Dow Chemical v. Nova Chemicals

On April 19, Justice Fothergill of the Federal Court issued his public judgment and reasons addressing various issues in the calculation of the compensation to be paid as a result of earlier patent infringement action between The Dow Chemical Company (“Dow”) and NOVA Chemicals Corporation (“Nova”) (2014 FC 844).  On July 5th Justice Fothergill issued a Supplemental Judgment and Reasons providing the final amount of compensation to be paid (2017 FC 637).

The liability phase
The proceedings before the Federal Court were commenced in 2010. During the liability phase, the Federal Court upheld the validity of Dow’s Canadian Patent No. 2,160,705 (the ’705 Patent) and found that Nova’s SURPASS polymers infringed. The polymers are polyethylene compositions used in packaging applications including heavy duty bags, pallet wrapping and food packaging. Dow sells such compositions under the name ELITE.

 As a result of the findings of infringement, the Federal Court awarded Dow various remedies, including an election between damages and an accounting of Nova’s profits, reasonable compensation for infringement that occurred between the publication date of the ’705 Patent and its date of issuance, interest and costs. Dow subsequently elected for an accounting of Nova’s profits.

 Nova’s appeal of the liability decision to the Federal Court of (2016 FCA 216), and application for leave to appeal to the Supreme Court of Canada, were both dismissed.

The remedies phase
> “Springboard” profits
Dow claimed that Nova’s infringement of the ’705 Patent provided it with a “springboard” into the market, which resulted in Nova continuing to profit from its infringing activity after the expiry of the ’705 Patent. Justice Fothergill concluded that Nova’s post-expiry profits resulting from its pre-expiry infringing activities should be included in the accounting of profits for a period of approximately 20 months post-expiry.

> Accounting of profits and the deduction of costs 
Two important issues were before the court. The first issue related to the appropriate measure of the cost of ethylene, a key component used to make the infringing SURPASS products. Nova claimed that it should be entitled to deduct an “economic value” of the ethylene as measured by Nova’s average selling price of ethylene to third parties. Dow claimed that because Nova itself produced the ethylene used to make SURPASS, it was entitled to deduct only its actual costs incurred to manufacture the ethylene. Justice

Justice Fothergill agreed with Dow’s position, noting that Nova’s position would result in deduction of a “theoretical cost that [Nova] did not incur.” 
The second issue was whether Nova’s non-incremental fixed costs and capital depreciation expenses could be applied against infringing revenue. Nova contended that its incremental costs would be negligible, and a “full cost approach” (permitting deduction of certain non-incremental fixed and capital costs) was appropriate to avoid an inequitable outcome.  

Justice Fothergill concluded that Nova should be entitled to deduct a proportion of certain of its claimed fixed costs and capital depreciation expenses related to the production and sale of the infringing products. 

> Currency conversion 
The issue of the timing of currency conversion was also before the court. While Nova’s profits from the sale of infringing SURPASS products were mostly earned in US dollars, the Currency Act requires that a judgment be expressed in Canadian dollars. Justice Fothergill found that the evidence supported that Nova’s profits were primarily retained in US dollars such that the date of conversion into Canadian dollars should be the date of the judgment. 

> Inclusion of additional product grades in the calculation of profits 
Also at issue were four grades of Nova’s SURPASS product that Dow claimed were identical or nearly identical to those that were specifically identified in Dow’s original statement of claim, but were sold by Nova under slightly different names at various times. Nova conceded that these grades infringed the ’705 Patent, but argued defences of res judicata, abuse of process and the application of a limitation period because they had not been specifically identified in the statement of claim during the liability phase of the proceeding.

Justice Fothergill sided with Dow, finding that the additional grades were within the scope of the liability judgment. 

Final award
Based on Justice Fothergill’s initial judgment, the parties exchanged calculations of damages and profits payable by Nova to Dow and provided the court with a list of three further issues relating to the appropriate accounting methodologies to apply to arrive at the final judgment. 

Dow was ultimately successful on two of the three issues. The final award totals over $645 million (including prejudgment interest), which is the largest reported award in a Canadian patent infringement case.

Nova has filed an appeal of Justice Fothergill’s initial decision.

Steve Garland, Jeremy Want, Colin Ingram, Daniel Davies and Kevin Graham of Smart & Biggar, with Ryan Evans of DLA Piper (Canada) LLP acted for the plaintiffs, The Dow Chemical Company, Dow Global Technologies Inc. and Dow Chemical Canada ULC. 

Robert MacFarlane, Michael Charles, Andrew McIntosh, Adam Bobker, Michael Burgess and Jerry Chen of Bereskin & Parr LLP acted for the defendant, Nova Chemicals Corporation.