation crop. These
conditions are imposed as every cell of each plant produced from ROUNDUP READY®
seed, as well as each resulting kernel or bean, contains the gene described in
the ‘830 Patent.
[7]
Mr. Rivett is a farmer in Beeton, Ontario.
He grows, harvests and sells soybeans, corn and wheat. In 2004, without
permission or a license, he planted ROUNDUP READY® soybeans and
harvested the resulting crop. Mr. Rivett admits that in so doing he used,
reproduced and created genes, cells and soybean seeds and plants containing
genes and glyphosate resistant cells as claimed in each of claims 1, 2, 5, 6,
7, 22, 23, 26, 27, 28 and 47 of the ‘830 Patent.
[8]
Mr.
Rivett admits that he sprayed the ROUNDUP READY® soybean sprouts
with a glyphosate herbicide to take advantage of the glyphosate tolerance imparted
by ROUNDUP READY® soybeans. He sold all of the yield from the crop
of infringing ROUNDUP READY® soybeans.
[9]
Justice Simon Noël issued a consent Judgment on
January 11, 2007, which granted certain declaratory relief, permanently
enjoined the defendant from further infringing activities and required the
defendant to deliver up any infringing seed and plants in his possession to
Monsanto Canada Inc.
[10]
That Judgment left a number of issues to be
determined at the trial of this action. Some of those outstanding issues were
dropped or not pursued. The plaintiffs were required under the terms of the
Judgment to elect as between damages and an accounting of profits. The
plaintiffs elected an accounting of profits. The only issues remaining to be
determined by the Court, pursuant to the consent Judgment and the parties’
subsequent agreements, are the following:
a.
An accounting of the defendant’s profits derived
from the infringement;
b.
Prejudgment and post-judgment interest; and
c.
The costs of the proceedings.
[11]
The
following facts relevant to the accounting of profits were admitted by Mr.
Rivett.
a. In 2004 he
planted, cultivated and harvested 947 acres of ROUNDUP READY®
soybeans.
b. The gross
revenue he received for the sale of the yield from the 947 acres of ROUNDUP READY®
soybeans was $233,311.73.
c. He did not
pay another person to clean ROUNDUP READY® soybean seed.
d. He did not
hire employees for the sole purpose of cultivating ROUNDUP READY®
soybeans.
e. He did not
pay a third party to plant ROUNDUP READY® soybeans.
f.
He
did not pay a third party to apply fertilizers or herbicides to his ROUNDUP
READY® soybeans.
g. He did not
pay a third party to harvest the ROUNDUP READY® soybeans.
h. He did not
purchase equipment for the sole purpose of cultivating the ROUNDUP READY®
soybeans.
i.
Apart
from the 947 acres of ROUNDUP READY® soybeans he planted, cultivated
and harvested in 2004, he also planted, cultivated and harvested 811 acres of
conventional soybeans, 1408 acres of corn, and 350 acres of winter wheat.
[12]
In addition to these agreed facts, Michael
McGuire, a vice-president of Monsanto Canada and the Director of its eastern Canadian seed and trade business,
gave evidence for the plaintiffs. Mr. McGuire testified as to the benefits of ROUNDUP READY®
seed and the additional profit that a farmer using this Monsanto product
should expect to obtain. He also spoke to the enforcement mechanisms that have
been put in place to track and deal with infringers of the ‘830 Patent. Mr. Rivett testified on his own behalf. Mr. Rivett did not
dispute any of the evidence offered by Mr. McGuire. His testimony was directed
to his farming operation, the reasons behind the infringement in 2004 and the
costs of his farming operation. While he was vigorously cross-examined by
counsel for the plaintiffs, the plaintiffs led no evidence to contradict his
evidence other than, perhaps, evidence Mr. Rivett himself had given during his
examination for discovery.
[13]
After
Mr. Rivett had given his evidence, the defendant proposed to call Gary Fisher
as an expert witness. Mr. Fisher was described by the defendant’s counsel as
an agrologist with training in economics. It was proposed that he speak to a
document he had prepared relating to the defendant's farming operation entitled
‘Soybean Cost Estimation’. It purported to be “an independent estimation of
the costs and returns of the production of roundup ready soybeans produced on
the Charles Rivett’s farm in 2004” [sic]. Attached to the report was an
unaudited Income Statement for the defendant comparing revenue and expenses for
the years ended December 31, 2004 and December 31, 2005. The plaintiffs
objected to the admission into evidence of the report and also objected to the
evidence of Mr. Fisher relating to the content of the report. The Court upheld
that objection; these are the reasons for that ruling.
[14]
The
defendant had not complied with Rule 258(5) of the Federal Courts Rules
regarding Mr. Fisher’s evidence as an expert and, pursuant to Rule 279, the
evidence was not admissible unless the Court ordered otherwise. The Court was
not prepared to exercise its discretion to admit the evidence of Mr. Fisher for
the following reasons. Mr. Fisher’s testimony was to be based on an Income
Statement that had not previously been produced to the plaintiffs and thus there
had been no opportunity for the plaintiffs to challenge its accuracy. The
author of the Income Statement was not being called as a witness and, if the
document was a business record, the provisions of the Canada Evidence Act
had not been complied with. The Income Statement attached to the purported
expert report was incomplete – it consisted of a single page from what appeared
to be unaudited financial statements of the defendant. Further, the page
directed the reader to ‘See Notice to Reader’, which notice was not included
and which may have been critically relevant. Accordingly, even if Mr. Fisher
was qualified as an expert, his opinion evidence would be based on hearsay
evidence that, in some respects, appeared to be contrary to the direct evidence
that had previously been given by the defendant when he was on the stand.
Given these circumstances, permitting the defendant to file the report as an
exhibit or call Mr. Fisher as a witness would be unfair to the plaintiffs who
had not had and would not have an opportunity to test the underlying data. The
evidence offered, being based on hearsay evidence, would be given very little,
if any, weight and thus it would not assist the Court in reaching the decisions
required in this action.
[15]
It
is relevant to mention one other ruling that was made in the course of trial.
The defendant produced a document at his examination for discovery that he had
prepared and that purported to reflect the expenses he incurred to grow
soybeans. He gave evidence at trial with respect to this document (Exhibit
D-12). He indicated that in some instances, the figures he had put down
reflected the average costs he incurred for that item. As an example, the
document reflected an average cost of the land he leased. Other figures in the
document reflected information obtained from the Ontario Federation of
Agriculture that reflected the results of its research into various farming
costs, for example, the average cost to operate particular pieces of farm
equipment. The plaintiffs objected to this evidence.
[16]
The
Court ruled that the defendant could speak to information contained in the
document he had prepared but that any information contrary to direct evidence
before the Court of actual expenses incurred, or contrary to any of the agreed
facts, would be given no weight. Further, it was indicated that little weight
was likely to be given the evidence insofar as it relied on information
obtained from third party sources. However, as some of the information appeared
to relate to the value of a farmer’s labour and given the submission of the
defendant that he ought to be given some credit for his own labour, the
evidence was accepted, subject to weight, for that limited purpose. In light
of my decision herein on that issue, the defendant’s testimony regarding this
document and Exhibit D-12, ultimately were not considered.
Issues
[17]
The
following are the issues requiring the Court’s determination:
a. What is the
proper method to be employed by this Court in conducting an accounting of
profits;
b. What expenses
were proved by Mr. Rivett to have been incurred or were otherwise properly
deductible from the gross revenue he obtained from the sale of the infringing
ROUNDUP READY® soybean crop in 2004;
c. Applying that
proper method of accounting of profits, what were the profits made by Mr.
Rivett from the infringement that are to be disgorged;
d. Is the
defendant liable to pay prejudgment and post-judgment interest and if so, in
what amounts; and
e. Is the
defendant liable to pay costs and if so, what is the quantum.
Analysis
a. What is the
proper approach in this case to an accounting of profits?
[18]
Section
57(1)(b) of the Patent Act, R.S.C. 1985, c. P-4, permits the Court, when
there has been be an infringement of a patent, to “…make such order as the
court or judge sees fit … for and respecting inspection or account.” It is
under this provision that this Court may require the infringer to render an
account of the profits made because of the infringement and to disgorge those
profits by paying them over to the patent holder. This is the equitable remedy
of an accounting of profits.
[19]
The
Supreme Court in Strother v. 3464920 Canada Inc., [2007] 2 S.C.R. 177,
2007 SCC 24 observed that an order requiring that the profits made as a
consequence of the actions of the wrong-doer are to be disgorged may serve one
or both of two equitable purposes. The first is described by the Court as a prophylactic
purpose. Its focus is to deter the wrong-doer and others who might emulate his
actions. The second is described by the Court as a restitutionary purpose. Its
focus is to restore to the wronged party profit which properly belongs to him,
but which has been wrongly appropriated by the wrong-doer.
[20]
It
is not necessary that both purposes be served in every case. If one assumes
that the motive for the infringement is profit, then ordering a wrong-doer to
hand over those profits to the person who has been wronged will generally serve
to deter that wrong-doer and others who might be like-minded.
[21]
Unlike
a compensatory award, a restitutionary award is not focused on restoring the
wronged party to the position he would have been in but for the breach. The
measure of restitution is the defendant’s gain rather than the plaintiff’s
loss. As the Supreme Court noted in Strother, there are situations
where, although the wrong-doer has profited, the wronged party has not suffered
a corresponding loss. In those instances, one might be tempted to claim that
the wronged party is unjustly enriched if he is awarded a sum in excess of his
actual loss. That position was unsuccessfully argued by the defendant in Bayer
Aktiengesellschaft v. Apotex Inc. (2001), 10 C.P.R. (4th) 151
(Ont. S.C.J.); aff’d (2002), 16 C.P.R. (4th) 417 (Ont. C.A.) and was
suggested by the defendant in this case. A trade news report was submitted in
evidence in which it was asserted on behalf of the defendant that when caught
by the plaintiffs he should only be required to compensate Monsanto for the sum
he would otherwise have paid for the ROUNDUP READY® seed which includes
the licensing fee. If that were the proper measure of the award, then it would
be compensatory in that Monsanto would be placed in the position it would have
been in had the infringement not occurred. However, it could also leave some
of the profits in the hands of the wrong-doer, which is precisely the inequity -
the unjust enrichment - the restitutionary remedy seeks to address.
[22]
While
there will be instances where the effect of the disgorgement order is to put
the wronged party back into the same position he would have been but for the
wrong, that is the exceptional situation. Frequently, such as in Strother,
the wronged party will receive more than his loss. The other side of the coin
is that in some instances, the wronged party will recover less than his actual
loss if this remedy is elected. The proper description of this second purpose,
in my view, is not to restore the wronged party to the position in which he
would have otherwise been; rather, it is to put the wrong-doer in the position he
would otherwise have been if he had not committed the wrong. In this sense, it
is the wrong-doer who is being restored, through a disgorgement of profits, to
the position that he would have been in had he not done the illegal act.
[23]
Simply
putting these plaintiffs back to the position they would have been but for the
infringement is not appropriate in light of the remedy the plaintiffs have elected.
If it were, then arguably neither equitable purpose would be achieved. At the
level of principle, there is no deterrent from infringing the patent if what
the infringer is required to hand over is the sum he would otherwise have paid
to Monsanto to buy the seed and the licence. In fact, this would almost be
counter to the purpose of deterrence. It is much like saying, as the
plaintiffs put it in their oral submission, “Catch me if you can”. If caught,
the defendant would be required to pay the sum he would have paid to use the
patent in any event. When not caught, he is left with a windfall. The accounting
remedy would lack any deterrent effect if defendants could use patented
technology and retain the profits from such use subject only to paying a
license fee as compensation if and when they are caught.
[24]
It
also fails to serve the second purpose of a disgorgement, namely returning the
wrong-doer to the place he would have been but for wrongfully appropriating the
property of the other. If the disgorgement of profits creates an alleged
“windfall” to the patentee, the cause of that result is the illegal act of the
infringer and it does not lie in his mouth to argue that it is he and not the
patent holder who should retain any excess profits.
[25]
Some
time has been devoted to describing the purposes of this remedy as the
plaintiffs made a number of submissions urging that the order of this Court
must be a real deterrent to the defendant and others who may consider
infringing the plaintiffs’ patent. This, it was argued, requires a
consideration of the consequences of the actions from the perspective of a
cost-benefit analysis. While deterrence is rightly one aspect of the remedy,
one must not lose sight of the fact that the remedy is not intended to be
punitive.
[26]
The
non-punitive nature of the accounting remedy was noted by Justice Rouleau in Beloit
Canada Ltd. v. Valmet Oy (1994), 55 C.P.R. (3d) 433 at 455 (F.C.T.D.),
var’d on other grounds (1995), 61 C.P.R. (3d) 271 (F.C.A.). He summarized the
law in this regard and distinguished an accounting of profits from an award of
damages as follows:
… damages may be compensatory
or punitive according to whether they are awarded as a measure of the actual
loss suffered by the plaintiff or as punishment for outrageous conduct and to
deter future transgressions by the defendant. While an accounting of profits
might serve to dissuade a defendant from pursuing its improper course of
conduct, punishment does not play a role in its award. As an equitable remedy,
its entire rationale is to redress wrongs, not to administer punishment. In Ruff
v. Swan (1921), 20 O.W.N. 158 at p. 160, the Court noted ‘the object of the
inquiry was to compensate the plaintiff, and not to punish the defendants.’
[27]
Requiring
the party at fault to disgorge the profits made from the infringement while
ensuring that he is not being required to hand over more, requires that one
focus on the causal connection between the act that infringes the invention and
the profit, between the wrong and the remedy. Where there is no causal
connection, there is no profit for which the infringer is required to account. An
example of this situation is found in Monsanto Canada Inc. v. Schmeiser,
[2001] F.C.J. No. 436; aff’d [2002] F.C.J. No. 1209; rev’d [2004] S.C.J. No.
29, about which much more will be said later in these reasons.
[28]
It
was submitted by the plaintiffs that there are three possible approaches to
determining the profits of the infringer that are to be paid over to the
patentee:
a. The value
based or differential profit approach;
b. The variable
cost or incremental cost or differential cost approach; and
c. The full absorption
or full cost approach.
Differential
Profit Approach
[29]
The
differential profit approach requires that the Court compare the profits made
by the infringer that are attributable to the invention and the profits that
the infringer would have made if he had used the best non-infringing option.
Using this approach, the analysis required is as follows:
a. Is there a
casual connection between the profits made and the infringement? If there is
none, then there are no profits that require an accounting.
b. If there is a
causal connection, then what were the profits made by the infringer as a result
of the infringement? This amount I shall describe as the Gross Profits of
Infringement.
c. Is there a
non-infringing option that the infringer could have used?
d. If there is
no non-infringing option, then the Gross Profits of Infringement are to be paid
over to the patentee.
e. If there is a
non-infringing option, then what profit would the infringer have made, had he
used that option? This amount I shall describe as the Gross Profits of
Non-Infringement.
f.
Where
there was a non-infringing option available, the amount to be paid over to the patentee
is the difference between the Gross Profits of Infringement and the Gross
Profits of Non-Infringement. This sum is the profit that is directly
attributable to and that results from the infringement of the invention.
Differential
Cost Approach
[30]
The
differential cost approach involves no comparison or consideration of what
might have been. The differential cost approach requires that the Court deduct
from the gross revenue received by the infringer the variable or current
expenses directly attributable to the infringement and any increased, fixed or
capital expenses that are directly attributable to the infringement. Using
this approach, the analysis required is as follows:
a. What is the
gross revenue the infringer received as a result of the infringement (the Gross
Revenue)?
b. Did the
infringer incur any current expenses in infringing the patent; if so what is
the total of those expenses (the Current Expenses)?
c. Did the
infringer incur any capital expenses directly related to infringing the patent;
if so what is the total of those expenses (the Capital Expenses)?
d. The amount to
be paid over to the patentee is the Gross Revenue less the sum of the Current
Expenses and the Capital Expenses.
[31]
A
current expense is one that usually reoccurs after a short period. In the
context of this action, current expenses incurred in growing, harvesting, and
selling a farm crop could include the expenses incurred in leasing land, hiring
contractors to plant, cultivate and harvest the crop, costs incurred in
purchasing fertilizers and herbicides, and the costs incurred in purchasing
crop insurance. A capital expense generally gives a lasting benefit or advantage.
In the context of this action, capital expenses incurred in growing,
harvesting, and selling a farm crop could include the expense of any machinery
that was purchased specifically and only in order to plant, cultivate or
harvest the crop. Where that capital expense has uses other than those
directed to the patented invention, then it may be appropriate to deduct only a
portion of the expense.
Full Cost
Approach
[32]
The
full cost approach increases the deductible expenses in the differential cost
approach by also deducting from the revenue earned the relevant portion of the
common costs incurred by the infringer. In the context of this action, where
the infringer is using a patented seed but is also growing, harvesting and
selling other crops from conventional seed, he will have costs that are
incurred as a consequence of his farming operations, such as general insurance
on his buildings and equipment, capital depreciation of equipment, and expenses
for water and electricity. Using the full costs approach, a portion of these
common costs would be deducted from the revenue earned by the infringer.
[33]
If
the full cost approach has ever been endorsed by this Court, it has not been of
late. It has been rejected in Teledyne Industries Inc. et al. v. Lido Industrial
Products Ltd. (1982), 68 C.P.R. (2d) 204 (F.C.T.D.); Diversified
Products Corp. et al. v. Tye-Sil Corp. Ltd. (1990), 30 C.P.R. (3d) 324,
aff’d on this point (1990), 32 C.P.R. (3d) 385 (F.C.T.D.); Hancor Ltd. et
al. v. Les Systèmes de Drainage Modernes Inc. (1991), 38 C.P.R. (3d) 62
(F.C.T.D.); and Wellcome Foundation Ltd. v. Apotex Inc. (1998), 82
C.P.R. (3d) 466. Neither party advocated using the full cost approach in this
case.
The
Appropriate Approach in This Case
[34]
The
plaintiffs submit that the appropriate approach to apply in this case is the
differential cost approach. It is submitted that this approach has been
followed in this Court and others for nearly 30 years since the decision in Teledyne.
They acknowledge that the majority of the Supreme Court in Schmeiser
stated that “the preferred means of calculating an accounting of profits is the
differential profit approach” but submit that this statement must be limited to
the particular facts of Schmeiser and could not have been intended by the
Court to be an exposition of the whole of the law. In any event, the
plaintiffs further submit that the statement must be seen in light of the fact
that the Supreme Court ultimately did not apply the differential profit
approach. The plaintiffs submit that applying the differential cost approach,
the defendant must disgorge profit made in the amount of $159, 569.50.
[35]
The
defendant submits that this Court ought to use an approach similar to that used
by Justice MacKay in his judgment at trial in Schmeiser. The plaintiffs
submit that this is akin to the full cost approach discussed above. I do not
think that is an accurate characterization of the approach urged on the Court
by the defendant. The defendant has not submitted that all of the costs of his
farming operation ought to be deducted from the gross revenue received from the
sale of soybeans. Rather, the defendant urges the Court to credit him for some
costs that were not directly incurred and paid, such as his own labour and
expertise. The defendant described this as applying Teledyne in the
manner Mr. Justice McKay did at trial in Schmeiser. Mr. Schmeiser was
not paid a salary for his work in farming but Mr. Justice MacKay held that “his
labour should be recognized in accounting of profits.” Applying its approach,
the defendant submits that he has no profits to disgorge as he incurred a loss
in his farming operations relating to the infringing crop.
[36]
In
my view, the decision of the Supreme Court in Schmeiser does not have
the restricted application urged upon the Court by Monsanto.
[37]
Schmeiser
involved
the same patent infringed by Mr. Rivett in this case. Mr. Schmeiser was a
farmer in Saskatchewan. In 1998 he
planted ROUNDUP READY® canola but did not purchase the seed from
Monsanto nor did he execute the Monsanto technology use agreement. He claimed
that his crop had been contaminated from neighbouring crops of ROUNDUP READY®
canola and that he had not deliberately planted any seed containing the
patented gene. However, the trial judge found that Mr. Schmeiser knew or ought
to have known in 1998 when he planted the crop that the canola seed he planted
was ROUNDUP READY® seed. In 1997 Mr. Schmeiser had saved seed from
a road allowance adjacent to his fields which had survived herbicide spray and
planted that seed and seed from his previous crop in 1998. He knew what he was
planting and he knew that Monsanto had a patent on it. Accordingly, he was not
an innocent infringer.
[38]
The
Supreme Court found that Mr. Schmeiser, in planting and cultivating the seed,
had “used” the patented cell and gene technology contrary to Section 42 of the Patent
Act. The Court was not inclined to the view that he was “making” or
“constructing” anything in breach of the patent within the meaning of Section
42, but withheld a decided opinion on those questions.
[39]
As
noted, the benefit of ROUNDUP READY® seed is that the farmer can
spray his field with glyphosate herbicide after the seed has sprouted and only
the weeds will be affected. The plant growing from the ROUNDUP READY®
seed, unlike the plant growing from a conventional seed, will not be affected.
The evidence at trial was that although Mr. Schmeiser had planted ROUNDUP READY®
canola seed he did not spray that crop with glyphosate herbicide after the seed
sprouted. Therefore, in all respects he farmed the crop exactly as he would
have if it had it been grown from conventional canola seed.
[40]
At
trial the defendant argued that he had made no profit from the sale of the
canola crop that was grown from the ROUNDUP READY® canola because he
earned the same from the sale of the crop as he would have had he planted
conventional canola. The trial judge rejected that submission holding that
Monsanto was entitled to recover the profit from the sale of the crop, not any
increase in profit that might have resulted from the ROUNDUP READY®
canola crop over a conventional seed crop.
For the defendants it is urged
there were no measurable profits earned from sale of the 1998 crop even if it
did include the plaintiffs' patented gene. The argument is based on the
assumption that the defendants would have earned the same profits on sale of a
canola crop that did not contain the gene. That is no answer to the issue of
profits from sale of the crop which I have found contained the plaintiffs'
patented gene and cells. It is the profit from sale of that crop that
plaintiffs may claim, not the difference between sale of that crop and sale of
an alternative crop that was not grown.
The Federal Court of Appeal endorsed this
view at paragraph 79 of its Reasons for Judgment in Schmeiser.
[41]
In
allowing the appeal by Mr. Schmeiser, the Supreme Court rejected that approach
and endorsed the differential profit approach to an accounting of profits in
five short paragraphs that are worth reproducing in their entirety.
101 It is settled law that the inventor
is only entitled to that portion of the infringer's profit which is causally
attributable to the invention: Lubrizol Corp. v. Imperial Oil Ltd.,
[1997] 2 F.C. 3 (C.A.); Celanese International Corp. v. BP Chemicals Ltd.,
[1999] R.P.C. 203 (Pat. Ct.), at para. 37. This is
consistent with the general law on awarding non-punitive remedies: "[I]t
is essential that the losses made good are only those which, on a common sense
view of causation, were caused by the breach" (Canson Enterprises Ltd.
v. Boughton & Co., [1991] 3 S.C.R. 534, at p. 556, per McLachlin
J. (as she then was), quoted with approval by Binnie J. for the Court in Cadbury
Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142, at para. 93).
102 The preferred means of calculating an
accounting of profits is what has been termed the value-based or
"differential profit" approach, where profits are allocated according
to the value contributed to the defendant's wares by the patent: N. Siebrasse,
"A Remedial Benefit-Based Approach to the Innocent-User Problem in the
Patenting of Higher Life Forms" (2004), 20 C.I.P.R. 79. A
comparison is to be made between the defendant's profit attributable to the
invention and his profit had he used the best non-infringing option: Collette
v. Lasnier (1886), 13 S.C.R. 563, at p. 576, also referred to with approval
in Colonial Fastener Co. v. Lightning Fastener Co., [1937] S.C.R. 36.
(emphasis added)
103 The difficulty with the trial judge's
award is that it does not identify any causal connection between the profits
the appellants were found to have earned through growing Roundup Ready Canola
and the invention. On the facts found, the appellants made no profits as a
result of the invention.
104 Their profits were precisely what
they would have been had they planted and harvested ordinary canola. They sold
the Roundup Ready Canola they grew in 1998 for feed, and thus obtained no
premium for the fact that it was Roundup Ready Canola. Nor did they gain any
agricultural advantage from the herbicide resistant nature of the canola, since
no finding was made that they sprayed with Roundup herbicide to reduce weeds.
The appellants' profits arose solely from qualities of their crop that cannot
be attributed to the invention.
105 On this evidence, the appellants
earned no profit from the invention and Monsanto is entitled to nothing on
their claim of account.
[42]
The
plaintiffs rely on what is claimed to be 30 years of jurisprudence applying the
differential cost approach. They also referred the Court to an article written
by David A. Aylen and Matthew J. Graff, “The ‘Differential Profit’ Approach in Monsanto”
(2004), Return of the Six-Minute Intellectual Property Lawyer, Continuing Legal
Education, The Law Society of Upper Canada, in support of their position.
Aylen and Graff argue that the “best non-infringing option” has not been an
established aspect to the accounting remedy, and question whether the Supreme
Court intended for this approach to be broadly applied. They suggest that the
Court fashioned this remedy in the Schmeiser case “to absolve the
defendant of pecuniary liability since he appeared to the court as an ‘innocent
user’.”
[43]
The
“innocent user” is a term used by Professor Norman Siebrasse in his paper,
cited by the Supreme Court in Schmeiser, to describe someone who,
through no fault of his own finds plants from patented seed growing on his
land. This is said to be possible when dealing with higher life forms such as
the ROUNDUP READY® seed which is more likely to escape from a
planted field onto other land. He asks whether that innocent user, that
farmer, ought to be liable for patent infringement in those circumstances.
This, he writes “is the problem of the innocent user.” As we have seen, the
findings of fact regarding Mr. Schmeiser and the ROUNDUP READY®
canola growing on his farm remove him from the innocent user category. He
planted the crop knowing what it was and he took active steps to ensure that
most of the crop he planted was from ROUNDUP READY® seed. The
Supreme Court at paragraph 95 of the majority Judgment writes: “[O]n the facts
found by the trial judge, Mr. Schmeiser was not an innocent bystander; rather,
he actively cultivated Roundup Ready Canola.” On this basis alone, one may
reject the plaintiffs’ claim that Schmeiser has to be read as the Court
fashioning a remedy to absolve the defendant of his innocent use of the
patented seed.
[44]
The
plaintiffs, together with Messrs. Aylen and Graff, submit that had the Supreme
Court intended to overrule 30 years of precedent it would have addressed Teledyne
and subsequent jurisprudence. That the Court did not do so, they submit,
supports their position that the Court was addressing the equity demanded in
the particular facts in Schmeiser. I am not persuaded that the Supreme
Court’s stated preference for the differential profit approach can or should be
so narrowly construed.
[45]
The
Supreme Court relies heavily on and arguably adopts Professor Siebrasse’ analysis
of an accounting of profits. He argues for the differential profits approach
as the proper methodology to be used in an accounting of profits because it
equitably addresses the innocent user problem. That does not mean that he
limits its application only to the innocent user problem; rather, his thesis is
that because this approach addresses the innocent user problem, it is the
proper approach to follow when performing an accounting of profits in any
situation.
[46]
An
appropriate starting point to the discussion, and that used by Professor
Siebrasse, is the observation that it has long been held that there are
occasions when, in spite of there being an infringement, an accounting of
profits, to be equitable, requires an apportionment of the profits made between
the infringer and the patentee. He writes:
It is uncontroversial that an
apportionment is sometimes necessary. It is also universally acknowledged that
the governing principle is that the patentee is entitled to that portion of the
infringer’s profit which is casually attributable to the infringement.
[47]
Sometimes,
the patentee will be entitled to nothing because none of the profits are
causally attributable to the invention. In this scenario it may be that
notwithstanding that the wrong-doer used the patented product, none of the
profits so earned were as a result of using the invention. The Schmeiser
case is an illustration of this scenario as was subsequently explained by
Justice Binnie in Bristol-Myers Squibb Company v. Canada (Attorney General),
[2005] 1 S.C.R. 533, at paragraph 52. He noted there that linking the making
of a profit to the use of the patented product is insufficient. When
performing an accounting of profits the causal link must be between the profits
made and the invention that is protected.
As pointed out by this Court
in Monsanto Canada Inc. v. Schmeiser, [2004] 1 S.C.R. 902, 2004 SCC 34,
the patented invention is not necessarily co-extensive with the patent claims.
The distinction was critical in that case to the issue of remedy. While farmer
Schmeiser had used the patented product (Roundup Ready Canola seed), he
had not taken advantage of the patented invention (its herbicide
resistant property) because he had not sprayed his crop with Roundup. The Court
thus rejected Monsanto's claim to Schmeiser's profits from his canola crop.
The difficulty with the trial
judge's award is that it does not identify any causal connection between the
profits the appellants were found to have earned through growing Roundup Ready
Canola and the invention. On the facts found, the appellants made no profits as
a result of the invention. [Emphasis in original; para. 103.]
[48]
Sometimes,
the patentee will be entitled to all of the wrong-doer’s profits derived from
the invention without any offset because all of the profits are casually
attributable to the infringement of the invention. In this scenario it may be
said that but for the infringement, the infringer would have earned no
profits. The U.S. case of Manufacturing Co. v. Cowing (1881), 105 U.S. 253,
discussed by Professor Siebrasse, is an example of this scenario. The patent
there in issue was for an improvement to a pump. The Circuit Court had held
that the defendants were only liable to disgorge the profits that would have
been realized from the sale of the patented part separately. The U.S. Supreme
Court rejected that view, holding that it is necessary to contrast the profits
made by infringing the patent to those that otherwise would have been made. It
found that the patented part was such an important improvement to the pump that
but for that part, no other pump could, at that time have been sold. Thus,
without the infringement, no sales could have been made and thus no profits
made. Therefore, the Court awarded the entirety of the defendant’s profits to
the plaintiff.
[49]
A
similar illustration may be found in Reading & Bates Construction Co. v.
Baker Energy Resources Corp., [1995] 1 F.C. 483 (F.C.A.). In Reading
& Bates the infringer had used the defendant’s patented method when
installing a gas pipeline under the St. Lawrence River. It was found that
alternative methods, if they were even capable of success, were likely to
result in no profit being earned by the defendant given the contracted fee.
Therefore, although the Court awarded all of the defendant’s profits to the
plaintiff saying that one had to look at the profits actually made and not at
the profits that could have been made if a non-infringing method had been used,
the result was the same. As will be discussed below, Reading & Bates
is also important in that the Court was prepared to consider the profits that
would have been made had a hypothetical alternative been used, but in the event
it did not, as the defendant failed to satisfy its burden of proof as to the
profits likely to be generated from that hypothetical alternative.
[50]
Sometimes
the profits earned must be divided between the infringer and the patentee
because, while the infringer earned profits, only a part of those profits are
causally attributable to the invention. In this scenario it may be said that
because of the infringement the infringer earned greater profits than would
otherwise have been earned. This requires a comparison between the profits
earned as a result of the infringement and the profits that would otherwise
have been earned. An illustration of this scenario may be found in Lubrizol
Corp. v. Imperial Oil Ltd. (1996), 71 C.P.R. (3d) 26 (F.C.A.).
[51]
In
Lubrizol the patentee had invented a dispersant additive for motor oil
and had obtained a patent for motor oil with that additive. Imperial Oil sold
motor oil with that additive and the patentee submitted that it was entitled to
all of the profits from the sale of the motor oil. The Court of Appeal
rejected that submission on the basis that the profits to which Lubrizol was
entitled were those directly and causally related to the use of its invention
only.
The remedy of an account of
profits is an equitable one. Its purpose is not to punish the defendant but
simply to have him surrender the actual profits he has made at the plaintiff's
expense. But if some part of Imperial's profit on the infringing sales can be
shown to have been due not to the appropriation of the Lubrizol invention but
to some other factor where is the equity? We were told that Lubrizol contends that
Imperial's motor oil infringes another of its patents and has sued in respect
thereof. May the same profits be claimed a second time? And if not by Lubrizol
what of some third party patentee who likewise claims infringement? And even if
no other patents were involved, to allow Lubrizol to take profits which
Imperial succeeds in showing were solely attributable to some non-infringing
feature of its motor oil would be to judicially sanction Lubrizol's unjust
enrichment at Imperial's expense.
[52]
Lubrizol involved a
situation where the patented product was made a part of another product and the
Court held that the profit to be disgorged was the difference between the two;
in that way the profits disgorged were those with the appropriate causal link,
that is, those profits made as a result of the invention.
[53]
The
application of the differential profit approach in these cases shows why it is
to be preferred. In each instance it isolates and identifies the profit that
was generated because of the patented invention. In short, it looks to those
profits that result from the invention that is protected and eliminates those
profits that may be earned but that have no causal link to the invention.
Profits that are made that are not attributable to the invention may be
retained by the wrong-doer.
[54]
It
will always be an issue when applying the differential profit approach whether
there is a non-infringing alternative that can be used as a comparator.
[55]
The
decision in Wellcome Foundation provides some insight into the limits on
a non-infringing alternative. The defendant Apotex argued that it could have
obtained a compulsory licence to use the patent from the plaintiff and thus the
difference in profits it did earn and those it would have earned it if it had
such a licence was merely the cost of the licence fee. It was proposing that
the best non-infringing alternative was the product it sold, but sold legally
under a license. Professor Siebrasse questions whether this was a valid
alternative.
At the time of the trial the
statutory compulsory licensing regime had been repealed, and the key question
is therefore whether the product obtained under a compulsory licence is to be
considered as “open to the public” in applying the differential profit test.
If it is not, then the apportionment arrived at by MacKay J. at trial and
affirmed by the Court of Appeal was fully consistent with the differential
profit approach.
[56]
I
take a somewhat different view of this decision. In my view, that the case
involved the compulsory license comparison is irrelevant. Rather, if the
position urged upon the Court by Apotex had been adopted, then the “Catch me if
you can” scenario discussed previously would have resulted. If the proper
measure of profits to be disgorged involves a comparison to the same product,
but manufactured and sold legally, i.e. with a license, then neither of the
purposes of an accounting of profits would have been achieved. In my view,
what this and other decisions show is that the next best non-infringing alternative
that is to be considered when using the differential profits approach cannot be
what one would have done had one complied with the law, i.e. obtained a license
to use the patent. Whether the license is available through a compulsory
scheme or on the open market, is irrelevant. The comparison is to the profit that
would have been earned from using the next best product that is not the
patented product itself, with the latter acting as a baseline from which to
calculate added value. That results in a true reflection of the profits made
from the invention – the necessary causal link.
[57]
Applying
that reasoning to this case, the comparison is not to the profits that Mr.
Rivett would have generated had he legally bought the ROUNDUP READY®
soybean seed and purchased the license; it must be to soybean seed that has
none of the plaintiffs’ invention. Thus, conventional soybean is the
appropriate comparator.
[58]
Although
the plaintiffs argued that the Court should follow Teledyne and order
all of the profits made by Mr. Rivett be disgorged, I am of the view that the
accounting of profits undertaken in Teledyne is not necessarily at odds
with the differential profits approach endorsed by the Supreme Court. In Teledyne
the defendant infringed the plaintiff’s patent by manufacturing and selling a
unique pulsating shower head. Teledyne already manufactured and sold
conventional shower heads; the infringing product was a new and different
product line. Thus, there was no reason to believe, and it was not established
by the defendant, that if it had not sold the infringing new product, it would
have sold an equal number, or any number of conventional shower heads instead.
In short, Teledyne was a situation where the Court was assessing the
profits made by an existing business, by the addition of a new product line,
where there was no next-best alternative available that would have generated
profit.
[59]
It
is not reasonable to conclude here, as it was in Teledyne, that if the
defendant had not sowed, grown and sold the infringing soybean seed, he would
not have sowed, grown and sold conventional soybeans. Here, unlike Teledyne,
there was an alternative available. If the patented seed was not used, the
farmer would have used a conventional seed. It is unreasonable to argue that a
farmer would have left his fields fallow, incurring lease or tax costs, when
they could have been planted and a profit made. In this respect, farming is
unlike the manufacturing of novel shower heads.
[60]
The
final issue that requires examination is whether the defendant must prove that
the comparator non-infringing product was actually available for use or sale or
whether it is sufficient to establish that there is such a product, even though
it may not be available in reality because of market conditions. This issue
arises in this case because the evidence of the defendant, elicited in
cross-examination, was that he had no choice but to plant the ROUNDUP READY®
soybean seed as there were no conventional soybeans available at the local
co-op or from the one local farmer whom he asked. In my view, for the
following reasons, the market availability of the best non-infringing is not
determinative.
[61]
The
differential profit approach discovers the value that the invention has brought
to the product. For example, in Lubrizol, it identified the value that
the invention added to conventional motor oil. In the case of ROUNDUP READY®
canola or soybeans, it is without doubt that there is a value in the product,
the crop, that has nothing to do with the invention. Monsanto’s patent
is not on the plant, or fruit of the plant (the soybeans), but is restricted to
the genes and modified cells that make up the plant. The plant and fruit have
a value apart from the genes and modified cells. This is evident from the
facts in Schmeiser, and the Supreme Court's reference to profits arising
from “qualities of [the] crop that cannot be attributed to the invention.”
Notwithstanding that Mr. Schmeiser did not exploit the invention, he sold the
canola crop and, on the evidence, received exactly the same price as he would
had it been conventional canola.
The purchaser paid no premium because the soybeans that were purchased
contained the patented gene.
Furthermore, as Monsanto’s license requires that none of the beans be saved and
replanted or sold other than for consumption, the Monsanto beans had no other
licit value over and above conventional beans.
[62]
If
one uses a comparator only if it is actually physically available for use, but
not when it exists but is physically unavailable, the fact that the resulting
crop has a value apart from the invention will be ignored. Here, the advantage
of the plaintiffs’ invention does not lie in the uniqueness of the bean; the
fact that it contains the plaintiffs’ gene adds no value at the time of sale.
It is worth the same as the bean without the gene. The value of the invention
is that the farmer who uses it will incur less herbicide related costs, and
less trampling of the plants as they need to be sprayed fewer times, thus resulting
in a higher yield at a lower cost of production. That is, the profit that
flows to the farmer from the plaintiffs’ invention is realized in expense
saved.
[63]
It
may be claimed that when the non-infringing product is not actually available,
the comparison is hypothetical and thus inappropriate. However, I note that in
Reading & Bates the Court was prepared to accept evidence, albeit
theoretical, that alternative tunnelling methods could have been used. As was
noted by Justice Strayer “that such evidence was “theoretical” does not deny
its existence or entirely destroy its weight.” In this case, attaching determinative
weight to the vagaries of the local market for conventional soybeans would undermine
the ability to isolate profits having a causal link to Monsanto’s invention.
For these reasons, it is my view that the fact that conventional soybeans are a
non-infringing alternative to ROUNDUP READY® soybeans is sufficient
to permit the Court to use that crop as a comparator, whether or not such conventional
seed was in fact available to the defendant in 2004.
[64]
Lastly,
the plaintiffs submit that the statement of the Supreme Court in Schmeiser
as to the preferred method of accounting must be seen as obiter as the
Supreme Court ultimately did not apply the differential profit approach. I
disagree. As was noted by Justice Binnie in the Bristol-Myers Squibb
Company decision, the Supreme Court in Schmeiser found that
there was no causal connection between the profits earned through growing
ROUNDUP READY® canola and the invention. In my view, the Court did
apply the differential profit approach as outlined in paragraph 29 above, but
needed to proceed no further than the first question: Is there a casual
connection between the profits made and the infringement? As there was none, there
were no profits that required an accounting.
[65]
For
all of these reasons, it is my view that this Court must apply the differential
profit approach when conducting an accounting of profits in this case.
b. What are the
deductible expenses of Mr. Rivett?
[66]
Both
parties accept that it is the profits made from the infringement that must be
disgorged and that the defendant is properly entitled to deduct from the gross
revenue received from the sale of the crop his legitimate and proved expenses.
[67]
It
is the defendant’s burden to prove the costs that are to be deducted from the
gross revenues from sales. I accept and endorse the view expressed by Justice
Reed in Diversified Products Corp. et al. v. Tye-Sil Corp. Ltd. [1990] F.C.J. No. 952, (1990), 32 C.P.R. (3d) 385 (F.C.T.D.),
that any doubt in determining the costs is to be resolved in favour of the
plaintiffs.
In establishing an infringer's
profits, the plaintiff is required to prove only the defendant's sales; the
burden then shifts to the defendant to prove the elements of cost to be
deducted from the sales in arriving at profit. Any doubts as to the computation
of costs or profits is to be resolved in favour of the plaintiff. At the same
time, this does not mean that the infringer must prove expenses such as
overhead and their relationship to the infringing product in minute detail. But
the defendant bears the burden of explaining, at least in general terms, how
claimed overhead costs actually contributed to the production of the infringing
product.
However, I am also guided by the fact that
the remedy the plaintiffs seek is essentially an equitable remedy and equity
must be done to both parties. The Federal Court of Appeal in Schmeiser
noted at paragraph 85 that if the application of accounting principles in a
mechanical fashion results in a quantum that not does reflect the economic
profit from the infringement, it is open to a trial judge to adjust the
quantum, provided it is done on a “principled basis”.
[68]
According
to the Agreed Statement of Facts, in 2004 Mr. Rivett cultivated 1408 acres of
corn, 811 acres of conventional soybeans, and 350 acres of winter wheat in
addition to the 947 acres of ROUNDUP READY® soybeans. The defendant
submitted evidence of expenses from his farming operation that was not, in most
instances, specific to the 947 acres of ROUNDUP READY® soybeans, but
which were incurred across large portions of the farming operation or across
the business as a whole. The plaintiffs submitted that unless the expense was
shown to relate solely and directly to the 947 acres of ROUNDUP READY®
soybeans, the Court ought not to accept the expense as one that should lessen
the gross revenue received from the sale of that crop. I am not prepared to
accept that proposition. Provided there is evidence that the expense was
incurred, in part, with respect to the 947 acres of ROUNDUP READY®
soybeans, a principled basis to allocate that expense is to do so on the basis
of the percentage of the acreage of ROUNDUP READY® soybeans to the
total acreage of the business, unless there was evidence that the expense was
incurred with respect to less than the total acreage. On that basis, the
applicable percentage is 947 of 3516 acres, or 26.9% of the farming operation.
[69]
Although
it is appropriate to apportion these expenses, the expenses apportioned must be
directly related to the ROUNDUP READY® soybean crop. In my view, it
is not appropriate to consider costs such as general farm insurance, capital
depreciation, water, electricity, etc. as would be additionally considered
under the full cost approach, discussed above. These expenses are too indirect
to be entitled to consideration. In any event, the defendant provided no
evidence of such costs.
Fertilizer
[70]
The
documentary evidence tendered by Mr. Rivett, coupled with his oral testimony
speaks to expenditures on fertilizer which the Court is satisfied relate in
part to the infringing crop. Exhibit D-2 includes various invoices from
Evergreen Liquid Plant Food Ltd. relating to quantities of these fertilizer
products purchased in late 2003 and 2004. This information, coupled with
knowledge of the acreage Mr. Rivett devoted to each of his crops in 2004 and
particularly the proportion of his soybean crop which was infringing, is sufficient
to prove deductible fertilizer expenditures on a balance of probabilities.
[71]
Mr.
Rivett testified that he applied liquid fertilizer to his soybean crops.
Fertilizer 5205 is used on soybeans and wheat; liquid calcium is used on
soybeans and “some” liquid calcium is used on wheat; and ammonium sulphate and
manganese are used on soybeans. Where a product was applied to more than one
crop, in the absence of evidence to the contrary, the Court will assume that
application rates were similar.
[72]
The
invoices in Exhibit D-2 indicate a total expenditure of $13,781.50 on liquid
calcium. Assuming this was distributed evenly between the ROUNDUP READY®
soybeans, conventional soybeans, and winter wheat, the liquid calcium would
have been spread over 2108 acres, at a cost of $6.54 per acre. Thus $6,193.38
was spent on liquid calcium in relation to the 947 acres of ROUNDUP READY®
soybeans.
[73]
Exhibit
D-2 includes a number of invoices relating to Fertilizer 5205 for a total of
$15,704.00. On the principle that this fertilizer was distributed evenly over
the 2108 acres of soybeans and wheat, it would represent an expenditure of
$7.45 per acre. Thus $7,055.70 was spent on Fertilizer 5205 in relation to the
947 acres of ROUNDUP READY® soybeans.
[74]
Mr.
Rivett’s evidence was that he uses ammonium sulphate (“Amsul”) on soybeans to
help them bloom. The invoices for Amsul in Exhibit D-2 indicate expenditures
of $3,600.00 for Amsul, or an expenditure of $2.05 per acre. Thus $1,941.35
was spent on Amsul in relation to the 947 acres of ROUNDUP READY®
soybeans. There is also a $350.00 invoice for manganese in Exhibit D-2. If it
were distributed evenly over the 1758 acres of soybeans, this would represent a
cost of $0.20 per acre, or $189.40 in relation to the 947 acres of ROUNDUP
READY® soybeans.
[75]
The
total expenses for fertilizer related to the 947 acres of ROUNDUP READY®
soybeans, are as follows:
·
Liquid
Calcium $6,193.38
·
Fertilizer
5205 $7,055.70
·
Amsul $1,941.35
·
Manganese $
189.40
TOTAL
$15,379.83
Land Rent
[76]
The
plaintiffs submit that land rent should be calculated on the basis of $49.00
per acre for the 947 acres of ROUNDUP READY® soybeans based on its
reading of Exhibit D-3. That exhibit includes a number of rent cheques paid by
Mr. Rivett to various landowners in 2004. These cheques do not indicate
whether they correspond with tracts of land used to plant the infringing 947
acres of ROUNDUP READY® soybeans. However, Exhibit D-4 is of
assistance in marrying the rent payments to the field in which the infringing
soybeans were grown.
[77]
Exhibit
D-4 was identified as an audit form prepared by a Monsanto investigator. It
sets out the location, collection dates, and acreage where the infringing
soybean crop was identified. In his examination-in-chief, Mr. Rivett was able
to match a number of the cheques in Exhibit D-3 to the locations identified in
Exhibit D-4. Based on this evidence, the Court can conclude that Mr. Rivett
rented the following acreage at the rates indicated for the purpose of
cultivating the infringing crop in 2004.
·
66
acres at $60 per acre (tab 14)
·
20
acres at $35 per acre (tab 20)
·
426
acres at $77.25 an acre (tab 22)
·
51
acres at $72.47 / acre (tabs 23 and 17)
·
41
acres at $65.85 / acre (tab 31)
·
5
acres at $66.26 / acre (tab 32)
[78]
In
addition to these rent expenses, Exhibit D-3 includes a copy of cheque 2521 in
the amount of $500.00, and which Mr. Rivett says is for a part of the rental of
19 acres described as Lot 28 Conc. 6 West Half, Adjala Township, on which he
grew ROUNDUP READY® soybeans. Monsanto submits that this expense of
$500.00 should be taken as the full rent paid for these 19 acres. Mr. Rivett
testified that this cheque represents only part payment to the landowner but he
provided no evidence as to the full cost of the lease. There is insufficient
evidence to determine what more was paid and thus, the Court will consider the
$500.00 payment as the full payment for this acreage.
[79]
This
accounts for 628 of the 947 acres at issue in this case and a total expenditure
of $44,795.62.
[80]
Monsanto
submits that Mr. Rivett should not be allowed to deduct land rental expenses
for which there is no specific record, whereas counsel for Mr. Rivett urges
upon the Court that it is obvious that value was exchanged for all of the land
rented, even if actual records are incomplete. I agree with the latter that on
a balance of probabilities all of the land devoted to the cultivation of the
infringing crop in 2004 was rented for value. However, that value appears, in
large part, to have been Mr. Rivett’s own labour. Counsel for Monsanto took
the Court to passages from the discovery of Mr. Rivett wherein it is clear that
some of the land was paid for, at least in part, in goods and services to the
landowner, e.g., tillage, snow removal, or hay.
[81]
I
find below that Mr. Rivett is not entitled to any deduction from gross revenue
for his labour. The same reasoning applies here. Further, there is no
principled basis on which the Court can determine the value of any goods, such
as hay, that were exchanged for use of the land he cultivated.
[82]
Accordingly,
the total deduction from profits to which Mr. Rivett will be entitled in
relation to land rent will be $44,795.62.
Fuel Costs
[83]
The
plaintiffs submit that no deduction should be allowed for fuel costs as Mr.
Rivett failed to allocate any such costs to the ROUNDUP READY®
soybean crop. Fuel is a major expense for any farming operation and is
deductible from the gross revenues to the extent it can be proved. Mr.
Rivett’s testimony coupled with the documentary evidence permits a
determination of these costs on a balance of probabilities.
[84]
Milligan
Fuels Ltd. supplies Mr. Rivett with diesel fuel for tractors and combines.
Exhibit D-6 includes Mr. Rivett’s account records with Milligan Fuels Ltd., for
fuel purchases between January and September 2004. Taking into account that
there was an outstanding balance owing on the account at the beginning of 2004,
the account information shows expenditures for diesel fuel in that period of
$29,381.51.
[85]
Mr.
Rivett’s evidence was that these fuel expenditures related to his entire
farming operation in 2004, that is, the cultivation of soybeans, corn and
wheat. He also testified that per acre fuel expenditures are similar from crop
to crop, with the exception of wheat which involves marginally higher combining
costs, or “a little bit of difference in fuel per acre.” I can see no basis on
which to reasonably attribute exactly what figure might be assigned to this
“little bit of a difference” and thus, find that the costs are spread equally
among the crops. The per acre fuel cost for the 3516 acres is therefore $8.36,
or $7,916.92 for the 947 acres of the ROUNDUP READY® soybean crop.
Herbicide
[86]
Exhibit
D-8 includes a number of invoices for ROUNDUP® herbicide, indicating
a retail price of $62.50 per 10 litre jug. Mr. Rivett testified that
approximately one litre of herbicide is required to treat one acre of ROUNDUP
READY® soybean. Monsanto submits that the cost paid for the product
was $6.25 per acre; however, that assumes that it was applied only once to the
crop. Mr. Rivett testified that he applied ROUNDUP® herbicide to
the soybean fields more than once. He testified that it was used to burn down
grass and weeds prior to planting, and applied for this purpose at a rate of 1
litre to 1.5 litres per acre, or an average of 1.25 litres. This is consistent
with the plaintiffs’ evidence (Exhibit P-1) that Monsanto recommends
application of a “Roundup herbicide burndown in no-till.” Thus, taking this into
account, the rate of application of 1 litre per acre proposed by Monsanto
understates the actual requirement for this product. I find that the actual
amount of ROUNDUP® herbicide applied by the defendant to the
infringing crop was 2.25 litres per acre. On this basis, the cost of the
ROUNDUP® herbicide was $14.06 per acre, for a total cost of
$13,317.19 in relation to the infringing crop.
Hystick
inoculant
[87]
Mr.
Rivett testified that Hystick inoculant is applied to soil to help soybean
crops nodulate, and that soybean seed is planted at a rate of 70 to 80 pounds
per acre. Exhibit D-8 includes a number of invoices for Hystick, indicating a
retail price of $16.10 per 400 gram pouch of this product. Mr. Rivett, on
cross-examination agreed that a 400 gram pouch is sufficient to inoculate five
50 pound bags of seed or 250 pounds of seed. In light of Mr. Rivett’s
testimony, I accept that an average of 75 pounds of seed is required to seed
each acre. Therefore, 71,025 pounds of seed was required to plant 947 acres of
soybeans. At a price of $16.10 to inoculate 250 pounds of seed, $4,574.01 or
$4.83 per acre was expended on Hystick for the infringing crop.
Seaweed
[88]
Exhibit
D-10 includes an invoice for a fertilizer product called Seaweed. Mr. Rivett
used this product on both his conventional and ROUNDUP READY®
soybean crops, as well as his corn crop. On cross-examination, he testified
that one $135.00 jug of Seaweed would be sufficient to treat 30 acres of
soybeans. On this basis, the expense incurred to treat the infringing crop
with Seaweed would amount to $4.50 per acre, or $4,261.50 for the 947 acres.
Carbon
[89]
Mr.
Rivett testified that he uses carbon to soften the clay fields and that he
applies carbon to all of his fields, including those devoted to crops other
than soybeans. Exhibit D-10 includes an invoice of $2,585.00 for 47 carbon
jugs. If this product was applied at an even rate to all 3516 acres under
cultivation, the per acre expense was $0.74. This amounts to a total
expenditure of $700.78 for carbon in relation to the infringing crop.
Labour Costs
[90]
The
defendant submits that as Justice MacKay did in Schmeiser, the Court
ought to reduce gross revenues by a reasonable amount to reflect an allowance
for his labour. This aspect of Justice MacKay’s Judgment was approved by the
Federal Court of Appeal. Be that as it may, I am not prepared to provide any
offset to take into account the defendant’s own labour. The facts here are
quite distinguishable from those in Schmeiser.
[91]
There
were two defendants in Schmeiser - Percy Schmeiser and Schmeiser
Enterprises Ltd. The only party subject to disgorgement of its profits was the
corporate entity. At paragraphs 85 to 87 of the decision of the Federal Court
of Appeal it is noted that Mr. Schmeiser, rather than paying himself a salary
from the corporation, took dividends as a tax saving device. The Court
observed that “but for those irrelevant tax considerations, Mr. Schmeiser would
have caused his corporation to pay him a salary rather than dividends [which]
would have reduced the corporation's profit and, proportionally, the
corporation's profits attributable to the 1998 canola crop.” In those special
circumstances, the Court of Appeal held that the trial judge had not erred in
reducing the award to reflect Mr. Schmieser’s labour.
[92]
There
is only one defendant here – the personal defendant. Whether he pays himself a
salary or takes the whole of the yearly profits of the farming operation at
year end, the result is the same – the entire amount is his profit. To
permit a deduction for his labour in these circumstances would be to permit him
to keep, rather than disgorge, some of the profits made because of the
infringement. That is neither equitable nor just.
Crop
insurance
[93]
Monsanto
admits that on the basis of Exhibit D-11 Mr. Rivett is entitled to deduct from
his revenues his expenditures on crop insurance in relation to the infringing
crop at a rate of $13.61 per acre, and I agree. That amounts to a total
expenditure of $12,888.67.
c. Profits to be
Disgorged
[94]
I
now turn to the application of the differential profit approach to the evidence
in order to determine the profits to be disgorged.
[95]
First,
we ask whether there is a casual connection between the profits made and the
infringement. The defendant here admits to having applied glyphosate herbicide
to the ROUNDUP READY® soybean crop. Thus, unlike Schmeiser,
this defendant took advantage of the invention and made profits as a
consequence.
[96]
Having
found the required causal connection between the profits made and the
invention, we calculate the Gross Profits of Infringement. Based on the
analysis above this is calculated as follows:
|
Gross Revenue
|
|
$233,311.73
|
|
Expenses
|
|
|
|
Fertilizer
|
$15,379.83
|
|
|
Rent
|
$44,795.62
|
|
|
Fuel
|
$7,916.92
|
|
|
Herbicide
|
$13,317.19
|
|
|
Hystick
|
$4,574.01
|
|
|
Seaweed
|
$4,261.50
|
|
|
Carbon
|
$700.78
|
|
|
Crop Insurance
|
$12,888.67
|
$103,834.52
|
|
Gross Profits of
Infringement
|
$129,477.21
|
[97]
We
must next ask whether there was a non-infringing option that Mr. Rivett could
have used. As previously discussed, cultivation of conventional soybeans is
the next best non-infringing option.
[98]
As
there is a non-infringing option, we must then ascertain what profit Mr. Rivett
would have made had he used it. This amount I earlier described as the Gross
Profits of Non-Infringement. In this case the defendant offered no evidence of
the profits he would have made if he had used the non-infringing option,
presumably as he urged the Court to apply his modified version of Teledyne.
However, the plaintiffs did offer such evidence.
[99]
Mr.
McGuire, when testifying as to the value of the invention from the farmer’s
viewpoint, introduced a chart prepared by Monsanto that was printed from its
website (Exhibit P-1). That chart shows the increased profit Monsanto asserts
that a farmer can realize using ROUNDUP READY® soybeans over
conventional seed. It shows the expected profit return using conventional
soybeans, bagged ROUNDUP READY® soybeans, and bulk ROUNDUP READY®
soybean. The greatest profit differential is realized if the farmer uses bulk
ROUNDUP READY® soybeans. We have no evidence whether Mr. Rivett
would have used bulk or bagged seed, and accordingly it is fair that the
calculation be based on bulk seed as it generates the greatest profit
differential.
[100] The comparison
in the Monsanto chart at Exhibit P-1 between bulk ROUNDUP READY®
soybean and conventional soybean is as follows:
|
|
ROUNDUP
READY® Bulk
|
Conventional
Bin Run
|
|
Yield (bu)
|
39.0
|
32.9
|
|
Price per bushel
|
$ 8.75
|
$ 8.75
|
|
Total Revenue
|
$341.25
|
$287.88
|
|
Seed
|
$51.32
|
$18.46
|
|
Weed
Control
1st
application
2nd
application
|
$14.69
$ 9.79
|
$14.69
$37.23
|
|
Total
Seed and Weed Control
|
$75.79
|
$70.38
|
|
Return
toward profit/other $265.46
|
$217.50
|
[101] In this case
the profit differential was even greater than shown in Exhibit P-1 because Mr.
Rivett did not pay for the ROUNDUP READY® soybean seed that he
planted. He inherited it from his father and thus received it at no cost.
When the cost of seed is removed from the chart for the ROUNDUP READY®
soybeans, the return toward profit/other for bulk ROUNDUP READY® is
increased to $316.78. Therefore, for every $1.00 of profit that would be
generated using bulk ROUNDUP READY® soybeans, the farmer would have
generated only $0.69 using conventional beans. Thus, 69% of every dollar of
profit generated using ROUNDUP READY® soybeans would have been
generated had the farmer used conventional beans.
[102] Mr. Rivett’s
Gross Profits of Infringement has been found to be $129,477.21. His Gross
Profits of Non-Infringement, had he used conventional beans, would have been
$89,339.27. The difference between these two amounts, $40,137.94, is the
profit directly attributable to and that results from the infringement of the
patent. Accordingly, Mr. Rivett will be ordered to disgorge $40,137.94 to the
plaintiffs.
d. Prejudgment
and Post-Judgment Interest
[103] The Federal
Court of Appeal in Reading & Bates observed that the general rule in
an accounting of profits is that there is an award of compound prejudgment
interest.
… compound
prejudgment interest as deemed earnings on the profits is the rule, subject to
a Court's discretion to mitigate it or to award only simple interest in
appropriate circumstances. The good faith of the infringer is certainly a
criterion that a judge can take into account in the exercise of his discretion.
Other factors could include the highly debatable validity of the patent claim
or the fact that compounding the interest may reach beyond equity into the
realm of punishment.
[104] In this case,
I see no factors that would mitigate an award of compound prejudgment
interest. The defendant knew that the seed he was planting was patented and
knew that he needed a license to grow it. He is not someone who, in good
faith, nonetheless infringed the patent. Accordingly, the defendant is
required to pay prejudgment interest on the profits to be disgorged from the
date on which he made those profits to the date hereof.
[105] The evidence
in the record is that the defendant sold the yield from the ROUNDUP READY®
soybean seed he planted in stages from late 2004 to mid 2005. The
evidence appears to indicate that he had received some of the proceeds by way
of a loan, payable when the crop was sold. However, it is not possible to
calculate a date for the commencement of prejudgment interest with any degree
of precision. The plaintiffs propose that it commence on April 28, 2005, which
was the date of one of the sales, approximately at the mid-point of the sale
cycle. The defendant made no submission on prejudgment interest and, in the
circumstances, the date proposed by the plaintiffs is accepted as reasonable.
[106]
Section 36 of the Federal Courts Act
provides that the laws of the province respecting prejudgment interest apply to
any action that arose in that province. All the infringing activities of Mr.
Rivett occurred in Ontario and thus prejudgment interest is fixed by reference
to Ontario law. The plaintiffs
proved that under Ontario law,
prejudgment interest on the profits award should begin to accrue from the date
the defendant obtained the revenue from his infringing activities at the rate
of 2.8 percent compounded on a semi-annual basis from April 28, 2005, to the
date of judgment.
[107]
Section 37 of the Federal Courts Act
provides that interest on judgments is also fixed by reference to the law of
the province where the cause of action arose. The plaintiffs provided evidence
that the rate of interest in Ontario on judgments issuing in the first quarter of 2009, such as this
Judgment, is set at 4.0 percent.
e. Costs
[108] The parties jointly requested that the Court defer making any award
of costs until the other issues raised in this action had been determined.
They both wished an opportunity to file written submissions. I will
therefore allow the plaintiffs two weeks to prepare a submission on costs not
to exceed 10 pages in length. The defendant shall have a further 10 days to
respond with a submission not to exceed 10 pages in length. The plaintiffs
shall then have 3 days to reply with a submission not to exceed 5 pages in
length.
Summary and Conclusion
[109]
I
have found that the total amount of profits to be disgorged by the defendant
and paid to the plaintiffs is $40,137.94. The plaintiffs are entitled to
prejudgment interest at the rate of 2.8 percent
compounded on a semi-annual basis from April 28, 2005, to the date hereof and
are entitled to post-judgment interest from the date hereof until payment at
the rate of 4.0 per cent. The matter of costs is reserved
pending the receipt of further submissions from the parties.
[110] The Court is aware that the quantum of the disgorgement may not be
seen by the plaintiffs to carry with it the severe deterrent effect they had
hoped; however, the choice of remedy was the plaintiffs’.
[111] In accordance
with Rule 394 of the Federal Courts Rules, counsel for the plaintiffs is
directed to prepare a draft judgment, to be supplemented later, if necessary
with additional terms to be settled, and to circulate the draft to counsel for
the defendant for comment, within 30 days of the filing of these Reasons. If
the terms so proposed are not agreed upon by the defendant, the Court would
consider written submissions or will hear counsel by teleconference, on the
terms of Judgment.
“Russel W. Zinn”
Email this Content