Faded Memories, Patent Infringement, and $50 Million in Damages

2013-09-23

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FADEDMEMORIES,PATENTINFRINGEMENT,AND$50MILLIONINDAMAGES

A.SASHAMANDY*
ROBIC,LLP
L
AWYERS,PATENTANDTRADE-MARKAGENTS

EquipmentandserviceprovidersinCanada’soilfieldindustryarebeginningtoexert
theirpatentrightswithincreasingfrequency.HowwillthisaffectCanadianpatent
law?Whendoessomethingbecome“availabletothepublic”?Whenisacompany
liableforexportingitsproducttootherjurisdictions?Whenisacompanyliablefor
encouragingitscustomerstouseaninfringingproduct?Thesequestionsandmore
weredealtwithbytheFederalCourtofAppealinVarcoCanadaLimitedv.Pason
SystemsCorp.2013FC750,renderedonAugust12,2013.

Facts
ThiscaseispartofalonglineofrecentcourtdecisionsinCanadarelatingtopatent
infringementinoneofthecountry’smostimportantindustrysectors–theAlbertatar
sands.Manyoftheequipmentandserviceprovidersforsomeofthemajortarsand
operatorsareincreasinglyexertingtheirpatentsagainsttheircompetitorsinaneffort
topreservemarketshare.Thiscaseisillustrativeofthetrend.

BobbieJoeBowdenisanoilman,a“driller”morespecifically,andhasbeenallhis
life.Helearnedthecraftfromhisfatherandfrombeingonthejob.OnApril19,1993,
BobbieJoefiledaCanadianpatentapplicationforaproductwhichwaseventually
commercialisedasthe“Wildcatautodriller”.OnAugust24,1999,theapplication
issuedasCanadianpatent2,094,313.BobbieJoeassignedhisrightsinthepatent
away,anditeventuallybecamethepropertyoftheplaintiffVarco.Muchofthiscase
turnsonthememoriesofBobbieJoeduringthoseearlyyearsofdevelopinghis
autodriller.
ThedefendantPasonisaCanadianoilfieldservicescompanythatspecializesin
developingsoftwareandhardwaretoimprovethedrillingprocess.In1999,Pason
decidedtodevelopitsownautodriller.PasonknewthattheWildcatautodrillerwas
theonlyotherautodrillerwithsimilarfunctionality,andPason’spatentcounselwasof
theopinionthattheirautodrillercouldinfringeVarco’spatentCA’313.Pason
continueddevelopingtheirautodrilleranyway,evengoingsofarastobenchmarkits
performanceagainsttheWildcatautodriller.Pason’sautodrillerwasreleasedintothe

©CIPS,2013.*LawyerandJuniorEngineer,A.SashaMandyisamemberofROBIC,LLP,amultidisciplinaryfirmof
lawyers,andpatentandtrademarkagents.PublishedintheOctober2013issueofWorldIntellectual
PropertyReport.Publication142.280

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marketplaceinMarch,2003.Itwasmetwithhugesuccess,eventuallyforcingVarco
tocutpricesfortheirWildcatautodrillerinordertocompete.Pasonalsoearned
considerablerevenuefromsellingcomponentsofitsautodrillertoitsforeign
subsidiaries.
Inthefaceofthiscompetition,VarcofiledanactionwiththeFederalCourtofCanada
allegingthatPasonwasinfringingCA’313.
Judgement

Aswithmanyotherdecisionsintheoilfieldindustry,thisoneturnsontheissueof
novelty.Asa“first-to-file”country,Canadaappliesthecriteriaofabsolutenoveltyfor
patentability,withexceptionsforinventor-relateddisclosures.Essentially,thismeans
thattheinventionclaimedcannothavepubliclyexistedmorethanoneyearbefore
theinventorfiledforherpatent.Thisoneyearperiodisreferredtoasa“grace
period”.
Often,equipmentandserviceprovidersinthissectorneedtotesttheirproducton
sitebeforetheycancrediblyclaimthattheyhavesomethingotherpeopleshouldpay
moneyfor.Sincethesecompaniesdonottypicallyhavetheirowntestingfacilities,
theyneedtopartnerwithapotentialclienttohaveaccesstoasuitabletestrig.This
testingtypicallyinvolvesapplyingorinstallingtheproductonanexistingrig,seeingif
itworks,andperformingadditionaldatacollection.Theserigsareusuallyopen-air
facilitiesandinsomecases,accessibletothepublic.Thedangerofdoingsuch
testingisthattheinventionmightbemadeavailableoraccessibletothepublic
beforeapatentapplicationisfiled,thusdestroyingitsnoveltyandnon-obviousness.
ThisisessentiallytheriskBobbieJoetook.
AlthoughJusticePhelanoftheFederalCourtfoundgapsinBobbieJoe’sversionof
theevents,heconsideredhisstorytobelargelycrediblegiventhattheseeventstook
placealmosttwentyyearsago.BobbieJoetestedhisautodrilleronthreeoccasions
beforehefiledapatentapplication.
DuringthefirsttestinFebruary-March,1992,BobbieJoeobtainedpermissiontotest
hisautodrilleronarig.Althoughheexplainedtheparametersofhisautodrillertohis
partner,JusticePhelanfoundtherewasnoevidencethatthedetailsabouthowthe
devicewasbuiltorworkedweredisclosed.Thefactthatnoconfidentiality
agreementsorotherformsofnon-disclosureweresigneddidnotimpugnthenovelty
oftheinvention.JusticePhelanwentsofarastocuriouslynotethat“rigoperatorsin
thisbusinesswouldfromtimetotimeallowaproducttobeusedonarigbeforeit
wasfullydeveloped”.
DuringthesecondtestinMarch-April,1992,BobbieJoesecuredaccesstoasecond
wellbutcouldnottestallthefeaturesofhisautodriller.Still,headmittedthatbyApril

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13,1992(i.e.morethanoneyearbeforehefiledtheCanadianpatentapplication),
hisdevicewas“prettywellperfected”.
Duringthethirdtestinmid-lateApril,1992,BobbieJoewasabletoimplementhis
devicesuccessfullyonApril20,1992,whichJusticePhelanconsideredtobethe
dateonwhichtheautodrillerwasfinallyprovenandcompleted.Thisdatefallswithin
thegraceperiod.
PasonarguedthatBobbieJoedisclosedhisautodrillerbeforeApril20,1992during
thefirsttest,bytrainingdrillingcrews,andbybeingpaidduringthistesting.
Furthermore,PasonallegedthatthetestingwaspartofBobbieJoe’sbusinessmodel
oflettinghiscustomersusethedeviceforfreeandthenrentingitbackdatedifthey
likedit.
JusticePhelandidnotagree.Amongotherfactsgiveninsupportofhisconclusion,
hefoundthati)theprototypewaslockedonsitesonoonecouldexamineitafter
BobbieJoestoppedusingit,andii)BobbieJoenevershowedpeoplehowthedevice
worked,oritsinnerworkings.Theautodrillerwasthereforenotmadeavailabletothe
public,andhistestsdidnotdestroythenoveltyofhisinvention.

JusticePhelan’sconclusioncontrastsstarklywiththatofarecentFederalCourtof
Appealdecision,WenzelDownholeToolsLtd.v.National-OilwellCanadaLtd.,2012
FCA333whichrelatestoanoilfieldinventionaswell.Inthatcase,theevidence
showedthattheclaimeddrillassemblyi)couldnotbe,andwasnot,observedwhen
theallegeddisclosureoccurred,andii)nopersonofordinaryskillintheartwas
presenttoexaminethedrillassemblyanddiscerntheinvention.Nevertheless,the
Courtfoundthatmakinganinventionavailabletothepublicmerelyrequiresthatthe
publichadanopportunitytoaccesstheinformationthatistheinvention,evenifthey
nevertookadvantageofthisopportunity.ItcouldbearguedthatBobbieJoe’stests
ofhisinventiononthedrillrigs,whichwerenotperformedunderconfidentiality,gave
thepublicanopportunitytoaccesshisinvention,evenifthisdidnotactuallyoccur.

Addingtotheconfusion,JusticePhelanstatedthat“itiswellestablishedthatprior
usethatisexperimentalisnotprioruse”,andcitesoneauthorityfrom1904in
supportofthisposition.Hefurtherstatesthat“theabsenceofaconfidentiality
agreementwithUnionPacific(BobbieJoe’sfirsttestpartner)isnotfatal”.

Turningtoinfringement,JusticePhelanconcludedthatPasondirectlyinfringedall
theclaimsinsuit.
Ontheissueofindirectinfringement,knownas“inducementtoinfringe”,Varco
allegedthatPasonwasinducingorencouragingitsclientstoinfringeCA’313by
supplyingthemwithitsautodrillerandencouragingthemtouseit.Pasondidnot
seriouslycontestthischarge,butarguedthatitsforeignsalesandoperationswere
outsidethescopeoftheCanadianpatent,andcouldnotbesubjecttothelawof
inducementinCanada.JusticePhelanagreedwithbothparties,andfoundthatthe

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numerousmanualsandtrainingprovidedbyPasontoitscustomersconstituted
instructionsonhowtoinfringe,butonlyinsofarasthesecustomerswereCanadian.

Ontheissueofinfringementbyexport,Pasonarguedthatitshippeditspartsforthe
autodrilleroutsideofCanadainunassembledform,andthereisthusno
infringement.JusticePhelandisagreed,andrepeatedthelawthatsimplyseparating
partsofadeviceandshippingthemforlaterintegrationandassemblydoesnotavoid
liabilityforinfringement,eveniftheassemblyoccurredoutsideofCanada.For
JusticePhelan,theimportantfactorwasthatthesalewasmadeinCanada.
Therefore,eventhoughthemethodclaimsareinfringedoutsideofCanadaandthus
outsidetheCourt’sjurisdiction,theproductclaimiswithintheCourt’sjurisdictionand
infringedbecausethesaleoftheproductoccursinCanada.

AfteralengthyanalysisoftheremediesavailabletoVarco,JusticePhelanordered
paymentofdamagesofmorethan$50milliondollars,apermanentinjunctionagainst
Pason,anorderdirectingPasontodeliverupordestroyallinfringingproducts,pre
andpostjudgementinterest,andcosts.
Conclusion

Thiscaseaddsmoreuncertaintyastowhatconstitutesadisclosurewhichmakesthe
subjectmatteroftheinventionavailabletothepublic.Litigatorswillrememberthat
thelawisconstantlychangingonthiscrucialissue,andthatanydeterminationwill
ultimatelydependonthespecificfactsinevidence.Insomecases,credible
witnessesand“cleanhands”canovercomefactswhichmightotherwisebe
consideredtobedisclosures.Litigatorswillalsoheedsomeotherlessonsfromthis
case,asitisdemonstrativeofthedangerofwaitingtoolongtolitigateapatent.
Memoriescanfade,witnessescanbecomehardertotrackdown,andfactscanbe
moredifficulttocorroborate.

Forthepatentprosecutor,thiscaseprovidesusefulfactpatternsandlessonsto
bettercounselclientswhohavemadesimilarpriordisclosures.Moreparticularly,
patentagentsshouldobtaineverysingledetailrelatedtoaclient’spriorpublic
disclosure,andnotsimplyrelyonassurancesofconfidentiality.Inthefaceof
inconsistenciesinthelawregardingdisclosures,howeverslightthesemaybe,surely
thebestpracticeistofilewithinthegraceperiodifthereiseventheremotestchance
thatapriordisclosureoccurred.Ofcourse,thisiseasiersaidthandone.

Thisauthorthereforerepeatsthecardinalruleofpatentnovelty-KISS(KeepIt
SecretStupid).

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