Date:
20061108
Docket:
T-432-05
Citation:
2006 FC 1343
[ENGLISH TRANSLATION]
BETWEEN:
IPL
INC.
Plaintiff/
Defendant by
Counterclaim
and
HOFMANN
PLASTICS CANADA INC.
Defendant/
Plaintiff by
Counterclaim
REASONS FOR ORDER
PROTHONOTARY
MORNEAU
[1]
This
is a motion by the plaintiff and defendant by counterclaim, Hofmann Plastics
Canada Inc. (hereinafter Hofmann Plastics), under Rule 107 of the Federal
Courts Rules (the Rules), essentially for the Court to order the severance
of the proceeding so that the issue of the infringement and validity of the ‘225
patent be decided first, and the issue of Hofmann Plastics’ potential profits be
decided in a separate proceeding if the Court finds that the patent is valid
and that it was infringed.
[2]
The
relevant part of Rule 107 reads as follows:
|
107. (1) The Court may, at
any time, order the trial of an issue or that issues in a proceeding be
determined separately.
|
107. (1) La Cour peut, à tout
moment, ordonner que les questions en litige dans une instance soient jugées
séparément.
|
Background
[3]
As
the Court indicated in a recent interlocutory decision in this case (see 2006 FC
1085), this case involves an action by the plaintiff and defendant by
counterclaim (hereinafter IPL) for the infringement of patent ‘225 and, in turn,
a counterclaim by Hofmann Plastics for the invalidity of this patent.
[4]
It
appears that patent ‘225 is for a cover and a container equipped with a
particular system where a small part of the container breaks and detaches to
facilitate the opening of the cover, which enables the user to easily see that
the cover was opened and that the content may have been tampered with.
[5]
It
also appears that it is possible to see, at least at this stage, that the patent
at issue includes the following essential elements, namely a combination:
a.
of
the cover,
b.
of
the container,
c.
of
the mechanism that holds the cover on the container,
d. of the mechanism allowing
to visually verify whether the container was opened and whether the content is
intact.
[6]
Early
in the debate, and therefore before affidavits of documents were filed and
examinations on discovery were held, IPL chose to pursue the profits that Hofmann
Plastics could reap.
Analysis
[7]
In
a motion such as this one, the test to apply is the one formulated by the Court
in Illva Saronno S.p.A v. Privilegiata Fabbrica Maraschino Exclesior
(F.C.T.D.), [1999] 1 F.C. 146, (hereinafter Saronno) at page 154,
paragraph 14, where the Court established that:
Accordingly, on
the basis of previous authority and in light of the changes introduced by the
1998 Rules, I would formulate the test to be applied under rule 107 as follows.
On a motion under rule 107, the Court may order the postponement
of discovery and the determination of remedial issues until after discovery and
trial of the question of liability, if the Court is satisfied on the balance
of probabilities that in the light of the evidence and all the
circumstances of the case (including the nature of the claim, the conduct of
the litigation, the issues and the remedies sought), severance is more
likely than not to result in the just, expeditious and least expensive
determination of the proceeding on its merits.
[8]
For
the reasons that follow, I have decided that Hofmann Plastics did not discharge
its duty to establish on a balance of probabilities that the opportunity to
save time and money and arrive at a just determination of the proceeding on its
merits is such that it warrants a derogation from the general principle to the
effect that all issues raised in a proceeding should be considered together.
[9]
Hofmann
Plastics is essentially arguing two major points in favour of its motion.
[10]
First,
it argues that an assessment of the validity of patent ‘225 easily supports a finding
at this stage that the patent is invalid because it is pre-empted by some five
(5) American patents. Accordingly, it is appropriate to sever the proceeding
since the accounting of profits stage will never be reached, given that Hofmann
Plastics will prevail at the liability stage, when the patent ‘225 is declared
invalid.
[11]
Second,
Hofmann Plastics submits that there are issues with determining profits that
militate in favour of severing the proceeding.
[12]
With
respect to patent ‘225’s alleged invalidity, I cannot find that Hofmann
Plastics established on a balance of probabilities that the Court can make this
finding at this stage for this motion under Rule 107.
[13]
In
fact, IPL’s cross-examination of engineer James D. Sykes’ testimony in support
of the invalidity allegation put forward by Hofmann Plastics tends to show, as
argued in IPL’s written submissions, that ultimately there are certain
differences between patent ‘225 and the comparative American patents in terms
of the dynamics of the functioning of the cover, of the container, and of the
mechanism that holds the cover on the container.
[14]
At
this stage, it is difficult for the Court to find in favour of either party’s position
in this case. However, without the experts’ enlightened debate on this point, I
cannot find that Hofmann Plastics has discharged its burden of proof in support
of its invalidity argument.
[15]
For
the purposes of this finding, I do not consider that PRL’s counsel, in assessing
the validity of the patent at issue, should have, in her cross-examination of Mr.
Sykes, followed the notice and prevention approach established in Browne
v. Dunn (1893), 6 L.R. 67 (H.L), referred to by the Supreme Court in R.
v. Lyttle [2004] 1 S.C.R. 193, at pages 212–13.
[16]
IPL,
with regard to Mr. Sykes, was not seeking to contradict a specific narrative or
factual description. IPL sought simply to establish, in the context of a motion,
that the situation of validity is perhaps not as certain as it is in Hofmann
Plastic’s view.
[17]
In
the context of this motion, I also do not consider that IPL had to attempt to
counter Mr. Sykes’ opinion by filing its own expert evidence from a person
skilled in the art. A motion under Rule 107 is not a trial on the merits or
even a motion for summary judgment.
[18]
With
respect to the accounting for profits and complexity of establishing them in
this case, Hofmann Plastics and IPL each submitted affidavits on this point. In
the case of Hofmann Plastics, this was the testimony of its vice president, namely
Paul Kalia. In the case of IPL, it was the testimony of a chartered accountant,
namely André Giroux.
[19]
As
stated in the past (see 2006 FC 1085 at paragraphs [6] to [9]):
[6] … In the first seven paragraphs of his
affidavit, Mr. Kalia attempts to establish that Hofmann manufactures a wide
range of products, including, but not limited to, the alleged infringing
products. According to Mr. Kalia’s allegations, it is extremely difficult, if
not impossible, to isolate the various production parameters and the costs
specifically associated with the alleged infringing products.
[7] In paragraph 8 of his affidavit, Mr.
Kalia concludes:
In view of what I set out above, for at least the
following types of expenses it would be extremely difficult or impossible to
separate out the costs that were specifically associated with tamper-evident
pails and containers, and even more difficult to separate out the costs
associated with a specific line of tamper-evident pails and containers: …
[8] It appears that the overall purpose of
this affidavit is to establish that it will be impossible or very difficult to
adduce evidence of the profits specifically associated with the infringing
products.
[9] On August 15, 2006, Mr. Kalia was
cross-examined on his affidavit.
[20]
At
the end of this examination, Mr. Kalia’s version held up.
[21]
However,
to counter this version, IPL filed Mr. Giroux’s affidavit.
[22]
Mr.
Giroux appears to have been a chartered accountant for more than thirty years
and has some experience in assessing manufacturing businesses’ property and
stocks.
[23]
Mr.
Giroux, after reviewing Paul Kalia’s affidavit, concluded at paragraph 20 of his
affidavit that he:
[translation]
20. … disagrees with Paul
Kalia’s conclusion at paragraph 8 of his affidavit to the effect that it is
extremely difficult if not impossible to separate out the costs associated with
manufacturing “tamper-evident” containers or specifically associated with
various types of “tamper-evident” containers.
[24]
In
arriving at this conclusion, Mr. Giroux states the following at paragraphs 12 and
13 of his affidavit:
[translation]
12.
On
reading Paul Kalia’s affidavit and in light of Alain Y. Dussault’s explanations,
I conclude that the employees’ salaries, storage costs, rent, cost of machinery
and repairs of that machinery, and office expenses are not directly
attributable to the manufacturing and marketing of “tamper-evident” containers.
I therefore understand that that they would never be considered by the court as
admissible deductions in accounting for profits.
13.
In
the event that the costs described in paragraph 8 of the affidavit were
qualified as direct costs by the court, I would be able to estimate these costs
without difficulty and allocate them by “tamper-evident” container type.
[25]
I
must say that I agree with Mr. Giroux’s allegations for the purposes of this
motion. His cross-examination on October 10, 2006, does not subtract from the
force of these allegations. The fact that Mr. Giroux takes into account principles
and evidence that were disclosed to him by IPL’s counsel and the fact that he
has not done an accounting for profits in the past are not, in my opinion,
issues that affect the weight given to his testimony at this stage, under the
circumstances.
[26]
I
therefore also do not consider that Hofmann Plastics has discharged its burden
on this issue regarding the complexity of establishing profits.
[27]
Therefore,
Hofmann Plastics’ motion under Rule 107 will be dismissed, with costs in the
cause.
[28]
With
respect to the schedule established in my order dated June 14, 2006, the parties
will agree on this matter and send me a new schedule, in the form of a draft
order, within fifteen (15) days of the order issued with these reasons.
“Richard Morneau”
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