Date: 20090626
Docket: T-1577-07
Citation: 2009
FC 668
Ottawa, Ontario, June 26, 2009
PRESENT: The Honourable Mr. Justice Lemieux
BETWEEN:
AIR CANADA
Plaintiff/
Defendant by Counterclaim
and
AIS INFONETICS INC.
Defendant/
Plaintiff by Counterclaim
REASONS FOR ORDER AND ORDER
Introduction and Background
[1]
By motion
dated December 18, 2008, AIS Infonetics Inc. (AIS) requests an interlocutory
order of this Court enjoining Air Canada to tender in this Court, for AIS’ sole
benefit, several million dollars as security for damages, which the
Federal Court may award AIS in a lawsuit, initiated on August 28, 2007
by Air Canada (AC), seeking declarations of invalidity and non-infringement in
respect of Canadian Patent 2,035,767 (the '767 patent) entitled “Automatic
Ticket Dispensing System”, owned by AIS.
[2]
This
motion focuses on the '767 patent in relation to AC’s self-service check-in
system, operationalized through check-in self-service kiosks (the
kiosks), which first made their appearance at Canadian airports in 1998 and has
seen exponential growth since then.
[3]
The
essential purpose of the self-service check-in kiosks is to automate the
services which Air Canada Customer Service Agents (the agents) still provide to
Air Canada ticket holders (E. tickets included) when checking-in at the airport.
Those services are: 1) the issuance of a boarding pass; 2) change in same day
flight departure; 3) baggage registration; 4) seat selection or modification;
and, 5) payment, if any, of service fees associated with the above services.
[4]
Air Canada
ticket holders may use two types of kiosks at an airport in Canada to obtain an
AC boarding pass: 1) AC dedicated kiosks which only serve Air Canada ticket
holders (the AC kiosks) and, 2) Common-Use Self-Service (CUSS) kiosks operated
by airport authorities which allow a number of airlines, including Air Canada,
to offer their check-in facilities on the same self service kiosk (the CUSS
kiosk).
[5]
As noted,
AIS is the owner of the '767 patent. The inventor of the patent is Douglas Huegel.
He is the President and sole shareholder of AIS. He is the '767 patent’s
inventor. The '767 patent was filed on February 6, 1991, issued in
1995 and will expire on February 6, 2011. Neither AIS nor Mr. Huegel
has commercialized the invention claimed in the '767 patent.
[6]
The '767
patent has two independent claims: Claim 1 related to hardware and claim 14
dealing with software. The other claims, in the '767 patent, are dependent
claims on either claim 1 or 14. Claim 1 states the embodiment of the invention
is “a self-serving terminal for selecting and dispensing tickets, to a
user, for anyone of a plurality of events, on the basis of a plurality of
parameters, each parameter having a plurality of elements, each event being
held in any one of a plurality of locations, a plurality of location processors
equal to the plurality of locations, each location processor being associated
with a respective one of said locations”. Claim 1 goes on to say each self-serving
terminal comprises a central processor, with an associated video display
device having a display screen, a memory to store data on the plurality of
events and a plurality of locations, programmed to permit a user to select one
or more tickets for anyone of said events to be held at a pre-determined time
at anyone of the locations and programmed to receive payment for the selected
tickets and further programmed to dispense the selected tickets.
[7]
Claim 14
is essentially written in the same language as claim 1, but speaks to “a method
of selecting and dispensing tickets to a user at anyone of a plurality of
stations for anyone of a plurality of events ….”.
[8]
The
dispute between Air Canada and AIS originated with a June 16, 2007
letter, from AIS’ lawyers to Air Canada’s General Counsel, claiming AC’s
self-service check-in system, operated by the AC or CUSS kiosks, violated the '767
patent. AIS offered to negotiate a licence with appropriate royalties. On June
22,
2007,
Air Canada’s counsel
responded by stating Air Canada was investigating the matter but indicating,
that at first glance, the kiosks used by Air Canada “do not seem
to fall within the scope of the claims described in your client’s patent”.
[9]
Air
Canada then contacted
outside a patent counsel, who advised AIS’ lawyers they had been retained to
examine the infringement issue and would respond by mid-August. Air Canada’s patent
counsel then asked for another month’s delay which was refused. AIS’ lawyers
set the deadline for AC’s response at the end of August 2007.
[10]
On
August 28, 2007, Air Canada provided its answer with the filing of its
statement of claim in this Court seeking:
1. a declaration, under section
60 of the Patent Act, the AC and CUSS kiosks do not infringe the '767
patent;
2.
a
declaration that the use of those kiosks do not infringe the '767 patent;
3.
a
declaration that the '767 patent is invalid; and,
4.
an order
expunging the '767 patent from the Canadian Patent Office records.
[11]
In
essence, Air Canada alleges the '767 patent is directed to a system for
selecting and dispensing tickets for events (i.e. a sports event, a concert, a
play, a showing at a museum) where events are held at different locations (i.e.
sports arenas, theatres, museums, etc.).
[12]
AC says its
AC or the CUSS kiosks, accessing directly to the AC reservation system, allow a
traveller, who has already made a reservation and purchased a ticket for a
specific flight, to obtain automated check-in services. The kiosks do not
dispense AC tickets nor are they equipped to receive payment for such tickets.
They enable the AC traveller to obtain a boarding pass and associated services
for a reserved flight which has been paid for.
[13]
On
September 25, 2007,
AIS replied and counterclaimed by alleging the '767 patent is valid and has
been infringed by AC.
[14]
After the
pleadings were closed, a protective order was put into place. On April 30,
2008, Prothonotary Morneau issued a bifurcation order pursuant to Rule 107 of
the Rules at AC’s request but opposed by AIS. As a result, the question
of damages or accounting for profits, if infringement is made out, is to be
determined after the liability issues are finally decided.
[15]
At the
hearing of this motion, the Court was informed discoveries have been held and
the undertakings largely satisfied. A pre-trial conference will be requested
shortly.
The Motion
[16]
AIS’
motion seeks security for damages payable to it by Air Canada in the event its
counterclaim is successful, namely, in the event Air Canada has violated the '767
patent and damages or an accounting for profits have been assessed against the
airline. AIS’ motion was supported by Mr. Huegel’s affidavit which was sworn
after he had been examined in discovery. He was cross-examined on his affidavit
and on consent extracts of his discovery were also filed.
[17]
Specifically,
AIS stated its motion is for:
1. Interlocutory Injunction
enjoining plaintiff/defendant by Counterclaim Air Canada to:
1.1.
prepare,
serve and file, within thirty (30) days of the Order to intervene on this
Motion, a statement of the number of transactions it has processed through the
use of the self-service kiosks it has identified as the AC/CUSS kiosks in its
Statement of Claim, from January 1, 2005 until the date of the Order to
intervene on this Motion.
1.2.
tender
with this Court for the sole benefit of the defendant/plaintiff by Counterclaim
AIS Infonetics Inc. a sum of thirty cents ($0.30) per transaction for the
period covered in 1.1 above.
1.3.
prepare,
serve and file a statement of the number of transactions it processes through
the use of the self-service kiosks it has identified as the AC/CUSS kiosks in
its Statement of Claim, every three months following the date of the Order to
intervene on the present Motion and tender with this Court, on the date of
filing of the statement, for the sole benefit of defendant/plaintiff by
Counterclaim AIS Infonetics Inc., the sum of thirty cent ($0.30) per
transaction until the expiry of Canadian Letters Patent 2,035,767.
2. Declaration to the effect
that:
2.1.
the money
tendered in accordance with the Order to intervene on this Motion shall be held
exclusively for the benefit of defendant/plaintiff by Counterclaim AIS
Infonetics Inc. in order to warrant the payment of any monetary award it may be
granted on the merits of this case and may not be removed by the plaintiff/defendant
by Counterclaim Air Canada without an Order of this Court.
3. Relief in the case of a
default on the part of Air Canada in respect to the Orders
above as follows:
3.1
in the
event Air Canada defaults on its obligations set out in conclusion 1 above, it
shall immediately disable its self-service kiosks until such time as it has
complied with its obligations under the Order to intervene, the whole under
reserve of the usual rights and recourses associated with a default in respect
of an Order of this Court.
4. Order granting costs on
the present Motion in case of contestation.
[18]
Air Canada’s motion was supported by a
number of affidavits but principally by those of:
a) Pierre House, Air Canada’s Treasurer; b) Patrice
Ouellette, Director, Customer Service Platform for Air Canada; and, c) Charles Plamondon,
a consultant retained by Air Canada, who provided an opinion of
non-infringement of the AC and CUSS kiosks in relation to the '767 patent.
[19]
Only
Patrice Ouellette was cross-examined but not in his affidavit; instead, on
consent, the transcript of Patrice Ouellette’s discovery was filed.
[20]
The
central issues, which emerged from the arguments, were:
1)
What is
the proper test to determine serious issue, in the context of a request a party
be compelled to deposit into Court security for damages, in the current factual
context the parties find themselves in the litigation, where liability against
Air Canada has not been determined and if found liable for infringement of the '767
patent, where damages or an accounting for profits has not been assessed?
Counsel for AIS argues the proper test is set out in the Supreme Court of
Canada’s decision in RJR-MacDonald
Inc. v. Canada (Attorney General),
[1994] 1 S.C.R. 311, namely an arguable case, one which is not frivolous or
vexatious. Counsel for Air Canada argues the test for serious question is
higher than that – AIS must show a strong prima facie case of
infringement by Air Canada of its '767
patent. In any event, counsel for Air Canada argues AIS has not even met the lower
threshold.
2)
The second main issue,
which separates the parties, is irreparable harm. AIS argues Air Canada’s
current and projected financial situation in the near term is such AIS has a
reasonable basis for asserting it will not be able to collect damages from Air
Canada down the road. Air Canada’s counsel answers by stating Air Canada is meeting its current obligations and its financial health
is not in peril. In any event, it would be contrary to the law for AIS to seek
a preference of its possible position vis à vis other creditors.
The
evidence
1)
On behalf of AIS
The
affidavit of Douglas Huegel
[21]
Mr.
Huegel’s affidavit was sworn on December 15, 2008. He is the President and sole
shareholder of AIS which owns the '767 patent. He was educated in the United
States obtaining a Doctorate in Science Education in 1975 from Columbia University, taught physics
and mathematics in East Africa, in the United States and at Dalhousie University until around 1980 when he
left teaching to go into business.
[22]
He states
by the time he filed the '767 patent application in February 1991, he had
accumulated ten years of solid experience in the computer science and
electronic fields including creating tourist information kiosks placed in
hotels, a computerized game to be used by tourists discovering the Montreal
subway system and the design of mixed media broadband information systems for
convention centers, amongst others.
[23]
He
confirms AIS has not commercialized the inventions disclosed in the '767 patent
and AIS has no commercial activity to speak of. He earns his livelihood as a
consultant for companies who require advice on research and development tax
credit claims filed with Revenue Canada.
He asserts in the mid-nineties it was more difficult technologically than it is
today to implement the inventions disclosed in the '767 patent. He notes the
increase in computer power and improvements in the infrastructure supporting
the Internet.
[24]
His
affidavit then speaks to Air Canada’s activities which he says
“are fairly recent and I had cause to suspect they were occurring some time in
2005”. He appends as Exhibit DH2 to his affidavit a very short extract from
page 63 of Business Week, July 4, 2005, about Jet Blue’s self-service
check-in kiosks “designed to make it easy, fast and almost enjoyable to check
into Jet Blue”. He says after seeing the Business Week article, he started
paying more attention at airports throughout his travels which led him to
discover IATA (International Air Transport Association) had developed the CUSS
kiosks. He appends IATA material as an Exhibit to his affidavit. He then
asserts, based on the material he consulted concerning the AC kiosk and AC’s
statement of claim in these proceedings, “the basic platform for the Air Canada
kiosk is based on the CUSS platform”.
[25]
Mr. Huegel
next sets out the information he gathered from public sources in 2005, 2006 and
2007 to determine to what extent AC’s kiosks were exactly like the CUSS kiosk
and, in particular, the advantages of airline self check-in kiosks especially when
associated with an online ticketing system.
[26]
He describes
the costs savings generated through the kiosk self check-in system as contrasted
with the cost associated with a check-in with the assistance of a Customer
Service Agent: $0.16 for the kiosk versus $3.50 - $3.70 via an agent
leading to per kiosk check-in savings of between $2.50 US or $3.00 CAD
at then current exchange rates.
[27]
After
describing the Federal Court proceedings, his affidavit discusses “the Air
Canada kiosk and the Patent”. He refers to Mr. Ouellette’s examination for
discovery and undertakings which is confidential at this point in time. He
asserts:
“I can however affirm that Air Canada’s
use of the kiosks that are complained of in these proceedings and the
potential for Air Canada have increased and will
increase over the next couple of years. Just one example of how this statement
is supported is found in an article published on the website of International
Business Machines (IBM) on June 18, 2008. Now shown to me and marked as
Exhibit DH-12 to this my affidavit is said article of June 18, 2008 entitled
“Air Canada is an early arrival in
providing the next generation of self-service salutations” (the IBM article).
[28]
He says
Mr. Ouellette agreed with the contents of the IBM article and adds:
33. The article describes the
technology platform as a “thin client” solution. This thin client solution is
combined with standardized backend technology. This simply means that most of
the computing is not done in the actual kiosks themselves but in a larger
computer, which has been my understanding all along.
34. Air Canada is said to have an
industry-leading, self-service infrastructure to fundamentally change its
business model and is said to have become the first airline to offer its
services on an “à la carte” basis. It also refers to the capacity of Air Canada to lead the airlines
industry’s next big trend, deploying off-site kiosks in hotels, car
rental agencies and other travel sites.
35. The article even suggests
that this new strategy, central to which is the use of the kiosks that we claim
infringe upon the '767 patent, actually allowed the company to emerge from its
previous bankruptcy proceedings in 2003. Air Canada is said to have broken from standard
industry practice of bundling services and offering them on an “à la carte” basis
and that to do so, they had to make a dramatic enhancement and expansion of its
self-service capabilities. The article clearly states that kiosks play an
important role in this plan.
[29]
Mr. Huegel
quotes from the IBM article to provide the technical details of Air Canada’s self-service kiosks
check-in.
[30]
Mr. Huegel
has a chapter in his affidavit headed: “Air Canada is profiting from the patented technology”.
Premised on Air Canada’s kiosks being an
infringement of the '767 patent, he states the savings which AC will derive
from the infringement are $3.00 per transaction. He says AIS lacks bargaining
power unless the Order sought in the motion is granted. He concludes the point
by stating:
40.
As appears
from the Statement of Defence that was filed by AIS, the grounds of
non-infringement alleged by Air Canada
have been carefully responded to. While I am not an expert in patent law, I
do have the necessary experience and scientific knowledge to comfortably assert
that much of this case and will boil down to interpreting a couple of key terms
used in the claims in the patent.
41.
This
article cited above shows that the key functionalities of the kiosk set
out in the claims are definitely present in the Air Canada kiosks or easy to implement. The IATA documents further
allow us to ascertain the basic structure of the kiosks. As such, I am
convinced that AIS has more than a reasonable chance of success in this case.
In addition, Air Canada has not taken any Motion to strike any portion of the
Statement of Defence and cross-claim for patent infringement of AIS, nor
has it taken any proceedings to dismiss all or part of the conclusions by
summary judgment or otherwise. [My emphasis.]
[31]
The last
subject matter Mr. Huegel deals in his affidavit is entitled: “Ability to pay
and the levelling of the playing field.” He makes a number of points:
·
The
AC/CUSS check-in kiosks are high volume producers – approximately 138,634
check-in kiosk transactions per typical business week representing 42% of
eligible passengers, 7.2 million transactions a year and savings of $21 million
per year and it has been over two years that Air Canada started using the
kiosks. At a royalty of 10% of AC “profit” this would result in an award of $8
million if the '767 patent’s expiry date is taken into account.
·
Information
which he received “from several sources” has convinced him “Air Canada would not have the capacity
to pay the damages to which AIS would be entitled in the event AIS wins this
case”. His basis for saying this are: (1) AC’s 2003 recourse to creditor
protection under the CCAA; (2) if there was recourse to proceedings under the Bankruptcy
Act, there would be a stay of AIS’ infringement counterclaim; (3) his
examination of AIC 2008 Q-3 results as compared to its 2007-Q-3 results which
shows its financial situation has worsened; (4) various reports sourced from
the Bloomberg news website; (5) AC’s own press releases which show AC
recognizes it has a liquidity problem; and (6) ACE Holdings move towards dissolution
after distributing its AC shares.
2) On behalf of AC
(a) Affidavit of Pierre Houle
[32]
As noted, Mr.
Houle is AC’s Treasurer. He is responsible to ensure AC maintains
sufficient liquidity to meet its financial obligations. He is responsible for
AC’s financing and banking transactions as well as AC’s relationship with
rating agencies. He challenges, as being ill-founded, Mr. Huegel’s assertion
that in the light of its current financial situation “Air Canada would not have
the capacity to pay the damages to which AIS would be entitled in the event AIS
wins this case”.
[33]
Mr. Houle
provided the following reasons to dispute Mr. Huegel’s allegation:
1) The difference in AC’s
operating income from 2007 third quarter compared to 2008 third quarter, was
caused by record high fuel prices in 2008 – a 49% increase compared to 2007
Q-3. This fuel increase was unexpected and rapid which did not allow AC to
adapt to the new cost environment immediately, for example, by adjusting its
liquidity on such short notice.
2) For 2008 Q-3, AC had a solid
revenue growth of $121 million dollars.
3) AC has completed financing
transactions to increase its short term and longer term liquidity. These
financing transactions consisted of: (a) an agreement on December 1, 2008
with Aeroplan for accelerated payment terms on the issuance of rewards ticket;
this agreement is similar to those entered by certain U.S. airlines with banks
who manage their frequent flyer programs; (b) on December 22, 2008, a $95
million secured loan agreement with two large European banks; (c) on December
24, 2008, a series of secured financings with GE Capital valued at
approximately $238 million; and, (d) on December 31, 2008, the entry of
a secured revolving credit facility with the CIBC of up to $100 million in
revolving credit.
4) Mr. Houle concluded on this
improved liquidity as follows: “The above transactions have improved AC’s short
term and longer term liquidity and there is no basis by which to conclude that
AC would not be in a position to meet its ongoing financial obligations.”
5) He appended to his affidavit
three reports from analysts at UBS, Merrill Lynch (ML) and Canaccord Capital
(Canaccord) commenting favourably on AC liquidity boost showing “it is adequate
to weather the economic downturn in the near-term” (UBS); “not only do these
transactions improve the carrier’s liquidity position, but they also highlight
the financial flexibility that Air Canada has despite the turmoil in the
financial market” (ML) and “we now have a strong belief that Air Canada’s
liquidity concerns have been dealt with leaving the airline in good shape to
get through as a profitable airline assuming WTI (fuel oil) remains at these
low levels” (Canaccord).
6) He noted (as at January 29,
2009) substantial declines in the trading price of crude oil (from $145.29 to $41.58).
7) He opined ACE’s wind-up
plan in terms of share transfers “will have no impact whatsoever on AC’s actual
and future liquidity, nor on its capacity to meet its financial obligations”.
8) He stated he was “unaware of
any material supplier having changed its usual payment terms with AC, based on
the belief that AC will not have the capacity to make payments at term”.
(b) Affidavit of Patrice Ouellette
[34]
As noted,
Mr. Ouellette is Director, Customer Service Platform since April 2006. In that
capacity, he is familiar with AC check-in services at airports including AC
self-service check-in kiosks at Canadian airports. The thrust of his affidavit
deals with reservations and ticket purchase.
[35]
At
paragraph 6 of his affidavit, he described the steps to board an AC flight in
the following terms:
“To be allowed to travel as a
passenger on an AC flight, a person must go through different steps which can
be categorized as follows:
·
Making a
travel reservation, purchasing a ticket and having said ticket issued;
·
Checking-in
for the flight;
·
Going
through the required security screening process; and
·
Submitting
a boarding pass at the boarding gate prior to boarding the aircraft.”
[My emphasis.]
[36]
He
describes how a passenger makes a reservation, by providing information as to
identity, place of departure, place of destination, type of ticket class and
scheduled departure date upon which a booking reference is assigned to
that reservation, which is stored digitally in the AC reservation system. He
states: “A reservation must have been made prior to check-in.” He then
describes the AC reservation system as one which has existed “in a centralized
computer form since the late 1960’s or early 1970’s storing digital information
on travel reservations which can be queried by customer service agents from a
computer terminal at the AC Call Center, at a check-in counter at an airport
that is linked to the AC reservation system, or by a self-service check-in
kiosk also linked to the AC reservation system”.
[37]
He then
describes the ticketing function stating a ticket is purchased generally at the
same time as the reservation is made; upon purchase the ticket is issued with
its number imputed in the AC reservation system. He writes: “A ticket, whether
in paper form or in electronic form, must always be purchased prior to
check-in.”
[38]
At
paragraph 14 of his affidavit, he describes check-in in these terms:
Passengers holding tickets and a
reservation for an AC flight are required to check-in prior to the departure of
their flight. The main purpose of check-in is to verify and confirm that a
passenger checking-in for a flight has a valid reservation and has paid for
that flight. This is done by verifying a passenger’s identity information
and comparing it with the associated travel information recorded in the AC
reservation system. If a passenger has not purchased a ticket prior to
checking-in, he/she is re-directed to an AC ticket counter to pay for the
travel and have a ticket issued. Likewise, if the passenger does not have a
reservation, he cannot use the ticket or check-in. [My emphasis.]
[39]
He then
deals with traditional check-in performed by airline personnel at check-in
counters where, the Agent using a computer linked to the AC reservation system
to determine if the reservation was made and the travel was paid for and, if
everything is in order, will issue a boarding pass to the passenger for his/her
flight. He states: “Reservations cannot be made and tickets cannot be purchased
at traditional check-in counters.”
[40]
At
paragraph 16 of his affidavit, Mr. Ouellette describes certain services offered
to passengers at traditional check-in counters including but not limited to:
·
Registering
baggage that is to go in the aircraft’s cargo hold;
·
Selecting
seats or requesting a seat assignment modification;
·
Requesting
an earlier departure;
·
Requesting
certain same-day changes, including:
o A later departure on the same
day (e.g. after missing a flight),
o A direct flight instead of a
connecting one,
o A change of connecting city,
o An upgrade in the class of
travel.
Same-day changes are for the
same day only. For example, the scheduled departure day cannot be changed at
check-in. The same goes for a change in destination, for example. Some
passengers (e.g. unaccompanied minors) can only use traditional check-in, and
certain services (e.g. a special meal or a wheelchair) must be requested prior
to checking-in.
[41]
He notes
that service fees may be associated with certain of the services available at
traditional check-in counters and these charges must be paid for by passengers
at check-in.
[42]
Mr.
Ouellette then addresses the self-service check-in kiosks which allows
“passengers to accomplish all or some of the check-in functions for their
flights by themselves” in order to accelerate the check-in process and reduce
waiting time at check-in counters. He says “self-service check-in kiosks
automate the routine functions of check-in traditionally performed by airline
personnel and essentially replace check-in agents”.
[43]
After
explaining what distinguishes the AC self-service check-in system from the CUSS
kiosks, he identifies the services which are available at AC/CUSS kiosks
stating the services available at traditional check-in are also available at
the AC/CUSS kiosks and are subject to the same limitations: (1) Prior
reservation must have been made and a ticket paid and issued before using the
check-in kiosks which cannot perform those two functions; (2) If a reservation
has been made and a ticket issued the passenger can use the check-in kiosks by
providing, for example, the booking reference which then enables the kiosk to
transmit the request for a boarding pass to the AC reservation system; and (3)
If all is in order, the AC reservation system transmits to the AC/CUSS kiosk
the flight information associated with the reservation including a preliminary
seat assignment.
[44]
Mr.
Ouellette notes the AC/CUSS kiosk enables a passenger with a reservation and an
issued ticket to request an earlier departure because the kiosk is linked to
the AC reservation system. He also notes the kiosk determines whether there is
a fee associated with check-in services. The amount of the fee will be
displayed and can be paid for by charging it to the credit card used to
purchase the ticket or by using the magnetic swipe card reader of the AC/CUSS
kiosk. At the end of the check-in process, the kiosk prints and dispenses a
boarding pass to the passenger.
[45]
He
concluded his affidavit by identifying the following allegations in Mr. Huegel’s
affidavit sworn on December 15, 2008 to be inaccurate:
1) At paragraph 6, Mr. Huegel
stated: “The activities complained of in the crossclaim of AIS are “fairly
recent”… Mr. Ouellette counters that AC’s self-service check-in is not “fairly
recent”; the kiosks were deployed at Canada
airports beginning in 1998.”
2) It is inaccurate for Mr.
Huegel to state that Exhibit DH-12 (the IBM article) and the IATA documents
show the key functionalities of the kiosk “set out in the claims are definitely
present in the Air Canada kiosks or easy to implement” and that the IATA
documents “further allow use to ascertain the basic structure of the kiosks. As
such, I am convinced that AIS has more than a reasonable chance of success in
this case”. Mr. Ouellette replies:
“The documents referred to (the IBM
article and the CUSS kiosk specifications from IATA) do not contain a
sufficient description of the AC self-service check-in system to allow a
comparison with the claims of the patent.”
3) He says:
“Mr. Huegel alleges at paragraph 35 of
his Affidavit that “Air Canada is said to have broken from standard industry practice of
bundling services and offering them on an “à la carte” basis and that to do so,
they had to make a dramatic enhancement and expansion of its self-service
capabilities.”
and responds:
“The article clearly states that
kiosks play an important role in this plan.” AC does offer a wide variety
of fare types, each being associated with fewer or more travel options,
but these are selected at the time of ticket purchase and have nothing to do
with self-service check-in. It is simply a convenient way of selling travel to
customers by allowing them to view more easily the options and various fares
available and include or exclude certain options, depending on how much they
wish to pay for their ticket.”
[46]
His
overall conclusion headed “Previous reservation and ticket required” reads:
“AC/CUSS kiosks do not allow passengers
to make a reservation or to purchase a ticket, nor do they dispense tickets.
They pertain to the check-in process, not reservation or ticketing.”
(c) Affidavit of Charles Plamondon
[47]
Charles
Plamondon is a consultant and is currently Vice President – Development and
Systems Integration at SSQ, Société d’Assurance-Vie Inc., where he is
responsible for a team of 80 computer systems developers and 30 consultants. He
obtained a Bachelor’s degree in Computer Engineering from Laval University in 1987. He has been involved
in computer systems since 1986 and with ticketing systems since 1993. In
particular, from 1997 to 2000, he was Director of Technology Development at CONCEPT
ÉLECTRONIQUE MICROFLEX INC., which was acquired by TICKETMASTER, the world’s
leading live entertainment ticketing company. He worked for TICKETMASTER
from 2000 to 2007 and from 2003 to 2007 and was Senior Vice-President and
General Manager of the MICROFLEX Division, where he was responsible for the
operations of the Quebec Division, including software development and support
for its ticket distribution system for Quebec, Las Vegas and Scandinavian
markets.
[48]
His
mandate from AC’s solicitors in this proceeding was to:
·
Review
Canadian Patent number 2,035,767 (the “'767 patent”);
·
Review the
AC self-service check-in system which is the subject matter of this lawsuit;
and,
·
Determine
if any one of the claims of the '767 patent encompasses the AC self-service check-in
system. [My emphasis.]
[49]
At
paragraph 9 of his affidavit, he writes: “I consider myself qualified to read
and understand the '767 patent and to understand the functioning of the AC
self-service check-in system at issue.” and in the next paragraph sets out the
principles which he took into account to arrive at his conclusions on the two
independent claims; claims 1 and 14 being a self-service terminal (claim 1) and
a method (claim 14) for selecting and dispensing tickets for any one of a
plurality of events (such as a sports event, a concert, a play, etc.), to be
held in any one of a plurality of locations (sports arena, theatre, museum,
etc.).
[50]
At
paragraph 15 of his affidavit, he identifies the following problems associated
with prior ticket dispensing systems as explained in the '767 patent and the
solutions brought about by that patent:
|
PROBLEM
a)
Having to go to many locations to choose tickets for events held at different
locations.
b)
If tickets are distributed at many points of sale, where each point of sale is
given an allotment of tickets, tickets many not be available at a specific
point of sale while there may be tickets available at other points of sale.
c)
Limited hours of operation due to manned points of sale restricting access to
tickets.
d)
Floor plan not always available at all points of sale (a floor plan could be
available only at the venue for example).
|
|
SOLUTION
a)
Providing
a consolidated event list for all locations at many self-service terminals.
b)
Event
availability is provided instantaneously by the self-service terminal that
sends a seat availability request to the location processor when required in
the purchase sequence.
c)
Self-service
terminals are fully automated, allowing extended hours of operation.
d)
Each
kiosk can display a floor plan for any selected event.
|
[51]
He further
explains, at paragraphs 16 to 22, the functioning of the '767 patented
self-service terminal:
16.
The
self-service terminal of the '767 patent allows users to select, purchase and
obtain tickets at the self-service terminal, without having to go to the
location where the events are scheduled to be held.
17.
The
self-service terminal comprises a central processor which includes a memory in
which information is stored regarding the events scheduled to be held at the
remote locations.
18.
The
self-service terminal is linked, via a network modem and server, to “location
processors” associated with each location where an event is to be held and
where an inventory of seat disposition and availability is stored.
19.
Illustration
omitted.
20.
The user
of the self-service terminal selects one or more event(s) on the basis of a
plurality of options (called “parameters”, each having a plurality of
“elements”) presented at the terminal. Such options or “parameters” include the
location, the name of the event, the date and time of the event, seating, and
the number of tickets that the user wishes to purchase.
21.
Once the
user has selected an event (based on its location, its name, a date and time,
seating, and number of tickets desired), the self-service terminal’s central
processor communicates, via a network modem and server, with the remote
location processor where the selected event is scheduled to be held, in order
to obtain information as to the availability of the requested ticket(s).
22.
If the ticket(s)
to the selected event are available, the self-service terminal allows the
customer to purchase these ticket(s). The self-service terminal is equipped
with a currency acceptor and/or a credit card reader for allowing the customer
to make the purchase at the terminal. Once payment has been accepted, the
self-service terminal dispenses the ticket(s) to the user.
[52]
Mr.
Plamondon then analysed the two independent claims: Claim 1 for '767 patented
terminal – the hardware and Claim 14 – the terminal’s software. At paragraphs
25 to 29, he notes the use of the word ticket in claim 1, within the
context of the '767 patent, to mean the “reservation and proof of purchase that
gives a person a right of entry to attend an event, which means in the
context of the '767 patent a performance presented at a venue at a given
date according to certain parameters, which means the characteristics of
a given event such as locations, dates, times and of the tickets to that event
such as seats, prices, number of tickets with location being the place
where the event is performed. He understands central processor including
memory to signify in the '767 patent a “memory in which is stored a complete
listing of all of the events at all of the locations serviced by a self-service
terminal which memory means resides in the central processor”.
[53]
I need not
repeat Mr. Plamondon’s analysis of independent claim 14, the software which to
him is the method of selecting and dispensing tickets to a user. His analysis
is basically the same as claim 1.
[54]
He
incorporates, in his analysis, the description of the AC/CUSS self-service check-in
system as explained by Mr. Ouellette in his affidavit, adding such “description
is also consistent with my own examination of this system ….”. [My
emphasis.]
[55]
Mr.
Plamondon, starting at paragraph 35 of his affidavit, then compares claim 1
with the AC self-service check-in system. He states his comparison reveals
“five fundamental differences”:
1) The AC/CUSS self-service check-in
system does not allow the travellers to select, nor does it dispense tickets
for flights. It only issues boarding passes which, according to Mr. Ouellette,
is not a ticket where the terms and conditions of carriage are set out.
2) The self-service terminal does
not select and dispense tickets for any one of a plurality of events. Mr.
Plamondon notes he had already expressed previously in his affidavit that: “it
becomes very difficult to apply the language of the claims of this patent to
the transportation industry.” In his view: “the most logical approach might be
to define the “event” as the city of the flight’s destination.” He notes from Mr.
Ouellette’s affidavit (and his own assessment) the AC/CUSS kiosk does not
permit travellers to select one of a multiple of destinations. The AC/CUSS kiosk
only dispenses a boarding pass for a pre-selection destination.
3) The aircraft cannot be the
location where the event takes place. The aircraft is only a means of
transportation and not the location of the event. At paragraph 47, he points
out to other incongruities in adapting the language of the '767 patent with the
transportation industry.
4) The AC/CUSS self-service check-in
system does not receive payments for tickets for flights as contrasted to the
payment of service fees that may be charged for making same-day flight changes to
an already selected and paid-for ticket or for other applicable fees, such as
excess baggage.
5) The AC/CUSS self-service check-in
system does not contain memory means to store data concerning flights. That
information is stored in the AC reservation system.
[56]
Mr.
Plamondon’s conclusion regarding the potential infringement of the AC/CUSS
kiosks of claim 1 is expressed at paragraph 54 in these terms:
At the very least, the first four
differences between claim 1 and the AC self-service check-in system
identified above pertain to what I consider to be essential elements of
that claim. It is clear from my review and analysis of the patent, that
these features would have been considered by any skilled reader as being key to
the patentee’s invention. In addition, there is no indication whatsoever in the
patent that these requirements were considered not to be essential by the
patentee. [My emphasis.]
[57]
In terms
of independent claim 14, his analysis is analogous to the one he performed in respect
of claim 1. He comes to a similar conclusion on the five similar essential
differences he discovered between the AC/CUSS kiosks and claim 14.
[58]
His
overall conclusion is:
71. As a result, in my opinion, the
AC self-service check-in system is not at all within the scope of the '767
patent which is directed at a ticket selection and purchase, not flight
check-in or boarding pass issuance.
72. It is therefore hardly surprising
that the differences between the AC self-service check-in system and the claims
of the '767 patent are numerous and so fundamental. [My emphasis.]
Analysis
[59]
As noted,
two main issues arise in this proceeding: (1) What is the proper test to
determine whether a serious issue has been made out by AIS?; and (2) Has AIS
established irreparable harm if the order sought is not granted?
(a) The serious issue test in this case
[60]
Relying on
the Federal Court of Appeal’s decision in Turbo Resources Ltd. v. Petro Canada Inc., [1989]
2 F.C. 451 (a case involving an application for interlocutory injunction in a
trademark infringement case where Turbo Resources sought to enjoin
pending trial the defendant’s use of the expression “Premium Turbo Tested Motor
Oil”) and the Supreme Court of Canada’s decision in RJR-MacDonald Inc. v.
Canada (Attorney General), [1994]
1 S.C.R. 311, where the plaintiff sought interlocutory relief requiring
compliance with the packaging provisions recently enacted the Tobacco
Products Control Act whose provisions were being challenged on Charter grounds,
counsel for AIS argues whether a serious issue to be tried arises is assessed
against the low standard of whether the applicant has made out an arguable
case, one which is not frivolous or vexatious. Under this test, the motions
judge limits his/her analysis to a preliminary investigation of the case on the
merits.
[61]
Counsel for AIS
refers to a number of recent cases where this standard was adopted by the Courts
in intellectual property cases citing: (1) Boston Pizza International Inc.
v. Boston Market Corp., (2003) 26 C.P.R. (4th) 78 (F.C.); and, (2) CMAC
Mortgages Ltd. v. Canadian Mortgage Expert Centres Ltd., (2007) 63 C.P.R.
(4th) 360 (F.C.).
[62]
On the other hand,
counsel for AC argues AIS had to make out a prima facie case – a
likelihood of success to satisfy the serious issue test. He argues the order
sought is not an injunction but rather an order for security for damages that
AIS alleges will eventually become due pursuant to its claim of patent
infringement. He relies upon the following decisions: (1) Reading &
Bates Horizontal Drilling Co. et al v. Spie, Horizontal Drilling Co. Inc. et al,
(1986) 13 C.P.R. (3d) 37, a case where Justice Cullen ordered as an alternative
relief to a
Mareva injunction the deposit by the defendant
of the sum of $400,000 as security for damages of the plaintiff; (2) Jelin Investments Ltd. v. Signtech Inc., (1990) 34 C.P.R. (3d) 148, where Madam
Justice Reed ordered the posting of security for damages; and, (3) Merck
& Co. v. Nu-Pharm Inc., (2000) 4 C.P.R. (4th) 464, where Justice
Muldoon, denying an application for an interlocutory injunction, ordered the
payment by the defendant in Court of 10% of its sales on a monthly basis
noting that, in the circumstances of this case, this was the best way to secure
justice. Counsel for AC submits that in all of these cases security for damages
was involved and the successful party had shown a strong prima facie case.
He also relied, by analogy, on the Supreme Court of Canada’s decision in Aetna
Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2.
[63]
For the reasons that
follow, I am of the view the proper gauge of serious issue, in this case, is
the likelihood of success test – a strong prima facie case but, in any
event, if I am wrong on this point, I hold on the evidence before me, AIS has
not made out an arguable case. The evidence of AC’s patent expert is uncontroverted
– he was not cross-examined – he says AIS’ allegation the AC/CUSS check-in
kiosk infringes the '767
patent has no substance.
[64]
I agree with counsel
for AC the nature of the order sought by AIS, in this case, is not
appropriately characterized as an application for an interlocutory order, where
the status quo is sought to be maintained until trial and irreparable harm has
been made out. It is more akin to what is sought in a Mareva injunction whose
gist is the freezing of available assets and, in this case, going one step
further seeking to impound assets or otherwise restricting rights without
trial. In such cases, the applicant must show a fair prima facie case
(see Aetna at paragraphs 7, 8, 10, 26, 28 and 30).
[65]
This is the rationale,
I believe, underlying the decisions of this Court relied upon by counsel for
AC, in cases dealing with an order for security for damages before liability
has been determined requires the demonstration of likelihood of success. Such a
rationale, in my view, makes sense because the effect of such an order is to
remove, in this case from AC, the right to use, before liability has been
decided, its assets in the ordinary course of trade.
[66]
In any event, AIS has
not met the lower threshold of showing that its claim the AC/CUSS kiosks
infringe the '767
patent has some merit – is arguable – on the evidence today before me. I must
take the architecture of the AC/CUSS kiosks as it exists today – not what it
may look like tomorrow which I perceive is a large part of AIS’ case. On this
point, an injunction for future harm is known as quia timet injunction which
requires a showing of likelihood of success.
[67]
The only evidence of
possible infringement by the AC/CUSS check-in kiosks is the evidence of Mr.
Huegel who candidly recognizes he was not an expert in matters related to patent law and who, on
cross-examination, conceded he did not know very much about the operation of
the AC/CUSS kiosks, not having used them.
[68]
His evidence is to be
contrasted with the evidence of the AC patent expert, who was not
cross-examined by AIS’ counsel, on the instructions he received in the manner
of patents rules of interpretation as set out by the Supreme Court of Canada in
Free World Trust v. Électro Santé Inc., (2000) 9 C.P.R. (4th) 168.
Moreover, this expert was not challenged on his analysis of the essential
elements of the '767
patent in terms of claims 1 and 14 nor on his conclusion the AC/CUSS kiosks do
not infringe the '767 patent. It is plain and obvious from material available
from AC’s web site, the AC/CUSS check-in kiosks can only be used if the AC
customer has already made a reservation and has paid for his/her flight. These
kiosks do not dispense AC tickets nor do they make reservation. They cannot be
used to purchase tickets. These conclusions are fully supported by all of the
evidence before me including Mr. Ouellette’s discovery, Mr. Plamondon’s
analysis and AC’s documentary evidence produced through various of its affiants.
There is no evidence from AIS to contradict these conclusions. Justice Rouleau reached
a similar conclusion in Giffin
v. Canstar Sports Group Inc. et al,
(1990) 29 C.P.R. (3d) 26 where he found no serious issue in a patent
infringement case applying the Turbo Resources test.
(b)
Irreparable harm arising out of AC’s present financial circumstances
[69]
Even though it is not
strictly necessary to deal with the irreparable harm since the three-part test
set out in RJR-MacDonald is conjunctive and I have found no serious
issue, I believe it is prudent to deal with AIS’ argument that AC’s current
financial situation would deprive it of a remedy in damages should it be
successful at trial.
[70]
The law is clear
“irreparable harm refers to the nature of the harm suffered rather than its
magnitude. It is harm which either cannot be quantified in monetary terms or
which cannot be cured usually because one party cannot collect damages from the
other”. (See RJR-MacDonald at page 341).
[71]
The law is also clear
the evidence as to irreparable harm must be clear and not speculative; the
evidence must support a finding that an applicant would suffer
irreparable harm (see, for example, Centre Ice Ltd. v. National Hockey
League, (1994) 53 C.P.R. (3d) 34).
[72]
AIS had
the evidentiary burden of establishing AC’s current financial situation is such
that it would not be able to collect on any damages which it may be awarded if
successful. An assessment of this argument necessarily requires cogent forensic
financial evidence from AIS obtained in direct or under crossexamination that in
a reasonable future taking into account all of Air Canada’s assets and liabilities, AIS could not
collect a proper award of damages arising out of AC’s patent infringement.
[73]
I find
that AIS has not provided sufficient evidence to discharge its evidentiary
burden. It based its case on limited 2008-Q-3 results which showed
deterioration from 2007-Q-3 results. AC’s Treasurer explain these results are
attributable to extremely high fuel costs which were not representative of AC’s
past and projected fuel cost experience. He explained other positive features
to 2008-Q-3. Mr. Houle recognized the need to boost liquidity and outlined
successful efforts in this regard. He was not cross-examined. His evidence is
not contradicted. The result of all of the evidence is that AIS’ case on irreparable
harm is not clear and is largely speculative.
[74]
I should
mention that in reply submissions AIS’ counsel attempted to introduce AC’s
latest consolidated annual financial statements. He wished to make an argument on
this material. I refused their admission. Their introduction was improper
without due notice and without providing AC an opportunity to comment.
[75]
I mention
of one last point. AC, argued even if AIS could establish irreparable harm, AIS
would still not be entitled to the remedy sought. AC relied on the decision of
Prothonotary Lafrenière in Almecon
Industries Ltd. v. Anchortek Ltd.,
(2004) 32 C.P.R. (4th) 142, where the plaintiff had established the defendant
was liable for patent infringement and had brought a preservation order being
concerned with its ability to recover damages. As it happened, the defendant
declared bankruptcy before the plaintiff could argue its motion for a
protection order which it continued by making appropriate amendments to
include, inter alia, the trustee in bankruptcy.
[76]
The Prothonotary
dismissed the motion. He referred to section 67(1)(a) of the Bankruptcy Act dealing
with trust funds not being part of the property of the Bankrupt but dismissed
this argument. Counsel for AIS tried to reinforce the trust argument by
referring to a recent Quebec Court of Appeal involving the bankruptcy of Les Entreprises
BigKnowledge.
[77]
In the circumstance
of this case and because of the findings I have made in respect to irreparable
harm and serious issue, no useful purpose is served by dealing with this issue.
[78]
For this reason, AIS’
motion is dismissed with costs.
ORDER
THIS COURT ORDERS that this motion is dismissed
with costs, fixed at the upper level of the units set out in Column IV of the
Tariff in the Federal Courts Rules.
“François
Lemieux”
_____________________________
Judge
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