Date:
20121017
Docket: A-61-12
Citation: 2012 FCA 261
CORAM: NADON
J.A.
DAWSON J.A.
STRATAS
J.A.
BETWEEN:
CORLAC INC., NATIONAL-OILWELL
CANADA LTD. and
NATIONAL OILWELL INCORPORATED
Appellants
and
WEATHERFORD CANADA LTD.
WEATHERFORD CANADA PARTNERSHIP,
DARIN GRENKE, as Personal
Representative of the Estate of EDWARD GRENKE,
and GRENCO INDUSTRIES LTD.
Respondents
REASONS FOR JUDGMENT
DAWSON J.A.
[1]
This
is an appeal from a judgment of the Federal Court, reported as 2012 FC 76,
(redetermination reasons). The Federal Court was required to re-determine
whether the defendants in a patent infringement action, the appellants in this
Court, had infringed claim 17 of Canadian Patent No. 2,095,937 (Patent). On the
redetermination a judge of the Federal Court (Judge) held that the appellants could
not argue that their instruction manuals did not teach the method claimed in
claim 17 of the Patent. In the Judge’s view, this was “an effort to argue a
point found against [them] and not overturned on appeal. That point is res
judicata” (redetermination reasons, paragraph 6).
[2]
A
single issue is raised on this appeal: did the Judge correctly define the scope
of the matter remitted to him by this Court, or, put another way, did he err by
relying upon the doctrine of res judicata?
[3]
For
the reasons that follow, I have concluded that the Judge erred. I would
therefore remit the issue of infringement of claim 17 to the Judge, as more
particularly described later in these reasons.
Factual
Background
[4]
The
appellants manufacture and assemble equipment used in oil production. One
product manufactured by the appellants is an Enviro stuffing box which is used
to protect against leakage and loss of oil at the surface of a producing oil
well. The respondents own the Patent in issue.
[5]
The
respondents sued the appellants, alleging that the Enviro stuffing box
infringed the Patent. For reasons reported as 2010 FC 602, 84 C.P.R. (4th) 237
(trial reasons), the Judge issued a declaration that the Patent was valid and
was infringed by the appellants jointly and severally.
[6]
The
judgment of the Federal Court was appealed to this Court. On the appeal, for
reasons cited as 2011 FCA 228, 95 C.P.R. (4th) 101 (appeal reasons), this Court
allowed the appeal in respect of the Judge’s finding that claim 17 of the
Patent had been infringed by the appellants. In all other respects the appeal
was dismissed.
[7]
Claim
17 is a method claim, directed to a specific manner of operating the patented
stuffing box. Of relevance to this appeal are subparagraphs (c) and (d) of
claim 17. In material part, claim 17 provides:
Claim
17
A method for restraining
oil leakage in a pump for oil wells […] said method comprising the steps:
[…]
a. injecting a lubricant
through the leak passage of the furthest upstream seal cartridge and then
plugging that leak passage, while leaving open the leak passage of a seal
cartridge downstream of the furthest upstream cartridge,
b. monitoring the
left-open leak passage for leaking oil, and
[emphasis added]
[8]
It
is common ground that, on the facts of this case, the appellants did not
directly infringe claim 17. Therefore, as a matter of law, the appellants could
only be found to have infringed claim 17 if they were found to have
induced others to breach claim 17.
[9]
On
the appeal, this Court wrote that there are three elements to the test for
inducing patent infringement:
1.
The
act of infringement must have been 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 must
know that this influence will result in the completion of the act of
infringement.
(Appeal
reasons, paragraph 162.)
[10]
The
only evidence adduced at trial from which it could be inferred that the
appellants influenced others to directly infringe claim 17 is the content of an
instruction manual distributed by the appellants with their Enviro stuffing
boxes. As this Court noted in the appeal reasons, at paragraph 164, a central
issue at trial was whether the instruction manual instructed the practice of
the method of claim 17.
[11]
This
Court’s analysis of the issues surrounding claim 17 of the Patent is found at
paragraphs 157-171 of the appeal reasons. At paragraph 171, Madam Justice
Layden-Stevenson, writing for the Court, concluded her analysis in the following
terms:
I agree
with the appellants that, in view of the test for inducement, the judge’s
reasons do not provide for meaningful appellate review. Consequently, given the
judge’s intimate familiarity with the record, I would return the issue of
infringement of claim 17, that is inducement, to the judge to be
determined in accordance with the established test.
[emphasis added]
[12]
The
Court’s judgment stated:
The appeal from the
judgment of the Federal Court with respect to infringement of Claim 17 of
Canadian Patent No. 2,095,937 is allowed and the question of infringement of
Claim 17 is returned to the Federal Court for redetermination. In all other
respects, the appeal is dismissed. The respondents shall have 80% of their
costs.
The
redetermination decision of the Federal Court
[13]
The
Judge began by noting that this Court upheld the trial decision except as it
related to claim 17 (redetermination reasons, paragraph 3). The Judge
interpreted the decision of this Court as upholding his finding that the
appellants’ instruction manual taught the practice of the method described in
claim 17 (redetermination reasons, paragraph 5). In his view, the appeal
decision meant that the issue was res judicata (redetermination reasons,
paragraph 6). In the words of the Judge:
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.
[14]
The
Judge went on to state that this Court remitted the task of considering the
facts needed to support a conclusion that third parties used the method of
claim 17 and did so because they were induced by the appellants
(redetermination reasons, paragraph 8).
[15]
After
setting out the test for inducement as framed by this Court, the Judge reasoned
as follows:
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 nits, 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)
I have quoted the Judge’s reasons
at some length because at the time of writing these reasons the redetermination
reasons have not been distributed by the Federal Court.
Applicable legal
principles
[16]
Two
fundamental legal principles underlie this appeal. The first is the principle
of finality of litigation, as embodied in the doctrines of issue estoppel,
cause of action estoppel and functus officio. The second is the
principle of stare decisis.
[17]
After
the Judge rendered judgment following the trial, he was functus officio
and the issues and causes of action decided by the Judge were res judicata.
This continued until the judgment of this Court which set aside certain
findings made by the Judge and required him to redetermine the matter remitted
to him.
[18]
The
principle of stare decisis requires lower courts to follow the law as
interpreted by a higher coordinate court. In Canada (Commissioner of
Competition) v. Superior Propane Inc., 2003 FCA 53, [2003] 3 F.C. 529, at
paragraph 54, this Court confirmed the perhaps obvious point that this
principle applies equally to tribunals which must follow the directions given
by a reviewing court. On a redetermination, the duty of a tribunal, or a lower court,
is to follow the directions of the reviewing court.
[19]
In
the present case, without doubt, the Judge endeavoured to follow the direction
of this Court. He looked to the reasons given in support of this Court’s
judgment in order to ascertain the reach of the matter remitted to him.
[20]
In
my view, the Judge was correct to look to the reasons of this Court in order to
determine the scope of the matter remitted to him. In Superior Propane,
in order to determine whether in a redetermination decision the Competition
Tribunal failed to follow the directions of this Court, this Court looked,
among other things, to the relevant findings of the Competition Tribunal in its
original decision and what this Court had found to be in error in the Tribunal’s
original decision. This Court reviewed both the original reasons given by the
Competition Tribunal and the reasons given by this Court in support of its
judgment to determine the scope of the redetermination.
[21]
In
the present case, the Judge was required to determine the scope of the matter
remitted to him for redetermination. This required the Judge to consider both
the reasons given in support of the trial judgment and the reasons of this
Court on appeal.
Standard of
review
[22]
The
Judge’s conclusion that res judicata applied to the finding that the
instruction manual taught claim 17 of the Patent is a question of law, subject
to review on the standard of correctness. The Judge’s related determination of
the scope of this Court’s remission is equally a question of law, subject to
review on the correctness standard.
What this Court
directed the Federal Court to do
[23]
For
ease of reference, I repeat paragraph 171 of the appeal reasons:
I agree
with the appellants that, in view of the test for inducement, the judge’s
reasons do not provide for meaningful appellate review. Consequently, given the
judge’s intimate familiarity with the record, I would return the issue of
infringement of claim 17, that is inducement, to the judge to be
determined in accordance with the established test.
[emphasis added]
[24]
In
this paragraph the issue of inducement is remitted to the Federal Court.
[25]
At
paragraph 162 of the appeal reasons, Madam Justice Layden-Stevenson framed the
test for inducement in the following terms:
[…] First, the act of infringement must have been completed by
the direct infringer. Second, 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. Third, 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 infringement: Dableh v. Ontario Hydro, [1996] 3 F.C. 751, paras. 42, 43
(C.A.), leave to appeal refused, [1996] S.C.C.A. No. 441; AB
Hassle v. Canada (Minister of National Health and Welfare), 2002 FCA 421, 22 C.P.R. (4th) 1,
para. 17 (C.A.), leave to appeal refused, [2002] S.C.C.A. No. 531; MacLennan v. Les Produits Gilbert Inc., 2008 FCA 35, 67
C.P.R. (4th) 161, para. 13.
[26]
Integral
to the issue of inducement is the requirement that the alleged inducer
influence the direct infringer. On the facts of the present case, this required
the Federal Court to determine whether the instruction manual instructs the
practice of the method set out in claim 17.
[27]
The
Judge concluded that this issue was not remitted to him because he had
previously found that the appellants’ instruction manual instructed the
practice of the method in claim 17 and this finding “was not disturbed on
appeal” (redetermination reasons, at paragraph 5).
[28]
In
my respectful view, in so finding the Judge incorrectly construed the scope of
the issue remitted to him. I reach this conclusion for the following reasons.
[29]
First,
in paragraph 171 of the appeal reasons, this Court stated that the issue of
inducement was remitted to the Federal Court. No qualification or limitation
was placed upon the remission of the issue of inducement. A finding of
inducement required determination of whether the instruction manual directed
the method set out in claim 17.
[30]
Second,
the reasons of this Court for setting aside the Judge’s finding of infringement
of claim 17 constituted a rejection of the Federal Court’s decision on this point.
At paragraph 168 of the appeal reasons, Madam Justice Layden-Stevenson wrote “[i]n
view of the stringent test for inducement, I cannot determine whether the
judge, had he explicitly applied the test, would have arrived at a conclusion
that the appellants indirectly infringed claim 17 of the [...] Patent.” At
paragraph 169, she noted that there seemed to be “significant gaps in the
evidentiary basis needed to support what appears to be an implicit finding of
third party use.” At paragraph 170, she expressed concern that “I am not
satisfied that the judge seized the substance of the critical issue in respect
of inducement. His conclusion appears to be derived from his earlier finding of
direct infringement.” Finally, at paragraph 171, she wrote “in view of the test
for inducement, the judge’s reasons do not provide for meaningful appellate
review.”
[31]
This
Court thus impugned both the legal and factual components of the decision
regarding claim 17 and remitted the entire issue of inducement to the Federal
Court. In this circumstance it was incorrect to state that any finding of fact
relevant only to the issue of inducement was undisturbed.
[32]
The
respondents place reliance upon two portions of the appeal reasons to argue
that the Judge correctly interpreted the scope of the matter remitted to him:
paragraphs 164 and 169.
[33]
At
paragraph 164, Madam Justice Layden-Stevenson wrote:
The issue
of adverse inference arose during the respondents’ closing submissions at
trial. The respondents conceded there was “no evidence that any operator
actually practised a method that would infringe claim 17”: appeal book, vol. 19,
tab 295, p. 5917. Since the appellants had not called anyone to testify with
respect to the use of their instruction manual, the respondents suggested the inference
should be drawn that the evidence would have been that people follow the
instructions and operate their machines in accordance with the way it is set
out in the manual: appeal book, vol. 18, tab 291, transcript p. 73; vol. 19,
tab 295, p. 5917. The respondents further referred to “the expert evidence of
the [appellants] who say that people would normally follow directions as to
lubrication and how to operate a machine”, as well as the evidence of the
respondents’ expert Skoczylas that the instructions “are a functional
equivalent of claim 17”: appeal book, vol. 18, tab 291, transcript p. 93; vol.
19, tab 295, p. 5918. It is not clear on what basis the expert purported to
make the first statement. I should also note that, while not conceding use, the
appellants did not appear to contest that customers would follow their
instructions. The debate centered on whether the instruction manual
instructs the practice of the method (of claim 17). The judge determined that
it did.
[emphasis added]
[34]
The
respondents argue that the last sentence of this paragraph shows that this
Court accepted and did not disturb the Judge’s finding concerning what the
instruction manual directs. I disagree for the following reasons.
[35]
First,
during oral argument counsel for the respondents could not point to such a
finding in the trial reasons. At paragraph 179 of the trial reasons the Judge
wrote:
The
Plaintiffs’ expert Skoczylas concluded that the Defendants’ devices have the
same sealing assembly described in Claims 1, 6, 9, 11, 14-16 (although the
retrofit units do not include a drive means as per Claims 15 and 16) and the
manuals for the devices teach the practice in Claim 17.
[36]
However,
nowhere in the reasons does the Judge accept the evidence of Mr. Skoczylas on
this point. At best, such a finding is implicit in the Judge’s finding of
infringement.
[37]
Second,
nowhere in her reasons does Madam Justice Layden-Stevenson endorse or comment
on the Judge’s finding. It was unnecessary for her to do so because the Judge’s
finding of infringement was to be set aside and the entire issue of inducement
was to be returned.
[38]
Turning
to the second portion of the appeal reasons relied upon by the respondents, at
paragraph 169, Madam Justice Layden-Stevenson set out certain examples of gaps
in the evidentiary record. The respondents argue that none of the examples
related to whether the appellants influenced third parties to practice the
method taught by claim 17. This is said to show the limited scope of the matter
remitted to the Judge.
[39]
Madam
Justice Layden-Stevenson wrote at paragraph 169:
There seem
to be significant gaps in the evidentiary basis needed to support what appears
to be an implicit finding of third party use. For example, although the
instruction manual may have been directed to oil well operators, were they the
customers? Who is the end-user? Was the instruction manual provided to the
end-user? Was the instruction manual provided in the normal course of the appellants’
business? While I do not suggest that the judge was obliged to answer these
specific questions (perhaps the record did not permit him to do so), I raise
them to illustrate a factual matrix that would support the judge’s inferences.
There is an important distinction between inference and conjecture. The
dividing line between the two is often a very difficult one to draw. “A
conjecture may be plausible but it is of no legal value, for its essence is
that it is a mere guess. An inference in the legal sense, on the other hand, is
a deduction from the evidence, and if it is a reasonable deduction it may have
the validity of legal proof”: Jones v. Great Western
Railway Co. (1930), 47 T.L.R. 39, p. 45, 144 L.T.
194 (H.L.).
[40]
In
my view, this paragraph does not assist the respondents because it was
expressly limited to gaps in the evidence relevant to the Judge’s implicit
finding of third-party use. At paragraph 161, Madam Justice
Layden-Stevenson summarized the Judge’s analysis of inducement:
With
respect, the appellants could not infringe claim 17 in the absence of a finding
of inducement. The judge determined that the appellants infringed claim 17 and
only then turned to the question of inducement. The analysis of inducement
in his reasons comprises the following points: there was no evidence from any
customers; it is only common sense that sales were made to customers: reasons,
para. 205. He had earlier noted that there was no evidence of use by customers
but they are more likely than not to follow the instructions in the manuals.
[emphasis added]
[41]
Missing
from the Judge’s analysis was any analysis of the need for the appellants to
have influenced third parties to infringe claim 17. Madam Justice
Layden-Stevenson’s comments at paragraph 169 were directed to a different
deficiency in the analysis, the evidentiary gap relevant to the issue of
third-party use.
Remedy
[42]
For
the above reasons, I have found that the Judge erred when he defined the scope
of the matter remitted to him. It follows that I would set aside the
redetermination decision.
[43]
In
this circumstance the appellants ask that, for reasons of judicial economy,
this Court find that the instruction manual does not teach end users to use an
infringing method and to then find that claim 17 of the Patent was not
infringed by inducement by the appellants.
[44]
Specifically,
the appellants state that this Court, in the appeal reasons, found that all of
the elements of claim 17 were regarded and treated as essential. Based on that
construction, the appellants argue that the essential elements of claim 17
require the leak passages to be left open during operation in accordance with
elements (c) and (d) of claim 17. In their submission, the instruction manual teaches
end users to close the leak detention ports during operation.
[45]
The
respondents argue that if the appeal is allowed, the matter should be remitted
to the Judge because of his familiarity with the evidentiary record.
[46]
In
my view, the issue of whether the instruction manual directs end users to use
an infringing method is more nuanced than the appellants suggest. The instruction
manual states that after the sampling valve has been lubricated “the valve can
be closed”. At trial, the respondents’ (plaintiffs’) expert testified that “a
person of ordinary skill reading this [instruction manual] would know that you
don’t actually leave it open, except when you are coming to monitor it […]
because you don’t want oil leaking out” (Appeal Book, Volume 2, Tab 36, page 437).
The Judge is better situated than this Court to address what the manual teaches
and how an ordinarily skilled person would interpret the instruction manual as
it relates to keeping the valves opened or closed. This is in large part a
question of fact.
[47]
In
the result, I would remit the following issue to the Judge: does the
appellants’ instruction manual, properly understood, instruct the practice of
the method of claim 17? Once this issue is determined, on the basis of the
Judge’s findings at the prior redetermination hearing (which have not been challenged
on this appeal), the Judge will decide whether the appellants have infringed
claim 17.
Conclusion
[48]
For
these reasons, I would allow the appeal with costs and set aside the judgment
of the Federal Court. I would return the issue of infringement of claim 17 to
the Judge for redetermination. On redetermination the Judge is to determine
whether the appellants’ instruction manual, properly understood, instructs the
practice of the method of claim 17.
“Eleanor
R. Dawson”
“I
agree.
M.
Nadon J.A.”
“I
agree.
David
Stratas J.A.”
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