Judgments

[1997] 2 F.C. 3

A-624-96

Imperial Oil Limited and its subdivision Paramins (Appellant) (Defendant)

v.

The Lubrizol Corporation and Lubrizol Canada Limited (Respondents) (Plaintiffs)

Indexed as: Lubrizol Corp. v. Imperial Oil Ltd. (C.A.)

Court of Appeal, Hugessen, Stone and Décary JJ.A. —Ottawa, November 19, 20 and 21, 1996.

Practice — Discovery — Production of documents — Appeal from dismissal by Motions Judge of appeal from Prothonotary’s denial of motion for production — Judgment declaring infringement of patent relating to additive for motor oils — Plaintiffs electing account of profits — Reference to determine amount of profits ordered — Motion seeking production of plaintiffs’ documents to support defendant’s contention entitled to apportion profits between those attributable to infringing dispersant and those attributable to other factors — Prothonotary, Motions Judge erred in holding terms of formal judgment excluding possibility of leading evidence at reference on issue of apportionment — Judgment not finding all profits from sales of motor oils arising from infringement — That was issue of fact to be decided on reference — But examination of documents requested indicating irrelevant to determination of defendant’s profits from infringement — Though test for relevance at discovery generous, fishing expeditions not allowed.

Equity — Judgment declaring infringement of patent relating to additive for motor oils — Plaintiffs electing account of profits — Reference to determine amount of profits ordered — Defendant seeking production of plaintiffs’ documents to support contention entitled to apportion profits on sales of infringing motor oils — Prothonotary, Motions Judge erred in holding terms of formal judgment excluding possibility of leading evidence at reference on issue of apportionment — Account of profits equitable remedy designed not to punish, but to have defendant surrender profits made at plaintiff’s expense — Apportionment question of fact bearing on relationship between profits earned, appropriation of plaintiff’s invention, to be decided on reference — Judgment not finding all profits from sales of motor oils arising from infringement, but as documents sought irrelevant, motion dismissed.

This was an appeal from the dismissal by a Motions Judge of an appeal from a Prothonotary’s decision denying a motion for production of certain documents. Cullen J. declared Lubrizol’s patent relating to an additive for motor oils to have been infringed by Imperial’s production and sale of motor oil containing such dispersants. Lubrizol had elected an account of profits, and a reference to determine the amount thereof was ordered. The motion which was the subject-matter of the present appeal was to oblige Lubrizol to produce certain documents said to be relevant to Imperial’s contention that it was entitled to apportion its profits on its sales of infringing motor oils as between those attributable to the infringing dispersant and those attributable to other factors like goodwill or even other additives. Both the Prothonotary and the Motions Judge held that the terms of the formal judgment excluded any possibility of leading evidence at the reference on the issue of apportionment.

Held, the appeal should be dismissed.

Cullen J’s judgment made it clear that it was the presence of the additive which caused Imperial’s motor oils to infringe. Such oils could have achieved their market share for reasons other than the presence of Lubrizol’s patented additives. A finding that Imperial’s motor oils infringed the Lubrizol patent was not necessarily a finding that all the profits from the sales of such motor oils were profits arising from the infringement. As the issue of apportionment was never raised in the Trial Division, it would be strange that the formal judgment should have the effect now contended for. The very existence of the order for the reference, which deferred until after trial “questions as to the profits arising from any infringement”, lead to the belief that the issue of apportionment remained open.

The remedy of an account of profits is an equitable one. Its purpose is not to punish the defendant, but to have him surrender the actual profits made at the plaintiff’s expense. The decisions of the Prothonotary and of the Motions Judge cannot be supported on the reasons given by them. Questions relating to apportionment are questions of fact, and as such they should have been left to the referee and not settled as an incident of a preliminary motion.

While evidence as to apportionment may be admissible, the additional documents sought by Imperial from Lubrizol were not relevant. Had the Prothonotary examined, as he should have, the particular items requested he would have concluded that the motion should be dismissed. Bearing in mind that the purpose of the reference was to determine Imperial’s profits arising from the infringement, prima facie it was highly unlikely that any of Lubrizol’s documents would have any bearing on any of the questions in issue, even if apportionment was one of them. The test for relevance on discovery, although generous, does not allow for a pure fishing expedition of the type sought here.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Federal Court Rules, C.R.C., c. 663, R. 480.

CASES JUDICIALLY CONSIDERED

APPLIED:

Dart Industries Inc v Decor Corporation Pty Ltd (1993), 67 ALJR 821 (Aust. H.C.).

DISTINGUISHED:

Reading & Bates Construction Co. v. Baker Energy Resources Corp., [1995] 1 F.C. 483 (1994), 58 C.P.R. (3d) 359; 175 N.R. 225 (C.A.); Ductmate Industries Inc. v. Exanno Products Ltd. (1987), 15 C.I.P.R. 115; 16 C.P.R. (3d) 15; 12 F.T.R. 36 (F.C.T.D.).

CONSIDERED:

Lubrizol Corp. v. Imperial Oil Ltd. (1990), 33 C.P.R. (3d) 1; 39 F.T.R. 161 (F.C.T.D.); Lubrizol Corp. v. Imperial Oil Ltd. (1992), 98 D.L.R. (4th) 1; 45 C.P.R. (3d) 449; 150 N.R. 207 (F.C.A.).

REFERRED TO:

Beloit Canada Ltée v. Valmet Oy (1995), 61 C.P.R. (3d) 271; 184 N.R. 149 (F.C.A.); Everest & Jennings Canadian Ltd. v. Invacare Corporation, [1984] 1 F.C. 856 (1984), 79 C.P.R. (2d) 138; 55 N.R. 73 (C.A.); Hennessy v. Wright (1890), 24 Q.B.D. 445 (C.A.).

APPEAL from Motions Judge’s order (Lubrizol Corp. v. Imperial Oil Ltd. (1996), 69 C.P.R. (3d) 173 (F.C.T.D.)) dismissing an appeal from the Prothonotary’s dismissal of a motion to force the plaintiffs to produce certain documents ((1996), 66 C.P.R. (3d) 215; 110 F.T.R. 66 (F.C.T.D.)). Appeal dismissed.

COUNSEL:

W. Ian Binnie, Q.C. and Marguerite F. Ethier for appellant (defendant).

Donald J. Wright, Q.C. and Peter E. J. Wells for respondents (plaintiffs).

SOLICITORS:

McCarthy Tétrault, Toronto, for appellant (defendant).

Ridout & Maybee, Toronto, for respondents (plaintiffs).

The following are the reasons for judgment of the Court delivered orally in English by

Hugessen J.A.: This is an appeal by the defendant (Imperial) from an order of the Motions Judge [Lubrizol Corp. v. Imperial Oil Ltd. (1996), 69 C.P.R. (3d) 173] dismissing an appeal from a decision of the Prothonotary [Lubrizol Corp. v. Imperial Oil Ltd. (1996), 66 C.P.R. (3d) 215] dismissing a motion to force the plaintiffs (Lubrizol) to produce certain documents.

The parties are in the late (one would like to say final but that might be unrealistically optimistic) stages of patent litigation. By a judgment dated 17 September 1990 [Lubrizol Corp. v. Imperial Oil Ltd. (1990), 33 C.P.R. (3d) 1 (F.C.T.D.)] Cullen J. allowed Lubrizol’s action for patent infringement and declared Lubrizol’s patent, sometimes called the Meinhardt patent, relating to a dispersant (or detergent) additive for motor oils, to have been infringed by Imperial’s production and sale of various brands of its motor oil and additive packages containing such dispersants. Lubrizol was given an election as between damages and an account of profits and, pursuant to a pre-trial order made under Rule 480[1] a reference was ordered to determine the amount thereof. Lubrizol has elected an account of profits and the discovery stage of the reference is well engaged. The motion which is the subject-matter of the present appeal is to oblige Lubrizol to produce certain additional documents said to be relevant to Imperial’s contention that it is entitled to apportion its profits on its sales of infringing motor oils as between those attributable to the infringing dispersant and those attributable to other factors like goodwill or even other additives like viscosity index improvers.

The Prothonotary dismissed the motion because in his view the terms of the formal judgment of Cullen J. excluded any possibility of apportionment. He said [at pages 216-217]:

The defendant contended before me that the profits should be apportioned. The defendant first argued that the remedy was an equitable remedy and that the referee at the reference would wish to divide the profits made in connection with the infringement, on the principle that all the plaintiff should get would be the difference between the profit the defendant would have made had a non-infringing product been used and the profit it actually made using the infringing product.

Such a procedure was suggested in Siddell v. Vickers (1892), 9 R.P.C. 152 (C.A.), and a number of other cases. Siddell and Vickers involved a patented applicant for the turning of large ingots, and the infringement was by using the appliance, not as in the present case by sale. In Siddell v. Vickers, as opposed to the present case, there was no price directly attributable to the turning. The turning was just a part of the manufacturing process, which part was not subcontracted out and therefore not separately priced. The difference between the profit without infringing and the profit when infringing was the best measure of all of the profit derived from infringing.

Another type of case in which a similar comparison has been suggested is where there is a sale of infringing goods, but they are sold mixed with non-infringing goods and the sale price is for the mixture. In this case the invention is a complicated organic compound used as part of additive packages and in motor oil and other lubricating compounds. As described by me it might appear that an inquiry into the non-infringing substitute for the patented organic compound might be necessary in order to decide the profits. However, the judgment of trial finds the patent had been infringed by “the defendant’s manufacture, use, offer for sale and sale of lubricating compositions containing carboxylic derivative compositions as claimed therein, including Esso Extra motor oil, Esso Protec Extra motor oil and by its promotion and sale of its concentrates …”. The judgment continues in the same vein, but it is quite plain from the words quoted that the infringement involves the sale of motor oil or additive packages. Both of which I was advised are discretely priced. Therefore, no division or apportionment is needed to distinguish between the profits made on the various constituent parts of the motor oil or additive packages. [Emphasis added.]

The Motions Judge approved the Prothonotary’s reasoning, saying [at page 175]:

No thought of apportionment inheres in the judgment which Cullen, J. signed herein, on September 17, 1990.

The Motions Judge was also of the view that [at page 177]:

It was the pirated Lubrizol additive which, after all, and after a certain epoch, made the can of oil saleable in the first place.

and that [at page 178]:

… Imperial would have sold little or no motor oil without the Lubrizol additive ….

It should be said, with respect, that these last two findings of the Motions Judge, which are clearly findings of fact, were not based on any evidence but solely on his interpretation of and inference from the reasons for judgment at trial. To the extent that his judgment is based on them it cannot stand; findings of this sort should only be made by the referee after hearing evidence.

It can be seen that it was and is Lubrizol’s position, accepted by both the Prothonotary and the Motions Judge, that the terms of the formal judgment excluded any possibility of ever leading evidence at the reference on the issue of apportionment. Since the claims of the patent covering motor oils containing the dispersant are now definitively established as having been infringed by Imperial’s sales of such motor oil, and since Lubrizol has now elected to claim, as the judgment allowed it to, “the profits of the defendant arising from such infringement”, it is all the profits from such sales which may be recovered.

A good overview of the nature, scope and principles governing the remedy of an account of profits may be found in the judgment of the High Court of Australia in Dart Industries Inc v Decor Corporation Pty Ltd:[2]

Damages and an account of profits are alternative remedies. An account of profits was a form of relief granted by equity whereas damages were originally a purely common law remedy. As Windeyer J pointed out in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd, even now an account of profits retains its equitable characteristics in that a defendant is made to account for, and is then stripped of, profits which it has dishonestly made by the infringement and which it would be unconscionable for it to retain. An account of profits is confined to profits actually made, its purpose being not to punish the defendant but to prevent its unjust enrichment. The ordinary requirement of the principles of unjust enrichment that regard be paid to matters of substance rather than technical form is applicable.

Lubrizol’s position as outlined above is extremely formalistic but even on a purely formal basis it seems to us to go too far. Just as in a reference on a claim for damages issues of fact relating to causality and remoteness may properly be explored, so may they be likewise on an accounting of profits. The issue of apportionment is at bottom a question of fact[3] bearing on the relationship between the profits earned and the appropriation of the plaintiff’s invention. It may be possible for Imperial to show that some part of the profits made on the infringing sales are not profits “arising from” the infringement in that they are not caused by but simply made on the occasion of such infringement. While such a showing may prove very difficult it should not be excluded a priori. That consideration alone is enough to determine the question of relevance at this stage, i.e. prior to the hearing of any evidence, in favour of Imperial.

But there is more. Form must not be allowed to triumph over substance. While motor oil containing the dispersant additive was properly claimed in the patent (it would seem likely that the dispersant is useless except as an additive to motor oil) and while that claim was properly found to have been infringed, the reality is that Lubrizol did not invent motor oil and that Imperial’s motor oils contain other additives than the one here in issue. The terms of the judgment quoted by the Prothonotary in the above extract from his reasons make it plain that it is the presence of the additive (carboxylic derivative compositions) claimed in the Meinhardt patent which caused Imperial’s motor oils to infringe. Thus, it is possible that such oils have achieved their market share and attendant profits for reasons other than the presence of Lubrizol’s patented additive. A finding that Imperial’s motor oils infringed the Lubrizol patent does not necessarily amount to a finding that all the profits from the sales of such motor oils are profits arising from the infringement. That is an issue of fact to be decided on the reference.

Cullen J. was clearly aware that the inventive step in the Lubrizol patent was related only to the additive. He said, at page 12:

What is the art to which the patent relates? Here, clearly, that art is the additive art, the art of development and formulation of additives for lubricating compositions.

Cullen J.’s judgment was largely confirmed in this Court [Lubrizol Corp. v. Imperial Oil Ltd. (1992), 98 D.L.R. (4th) 1], where Mahoney J.A., for a unanimous bench said, at pages 5-7:

The invention is concerned with chemical processes and compositions; we are concerned only with some of the compositions. The monopoly claimed is not limited to a particular composition or a number of particular compositions but to a class of compositions. It is described as “an improvement in the known field of lubricant additive technology which has developed since the 1950’s around high molecular weight carboxylic acid acylating agents and various acylated derivatives thereof.” The particular additives are generally called dispersants or detergents. This technology is what has made possible increasingly extended periods between oil changes.

The parties have defined “acyl group” as a group represented by the formula (R-20-) and that, I am sure, is all we need to know for our purposes. An “acylating agent” is a reactant capable of introducing an acyl group into another compound. If one assumes that a fish hook cannot be directly attached to the line except by a leader, the acylating agent may be envisaged as the leader; the other compound, the line and the acyl group, the hook. The acylating agent serves only, but essentially, to connect the acyl group to the other compound; without it they could not be joined. The acylating agent is described as “succinic”. The attachment of the leader and hook to the line is “succination”. More than one leader and hook may attach to a single line resulting in “oversuccination”. Some lines do not attach to leaders and, thus, have no hooks. These are not taken into account in calculating the “succination ratio” which is determined by the formula set out in the agreed glossary.

Dispersants hold accumulating impurities in motor oil in suspension. Early dispersants were metal based and, as they broke down, the metal residue or “ash” was deposited as a varnish on the pistons and sludge in the crankcases of gasoline engines. Dr. Wm. M. Le Suer of Lubrizol invented an ashless dispersant for which U.S. patent No. 3,172,892, hereafter “the Le Suer patent”, issued March 9, 1965. The Le Suer patent and “any other letters patent … hereafter owned by Lubrizol … containing” material subject of the Le Suer patent was licensed to Exxon and Imperial. Findings of the trial judge as to the licence are in controversy.

The disclosure of the Meinhardt patent, in a relevant extract, describes the invention (Appeal Book, vol. 2, p. 5).

This invention is based on the discovery that a novel class of high molecular weight carboxylic acid acylating agents is capable of imparting unique and beneficial properties to lubricant additives prepared therefrom and lubricating compositions containing such additives while, at the same time, retaining the desirable properties of similar lubricant additives and lubricating compositions prepared from other high molecular weight carboxylic acid acylating agents of the prior art.

The monopoly claimed, to the extent that it is in issue, is found in claim 1 (Appeal Book, vol. 2, p. 105).

1. A lubricating composition comprising a major amount of oil of lubricating viscosity and a minor amount of one or more carboxylic derivative compositions produced by reacting at least one substituted succinic acylating agent with a reactant selected from a group consisting of (a) amine characterized by the presence of at least one H-N< group, (b) alcohol, (c) reactive metal or reactive metal compound, and (d) a combination of two or more of any of (a) through (c), the components of (d) being reacted with said one or more substituted succinic acylating agents simultaneously or sequentially in any order, wherein said substituted succinic acylating agents consist of substituent groups and succinic groups wherein the substituent groups are derived from polyalkene, said polyalkene being characterized by a Mn value of 1300 to about 5000 and a Mw/Mn value of about 1.5 to about 4, said acylating agents being characterized by the presence within their structure of an average of at least 1.3 succinic groups for each equivalent weight of substituent groups.

The parameters of the monopoly, which I have emphasized, are the critical aspects of the patent in dispute in both the validity and infringement issues. [Emphasis added.]

It is common ground that the issue of apportionment was never raised either before Cullen J. or on the appeal to this Court. That being so, it would be, to say the least, strange and paradoxical that the formal judgment should have the effect now contended for. The very existence of the Rule 480 order deferring until after trial “all questions as to the profits arising from any infringement” would naturally lead both Court and counsel to believe that the issue of apportionment remained open.

Counsel for Lubrizol argues strongly, however, that the judgment of Cullen J. is now binding and beyond review and has settled the issue of apportionment for all time. He relies particularly on Reading & Bates Construction Co. v. Baker Energy Resources Corp.[4] and Ductmate Industries Inc. v. Exanno Products Ltd.[5] Those cases, however, are readily distinguishable since in each of them the question of apportionment had been addressed at trial so that the terms of the formal judgment could properly be viewed as being dispositive of the question. It may be noted as well that both decisions were given after the hearing of the reference and the taking of evidence.

The remedy of an account of profits is an equitable one. Its purpose is not to punish the defendant but simply to have him surrender the actual profits he has made at the plaintiff’s expense. But if some part of Imperial’s profit on the infringing sales can be shown to have been due not to the appropriation of the Lubrizol invention but to some other factor where is the equity? We were told that Lubrizol contends that Imperial’s motor oil infringes another of its patents and has sued in respect thereof. May the same profits be claimed a second time? And if not by Lubrizol what of some third party patentee who likewise claims infringement? And even if no other patents were involved, to allow Lubrizol to take profits which Imperial succeeds in showing were solely attributable to some non-infringing feature of its motor oil would be to judicially sanction Lubrizol’s unjust enrichment at Imperial’s expense.

While it is clear that the judgment at trial is now res judicata and that the Court on a reference has no jurisdiction to alter it, that is no warrant for interpreting that judgment in a way that was never in the contemplation of the Court that gave it and is contrary to reason and common sense.

In our view, the decisions of the Prothonotary and of the Motions Judge cannot be supported on the reasons given by them. Questions relating to apportionment are questions of fact; as such they should have been left to the referee and not settled as an incident of a preliminary motion.

That is not the end of the matter, however. While evidence as to apportionment may be admissible, and we have so indicated, that does not mean that the particular evidence, in this case the additional documents sought by Imperial from Lubrizol, should be found to be relevant. In fact we are quite satisfied that they are not. If the Prothonotary had examined, as he should have, the particular items requested he would quickly have concluded that the motion should be dismissed. That also seems to have been the view of the Motions Judge although he dealt with the matter in only one brief sentence.

It must be borne in mind that the purpose of the reference is to determine Imperial’s profits arising from the infringement. Prima facie therefore, it is highly unlikely that any of Lubrizol’s documents will have any bearing on any of the questions in issue, even if apportionment is one of them. Imperial’s list of possible non-infringing alternative sources of the necessary dispersant does not include any Lubrizol products. The best that Imperial’s counsel could suggest was that some of the documents sought might provide some evidence that Lubrizol may have adopted a view of industry practice during the infringement period which would in some way be different from the position it may take on the reference. This surely is supposition piled on hypothesis founded on faint hope. It is tenuous in the extreme; if industry practice is in issue there are far better ways of proving it than Lubrizol’s internal documents. Accepting that the test for relevance on discovery is a very generous one,[6] it does not allow for a pure fishing expedition of the type sought here.[7] Imperial’s motion was properly dismissed.

In the result, therefore, the appeal must fail but since the appellant has succeeded and the respondent has failed on the issue which occupied almost all of counsel’s time at the hearing, the respondent should recover no costs either here or in the Trial Division.

---