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Federal Court
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Cour fédérale
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Date: 20090528
Docket: T-436-05
Citation: 2009 FC 555
Ottawa, Ontario, May 28,
2009
PRESENT: The Honourable Mr. Justice Mandamin
BETWEEN:
VARCO CANADA LIMITED,
VARCO, L.P.,
WILDCAT SERVICES, L.P.,
and WILDCAT SERVICES CANADA, ULC
Plaintiffs
and
PASON SYSTEMS CORP.
and PASON SYSTEMS INC.
Defendants
REASONS FOR ORDER AND ORDER
[1]
The
Defendants (Pason) appeal the March 9, 2009 Order of Prothonotary Milczynski that
allowed the Plaintiffs (Varco) to amend their Statement of Claim to claim
patent infringement arising from the manufacture and export of the purported
infringing device, the Pason AutoDriller, to foreign countries including the
United States, Mexico, Argentina and Australia and to claim related damages or accounting
for lost profits.
BACKGROUND
[2]
The
Plaintiffs are the current and past owner and licensee, respectively, of the
Canadian Letters Patent 2,094,313 (the 313 Patent) which concerns an automatic
drilling system. The Defendants manufacture a device known as the Pason
AutoDriller.
[3]
Oilfield
drilling is accomplished by a drilling rig that powers and lowers a drill bit
in drilling operations. The drill bit is rotated by a drilling pipe. As the drill
bores further into the strata being penetrated, the pipe length is reached and another
section of pipe is added so drilling can continue. As more lengths of drilling
pipe are added, the weight of this drill string increases and it becomes
necessary to counteract the increased weight to maintain an effective drilling
pressure. Other considerations, such as drill bit weight, the angle of
drilling, drilling fluid pressure, drill string torque, and drill string rotation
also affect the drilling rate. The 313 Patent relates to an automatic drilling
system that is used to control a drill string in response to various sensor
signals to achieve an optimal rate of drill bit penetration.
[4]
Varco
commenced this action in 2005. The initial Statement of Claim claimed that
Pason infringed the 313 Patent in several ways by “making, using, selling,
offering for sale, renting and offering for rent in Canada” an
automatic drilling system known as the Pason AutoDriller. The Plaintiffs
claimed relief in respect of all sales and rentals of the AutoDriller in Canada.
[5]
During
the discovery phase of these proceedings, Varco learned that all Pason
AutoDrillers are manufactured in Canada and Pason exports the
Pason AutoDriller to foreign countries for sale or rental. Because of this
new information, Varco brought its motion to amend the Statement of Claim to
plead that Pason has infringed the 313 Patent by making the AutoDriller in
Canada and exporting it to foreign countries. Varco also sought to claim
damages or an accounting of profits relating to foreign sales and rentals of
the Pason AutoDriller made in Canada.
[6]
After
hearing the Varco application, Prothonotary Milczynski issued the March 9, 2009
Order allowing Varco to amend the Statement of Claim. Pason now appeals the
Prothonotary’s Order to this Court.
DECISION UNDER APPEAL
[7]
After
reviewing the Parties’ motion materials and oral submissions, the Prothonotary,
found that absent any prejudice to the opposing party, the Court should only
deny amendments where it is “plain and obvious” that the claim discloses no reasonable
cause of action.
[8]
The
Prothonotary considered the proposed amendments and stated:
I am not satisfied that it is plain and
obvious that the proposed amendments are not proper or do not disclose a
reasonable cause of action. Consistent with the rules of pleading, the
proposed amendments clarify and relate to the allegations of infringing
activity, namely, the manufacture of the Pason AutoDriller in Canada, and consequently, the
damages flowing from its export from Canada.
There is also no evidence of prejudice arising to the Defendants by allowing
the amendment that is not compensable in costs.
[9]
On
March 9, 2009, Prothonotary Milczynski issued an Order granting leave to the
Plaintiffs to serve and file an Amended Statement of Claim. The specific amendments
in question are:
1.
The
Plaintiffs claim:
(a) declaration that Canadian
Letters Patent 2,094,313 (the 313 Patent) and claims 1, 2, 9. 11, and 14
thereof are valid and have been infringed by the Defendants;
(b) and interim, interlocutory
and permanent injunction restraining the Defendants, … from directly or
indirectly:
…
(iii) making, using,
manufacturing, importing, exporting, distributing, offering for sale,
selling, offering for rent or renting the Defendants’ Pason AutoDriller system
in Canada, and inducing and procuring others to make, use, offer for sale, sell
offer for rent or rent the Defendants’ Pason AutoDriller system in Canada;
(d) damages or, alternatively,
an accounting of profits made by the Defendants in Canada and other
countries, including, but not limited to, the United States, Mexico, Argentina
and Australia, as the Plaintiffs may elect;
…
14.
Pason
Systems Inc. and Pason Systems Corp. are, individually and collectively, also
exporting the Pason AutoDriller, manufactured by the Defendants in Canada, to
countries outside of Canada, including, but not limited to, the United States,
Mexico, Argentina and Australia, for sale, rental and use in such other
countries.
…
31.
After
the grant of the 313 Patent on August 24, 1999, the Defendants also exported
the Pason AutoDriller, manufactured by the Defendants in Canada, to countries
outside of Canada, including, but not limited to, the United States, Mexico,
Argentina and Australia, for sale, rental and use in such other countries, in
infringement of claims 1, 2, 9, 11, and 14 of the 313 Patent.
…
35.
By reason
of such infringement, the Plaintiffs have suffered and continue to suffer
irreparable harm and damage and the Defendants have made profits, including
but not limited to, profits made on sales of the Pason AutoDriller in Canada,
the United
States,
Mexico, Argentina and Australia. The Plaintiffs claim all
damage sustained by them or, in the alternative, all profits made by the Defendants,
as the Plaintiffs may elect, by virtue of the Defendants’ aforesaid wrongful
acts.
(underlining
indicates amendment)
ISSUES
[10]
Pason
submits that the Prothonotary erred in finding that as a matter of law that a
patent infringement in Canada arises on activities outside of Canada and that a
related United States court judgment exhausts Varco’s claim for remedies for infringement
in the United
States.
[11]
The
issues as formulated by Pason can be stated as “is it plain and obvious that
the claim discloses no reasonable cause of action” and the “case is beyond
doubt” that:
i.
the
activities completed in foreign jurisdictions cannot, at law, infringe a
Canadian Patent; similarly the remedies sought are not traceable to any
infringement in Canada;
ii. the claims
for remedies based on activities in the United States are an abuse
of process as they re-claim that which Varco has already been awarded in a
related U.S. action.
STANDARD OF REVIEW
[12]
In
R. v. Aqua-Gem Investments Ltd., [1993] F.C.J. No. 103 (F.C.A.), Justice
MacQuigan set out the test that:
Discretionary orders of prothonotaries
ought not be disturbed on appeal to a judge unless:
(a)
they are
clearly wrong, in the sense that the exercise of discretion by the prothonotary
was based on a wrong principle or upon a misapprehension of the facts, or
(b) where they
raise questions vital to the final issue of the case.
[13]
In
Merck & Co. v. Apotex Inc., 2003 FCA 488, Justice Décary, at para.
19, restated the test to be applied in considering appeals of prothonotary
decisions:
… I think it is appropriate to slightly reformulate the
test for the standard of review. I will use the occasion to reverse the
sequence of the propositions as originally set out, for the practical reason
that a judge should logically determine first whether the questions are vital
to the final issue: it is only when they are not that the judge effectively
needs to engage in the process of determining whether the orders are clearly
wrong. The test would now read:
Discretionary orders of prothonotaries ought not be
disturbed on appeal to a judge unless:
a) the questions raised in the motion are vital to the
final issue of the case, or
b) the orders are clearly wrong, in the sense that the
exercise of discretion by the prothonotary was based upon a wrong principle or
upon a misapprehension of the facts.
[14]
The
Parties agree that the questions raised are not vital to the final issue in
this case. As such, I should only interfere with the March 9, 2009 Order if
Pason can establish that Prothonotary Milczynski was wrong in law or
misapprehended the facts in granting Varco leave to amend the Statement of
Claim.
ANALYSIS
[15]
Pason
raises no issue with Varco’s pleadings in its initial Statement of Claim,
namely that Pason manufactures the Pason AutoDriller and, when connected and
installed on drilling rigs in Canada, forms a system that infringes the 313
Patent. Rather, Pason denies the infringement in its Statement of Defence.
[16]
Pason
submits it ships separately packaged AutoDriller components out of Canada. The
exported components are never assembled in Canada to form a
system. Assembly of the components to make an automatic drilling system occurs
on drilling rigs outside of Canada.
[17]
Pason
relies on the decision of Justice Thurlow in Dole Refrigerating Products
Ltd. v. Canadian Ice Machine Co. and Americo Contact Plate Freezers Inc.,
[1957] C.C.S. No. 888, 28 CPR 32 (Ex. Ct.) at 36 where he stated:
… the exclusive rights conferred by a
Canadian patent are limited territorially to Canada and are further limited by s. 46 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.
[18]
Pason
also refers to the Federal Court of Appeal decision in Beloit Canada Ltd. v.
Valmet-Dominion Inc., [1997] F.C.J. No. 486, 73 C.P.R. (3d) 321,(FCA) (Beloit
Canada 1997) at para. 34:
A person who, beyond Canada, makes, constructs, uses, or
sells the invention commits no breach of the Canadian patent. Therefore, the
construction of a combination patent abroad is not infringement, and cannot
consequently trigger a domestic contributory infringement.
The focus of this inquiry must,
therefore, be on whether the domestic actions of the respondents constitute an
infringement. Did the respondents make, construct, use, or vend the patented
invention in Canada by manufacturing and selling
component parts of the patented press section?
[19]
Varco
refers to jurisprudence that allows a patent holder to seek relief for infringement
of a Canadian Patent when an infringing product is made in Canada and exported
for sale or use in other countries. In AlliedSignal Inc. v. Du Pont Canada. Inc.,[1993] F.C.J.
No. 866, at para. 43, Justice Reed stated:
… In the present case there is only one
“part” and that is film and it is sold to manufacturers of SMC for only one
purpose, to be used in making SMC. It is manufactured by Du Pont to fit the
particular machine each customer uses. It is shipped to customers in the exact
form in which it in which it is used by them. It is
manufactured for no other purpose than to be used in each customer's machine. In the circumstances, I
have trouble understanding how the sale of the film to SMC producers in the United States could be for any other purpose
than to cause or induce a breach of the patent.
Subsequently, in a hearing to determine
damages, Deputy Justice Heald held that a patentee is entitled to compensation
for all damages arising from infringement within Canada including
profits lost on sales outside of Canada. AlliedSignal Inc.
v. Du Pont Canada. Inc., [1998] F.C.J. No. 190,
at para.33.
[20]
Varco
also relies on Beloit Canada 1997 at p. 337, where the Federal Court of
Appeal approved the reasoning of Justice Urie in Windsurfing International
Inc. et al v. Trilantic Corporation, [1985] F.C.J.
No. 1147, at
265 that suggesting a patent infringement suit can be successfully avoided by
selling parts as components of a kit in contrast to an assemblage was
nonsense. The Federal Court of Appeal stated:
This is, in our view, the correct
approach to take with regards to the making and selling of all components of a
patented invention. Where the elements of an invention are sold in a
substantially unified and combined form for the purpose of later assembly,
infringement may not be avoided by separation of division of parts which leases
the purchaser a simple task of integration and assembly.
[21]
The
Prothonotary was alive to the question of whether the infringing activity was
properly related to the manufacture of the Pason AutoDriller in Canada and
whether damages would flow from the export of the device from Canada.
[22]
The
point in citing the above differing cases presented by Pason and Varco is to
illustrate that facts must first be determined and the differing jurisprudence
considered before the issues of infringement and damages raised by the amended Statement
of Claim can be decided. These are matters best left to the trial judge. Certainly,
at this stage, it is not plain and obvious that the amendments disclose no
reasonable cause of action.
[23]
Pason
also submits that it is an abuse of process for Varco to claim damages or
profits since Varco had already sued and secured a judgment against Pason
Systems USA Corp. for making, using, selling and offering for sale, or inducing
others to make, use, sell or offer for sale the Pason AutoDriller in the United
States.
[24]
The
amended claim for damages or an accounting of profits from foreign sales does
not overlap with damages awarded to Varco in the United States. The claim
in the United States was against Pason Systems USA Corp.; the Canadian claim in
this action, is against Pason Systems Corp. and Pason Systems Inc. Moreover,
Pason has not provided evidence that goes beyond demonstrating that a judgment,
as opposed to a final and complete settlement, was issued in the United
States.
Regardless, if a question arises as to whether there is overlap that is a
question of fact that must be resolved by the trial judge.
[25]
The
general rule is that for amendments to pleadings “an amendment should be
allowed at any stage for an action for the purpose of determining the real
question in controversy between the parties, provided, notably, that the
allowance would not result in an injustice to the other party not capable of
being compensated by an award of costs and it would serve the interests of
justice.” Canderel Ltd. V. Canada, [1993] F.C.J. No. 777, (FCA), Camoplast
Inc. v. Soucy International Inc., 2003 FCA 211, at paras. 14 – 17.
[26]
The
test to amend a pleading must be applied consistently with the test to strike a
pleading. Amendments will be denied, and pleadings will be struck only when it
is plain and obvious that the claim discloses no reasonable cause of action. In
Enoch Band of Stony Plain Indians v. Canada [1993] F.C.J. No. 1254, the Federal
Court of Appeal made in very clear that the Court should only “deny amendments
in plain and obvious cases” where the matter is “beyond doubt”.
[27]
The
Prothonotary did not decide on a wrong principle or upon a misapprehension of
the facts. I find that the Prothonotary did not err in granting leave for the
amendments to the Statement of Claim.
[28]
The
Defendants appeal of the Prothonotary’s Order of March 9, 2006 is dismissed.
ORDER
THIS COURT ORDERS that
1. The Defendants’
motion is dismissed.
2. The Defendants
must file their amended Statement of Defence within 30 days from the date of
this Order.
“Leonard S. Mandamin”__
Judge
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