Monetary consequences for falsely alleging patent infringement

On November 17 2016 the Federal Court released a decision regarding two patent actions that were heard together: Advantage Products Inc v Excalibre Oil Tools Ltd (2016 FC 1279). The two actions were each between Advantage Products Inc (API) and others, and Excalibre Oil Tools Ltd and others. In the decision Justice Manson found that Excalibre did not infringe any of API’s patents. In addition, and significantly, Manson also directed that a reference be held to determine the quantum of Excalibre’s damages that arose from false allegations of patent infringement that were made in writing by API’s counsel to Excalibre’s customers.

The action against Excalibre for infringement concerned two patents that related to a particular type of downhole tool (a so-called 'torque anchor'). The court found that Excalibre’s centralised torque anchor product did not infringe either of the API patents. The court also found that the claims of one API patent were all invalid, in addition to the finding of non-infringement.  

Excalibre’s claim for compensation from API for having written false letters to Excalibre’s customers, which resulted in Excalibre losing business, was granted. A reference (second trial) will be held to determine the extent and quantum of such damages.

The court also issued an injunction that restrains API and API’s officers, directors and other persons under their control from representing to third parties, including customers and potential customers of Excalibre, that the Excalibre centralised torque anchor infringes any claims of the patents in suit.

The court also held that Excalibre was entitled to its legal costs.

Coincidentally, this decision fell on the 50th anniversary of the Supreme Court of Canada’s decision in S&S Industries v Rowell ([1966] SCR 419), the leading case dealing with false and misleading statements. Pursuant to S&S, the court in this case held that a party will be liable if: 

• false statements are made through their lawyer (in this case, via a number of written letters) to customers of another party;
• such false statements allege that a product being purchased by such customers infringes one or more patents;
• a later trial determines that there is no infringement; and
• such letters directly cause customers to cease purchasing the non-infringing product.

The liable party will be directed to pay monetary compensation to the party which lost sales due to such false statements.

In this case, Husky Energy and Bronco Energy were Excalibre’s customers. Portions of the letters sent to these customers that the trial judge found had strongly and falsely implied that the Excalibre centralised torque anchor infringed API’s patent rights are set out below:

"API demands Husky immediately cease sourcing the [centralised] torque anchor. Husky is encouraged to review the attached SOC and assess their own liability in this infringement of API’s exclusive rights... Should Husky choose to continue along their current path, API will be compelled to amend their litigation to include Husky."  (April 28 2008 Husky letter.)

"The Canadian Patent Act also provides API with similar right [sic] of enforcement against purchasers and as against users of patented torque anchors which are not obtained from authorized sources, including Bronco Energy... Unless Bronco Energy advises this office, by May 23^rd, of their immediate cessation of the above infringing activities, API will amend their litigation to include Bronco Energy." (May 16 2018 Bronco letter.)

Although this decision involved infringement and validity of patents, the court asserted its authority under the Trademarks Act to award monetary compensation to Excalibre arising from API’s statements that falsely asserted patent infringement (see Sections 7(a) and 53.2(1) of the Trademarks Act). The recent decision is an important reminder to patentees to assert their rights in the courts rather than resorting to threatening tactics conducted outside a courtroom.