Damages Issues in Recent Canadian Decision

The case is Rovi Guides, Inc. v. Videotron Ltd., 2022 FC 874, decision by Mr. Justice Lafrenière.  The court holds that the claims of the patents in suit, which relate to interactive television program guides, are invalid, so the discussion of damages (beginning at para. 543) is dictum only (but could be relevant, I assume, if on appeal the invalidity or infringement determinations were to be reversed).  The plaintiff sought an accounting of profits or, in the alternative, a reasonable royalty. 

The defendant initially agreed to a portfolio license of Rovi patents, according to the court, primarily to avoid suit:  “freedom from suit was the primary motivating factor that led Videotron to accept to pay the royalty rates that were ultimately negotiated, and not the value of any particular patents in Rovi’s portfolio, as evidenced by the fact that Videotron did not perform any analysis of the market value of different features covered by the patents in the Rovi portfolio before entering into the Licence Agreement” (para. 568).  When it came time to renew the license, Rovi sought a much higher rate; Videotron agreed to a one-year extension, but the parties never came to terms on a longer extension, and litigation ensued (paras. 572-78).

First, then, on the issue of accounting of profits, the court writes “In Apotex Inc v Bayer Inc, 2018 FCA 32 at para 15, the Federal Court of Appeal reiterates the various factors to consider in deciding whether to award an accounting of profits. These factors include: (i) whether there has been undue delay in commencing or prosecuting the litigation; (ii) the patentee’s conduct; (iii) the infringer’s conduct; (iv) whether the patentee practiced the invention of the patent in Canada; and (v) complexity of calculating an accounting of profits” (para. 581).  Here, the court finds that factors (i), (iii), and (iv) are neutral, but that (ii) and (v) weigh against an accounting.  On (ii), the court states, inter alia, that “[w]hile Rovi kept touting the value of its patent portfolio, it was never prepared to disclose what that portfolio actually comprises,” and “would not reveal a complete list of its patents that it thought Videotron infringed, or even what it referred to as its ‘best patents’” (para. 589).  It also refers to “Rovi’s apparently deliberate strategy of delaying the prosecution of its patents,” which could result in patent holdup (para. 590); states that “the reason why Rovi declined to reveal to Videotron a complete list of specific patent claims it considered infringed was to prevent Videotron from designing around them” (para. 592); and that Rovi did not send a cease and desist letter before commencing litigation (para. 593).  On factor (v), after summarizing the parties’ submissions the court finds that “[w]hile the complexity of the evidence could be overcome, I am not satisfied that using any methods proposed by Rovi’s expert to calculate profits, which would be fraught with insufficient, speculative, and contradicted evidence would allow me to arrive to reliable and appropriate amount reflecting Videotron’s profits” (para. 607).

Second, as for reasonable royalties, the court writes:

            Videotron submits that should a particular Videotron system feature be found to infringe a valid claim in the Asserted Patents, the appropriate remedy is a one-time reasonable royalty, capped at no more than Videotron’s cost to remove or design-around the subject-matter of the relevant asserted patent claim. The uncontroverted evidence at trial was that the approximate cost for such a design change would have been $150,000 per feature. . . .

 

            Rovi’s expert, Dr. Bazelon agreed that "“non-infringing alternatives do come into willingness to pay and willingness to accept”" and if the infringer has an alternative to practicing it, such a design-around cost is a reasonable upper bound for a royalty.

 

            I am satisfied that Videotron had the wherewithal to come up with workable non-infringing alternatives for the implicated user interface components, which would not have affected its subscriber base. This is evidenced by their regular upgrades to their system.

 

            Taken into account the particular facts of this case, I consider that an appropriate and reasonable royalty would be $150,000 per feature as proposed by Videotron (paras. 611, 620-21, 623).

Assuming the correctness of the court’s analysis of the facts, its legal analysis seems right to me, in particular its recognition (1) of the risk of patent holdup under some circumstances, and (2) the relevance of noninfringing alternatives to the calculation of reasonable royalties.

Hat tip to Professor Norman Siebrasse for calling this case to my attention.

Update:  Professor Siebrasse has published his post on the decision here.