Monsanto Canada Inc. et al. v. Rivett, 2009 FC 317

• Judge: Zinn, J.
• Court: Federal Court (Canada)
• Case Date: March 26, 2009
• Jurisdiction: Canada (Federal)
• Citations: 2009 FC 317;(2009), 343 F.T.R. 203 (FC)

Monsanto Can. Inc. v. Rivett (2009), 343 F.T.R. 203 (FC)

MLB headnote and full text

Temp. Cite: [2009] F.T.R. TBEd. AP.020

Monsanto Canada Inc. and Monsanto Company (plaintiffs) v. Charles Rivett (defendant)

(T-1515-05; 2009 FC 317)

Indexed As: Monsanto Canada Inc. et al. v. Rivett

Federal Court

Zinn, J.

March 26, 2009.

Summary:

Monsanto Company owned the "830 Patent" for an invention related to a plant gene. Monsanto Canada Inc. was a licensee under the patent. Rivett, a farmer, admitted that he infringed the patent in 2004 by planting ROUNDUP READY®) soybeans, and by harvesting and selling the resulting crop, without permission or a license. He received gross revenue of $233,311.73. Under the terms of a consent judgment, Monsanto elected, as between damages and an accounting of profits, an accounting of Rivett's profits. Monsanto submitted that the differential cost approach was appropriate.

The Federal Court applied the differential profit approach and ordered Rivett to disgorge $40,137.94 as the profit directly attributable to the infringement, being the difference between the gross profits of infringement and the gross profits of non-infringement. Monsanto was entitled to pre-judgment and post-judgment interest. The matter of costs was reserved pending further submissions.

Editor's Note: This action was heard immediately before Monsanto Canada Inc. et al. v. Janssens et al., reported at (2009), 343 F.T.R. 234. Portions of the reasons for judgment in this case were adopted and referenced in that case.

Damages - Topic 1318

Exemplary or punitive damages - Patent infringement - The defendant, a farmer, admitted that he infringed the plaintiffs' patent without permission or a license and sold the resulting crop - The gross revenue he received was $233,311.73 - The plaintiffs elected, as between damages and an accounting of profits, an accounting, and submitted that the order must be a real deterrent to the defendant and others who might consider infringing the patent - The Federal Court observed that, while deterrence was one aspect of the remedy, the accounting remedy was intended to be non-punitive in nature - The court considered the leading jurisprudence that distinguished an accounting of profits from an award of damages - Requiring the party at fault to disgorge the profits made from the infringement while ensuring that he was not being required to hand over more, required a focus on the causal connection between the act that infringed the invention and the profit - In the result, the court stated that "the quantum of the disgorgement [$40,137.94] may not be seen by the plaintiffs to carry with it the severe deterrent effect they had hoped; however, the choice of remedy was the plaintiffs" - See paragraphs 25 to 27, 110.

Equity - Topic 1006

Equitable relief - General - Accounting of profits - The Federal Court considered the equitable remedy of an accounting of profits, in the context of an infringement of a patent - Pursuant to its authority under s. 57(1)(b) of the Patent Act, the court might require the infringer to render an account of the profits made because of the infringement and to disgorge those profits by paying them over to the patent holder - The court observed the jurisprudence that an order requiring that the profits be disgorged served one or both of two equitable purposes - The first was described as a prophylactic purpose - "Its focus is to deter the wrong-doer and others who might emulate his actions" - The second was described as a restitutionary purpose - "Its focus is to restore to the wronged party profit which properly belongs to him, but which has been wrongly appropriated by the wrong-doer" - It was not necessary that both purposes be served in every case - See paragraphs 19 and 20.

Equity - Topic 1006

Equitable relief - General - Accounting of profits - The Federal Court considered the restitutionary purpose of the equitable remedy of an accounting of profits, in the context of an infringement of a patent - "Unlike a compensatory award, a restitutionary award is not focused on restoring the wronged party to the position he would have been in but for the breach. The measure of restitution is the defendant's gain rather than the plaintiff's loss" - The defendant in this case submitted that, although he had profited, the plaintiffs had not suffered a corresponding loss, and would be unjustly enriched if they were awarded a sum in excess of their actual loss - He submitted in evidence a trade news report in which it was asserted that the defendant should only be required to compensate the plaintiffs for the sum he would otherwise have paid for the patented seed which included the licensing fee - The court stated that, if that were the proper measure of the award, then it would be compensatory in that a plaintiff would be placed in the position it would have been in had the infringement not occurred - It could also leave some of the profits in the hands of the wrong-doer, which was precisely the inequity (the unjust enrichment) the restitutionary remedy sought to address - See paragraph 21.

Equity - Topic 1006

Equitable relief - General - Accounting of profits - The Federal Court considered the two purposes of the equitable remedy of an accounting of profits, in the context of an infringement of a patent - The plaintiffs had elected, as between damages and an accounting of profits, an accounting of the defendant's profits derived from the infringement - The proper description of the restitutionary purpose was not to restore the wronged party to the position in which he would have otherwise been; rather, it was to put the wrong-doer in the position he would otherwise have been if he had not committed the wrong - "In this sense, it is the wrong-doer who is being restored, through a disgorgement of profits, to the position that he would have been in had he not done the illegal act" - Simply putting the plaintiffs back to the position they would have been but for the infringement was not appropriate in light of the remedy they elected - See paragraphs 22 and 23.

Evidence - Topic 253

Inferences and weight of evidence - Weight - Hearsay evidence - [See first Evidence - Topic 536 ].

Evidence - Topic 257

Inferences and weight of evidence - Weight - Contradictory evidence - [See both Evidence - Topic 536 ].

Evidence - Topic 536

Presentation of evidence - Rulings during trial - The plaintiffs sought an accounting of profits - The defendant proposed to call an expert witness (Fisher) to speak to a report he had prepared - Attached to the report was an unaudited income statement for the defendant for the two years in question - The plaintiffs objected to the report and to Fisher's evidence relating to the report - The Federal Court upheld the objections - The defendant had not complied with the Federal Courts Rules (rule 258(5)), regarding Fisher's evidence as an expert - The court was not prepared to exercise its discretion (rule 279) - The evidence was not admissible - The income statement had not previously been produced to the plaintiffs - The author of the statement was not being called as a witness and, if the document was a business record, the provisions of the Canada Evidence Act had not been complied with - Further, the statement directed the reader to "See Notice to Reader", which was not included - Even if Fisher were qualified as an expert, his opinion evidence would be based on hearsay that appeared to be contrary to the defendant's direct evidence - The evidence would be given very little, if any, weight and thus it would not assist the court - See paragraphs 13 and 14.

Evidence - Topic 536

Presentation of evidence - Rulings during trial - The defendant admitted he infringed the plaintiffs' patent and sold the resulting crop (soybeans) - He produced a document at his examination for discovery that he had prepared and that purported to reflect the expenses he incurred to grow the patented soybean seeds - At trial, he indicated that in some instances, the figures he had put down reflected the average costs he incurred for that item; other figures reflected information obtained from the Ontario Federation of Agriculture - The plaintiffs objected to that evidence - The Federal Court ruled that the defendant could speak to information contained in the document but that any information contrary to direct evidence of actual expenses incurred, or contrary to any of the agreed facts, would be given no weight - Further, the court indicated that little weight was likely to be given the evidence insofar as it relied on information obtained from third party sources - However, as some of the information related to the value of a farmer's labour, and given the defendant's submission that he ought to be given some credit for his own labour, the evidence was accepted, subject to weight, for that limited purpose - See paragraph 15.

Evidence - Topic 7075

Opinion evidence - Reports by experts - Admission of (incl. objection to) - [See first Evidence - Topic 536 ].

Interest - Topic 5009

Interest as damages (prejudgment interest) - General principles - Prejudgment interest - Calculation of (incl. rate) - [See Patents of Invention - Topic 3834 ].

Patents of Invention - Topic 2964

Infringement of patent - Genetically engineered life forms, plants, cells, etc. - Plants and seeds - [See first Patents of Invention - Topic 3827 ].

Patents of Invention - Topic 3102

Infringement of patent - Remedies - Damages or accounting of profits - [See Damages - Topic 1318 , second and third Equity - Topic 1006 ].

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - Rivett, a farmer, admitted that he infringed the plaintiffs' "830 Patent" in 2004 by planting patented soybean seeds, and selling the resulting crop - The gross revenue he received was $233,311.73 - The plaintiffs elected an accounting of profits and submitted that the differential cost approach was appropriate - The Federal Court applied the differential profit approach and ordered Rivett to disgorge $40,137.94 - First, there was a causal connection between the profits made and the infringement - Second, the court found the gross profits of infringement to be $129,477.21, calculated as the difference between gross revenue and legitimate and proven expenses ($103,834.52) - Third, there was a non-infringing option that Rivett could have used; i.e., conventional soybeans - Fourth, the court ascertained that Rivett's gross profits of non-infringement, had he used conventional beans, would have been $89,339.27; i.e., 69% of every dollar of profit generated using the patented soybeans would have been generated had he used conventional beans - The difference between $129,477.21 and $89,339.27 was $40,137.94, and was the profit directly attributable to and that resulted from the infringement - See paragraphs 94 to 102.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The Federal Court, in the context of determining the profits of the defendant that were to be paid over to the patentee, applied the differential profit approach - That approach required the court to "compare the profits made by the infringer that are attributable to the invention and the profits that the infringer would have made if he had used the best non-infringing option" - The analysis required was as follows - (1) Was there a causal connection between the profits made and the infringement; if none, then there were no profits that required an accounting - (2) If there was a causal connection, then what were the profits made as a result of the infringement (the gross profits of infringement) - (3) Was there a non-infringing option that the infringer could have used; if none, then the gross profits of infringement were to be paid over to the patentee - (4) If there was a non-infringing option, then what profit would the infringer have made, had he used that option (the gross profits of non-infringement) - (5) Where there was a non-infringing option available, the amount to be paid over to the patentee was the difference between the gross profits of infringement and the gross profits of non-infringement; that sum was the profit that was directly attributable to and that resulted from the infringement - See paragraph 29.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The patentee submitted that there were three possible approaches to determining the profits of the infringer that were to be paid over; namely, (a) the value based or differential profit approach; (b) the variable cost or incremental cost or differential cost approach; and (c) the full absorption or full cost approach (see paragraphs 28 to 33) - The patentee submitted that the appropriate approach was the differential cost approach, on the basis that the differential profit approach preferred by the Supreme Court of Canada in Monsanto Canada Inc. v. Schmeiser (2004) had to be read as a remedy fashioned to absolve the defendant in that case of innocent use of the patented seed - The Federal Court was not persuaded that the Supreme Court of Canada's stated preference "can or should be so narrowly construed" - The application of the differential profit approach in the leading jurisprudence showed why it was to be preferred; namely, it identified the profit that was generated because of the patented invention and eliminated profits that had no causal link to the invention - See paragraphs 34 to 53.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The defendant admitted that he infringed the plaintiffs' "830 Patent" by planting patented soybean seeds, and selling the resulting crop - The Federal Court observed that, in applying the differential profit test in determining an accounting of profits, it would "always be an issue" whether there was a non-infringing alternative that could be used as a comparator - The jurisprudence showed that "the next best non-infringing alternative that is to be considered ... cannot be what one would have done had one complied with the law, i.e. obtained a license to use the patent ... The comparison is to the profit that would have been earned from using the next best product that is not the patented product itself, with the latter acting as a baseline from which to calculate added value. That results in a true reflection of the profits made from the invention - the necessary causal link" - The court concluded that conventional soybean was the appropriate comparator in this case - The comparison was not to the profits that the defendant would have generated had he complied with the law; it was to soybean seed that had none of the plaintiff's invention - See paragraphs 54 to 57.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The defendant grew and sold soybeans - He admitted that he infringed the plaintiffs' patent in 2004 by planting patented soybean seeds and by selling the resulting crop, without permission or a license - Under the terms of a consent judgment, the plaintiffs elected, as between damages and an accounting of profits, an accounting of the defendant's profits - The Federal Court rejected the plaintiffs' argument that all of the profits made by the defendant be disgorged, as in Teledyne Industries Inc. et al. v. Lido Industrial Products Ltd. (1982) (F.C.T.D.), where there was no next-best alternative available in that case that would have generated profit - In this case, there was an alternative available - If the patented seed was not used, the defendant would have used a conventional seed - See paragraphs 58 and 59.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - Rivett, a farmer, grew and sold soybeans - He admitted that, in 2004, he planted the plaintiff's patented soybean seeds and sold the resulting crop, without permission or a license - The plaintiffs elected an accounting of Rivett's profits - Rivett testified that he had no choice but to plant the patented seeds because there were no conventional soybeans available at the local co-op or from the one local farmer whom he asked - The Federal Court held that the fact that conventional soybeans were a non-infringing alternative to the patented soybeans was sufficient to permit it to use that crop as a comparator, whether or not such conventional seed was in fact available to Rivett in 2004 - The market availability of the comparator non-infringing product was not determinative - The differential profit approach "discovers the value that the invention has brought to the product"; in this case, a lower cost of production - Attaching determinative weight to the "vagaries of the local market" would undermine the ability to isolate profits having a causal link to the invention - See paragraphs 60 to 63.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The Federal Court applied the differential profit approach when conducting an accounting of profits in this case - Both parties accepted that it was the profits made from the infringement that must be disgorged and that the defendant was entitled to deduct legitimate and proved expenses from the gross revenue - The court was guided by the following principles - "In establishing an infringer's profits, the plaintiff is required to prove only the defendant's sales; the burden then shifts to the defendant to prove the elements of cost to be deducted from the sales in arriving at profit ... [T]he defendant bears the burden of explaining, at least in general terms, how claimed overhead costs actually contributed to the production of the infringing product. However, I am also guided by the fact that the remedy the plaintiffs seek is essentially an equitable remedy and equity must be done to both parties" - See paragraphs 66 and 67.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - In 2004 Rivett, a farmer, cultivated 1408 acres of corn, 811 acres of conventional soybeans, and 350 acres of wheat in addition to 947 acres of the plaintiff's patented soybean seeds and sold the resulting crop - He admitted that he infringed the plaintiff's patent - The plaintiffs elected an accounting of profits - The Federal Court applied the differential profit approach and considered the deductible expenses - Rivett submitted expenses from his farming operation that were mostly not specific to the 947 acres of soybeans, but which were incurred across the whole farming operation - The court did not accept the plaintiffs' proposition that it ought not to accept the expenses - Provided the expense was incurred, in part, with respect to the 947 acres, a principled basis to allocate that expense was to do so on the basis of the percentage of the acreage of the patented seeds to the total acreage - On that basis, the applicable percentage was 26.9% - It was not appropriate to consider costs such as general farm insurance, capital depreciation, water, and electricity (full cost approach) - See paragraphs 68 and 69.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The defendant admitted that he infringed the plaintiff's patent - The plaintiffs elected an accounting of profits - The defendant submitted evidence of expenses from his farming operation, including land rent - He accounted for 628 of the 947 acres at issue, and a total expenditure of $44,795.62 - The plaintiffs submitted that the defendant should not be allowed to deduct land rental expenses for which there was no specific record - The Federal Court agreed with the defendant that, on a balance of probabilities, all of the land devoted to the cultivation of the infringing crop was rented for value - However, that value appeared to have been the defendant's own labour; i.e., some of the land was paid for in goods and services, e.g., tillage, snow removal, or hay - The defendant was not entitled to any deduction for his labour - Also, there was no principled basis on which to determine the value of any goods that were exchanged for use of the land - Accordingly, the total deduction from profits in relation to land rent was $44,795.62 - See paragraphs 76 to 82.

Patents of Invention - Topic 3827

Infringement actions - Damages - Profits - Accounting - The Federal Court, in the context of determining the profits of the defendant farmer (Rivett) that were to be paid over to the patentee, declined to provide any offset to take into account Rivett's labour - The facts here were distinguishable from those in Monsanto Canada Inc. v. Schmeiser (2004) (S.C.C.), where the only party subject to disgorgement of its profits was the defendant corporate entity, not the personal defendant - Rivett was the only defendant here - The entire amount was " his " profit - To permit a deduction for his labour would be to permit him to keep, rather than disgorge, some of the profits made because of the infringement - That was neither equitable nor just - See paragraphs 90 to 92.

Patents of Invention - Topic 3834

Infringement actions - Damages - Interest - Prejudgment - The Federal Court observed the jurisprudence that the general rule in an accounting of profits was that there was an award of compound prejudgment interest as deemed earnings on the profits, and declined to mitigate it or to award only simple interest - The defendant in this case knew that the seed he was planting was patented and that he needed a license to grow it - He was not someone who, in good faith, nonetheless infringed the patent - Accordingly, the court required the defendant to pay prejudgment interest on the profits to be disgorged ($40,137.94) from the date on which he made those profits to the date of judgment - The infringing activities occurred in Ontario - The plaintiffs were entitled to prejudgment interest on the award at the rate of 2.8% compounded on a semi-annual basis from April 28, 2005 (the mid-point of the sale cycle), to the date of judgment (s. 36, Federal Courts Act) - See paragraphs 103 to 106.

Restitution - Topic 4

General principles - The principle of unjust enrichment - [See second Equity - Topic 1006 ].

Restitution - Topic 5

General principles - Restitutionary claims - What constitute - [See second Equity - Topic 1006 ].

Cases Noticed:

3464920 Canada Inc. v. Strother et al., [2007] 2 S.C.R. 177; 363 N.R. 123; 241 B.C.A.C. 108; 399 W.A.C. 108; 2007 SCC 24, refd to. [para. 19].

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. 21].

Beloit Canada Ltd. v. Valmet Oy (1994), 78 F.T.R. 86; 55 C.P.R.(3d) 433 (T.D.), varied (1995), 184 N.R. 149; 61 C.P.R.(3d) 271 (F.C.A.), refd to. [para. 26].

Monsanto Canada Inc. et al. v. Schmeiser et al. (2002), 202 F.T.R. 78; 19 C.P.R.(4th) 524 (T.D.), affd. (2002), 293 N.R. 340; 22 C.P.R.(4th) 455 (F.C.A.), revd. [2004] 1 S.C.R. 902; 320 N.R. 201; 2004 SCC 34, consd. [para. 27 et seq.].

Teledyne Industries Inc. et al. v. Lido Industrial Products Ltd. (1982), 68 C.P.R.(2d) 204 (F.C.T.D.), consd. [para. 33 et seq.].

Diversified Products Corp. et al. v. Tye-Sil Corp. (1990), 30 C.P.R.(3d) 324, affd. on this point (1990), 38 F.T.R. 251; 32 C.P.R.(3d) 385 (T.D.), refd to. [para. 33 et seq.].

Hancor Ltd. et al. v. Systèmes de Drainage Modernes Inc. (1991), 45 F.T.R. 266; 38 C.P.R.(3d) 62 (T.D.), refd to. [para. 33].

Wellcome Foundation Ltd. et al. v. Apotex Inc. (1998), 151 F.T.R. 250; 82 C.P.R.(3d) 466 (T.D.), refd to. [para. 33 et seq.].

Bristol-Myers Squibb Co. et al. v. Canada (Attorney General) et al., [2005] 1 S.C.R. 533; 334 N.R. 55; 2005 SCC 26, refd to. [para. 47].

Manufacturing Co. v. Cowing (1881), 105 U.S. 253, consd. [para. 48].

Reading & Bates Construction Co. v. Baker Energy Resources Co., Baker Marine Co. and Gaz Inter-Cité Quebec Inc., [1995] 1 F.C. 483; 175 N.R. 225 (F.C.A.), consd. [para. 49 et seq.].

Lubrizol Corp. et al. v. Imperial Oil Ltd. et al. (1996), 206 N.R. 136; 71 C.P.R.(3d) 26 (F.C.A.), consd. [para. 50 et seq.].

Statutes Noticed:

Federal Courts Act, R.S.C. 1985, c. F-7, sect. 36 [para. 106]; sect. 37 [para. 107].

Federal Courts Rules, 1998, rule 258(5), rule 279 [para. 14].

Patent Act, R.S.C. 1985, c. P-4, sect. 57(1)(b) [para. 18].

Authors and Works Noticed:

Aylen, David A., and Graff, Matthew J., The "Differential Profit" Approach in Monsanto, in Return of the Six-Minute Intellectual Property Law Lawyer, Law Society of Upper Canada (2004), generally [para. 42].

Siebrasse, Norman, A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms (2004), 20 C.I.P.R. 79, generally [para. 43].

Counsel:

Arthur B. Renaud and L.E. Trent Horne, for the plaintiffs;

Donald R. Good, for the defendant.

Solicitors of Record:

Bennett Jones, LLP, Toronto, Ontario, for the plaintiffs;

Donald R. Good & Associates, Ottawa, Ontario, for the defendant.

This action was heard on January 12, 13, and 14, 2009, at Toronto, Ontario, before Zinn, J., of the Federal Court, who delivered the following reasons for judgment, dated March 26, 2009.