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Punitive Damages Award in Canada Due to Implied Knowledge of Infringed Patent

April 2012
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By Grant W. C. Tisdall

Historically, Canadian courts rarely award punitive damages in patent infringement actions, making the recent award of punitive damages by the Federal Court of Canada in Eurocopter v. Bell Helicopter 2012 FC 113 particularly notable. Courts award punitive damages when a party’s conduct has been malicious, oppressive and high-handed, offends the court’s sense of decency, or represents a marked departure from ordinary standards of decent behavior. In the present case, Eurocopter sought punitive damages in the amount of $25,000,000, alleging that Bell Helicopter knowingly and maliciously infringed Eurocopter’s patent in view of Bell’s landing gear development activities and marketing of Eurocopter’s patented technology as Bell’s own. A notable aspect of this decision is that the Court found it implausible that a sophisticated entity such as Bell did not have knowledge of Eurocopter’s patent, stating that “Bell knew or should have known” of the patent holding that Eurocopter was entitled to punitive damages.

What the Court’s Decision Means for Companies Operating in Canada

The Court recognized that an award of ordinary damages would be insufficient to achieve the goal of punishment and deterrence, and found that Eurocopter was entitled to punitive damages. In the Court’s opinion, Bell’s benchmarking activity, direct copying of Eurocopter’s landing gear, and marketing representations warranted an award of punitive damages. With this in mind, companies operating in Canada need to place greater scrutiny on their product development and marketing operations. Further, companies need to consider their competitor’s patented technology when developing and marketing their products. A company’s competitive intelligence practices could favour a finding of punitive damages if they are found to copy a competitor’s patented technology. It is no longer acceptable for sophisticated corporate entities to develop and market new technology without an understanding of their competitors’ patent holdings or  what their competitors regard as proprietary technology.

The Court’s opinion places a higher standard of knowledge on sophisticated corporate entities that conduct intellectual property activities, and corporate entities that are large enough and operate in a technological field. According to the Eurocopter decision, these corporate entities risk being found to have implicit knowledge of a competitor’s patent, and are thus more likely to be liable for punitive damages.

The Facts of the Case

The patent-at-issue in Eurocopter involved an innovation to skid-type landing gear for light helicopters referred to as “Moustache landing gear” due to its particular geometrical shape. Bell Helicopter leased and operated a Eurocopter helicopter equipped with Moustache landing gear to evaluate the characteristics of the rotor and landing gear operation. Bell submitted that this was a common practice in the aeronautics industry to benchmark competitive products. The Federal Court found that Bell went a step above of simply benchmarking when developing its new Legacy landing gear, stating that Bell’s Legacy gear “was no more than a slavish copy of the patented Moustache landing gear”.

It is important to note that the infringing Legacy gear was used in Bell’s marketing efforts to secure sales of its new light helicopter under development. Bell’s marketing material presented the copied Legacy gear as a major technological breakthrough and that it “has been designed for the first time” by Bell. Upon learning of Eurocopter’s lawsuit, Bell rapidly made changes to the Legacy gear, resulting in the development of a Production landing gear that the Court held was non-infringing. As a result, Bell never actually sold a helicopter equipped with the infringing Legacy gear; however, Bell was still held liable for punitive damages.

Eurocopter also requested that it be permitted to elect an accounting of profits as an alternative to damages to recover any profits flowing from Bell’s infringing activities. Eurocopter’s damages from the Legacy gear would undoubtedly be low because Bell had only developed 21 Legacy gears and did not sell any of these. The Court refused to allow Eurocopter to elect an accounting of profits due to the complexity of calculating profits and the extent of infringement compared to the non-infringing activities. The Court felt it was questionable to permit an accounting for profits related to sales of a multimillion-dollar helicopter when the value of the infringing gear was $25,000 and none were ever incorporated in a helicopter sold by Bell. The Court instead awarded Eurocopter with punitive damages to punish Bell for their conduct and infringement of Eurocopter’s patent.

Implied Knowledge of Competitor’s Patent

An interesting aspect of this rare finding of punitive damages for patent infringement was that there was no evidence that Bell had any knowledge of Eurocopter’s patent prior to learning of Eurocopter’s lawsuit. The Court’s decision stated that “[t]his was a case of willful blindness or intentional and planned misappropriation of the claimed invention.” It was found to be implausible that Bell was ignorant of the patent, and that “Bell knew or should have known” of the patent. In coming to the conclusion that Bell ought to have had corporate knowledge of the patent, the Court noted that:

Bell and its parent company, Textron, are sophisticated corporate entities employing thousands of engineers and highly skilled personnel. Both have legal and intellectual property departments. Advanced software permit to search and find applications and patents relevant in the field of helicopters worldwide. Indeed, at the time of infringement, there was a policy manual and guidelines with respect to intellectual property matters, including measures to avoid infringing on valid intellectual property rights held by others (see exhibits JB-397 and JB-398). The technical resource specialists (TRS’s) have the responsibility to maintain cutting edge technical capabilities in their discipline, to maintain cognitions of competitive patents and other intellectual property outside the company, and to advise the leaders of the Integrated Product Teams (IPT’s) of any concern regarding potential infringement that might occur during new product or process developments.

Next Steps

Companies operating in Canada now have to ask themselves whether they would be considered a “sophisticated entity.” Bell was considered a sophisticated entity because they employed an intellectual property department and had policy measures to avoid patent infringement, but it may also be reasonable for a company to be considered sophisticated based on the company’s size, its technology and degree of patenting in its market, its competitive intelligence practices, or its own patent filing activities. If according to Eurocopter sophisticated entities can be found to have implied knowledge of their competitors’ patents, then companies may want to consider taking proactive steps to avoid the risk of punitive damages. In the United States, the threat of increased damage awards for willful or objectively reckless patent infringement has caused companies to seek patent searches in their market as well as opinions from counsel to determine whether they may be infringing patents in order to mitigate the risk of large treble damages awards. In view of the Eurocopter decision, companies operating in Canada may now want to consider taking a similar course of action with assistance from their Canadian patent counsel.

Eurocopter’s entitlement to punitive damages establishes that the risk of punitive damages in Canada for patent infringement is real. The decision is currently under appeal by Bell to the Court of Appeal, and it will be interesting to see whether the Court of Appeal directs comments towards the lower court’s opinion that found Bell had implied knowledge of Eurocopter’s patent.

NOT LEGAL ADVICE. Information made available on the Web site in any form is for information purposes only. It is not, and should not be taken as legal advice. You should not rely on, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this Web site. Gowlings professionals will be pleased to discuss resolutions to specific legal concerns you may have.

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