JAY-LOR International Inc. et al. v. Penta Farm Systems Ltd. et al., (2007) 313 F.T.R. 1 (FC)

• Judge: Snider, J.
• Court: Federal Court (Canada)
• Case Date: May 14, 2007
• Jurisdiction: Canada (Federal)
• Citations: (2007), 313 F.T.R. 1 (FC);2007 FC 358

JAY-LOR Intl. Inc. v. Penta Farm (2007), 313 F.T.R. 1 (FC)

MLB headnote and full text

Temp. Cite: [2007] F.T.R. TBEd. MY.038

JAY-LOR International Inc. and JAY-LOR Fabricating Inc. (plaintiffs) v. Penta Farm Systems Ltd. and Penta One Limited (defendants)

(T-103-05; 2007 FC 358)

Indexed As: JAY-LOR International Inc. et al. v. Penta Farm Systems Ltd. et al.

Federal Court

Snider, J.

May 14, 2007.

Summary:

JAY-LOR owned a patent for a vertical feed mixer used for agricultural purposes. Penta Farm Systems, who was formerly a dealer for the JAY-LOR feed mixer, began building and selling its own brand of vertical feed mixer using one design up to April 30, 2005 (the original Penta vertical feed mixer) and with a design change after that date (the redesigned Penta vertical feed mixer). JAY-LOR sued Penta for damages for patent infringement. Penta challenged the validity of the patent of the grounds of anticipation and obviousness.

The Federal Court held that the patent was not invalid for anticipation or obviousness. Further, the Penta mixer infringed the JAY-LOR patent up to April 30, 2005, when Penta redesigned its mixer. The court calculated damages accordingly.

Patents of Invention - Topic 1032

The specification and claims - Construction of a patent - Particular patents - JAY-LOR owned a patent for a vertical feed mixer used for agricultural purposes - Penta Farm Systems, who was formerly a dealer for the JAY-LOR feed mixer, began building and selling its own brand of vertical feed mixer - JAY-LOR sued Penta, alleging patent infringement - The Federal Court reviewed the principles applicable to patent construction and construed the vertical feed mixer patent claims accordingly - See paragraphs 39 to 71.

Patents of Invention - Topic 1581

Grounds of invalidity - Lack of "inventive ingenuity" (obviousness) - General - The Federal Court stated that the simplicity of an invention was not a bar to patent validity - See paragraph 76.

Patents of Invention - Topic 1589

Grounds of invalidity - Lack of "inventive ingenuity" (obviousness) - Particular patents - JAY-LOR owned a patent for a vertical feed mixer used for agricultural purposes - Penta Farm Systems, a former dealer for the JAY-LOR feed mixer, began building and selling its own brand of vertical feed mixer - JAY-LOR commenced an action against Penta for patent infringement - Penta alleged that the patent was invalid for obviousness - The Federal Court reviewed the factors applicable in determining whether a patent was invalid for obviousness - Applying those factors in this case, the court determined that the patent was not invalid for obviousness - See paragraphs 73 to 92.

Patents of Invention - Topic 1603

Grounds of invalidity - Anticipation - By previously published article or patent - JAY-LOR owned a patent for a vertical feed mixer used for agricultural purposes - Penta Farm Systems, a former dealer for the JAY-LOR feed mixer, began building and selling its own brand of vertical feed mixer - JAY-LOR commenced an action against Penta for patent infringement - Penta alleged that the patent was invalid on the ground of anticipation (i.e., the invention was anticipated by two prior patents) - The Federal Court held that the patent was not invalid on the ground of anticipation - See paragraphs 93 to 99.

Patents of Invention - Topic 1605

Grounds of invalidity - Anticipation - Particular patents - [See Patents of Invention - Topic 1603 ].

Patents of Invention - Topic 2888

Infringement of patent - Acts constituting an infringement - Of particular patents - JAY-LOR owned a patent for a vertical feed mixer used for agricultural purposes which was issued on April 22, 2003 - Penta Farm Systems, a former dealer for the JAY-LOR feed mixer, began building and selling its own brand of vertical feed mixer using one design up to April 30, 2005 (the original Penta vertical feed mixer) and with a design change after that date (the redesigned Penta vertical feed mixer) - JAY-LOR sued Penta for patent infringement - The Federal Court held that the original Penta vertical feed mixer infringed the JAY-LOR patent, while the redesigned mixer did not - See paragraphs 100 to 108.

Patents of Invention - Topic 2926

Infringement of patent - Acts not constituting an infringement - Of particular patents - [See Patents of Invention - Topic 2888 ].

Patents of Invention - Topic 3102

Infringement of patent - Remedies - Damages or accounting of profits - [See both Patents of Invention - Topic 3821 and both Patents of Invention - Topic 3827 ].

Patents of Invention - Topic 3105

Infringement of patent - Remedies - Royalties - [See second Patents of Invention - Topic 3821 , Patents of Invention - Topic 3823 , and first Patents of Invention - Topic 3827 ].

Patents of Invention - Topic 3606

Infringement actions - Parties - Persons entitled to commence action - JAY-LOR Fabricating obtained a patent (the '092 Patent) for a vertical feed mixer - JAY-LOR Fabricating assigned the patent to its parent company, JAY-LOR International - JAY-LOR Fabricating manufactured the mixers - Penta Farm Systems, a former JAY-LOR dealer, began building and selling its own brand of vertical feed mixer - JAY-LOR International and JAY-LOR Fabricating sued Penta for patent infringement - Penta claimed that JAY-LOR Fabricating lacked standing to bring the action and claim damages, because there was no written licence agreement between JAY-LOR International and JAY-LOR Fabricating (Patent Act, s. 55(1)) - The Federal Court held that JAY-LOR Fabricating had standing - The court found that there was an implied licence between the JAY-LOR companies - The court noted that the two companies organized their affairs in a manner consistent with the existence of a licence - JAY-LOR International received rent from JAY-LOR Fabricating for the use of the plant facilities and profits from the sale of vertical feed mixers - While there was no fee for the use of the licence reflected in the financial statement of either company, the fact that the profits of JAY-LOR Fabricating were sent to JAY-LOR International was strong evidence that the companies intended their relationship to be one of licensee and licensor - Both companies were under the control of the same person and no other licence had ever been granted to any third party - See paragraphs 23 to 38.

Patents of Invention - Topic 3606

Infringement actions - Parties - Persons entitled to commence action - JAY-LOR Fabricating obtained a patent for a vertical feed mixer - JAY-LOR Fabricating assigned the patent to its parent company, JAY-LOR International - JAY-LOR Fabricating manufactured the mixers - Penta Farm Systems, a former JAY-LOR dealer, began building and selling its own brand of vertical feed mixer - JAY-LOR International and JAY-LOR Fabricating sued Penta for patent infringement - Penta claimed, pursuant to s. 55(1) of the Patent Act that, absent a licence between JAY-LOR Fabricating and JAY-LOR International, JAY-LOR Fabricating had no standing to bring the action - Section 55(1) provided that a person who infringed a patent was liable to the patentee and to all persons claiming under the patentee - The Federal Court held that Penta gave too narrow an interpretation to the words in s. 55(1) - The court stated that just because two companies were related did not mean that they each automatically qualified to claim under s. 55(1) - Rather, the ability of a party to claim under a patentee depended on whether the party could trace an interest under the patent to the patentee and did not necessarily require the existence of an express licence - Where no express licence existed, each case had to be determined on its facts - See paragraphs 30 to 37.

Patents of Invention - Topic 3821

Infringement actions - Damages - General - The Federal Court discussed the general principles applicable to calculating damages in a patent infringement case - See paragraphs 113 to 124.

Patents of Invention - Topic 3821

Infringement actions - Damages - General - JAY-LOR owned a patent for a vertical feed mixer - Penta Farm Systems, a former JAY-LOR dealer, began building and selling its own brand of vertical feed mixer - JAY-LOR sued Penta for patent infringement - The Federal Court held that the Penta mixer infringed the JAY-LOR patent up to April 30, 2005, when Penta redesigned its mixer - The court held that for purposes of damages two time frames had to be considered - Period 1: from when the patent application was laid open for public inspection to the day before the Patent was granted (February 13, 2001 to April 21, 2003) (Patent Act, s. 55(2)) - Period 2: from the grant of the patent (April 22, 2003 to April 30, 2005) (Patent Act, s. 55(1)) - The court stated that "for the period after the grant of the patent, s. 55(1) of the Patent Act provides that 'a person who infringes a patent is liable ... for all damage sustained by the patentee'. In contrast, s. 55(2) provides that a person is liable to pay 'reasonable compensation ... for all damage sustained by the patentee' during the laid open period. In s. 55(2), Parliament could have provided for the same assessment of damages as in s. 55(1). It did not do so. Accordingly, to give effect to the different words in the two provisions, I believe that the better view is that 'reasonable compensation' during Period 1 must be something other than damages as contemplated by s. 55(1). It may be that there are other means to provide reasonable compensation beyond a royalty. However, in the case before me, no alternatives were presented. Thus, in this case, I intend to equate 'reasonable compensation' to a 'reasonable royalty'" - See paragraphs 121 and 122.

Patents of Invention - Topic 3823

Infringement actions - Damages - Rate of royalty - JAY-LOR owned a patent for a vertical feed mixer - The patent was laid open for public inspection on February 13, 2001 and was issued on April 22, 2003 - Penta Farm Systems, a former JAY-LOR dealer, began building and selling its own brand of vertical feed mixer - JAY-LOR sued Penta for patent infringement - The Federal Court held that the Penta mixer infringed the JAY-LOR patent up to April 30, 2005, when Penta redesigned its mixer - The court held that for purposes of damages two time frames had to be considered - Period 1: from prior to the grant of the patent and after the patent application was laid open for public inspection (February 13, 2001 to April 21, 2003) (Patent Act, s. 55(2)) - Period 2: from the grant of the patent (April 22, 2003 to April 30, 2005) (Patent Act, s. 55(1)) - The court discussed the different approaches to calculating the reasonable royalty rates (i.e., the AlliedSignal approach, the analytical approach and the anticipated profits approach) - The court held that the anticipated profits approach was the preferred approach to calculate the royalty rate in this case - Using this approach the court concluded that a reasonable royalty rate would be 7% - The court held that this rate applied to all of the infringing sales during Period 1 and to those sales made by Penta in Period 2 that JAY-LOR: (a) would not have made; or (b) could not persuade the court they would have made but for the presence of the infringing product - See paragraphs 125 to 175.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - JAY-LOR owned a patent for a vertical feed mixer - Penta Farm Systems, a former JAY-LOR dealer, began building and selling its own brand of vertical feed mixer - JAY-LOR sued Penta for patent infringement - The Federal Court held that the Penta mixer infringed the JAY-LOR patent up to April 30, 2005, when Penta redesigned its mixer - The court held that for purposes of damages two time frames had to be considered - Period 1: from when the patent was laid open for inspection to when the patent was granted (February 13, 2001 to April 21, 2003) (Patent Act, s. 55(2)) - Period 2: from the grant of the patent to when the infringement ceased (April 22, 2003 to April 30, 2005) (Patent Act, s. 55(1)) - The court calculated damages and royalties accordingly, holding that the total damages for Period 1 and Period 2 was $1,919,945 - The court declined to award punitive damages where Penta's behaviour could not be categorized as outrageous or high-handed - See paragraphs 109 to 255.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - Apportionment - JAY-LOR owned a patent for a vertical feed mixer used for agricultural purposes - Penta Farm Systems, a former dealer for the JAY-LOR feed mixer, began building and selling its own brand of vertical feed - JAY-LOR sued Penta for patent infringement, electing damages as a remedy if the action was successful - Penta argued that if JAY-LOR was successful, then damages should be apportioned (i.e., damages should be assessed on only a small part of the invention - the auger component) - Penta argued that if JAY-LOR was compensated in damages for the entire vertical feed mixer, JAY-LOR would receive a windfall - The Federal Court rejected the apportionment argument - The court stated that in general, an election of damages entitled a plaintiff to recover its lost profits on the entire patented machinery - The court held that the patented article was not just the auger, rather the patent was for an entire vertical feed mixer, including the unique auger that set JAY-LOR's invention apart - Further, Penta was unable to prove that the sales of the infringing vertical feed mixers were solely attributable to the improvements that were made to the JAY-LOR invention - See paragraphs 190 to 199.

Cases Noticed:

Electric Chain Co. of Canada Ltd. v. Art Metal Works Inc. et al., [1933] S.C.R. 581; [1933] 4 D.L.R. 240, refd to. [para. 31].

Apotex Inc. and Novopharm Ltd. v. Wellcome Foundation Ltd. (1998), 145 F.T.R. 161; 79 C.P.R.(3d) 193 (T.D.), affd. (2000), 262 N.R. 137; 10 C.P.R.(4th) 65 (F.C.A.), refd to. [para. 32].

Whirlpool Corp. et al. v. Camco Inc. et al., [2000] 2 S.C.R. 1067; 263 N.R. 88; 2000 SCC 67, refd to. [para. 39].

Free World Trust v. Electro Santé Inc. et al., [2000] 2 S.C.R. 1024; 263 N.R. 150; 2000 SCC 66, refd to. [para. 39].

Catnic Components Ltd. v. Hill & Smith Ltd., [1982] R.P.C. 183 (H.L.), refd to. [para. 53].

Dimplex North America Ltd. v. CFM Corp. (2006), 292 F.T.R. 38; 148 A.C.W.S.(3d) 982; 2006 FC 586, refd to. [para. 68].

Monsanto Canada Inc. et al. v. Schmeiser et al., [2004] 1 S.C.R. 902; 320 N.R. 201; 2004 SCC 34, refd to. [para. 72].

Apotex Inc. and Novopharm Ltd. v. Wellcome Foundation Ltd., [2002] 4 S.C.R. 153; 296 N.R. 130; 21 C.P.R.(4th) 499; 2002 SCC 77, refd to. [para. 72].

SmithKline Beecham Pharma Inc. et al. v. Apotex Inc. et al. (2001), 208 F.T.R. 105; 14 C.P.R.(4th) 76 (T.D.), affd. (2002), 291 N.R. 168; 21 C.P.R.(4th) 129 (F.C.A.), refd to. [para. 74].

Beloit Canada Ltd. v. Valmet Oy (1986), 64 N.R. 287; 8 C.P.R.(3d) 289; 38 A.C.W.S.(2d) 415 (F.C.A.), refd to. [para. 75].

Diversified Products Corp. and Brown Fitzpatrick Lloyd Patent Ltd. v. Tye-Sil Corp. (1991), 125 N.R. 218; 35 C.P.R.(3d) 350 (F.C.A.), refd to. [para. 76].

Farbwerke Hoechst Aktiengesellschaf v. Halocarbon (Ontario) Ltd. and Halocarbon Products Corp., [1979] 2 S.C.R. 929; 27 N.R. 582; 42 C.P.R.(2d) 145, refd to. [para. 77].

Cochlear Corp. v. Cosem Neurostim ltée (1995), 102 F.T.R. 81; 64 C.P.R.(3d) 10; 58 A.C.W.S.(3d) 847 (T.D.), refd to. [para. 89].

Wessel et al. v. Energy Rentals Inc. (2004), 253 F.T.R. 279; 2004 FC 791, refd to. [para. 91].

Bayer Aktiengesellschaft et al. v. Apotex Inc., [2001] O.T.C. 2; 10 C.P.R.(4th) 151 (Sup. Ct.), affd. (2002), 155 O.A.C. 117; 16 C.P.R.(4th) 417 (C.A.), refd to. [para. 114].

Domco Industries Ltd. v. Armstrong Cork Canada Co. and Congoleum Co. et al. (1983), 76 C.P.R.(2d) 70 (F.C.T.D.), varied (1986), 3 F.T.R. 289; 10 C.P.R.(3d) 53; 9 C.I.P.R. 139 (T.D.), refd to. [para. 115].

United Horse-Shoe and Nail Co. v. Stewart & Co. (1888), 5 R.P.C. 260; 13 App. Cas. 401, refd to. [para. 116].

Feldstein v. McFarlane Gendron Manufacturing Co. (1966), 52 C.P.R. 127 (Ex. Ct.), refd to. [para. 117].

Colonial Fastener Co. et al. v. Lightning Fastener Co., [1937] S.C.R. 36; [1937] 1 D.L.R. 21, refd to. [para. 119].

Allied Signal Inc. v. DuPont Canada Inc. and Complax Corp. (1998), 142 F.T.R. 241; 78 C.P.R.(3d) 129 (T.D.), affd. (1999), 235 N.R. 185; 86 C.P.R.(3d) 324 (F.C.A.), refd to. [para. 119].

Baker Petrolite Corp. et al. v. Canwell Enviro-Industries Ltd. et al., [2002] 2 F.C. 3; 210 F.T.R. 161; 13 C.P.R.(4th) 193 (T.D.), revd. [2003] 1 F.C. 49; 288 N.R. 201; 17 C.P.R.(4th) 478 (F.C.A.), refd to. [para. 120].

Lubrizol Corp. v. Imperial Oil Ltd., [1997] 2 F.C. 3; 206 N.R. 136; 71 C.P.R.(3d) 26 (F.C.A.), refd to. [para. 195].

Livingstone v. Rawyards Coal Co. (1880), 5 A.C. 25, refd to. [para. 222].

Polansky Electronics Ltd. v. AGT Ltd. et al. (1999), 252 A.R. 206; 83 Alta. L.R.(3d) 43; 3 C.P.R.(4th) 34 (Q.B.), revd. (2001), 277 A.R. 43; 242 W.A.C. 43; 11 C.P.R.(4th) 7 (C.A.), refd to. [para. 256].

Lubrizol Corp. et al. v. Imperial Oil Ltd. et al., [1996] 3 F.C. 40; 197 N.R. 241; 67 C.P.R.(3d) 1 (F.C.A.), refd to. [para. 256].

Statutes Noticed:

Patent Act, R.S.C. 1985, c. P-4, sect. 55(1) [paras. 30, 110]; sect. 55(2) [para. 111]. .

Counsel:

Christopher Van Barr and Michael Crichton, for the plaintiffs;

Robert Morris and Wade Sarasin, for the defendants.

Solicitors of Record:

Gowling Lafleur Henderson LLP, Ottawa, Ontario, for the plaintiffs;

Lerners LLP, London, Ontario, for the defendants.

This matter was heard at Kitchener, Ontario, on January 8 - 17, 2007, before Snider, J., of the Federal Court, who delivered the following judgment on May 14, 2007.