Judgments

[1997] 3 F.C. 497

A-176-93 (T-1450-86)

Beloit Canada Ltée/Ltd. and Beloit Corporation (Appellants) (Plaintiffs)

v.

Valmet-Dominion Inc. (now Valmet Montreal Inc.) (Respondent) (Defendant)

A-177-93 (T-2253-86)

Beloit Canada Ltée/Ltd. and Beloit Corporation (Appellants) (Plaintiffs)

v.

General Electric Canada Inc. (Respondent) (Defendant)

A-179-93 (T-1268-86)

Beloit Corporation (Appellant) (Defendant)

v.

Valmet-Dominion Inc. (now Valmet Montreal Inc.) (Respondent) (Plaintiff)

Indexed as: Beloit Canada Ltd. v. Valmet-Dominion Inc. (C.A.)

Court of Appeal, Isaac C.J., Stone and Desjardins JJ.A.—Ottawa, June 17, 18, 19, 20, 1996 and April 23, 1997.

Patents — Infringement — Appeal from trial judgment holding (1) sale of component parts of press section of paper machines for assembly, use outside Canada and (2) provision of spare parts, services not infringement — (1) Where elements of invention sold in substantially unified combined form for purpose of later assembly, infringement not avoided by separation of parts leaving to purchaser task of integration, assembly — Trial Judge failed to consider contracts for complete machines, not just components — While delivery format in unassembled parts, whole press section sold, made — Manufacture of all components later sufficiently assembled to test fitting of parts constituting “making” of invention for purposes of Patent Act, s. 44 — (2) Supply of spare parts, services for continued running of press sections not infringement unless knowingly, for own benefit, inducing or procuring another to infringe patent — No evidence manufacturer (VDI) participated in decision by others to continue running infringing press sections.

Patents — Practice — Limitation of actions, remedies — Appeal from trial judgment holding Civil Code, Art. 2261 prescribing certain patent infringement actions, awarding damages in others — For prescription purposes, patent infringement characterized as offence, quasi-offence under law of Quebec — Art. 2261 barring such action if not brought within two years of act complained of — Plaintiff pleading suspension of limitation period must demonstrate lack of awareness of material facts giving rise to cause of action existed despite having exercised due diligence — Trial Judge’s inference patentee knew or ought to have known of infringing sales because aware of respondent’s activities not reversed as no evidence of due diligence — Activities more than two years prior to filing statements of claim prescribed — Award of accounting of profits discretionary under Patent Act, s. 57(1)(b) — May reasonably be refused where excessive delay, misconduct by patentee — Within Trial Judge’s discretion to consider lengthy delay in proceedings, relief leading to further delay, expense, infringing parties acting in good faith when entered contracts at time when Court declaring patent invalid — Accounting of profits inappropriate herein.

Federal Court jurisdiction — Trial Division — Within Court’s jurisdiction to grant accounting of profits under Patent Act, s. 57(1)(b), Federal Court Act, ss. 3, 20 — Patent Act, s. 57(1)(b) expressly permitting Court to order accounting in infringement actions — Federal Court Act, s. 20(2) giving Trial Division concurrent original jurisdiction in all cases, other than those mentioned in s. 20(1), in which remedy sought under authority of any Act of Parliament or at law or in equity respecting any patent — Accounting of profits equitable remedy.

Practice — Interest — Appeal from trial judgment awarding simple pre-, post-judgment interest in patent infringement action — Federal Court Act, s. 36(5) providing expressly for exercise of discretion by Court in relation to award of pre-judgment interest — Although s. 37 not containing comparable provision, cases recognizing post-judgment interest also discretionary — Given finding of good faith by infringer, open to Judge to so exercise discretion.

Damages — Trial Judge finding patent infringement where invention configuration of old, previously known parts — Directing assessment of damages based on sales of other components with infringing press sections — Patentee entitled to damages assessed upon sale of non-infringing components where finding of fact such sale arose from infringing patented component — As not making such specific finding, Trial Judge erred in direction for assessment of damages.

Equity — Appeal from trial judgment awarding damages instead of accounting of profits in patent infringement action — Accounting of profits equitable remedy — Patentee arguing as coming to equity with clean hands entitled prima facie to elect accounting of profits — Trial Judge not bound by maxims of equity because election provided as statutory alternative to damages in Patent Act, s. 57(1)(b).

Civil Code — Prescription — Appeal from trial judgment holding Civil Code, Art. 2261 prescribing patent infringement actions — For prescription purposes, patent infringement characterized as offence, quasi-offence under law of Quebec — Art. 2261 barring such action if not brought within two years of act complained of.

These were appeals and a cross-appeal from the judgment in an infringement action concerning a patent owned by Beloit Corporation (Beloit U.S.) for the press section of a paper machine. The invention combined old, previously known parts, into a new configuration. Beloit Canada Ltée/Ltd. (Beloit), a Canadian subsidiary of Beloit U.S., incorporated under the laws of Quebec, was the Canadian licensee. The respondent, Valmet-Dominion Inc. (VDI), manufactured and sold paper machines in Canada and the United States. VDI assumed and completed contracts for paper machines which had been entered into by Dominion Engineering Works (DEW), a subsidiary of General Electric Canada (GEC). Beloit commenced infringement actions against VDI, Voith and GEC, seeking a declaration that claims 1, 2 and 4 through 11 were valid and infringed. Those actions were dismissed and the patent was declared invalid, but the Court of Appeal allowed the appeals and referred the matters back to the Trial Division. The Trial Judge held, inter alia, that four of the contracts, in respect of which infringement had been alleged, were prescribed by Article 2261 of the Civil Code of Lower Canada (C.C.L.C.); the sale in Canada of component parts of the patented invention was an infringement of the patent, but two of those contracts involved were prescribed by Article 2261; and the manufacture and sale of component parts for assembly and use outside Canada, was not infringement. The Trial Judge declined to exercise his discretion to grant an accounting of profits, and instead ordered damages to be assessed against VDI for the press sections themselves and any other paper machine components with which the press sections may have been sold. He ordered simple pre- and post-judgment interest. In an amended judgment, he ordered that an injunction issue against VDI and Voith.

The issues in the appeal were: (1) whether the sale of parts for assembly outside Canada constituted infringement; (2) whether provision of parts and service necessary for the continued running of the machines constituted infringement; (3) whether certain claims were prescribed; (4) whether Beloit had a prima facie right to elect an accounting of profits; and (5) whether the Trial Judge erred in not ordering pre- and post-judgment compound interest. In the cross-appeal, the issue was whether the assessment of damages should be limited to press sections.

Held, the appeals should be dismissed except with respect to appeal No. A-179-93, in which it was declared that Canadian letters patent 1,020,383 (the Beloit patent) and claims 1, 2, and 4 through 11 had been infringed by DEW triple-nip presses; the cross-appeal should be dismissed except with respect to the assessment of damages.

(1) The Trial Judge erred in concluding that the sale of parts for assembly outside of Canada did not amount to infringement. There is no infringement of a patent in selling an article that does not in itself infringe the patent even when the vendor knows that the purchaser buys the article for the purpose of using it in the infringement of the patent, except if the vendor sells all the components of the invention to a purchaser in order that they be assembled by him. Where the elements of an invention are sold in a substantially unified and combined form for the purpose of later assembly, infringement may not be avoided by a separation or division of parts which leaves to the purchaser a simple task of integration and assembly. The Trial Judge failed to consider that the respondent GEC had in fact sold in Canada the patented invention when it signed contracts in Montréal for complete press machines, not simply for components. While the delivery format was in unassembled parts, it was the whole press section that was sold by GEC, and made by VDI. A manufacturer cannot avoid liability for infringement by disassembling the machine after the completed assembly has occurred. The manufacture of all the components that are later sufficiently assembled to test the fitting of the parts, constitutes “making” a patented invention for the purposes of Patent Act, section 44. Thus, VDI made the patented invention when it manufactured the components, and then sufficiently assembled the machines to ensure their functionality in their workshops in Montréal. That the press sections were disassembled for the purpose of shipping and delivery did not shield VDI from liability for having made in Canada press sections that infringed the patent. To find otherwise would unduly reward VDI for evading the responsibilities of the Canadian patent system.

(2) There was no basis upon which to set aside the Trial Judge’s finding that VDI did not infringe the patent by supplying spare parts or services for the continued running of the infringing press sections. The supply of spare parts and services alone does not constitute an infringement. VDI infringed only if it knowingly, for its own benefit, induced or procured the purchasers of the infringing machines to continue running the press sections. In order to induce or procure another person to infringe a patent, one must do something that leads that other person to infringe the patent. There was no evidence which indicated that VDI participated in the decision by those purchasers to continue to operate the infringing press sections.

(3) Federal Court Act, subsection 39(1) requires application of the laws relating to prescription of the relevant province: Quebec in the case at bar. C.L.L.C., Article 2261 imposes a two-year limitation period on actions for damages resulting from offences or quasi-offences. Otherwise, Article 2242 imposes a thirty-year limitation period. For prescription purposes, a patent infringement is properly characterized as an offence or quasi-offence (“délit” or “quasi-délit”) under the law of Quebec.

A plaintiff who pleads suspension of a limitation period must demonstrate that the lack of awareness of the material facts that gave rise to the cause of action existed despite having exercised due diligence. The Trial Judge inferred that because Beloit was aware of the respondent’s activities, it knew or ought to have known of the infringing sales. He concluded that Beloit was aware of GEC’s activities since approximately 1975. The appellants did not produce any evidence of due diligence. As the Trial Judge heard all the evidence, his inference was not reversed. Since Beloit filed a statement of claim against VDI on June 4, 1986 and against GEC on October 20, 1986, any activities of those respondents prior to June 1984 and October 1984 respectively were prescribed.

(4) This Court has jurisdiction to award the remedy of accounting of profits under Patent Act, paragraph 57(1)(b) which expressly permits the Court to order inspection or account in infringement actions, and Federal Court Act, sections 3 and 20. Subsection 20(2) gives the Trial Division concurrent jurisdiction in all cases, other than those mentioned in subsection (1), in which a remedy is sought under the authority of any Act of Parliament or at law or in equity respecting any patent. Since an accounting is an equitable remedy, the Court has jurisdiction to grant it.

The decision to award an accounting of profits in patent cases is discretionary. Patent Act, section 57 is clear and unambiguous: it provides that the Court or judge “may” as “the court or judge sees fit” grant an account in a patent infringement action. If the judge refuses the award of an account, damages are available pursuant to section 55. An accounting of profits may reasonably be refused in several circumstances i.e. where there is excessive delay or any misconduct on the part of the patentee. It was within the Trial Judge’s discretion to consider the equitable results of the election of an accounting of profits based on the complexity and length of proceedings. When the acts of infringement were carried out with the full knowledge of the plaintiff, a delay in instituting infringement proceedings is a ground for refusing the election of an accounting of profits. The patentee argued that it came to equity with clean hands, thus giving it a prima facie right to equitable relief (i.e. accounting of profits), but the Trial Judge was not bound by the maxims of equity because the election for an accounting of profits is provided for as a statutory alternative to a remedy in damages by Patent Act, paragraph 57(1)(b). The Trial Division’s judgment was valid until set aside and acts done pursuant to it were arguably done in good faith. Good faith of an infringer is a factor which a judge may consider in exercising the discretion to award a remedy of accounting. The remedy of accounting of profits was not appropriate.

(5) The Trial Judge did not err in refusing to award compound pre- and post-judgment interest. Federal Court Act, subsection 36(5) provides expressly for the exercise of a discretion by the Court in relation to the award of pre-judgment interest and, although section 37 does not contain a comparable provision, the Court has recognized that an award of post-judgment interest is also discretionary. There is no legal test which mandates the award of compound pre- and post-judgment interest to a successful patentee in an infringement action. Acceptance of such a thesis would imply a rejection of the discretionary nature of the award. Given the finding of good faith on the part of the respondents, it was open to the Trial Judge, in the exercise of his discretion, to award simple pre- and post-judgment interest, and that exercise of discretion should not be disturbed.

As to the cross-appeal, a patentee is entitled to damages assessed upon the sale of non-infringing components when there is a finding of fact that such sale arose from infringing the patented component. The Trial Judge’s reasons did not contain a specific finding that non-infringing component parts of machines were sold because the infringing press sections were sold with them. He therefore erred in directing that VDI pay damages based on other components with which the press sections were sold.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

An Act to consolidate and amend the Laws of Patents for Inventions in this Province, S. Prov. C. 1849, c. 24.

An act to encourage the progress of useful arts within this Province, S.U.C. 1826, c. 5.

An Act to promote the progress of useful Arts in this Province, S.L.C. 1824, c. 25.

Civil Code of Lower Canada, Arts. 17(2), 983, 1056c, 1057, 2232, 2241, 2242, 2261.

Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5], s. 91(22).

Copyright Act, R.S.C., 1985, c. C-42, ss. 34(1), 35(1).

Exchequer Court Act, R.S.C. 1952, c. 98, s. 21.

Federal Court Act, R.S.C., 1985, c. F-7, ss. 3, 18(1) (as am. by S.C. 1990, c. 8, s. 4), 20 (as am. idem, c. 37, s. 34), 36 (as am. idem, c. 8, s. 9), 37 (as am. idem), 39(1).

Federal Court Rules, C.R.C., c. 663, RR. 337(5), 500.

Limitations Act, R.S.O. 1980, c. 240, s. 45(1)(g),(h).

Patent Act, R.S.C. 1952, c. 203.

Patent Act, R.S.C. 1970, c. P-4, ss. 28(1), 59(1)(b), 63(1).

Patent Act, R.S.C., 1985, c. P-4, ss. 27(1), 44, 54(1), 55(1) (as am. by R.S.C., 1985 (3rd Supp.), c. 33, s. 21; S.C. 1993, c. 15, s. 48), 57(1), 61.

Patent Act of 1869 (The), S.C. 1869, c. 11, s. 24.

Patent Law, 35 U.S.C. § 271(f) (1988).

Patent Law Amendment Act, 1852 (The) (U.K.), 15 & 16 Vict., c. 83, s. 42.

Patent Law Amendments Act of 1984, Pub. L. No. 98-622, § 101(a), 98 Stat. 3383 (1984).

Patents Act, 1949 (U.K.), 12, 13 & 14 Geo. 6, c. 87, s. 60.

Patents Act, 1977 (U.K.), 1977, c. 37, s. 61.

Patents Act, 1990, No. 83, 1990 (Aust.).

Statute of Monopolies, 21 Jac. 1, c. 3.

Trade-marks Act, R.S.C., 1985, c. T-13, s. 53.2 (as enacted by S.C. 1993, c. 44, s. 234).

CASES JUDICIALLY CONSIDERED

APPLIED:

Windsurfing Int. Inc. v. Trilantic Corp. (1985), 7 C.I.P.R. 281; 8 C.P.R. (3d) 241; 63 N.R. 218 (F.C.A.); Beloit Can. Ltée/Ltd. v. Valmet Oy (1988), 18 C.I.P.R. 1; 20 C.P.R. (3d) 1; 15 F.T.R. 240; 82 N.R. 235 (F.C.A.); leave to appeal refused [1988] 1 S.C.R. vi; (1988), 21 C.P.R. (3d) v; 69 N.R. 80; Beloit Canada Ltée v. Valmet Oy (1995), 61 C.P.R. (3d) 271; 184 N.R. 149 (F.C.A.); Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; (1986), 75 N.S.R. (2d) 109; 31 D.L.R. (4th) 481; 186 A.P.R. 109; 34 B.L.R. 187; 37 C.C.L.T. 117; 42 R.P.C. 161; Oznaga v. Société d’exploitation des loteries et courses du Québec, [1981] 2 S.C.R. 113; (1981), 42 N.R. 7; Stein et al. v. “Kathy K” et al. (The Ship), [1976] 2 S.C.R. 802; (1975), 62 D.L.R. (3d) 1; 6 N.R. 359; Friends of the Oldman River Society v. Canada (Minister of Transport), [1990] 2 F.C. 18 (1990), 68 D.L.R. (4th) 375; [1991] 1 W.W.R. 352; 76 Alta. L.R. (2d) 289; 5 C.E.L.R. (N.S.) 1; 108 N.R. 241 (C.A.); Unilever PLC v. Proctor & Gamble Inc. (1995), 61 C.P.R. (3d) 499; 184 N.R. 378 (F.C.A.); Lubrizol Corp. v. Imperial Oil Ltd. (1992), 18 D.L.R. (4th) 1; 45 C.P.R. (3d) 449; 150 N.R. 207 (F.C.A.); Colonial Fastener Co. Ltd. v. Lightning Fastener Co. Ltd., [1937] S.C.R. 36; [1937] 1 D.L.R. 21; Beloit Canada Ltée v. Valmet Oy (1995), 61 C.P.R. (3d) 271; 184 N.R. 149 (F.C.A.); Meters Ld. v. Metropolitan Gas Meters Ld (1911), 28 R.P.C. 157 (C.A.); AlliedSignal v. Du Pont Canada Inc. (1995), 61 C.P.R. (3d) 417; 184 N.R. 113 (F.C.A.); Beloit Canada Ltée/Ltd. v. Valmet Oy (1992), 45 C.P.R. (3d) 116 (F.C.A.); Mastini v. Bell Telephone Co. of Canada et al. (1971), 18 D.L.R. (3d) 215; 1 C.P.R. (2d) 1 (Ex. Ct.); Johnson Controls Inc. v. Varta Batteries Ltd. (1984), 3 C.I.P.R. 1; 80 C.P.R. (2d) 1; 53 N.R. 6 (F.C.A.).

DISTINGUISHED:

Reading & Bates Construction Co. v. Baker Energy Resources Corp., [1995] 1 F.C. 483 (1994), 58 C.P.R. (3d) 359; 175 N.R. 225 (C.A.); leave to appeal to S.C.C. refused [1995] 2 S.C.R. v (as to issue of award of simple versus compound interest).

OVERRULED:

Reeves Brothers Inc. v. Toronto Quilting & Embroidery Ltd. (1978), 43 C.P.R. (2d) 145 (F.C.T.D.).

CONSIDERED:

Deepsouth Packing Co., Inc. v. Laitram Corp., 406 U.S. 518 (1972); Paper Converting Mach. Co. v. Magna-Graphics Corp., 745 F.2d 11 (Fed. Cir. 1984); Tyburm Productions Ltd v Conan Doyle, [1990] 1 All ER 909 (Ch. D.); Def Lepp Music and Others v. Stuart-Brown and Others, [1986] R.P.C. 273 (Ch. D.); PSM International plc v. Specialised Fastener Products (Southern) Ltd., [1993] F.T.R. 113 (Patents County Ct.); Irving Refining Ltd. v. National Harbours Board, [1976] 2 F.C. 415(T.D.); Consolboard Inc. v. MacMillan Bloedel (Saskatchewan) Ltd. (1978), 39 C.P.R. (2d) 191 (F.C.T.D.); Radio Corp. & America v. Philco Corp. (Delaware), [1965] 2 Ex. C.R. 197; (1965), 46 C.P.R. 1; 29 Fox Pat. C. 97; confd [1966] S.C.R. 296; (1966), 56 D.L.R. (2d) 407; 48 C.P.R. 128; 32 Fox Pat. C. 99; Reading & Bates Construction Co. v. Baker Energy Resources Corp., [1995] 1 F.C. 483 (1994), 58 C.P.R. (3d) 359; 175 N.R. 225 (C.A.); leave to appeal to S.C.C. refused [1995] 2 S.C.R. v; as to issue of considerations in exercise of discretion to award accounting of profits; J.M. Voith GMBH v. Beloit Corp. (1989), 26 C.I.P.R. 22; 27 C.P.R. (3d) 289; 30 F.T.R. 35 (F.C.T.D.); J.M. Voith GmbH et al. v. Beloit Corp. et al. (1991), 36 C.P.R. (3d) 322; 128 N.R. 54 (F.C.A.); leave to appeal to the S.C.C. refused [1992] 1 S.C.R. viii; (1992), 40 C.P.R. (3d) v; 138 N.R. 408.

REFERRED TO:

Skelding v. Daly et al. (1941), 57 B.C.R. 121; [1942] 1 W.W.R. 489; 1 C.P.R. 266; 2 Fox Pat. C. 161 (C.A.); Steel Co. of Canada Ltd. v. Sivaco Wire & Nail Co. (1973), 11 C.P.R. (2d) 153 (F.C.T.D.); Dole Refrigerating Products Ltd. v. Can. Ice Machine Co. & Amerio Contact Plate Freezers Inc. (1957), 28 C.P.R. 32; 17 Fox Pat. C. 125 (Ex. Ct.); Radio Corporation of America v. Andrea, 90 F.2d 612 (2d Cir. 1937); Hewitt-Robins, Inc. v. Link-Belt Co., 371 F.2d 225 (7th Cir. 1966); Cold Metal Process Co. v. United Engineering & Foundry Co., 235 F.2d 224 (3d Cir. 1956); Commissioner of Patents v. Farbwerke Hoechst Aktiengesellschaft Vormals Meister Lucius and Bruning, [1964] S.C.R. 49; (1963), 41 C.P.R. 9; 25 Fox Pat. C. 99; Club de chasse et pêche de Chartierville inc. c. Gaudreau, [1993] R.J.Q. 1529 (Sup. Ct.); Commission des droits de la personne du Québec c. Québec (Ville de), [1986] R.J.Q. 243 (Sup. Ct.); Brisson c. Leduc, [1988] R.J.Q. 1623 (Sup. Ct.); Reading & Bates Construction Co. v. Baker Energy Resources Corp., [1995] 1 F.C. 483 (1994), 58 C.P.R. (3d) 359; 175 N.R. 225 (C.A.); Kamloops (City of) v. Nielsen et al., [1984] 2 S.C.R. 2; (1984), 10 D.L.R. (4th) 641; [1984] 5 W.W.R. 1; 29 C.C.L.T. 97; Consolboard Inc. v. MacMillan Bloedel (Sask.), [1981] 1 S.C.R. 504; (1981), 122 D.L.R. (3d) 203; 56 C.P.R. (2d) 145; 35 N.R. 390; Re Navy League of Canada, [1927] 2 D.L.R. 184; (1927), 59 N.S.R. 212 (S.C.); Electric Fireproofing Co. of Canada v. Electric Fireproofing Co. (1910), 43 S.C.R. 182; Teledyne Indust. Ltd. v. Lido Indust. Products Ltd. (1982), 30 C.P.C. 285; 68 C.P.R. (2d) 204 (F.C.T.D.); Grand Trunk Pacific Railway Co. v. Dearborn (1919), 58 S.C.R. 315; 47 D.L.R. 27; [1919] 1 W.W.R. 1005; Algonquin Mercantile Corp. v. Dart Industries Canada Ltd., [1987] 2 F.C. 373 (1986), 11 C.I.P.R. 221; 12 C.P.R. (3d) 289; 7 F.T.R. 81 (T.D.); varied on a different point [1988] 2 F.C. 305 (1987), 17 C.I.P.R. 68; 16 C.P.R. (3d) 193; 79 N.R. 305 (C.A.); R.W. Blacktop Ltd. v. Artec Equipment Co. (1991), 39 C.P.R. (3d) 432; 50 F.T.R. 225 (F.C.T.D.); Neilson and Others v. Betts (1871) Law Rep. 5 H.L. 1; De Vitre and Others v. Betts (1873) Law Rep. 6 H.L. 319; Aro Mfg. Co. v. Convertible Top Co., 377 U.S. 476 (1964); Formea Chemicals Ltd. v. Polymer Corp. Ltd., [1967] 1 O.R. 546; (1967), 61 D.L.R. (2d) 475; 49 C.P.R. 251; 35 Fox Pat. C. 21 (C.A.); affd Formea Chemicals Limited v. Polymer Corporation Limited, [1968] S.C.R. 754; (1968), 55 C.P.R. 38; 38 Fox Pat. C. 116; 69 D.L.R. (2d) 114; Sharp v. Wakefield, [1891] A.C. 173 (H.L.); Roncarelli v. Duplessis, [1959] S.C.R. 121; (1959), 16 D.L.R. (2d) 689; Weingarten Brothers v. Charles Bayer & Co. (1905), 22 R.P.C. 341 (H.L.); Siddell v. Vickers (1892), 9 R.P.C. 152 (C.A.); Watson, Laidlaw and Co. v. Pott (1914), 31 R.P.C. 104 (H.L.); Weingarten Brothers v. Charles Bayer & Co. (1905), 22 R.P.C. 341 (H.L.); Szuba v. Szuba, [1951] 1 D.L.R. 387; [1950] O.W.N. 669 (Ont. H.C.); Beloit Canada Ltée/Ltd. v. Valmet Oy (1994), 55 C.P.R. (3d) 433; 78 F.T.R. 86 (F.C.T.D.); affd (1995), 61 C.P.R. (3d) 271; 184 N.R. 149 (F.C.A.); Algonquin Mercantile Corp. v. Dart Industries Canada Ltd., [1988] 2 F.C. 305 (1987), 17 C.I.P.R. 68; 16 C.P.R. (3d) 193; 79 N.R. 305 (C.A.); Automatic Coal Gas Retort Co. v. The Mayor &c. of Salford (1897), 14 R.P.C. 451 (Ch. D.); Bond v. Hopkins (1802), 1 Sch. & Lefr. 413; Hanson v. Keating (1844), 67 R.R. 1; Ductmate Industries Inc. v. Exanno Products Ltd. (1987), 15 C.I.P.R. 1115 (F.C.T.D.); Beloit Can. Ltée/Ltd. v. Valmet Oy (1986), 7 C.I.P.R. 205; 8 C.P.R. (3d) 289; 64 N.R. 287 (F.C.A.).

AUTHORS CITED

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APPEALS and CROSS-APPEAL from the judgment in an infringement action (J.M. Voith GmbH v. Beloit Corp., [1993] 2 F.C. 515 (1993), 47 C.P.R. (3d) 448; 61 F.T.R. 161 (T.D.). Appeals dismissed except with respect to appeal No. A-179-93, in which it was declared that Canadian letters patent 1,020,383 (the Beloit patent) and claims 1, 2, and 4 through 11 had been infringed by DEW triple-nip presses; cross-appeal dismissed except with respect to the assessment of damages.

COUNSEL:

Donald J. Wright, Q.C. and J. Douglas Wilson for appellants (plaintiffs in T-1450-86 and T-2253-86; defendant in T-1268-86).

James D. Kokonis, Q.C. and A. David Morrow for respondents (defendants in T-1450-86 and T-2253-86; plaintiff in T-1268-86).

SOLICITORS:

Ridout & Maybee, Toronto, for appellants (plaintiffs in T-1450-86 and T-2253-86; defendant in T-1268-86).

Smart & Biggar, Ottawa, for respondents (defendants in T-1450-86 and T-2253-86; plaintiff in T-1268-86).

The following are the reasons for judgment of the Court delivered in English:

INTRODUCTION

These three appeals by Beloit Canada Ltée/Ltd. and Beloit Corporation (Beloit) are from portions of a judgment and an amended judgment of the Trial Division, pronounced on 16 February [[1993] 2 F.C. 515 and 25 March 1993, respectively. The respondent Valmet-Dominion Inc. (now Valmet-Montreal Inc.), cross-appeals. Appeals by two former respondents, J.M. Voith GmbH and Voith S.A. (hereinafter Voith) have been settled.

These appeals and cross-appeal concern a patent owned by Beloit Corporation (Beloit U.S.) for the press section of a paper machine, of which Beloit Canada Ltée/Ltd. (Beloit) is the Canadian licensee. The patent, issued to Beloit U.S. in 1976, covers an arrangement of rolls and felts within the press section in such a manner as to create a succession of three de-watering nips in close proximity, conveying a supported “web” (the very wet sheet from which the paper is produced) before an open draw. This configuration increases the de-watering process in the press section of the paper machine, which, in turn, strengthens the web, thereby reducing tears in the web and permitting the paper machines to operate more rapidly. None of the singular elements of the invention are new; the tri-nip is a combination patent which combines old, previously known parts, into a new configuration. The invention has been a commercial success.

The Parties

The appellant, Beloit Canada Ltée/Ltd. is the Canadian subsidiary of Beloit Corporation, an American company having its head office in Beloit, Wisconsin. Beloit Canada was incorporated under the laws of Quebec and is licensed in Canada for all patents of Beloit U.S. Beloit Canada is the manufacturer and sole distributor in Canada of paper machines covered by those patents.

The respondent, Valmet-Dominion Inc. (hereinafter VDI) was incorporated in March of 1984. It is engaged in the manufacture and sale of paper machines in Canada and the United States. The incorporation of VDI is the result of lengthy negotiations between Valmet Oy and General Electric Canada (hereinafter GEC). Following its creation, VDI assumed and completed contracts for paper machines which had been entered into by Dominion Engineering Works (hereinafter DEW), a subsidiary of GEC. The respondent, General Electric Canada, is a company incorporated under the laws of Canada having its head office in Toronto. In December of 1983, DEW amalgamated with GEC to become Canadian General Electric Company Limited which subsequently changed it’s name to General Electric Canada Inc. on June 1, 1987.

Procedural History of the Present Litigation

On 4 June 1986, in the proceedings culminating in the present appeals, VDI initially commenced action number T-1268-86 against Beloit, impeaching the validity of the Beloit patent on the basis of prior knowledge and prior publication pursuant to subsection 27(1) and section 61 of the Patent Act, R.S.C., 1985, c. P-4 (the Act).[1] On 24 June 1986, Beloit commenced action T-1450-86 against VDI, alleging, pursuant to subsection 57(1) of the Act, that VDI had infringed its patent. It sought a declaration that claims 1, 2 and 4 through 11 of their patent were valid and infringed, an injunction, damages or an accounting of profits. Beloit contended that VDI was estopped by reason of res judicata and abuse of process from asserting the invalidity of its patent or denying infringement, since VDI was a privy of Valmet Oy, against whom Beloit had, in an earlier action, obtained a declaration of validity and an injunction restraining their infringement of the patent in suit.[2]

On 6 June 1986, Voith commenced action number T-1350-86 against Beloit, impeaching the validity of the Beloit patent. Beloit in turn commenced action number T-1607-86 against Voith on 11 July 1986, seeking a declaration similar to that which was sought against VDI. Then in October of 1986, Beloit commenced action number T-2253-86 against GEC for a declaration similar to that which was sought in the actions against VDI and Voith. GEC counterclaimed, impeaching the validity of the Beloit patent on the same grounds as the other two plaintiffs.

By order dated 4 October 1988, the Associate Chief Justice ordered that all these actions be tried together. The Court took evidence on commission in Heidenheim, Germany, in Sweden and in the United States of America. The trial then continued in Toronto in April and May 1989.

On 17 November 1989, the Trial Division dismissed Beloit’s infringement actions No. T-1450-86 against VDI, No. T-1607-86 against Voith, and No. T-2253-86 against GEC and allowed the impeachment actions by VDI (T-1268-86) and by Voith (No. T-1350-86) against Beloit and the counterclaim of GEC. In addition, the Trial Division declared that Beloit’s Canadian patent No. 1,020,383 was invalid.[3] Appeals were taken in each of the five actions. By judgment dated 4 June 1991, this Court:[4]

1. set aside the judgment dismissing Beloit’s action for infringement and expunging Beloit’s Canadian letters patent 1,020,383 and the award of costs to Voith, VDI and GEC;

2. declared Beloit’s Canadian letters patent 1,020,383 and claims 1, 2 and 4 to 12 thereof to be valid; and,

3. referred these matters back for a continuation of the trial on the issue of infringement.

On 19 March 1992, the Supreme Court of Canada dismissed applications for leave to appeal from this judgment.[5]

The Beloit actions were returned to the Trial Division for continuation of the trial. At trial, Beloit put in issue the following contracts, in respect of which it alleged that its patent had been infringed [at pages 529-530]:

1. One complete machine except headbox, sold by the defendant GEC to Midtec Paper Corporation. Offer, acceptance and contract made in Montréal, Quebec in June, 1979. Installation of machine in Kimberly, Wisconsin.

2. One complete machine sold by the defendant GEC to Donohue-Normick Inc. Offer, acceptance and contract made in Montréal, Quebec on August 13, 1980. Installation of machine in Amos, Quebec.

3. A press-section rebuild sold by the defendant GEC to Consolidated-Bathurst Inc. Offer, acceptance and contract made in Montréal Quebec on July 11, 1980. Installation in Shawinigan, Québec.

4. Two complete machines sold by defendant VDI to Klockner Stadler Hunter Ltd. Offer, acceptance and contract made in Montréal, Quebec on April 29, 1983. Installation of machines in South Sabah, Malaysia.

5. One press-section with minor dryer rebuild sold by the defendant VDI to Great Lakes Forest Products Limited. Offer, acceptance and contract made in Montréal, Quebec in February, 1985. Installation in Thunder Bay, Ontario.

6. One complete machine except dryer sold by defendant VDI to Corner Brook Pulp & Paper Limited. Offer, acceptance and contract made in Montréal, Quebec on September 12, 1985. Installation in Corner Brook, Newfoundland.

7. One complete machine sold by defendant VDI to Donohue Malbaie Inc. Offer, acceptance and contract made in Montréal, Quebec on September 18, 1985. Installation made in Clermont Mill, Quebec.

8. One complete machine sold by defendant VDI to Repap N.B. Inc. Offer, acceptance and contract made in Montréal, Quebec on January 31, 1985. Installation made in Newcastle, New Brunswick.

9. A press section rebuild sold by defendant Voith to Canadian International Paper (Gatineau).

10. A press section rebuild sold by defendant Voith to British Columbia Forest Products.

It is from the judgment in the infringement action respecting these contracts that the appeals and cross-appeal are taken.

A.        JUDGMENT BELOW

Before the learned Trial Judge, the principal issues were whether Beloit’s patent had been infringed by VDI and GEC and if so, what remedies were available to it as a result.

In extensive reasons, the Trial Judge reached the following conclusions. First, that “high speed” was not an essential element of the claims, since the three-nip configuration was adaptable to high as well as low speed machines. Secondly, that five of the contracts, in respect of which infringement had been alleged, were prescribed by Article 2261 of the Civil Code of Lower Canada (C.C.L.C.).[6] These contracts related to [at page 535]:

1. One complete paper machine except headbox, sold by the defendant GEC to Midtec Paper Corporation … June, 1979.

2. One complete machine sold by the defendant GEC to Donohue-Normick Inc. … August 13, 1980.

3. A press-section rebuild sold by the defendant GEC to Consolidated-Bathurst Inc. … July 11, 1980.

4. Two complete machines sold by the defendant VDI to Klockner Stadler Hunter Ltd. … April 29, 1983. Installation of machines in South Sabah, Malaysia.

Thirdly, that the contract by GEC to sell unascertained components of press sections at a future date was a sale to the others within the meaning of section 44 of the Act. Fourthly, that the sale in Canada of component parts of the patented invention was an infringement of the patent in suit, but since he had concluded that the two contracts involved (sale by GEC to Donohue and to Consolidated Bathurst) were prescribed by Article 2261 of the C.C.L.C., he held that the plaintiff was barred from recovering damages in respect of these infringements. Fifthly, that the manufacture and sale of component parts, delivered in Canada for assembly and use outside Canada, did not constitute infringement.

On the issue of remedies, the Trial Judge concluded that the Court had jurisdiction to grant the remedy of accounting of profits, but that the remedy was discretionary and was awardable according to well recognized criteria. Since all those criteria did not exist in the case before him, he concluded that an award of damages was the appropriate remedy. Finally, he ordered pre-judgment interest from the date the plaintiff commenced its action to 31 December 1990.

Based upon these conclusions, the Trial Judge allowed Beloit’s action in respect of the following contracts entered into by VDI and Voith [at page 552]:

1. The press section (with minor dryer rebuild) sold by the defendant VDI to Great Lakes Forest Products Limited.

2. The machine (except dryer) sold by defendant VDI to Corner Brook Pulp & Paper Limited.

3. The machine sold by defendant VDI to Donohue Malbaie Inc.

4. The machine sold by defendant VDI to Repap N.B. Inc.

5. The press section rebuild sold by defendant Voith to Canadian International Paper (Gatineau).

6. The press section rebuild sold by defendant Voith to British Columbia Forest Products.

In all other respects, he dismissed Beloit’s actions.

In an amended judgment pronounced on 25 March 1993, the Trial Judge, inter alia ordered that an injunction issue against VDI and Voith. Pursuant to Rule 500 of the Federal Court Rules [C.R.C., c. 663], he referred the assessment of damages to the Prothonotary. He refused to order delivery up of infringing articles or to deal with the issue of costs since the issue was not raised at trial. Finally, he extended the order for pre- and post-judgment interest to VDI as well as Voith.

POINTS IN ISSUE

In the principal appeal, the appellants raise the following issues:

Whether the Trial Judge failed to apply the proper legal tests and misunderstood the evidence when he:

(i) denied Beloit its prima facie right to an election to claim an accounting of profits made by the respondents as a result of their infringement, in the absence of any basis in law or equity for doing so;

(ii) dismissed the claims against VDI in relation to the South Sabah machines, and all the claims against GEC on the basis that they were prescribed;

(iii) dismissed the claims for infringement in relation to some machines sold and manufactured in Canada on the basis that they were assembled outside Canada;

(iv) dismissed the claims against VDI for infringement by providing parts, services, information and assistance necessary to the continued running of DEW Triple Nip press sections of former GEC customers on the basis that Beloit did not establish that the customers knew of the existence of the patent or that they were actually induced or procured by VDI to infringe; and

(v) failed to grant judgments containing a declaration of which claims were infringed; an order for an injunction detailing who and what activities are restrained; an order providing for pre- and post-judgment compound interest; and an order for costs.

For its part, the respondent VDI raises the following issues in the cross-appeal:

(i) Whether the Trial Judge erred in not dismissing the infringement action against VDI on the ground that there was no infringement by VDI, because the claims are limited to high speed press sections, which is a limitation that cannot be construed, or if it can be construed, it does not apply to any of the VDI press sections in suit.

Or in the alternative:

(ii) whether the Trial Judge erred in not finding that the recovery of the defendant’s profits is not a remedy available to the plaintiff in a patent infringement action;

(iii) whether the Trial Judge erred in directing that damages be assessed against VDI for the press sections themselves and any other paper machine components with which the press sections may have been sold.

ANALYSIS

1.         Construction of the patent

We find it convenient to deal first with the allegation of the respondent VDI, in its cross-appeal, that the Trial Judge erred in construing the patent.

In its cross-appeal, VDI alleges that the Trial Judge has erred in his construction of the patent. Specifically, VDI submits that the Trial Judge overlooked this Court’s construction which includes “high speed” as an essential element of the claims. VDI also submits that the Trial Judge also erred by not finding that the patent is ambiguous with respect to high speed. In the alternative, VDI asserts that even if the words “high speed” are not ambiguous, the patent is unenforceable.

It is useful at the outset to refer to the language of claim 1 and to this Court’s discussion of the patent’s construction. Claim 1 of the patent provides:[7]

1. A press mechanism for removing water from a traveling [sic] fibrous web formed on a forming section of a machine comprising in combination:

first and second rolls defining a first press nip there between;

a third press roll forming a second nip with the first roll;

a fourth press roll forming a third nip with the third press roll;

a web carrying first felt receiving from the web from the forming section and passing through the first nip following the first roll and thereafter passing through the second nip separating from the web after the second nip with the web following the third roll after said second nip to pass through the third nip, a second felt passing through the first nip on the side of the web opposite said first felt; and

a third felt passing through said third nip with the web.

Addressing the issue of construction of the patent, Mahoney J.A., at page 337 of (1991), 36 C.P.R. (3d) 322[8] first noted that the Trial Judge [(1989), 26 C.I.P.R. 22] had “adopted the construction of claim 1 enunciated at p. 292 of Valmet” and then proceeded to cite the following portion of the Trial Judge’s reasons:

What is claimed as novel and inventive in the Tri-Nip is the combination of previously known elements in the design of a high-speed press section consisting of:

1. Three dewatering nips before the first open draw;

2. A double felted first nip;

3. A pick-up felt passing through the first two nips with no transfer of the web between the nips;

4. The first and second nips being on a common roll R1; and

5. The second and third nips being on a common roll R3.

Mahoney J.A. then observed that:

The trial judge noted, correctly … that: “The speed aspect, although referred to in the disclosure of the patent, is not specifically mentioned in the claims under attack”. [Footnote omitted.]

Next, Mahoney J.A. explored whether the patent had been anticipated by a prior publication of Mr. Christian Schiel (the Schiel Paper). Mahoney J.A. reversed the Trial Judge’s determination by concluding that the Schiel Paper had not anticipated the invention at issue. He found that the Schiel Paper only referred to the invention in issue with respect to its processing of high and low ash papers. At page 340, Mahoney J.A. wrote that:

The remaining paragraphs quoted from the Schiel paper are at best ambivalent in recommending a double felted first nip. Newsprint is produced on high speed machines. Its production, as found in Valmet and unquestioned here, is “the most common application of the invention in suit”.…

A fair reading of the entire Schiel paper, without the benefit of inadmissible parol evidence, leads only to the conclusion that its author had no thought that a three-nip configuration with a double felted first nip could be used in a high speed press section. Those essential elements of claim 1 of the patent, the claim upon which all other claims depend, are not taught by the Schiel paper. It cannot be said that the Schiel paper contains “so clear a direction that a skilled person reading and following it would in every case and without possibility of error be led to the claimed invention”. The Schiel paper did not anticipate the Beloit patent. [Emphasis added.]

We are unable to agree with VDI that this Court has construed claim 1 in a manner different from that of the Trial Judge [(1989), 26 C.I.P.R. 22]. This Court has specifically referred to and approved the Trial Judge’s finding that the [at page 31] “speed aspect, although referred to in the disclosure of the patent, is not specifically mentioned in the claims under attack”. The subsequent discussion of the use of the patent in a high speed press section arises in a context where the Court noted [at page 29], referring to Valmet, that “the most common application of the invention in suit” (emphasis added) involved high speed machines. The Court in its discussion neither stated that “high speed” was an essential element of the claim nor that the Trial Judge erred by not construing the claim as having “high speed” as an element of the claim. Accordingly, we conclude that the Trial Judge correctly found that this Court did not construe claim 1 to include “high speed” as an element. In light of this conclusion, it is unnecessary to address to the remaining submissions of VDI regarding “high speed”.

2.         Infringement

Two questions were raised concerning the issue of infringement. First, whether the Trial Judge erred in concluding that the sale of parts for assembly outside of Canada did not amount to infringement and, secondly, whether he erred in concluding that the provision of spare parts, services, information, and assistance to customers did not amount to infringement. We deal with each issue in turn.

(a)       Assembly outside of Canada

One of the issues argued before us was whether the manufacture and sale of component parts, delivered for assembly and use outside Canada, constitutes an infringement of the appellants’ patent.[9]

This issue applies to the two DEW triple-nip press sections sold by GEC, and manufactured by the respondent VDI, to South Sabah, Malaysia. However, since this sale by GEC occurred prior to the two-year limitation period,[10] we find it necessary to consider only the manufacturing activities of VDI.

The Trial Judge found that, while there may have been pre-assembly of some parts of the whole press section in the machines, the general practice was to assemble the machines at the site of the purchaser. He dismissed the plaintiff’s argument that Windsurfing Int. Inc. v. Trilantic Corp.[11] applied to the case at bar because the infringer, in that case, sold unassembled parts of the invention in Canada. He felt that since Beloit’s patent was an invention that embodies the marriage of old, previously known parts, into a new configuration, the only protection which section 44 of the Act afforded the appellants was with respect to the amalgamation of those parts in a new and innovative fashion which comprised the essence of its invention. The singular parts of the invention were not protected. He, therefore, concluded that in order to be considered to have infringed Beloit’s patent, the respondents must have either sold the components of the invention for use and assembly in Canada, or must themselves have assembled those parts in the manner described within the claims of the patent, within the boundaries of this country, and later exported the finished product. Since the evidence was clear that this is not what happened, the Trial Judge concluded that the contracts in question did not constitute an infringement under Canadian patent laws. In so doing, he referred to the United States Supreme Court decision in Deepsouth Packing Co., Inc. v. Laitram Corp.[12] We are unable to accept the conclusion of the Trial Judge for the following reasons.

Although infringement is not defined in the Act, it has been defined in Canadian jurisprudence as any act which interferes with the full enjoyment of the monopoly granted to the patentee.[13] That monopoly is the exclusive right, privilege and liberty of making, constructing, using and vending to others to be used the invention. Section 44 of the Act reads:

44. Every patent granted under this Act shall contain the title or name of the invention, with a reference to the specification, and shall, subject to the conditions prescribed in this Act, grant to the patentee and his legal representatives for the term therein mentioned, from the granting of the patent, the exclusive right, privilege and liberty of making, constructing, using and vending to others to be used the invention, subject to adjudication in respect thereof before any court of competent jurisdiction.

The respondents defend the action partly on the basis that they did not sell the patented invention, but rather sold manufactured components for a press section for assembly and use outside Canada. Beloit’s three-nip press is a combination patent where the novelty results from the idea of putting together different essential elements, all previously known, in a particular combination. The respondents argue that the mere making, using or vending of components that afterwards enter into a combination is not prohibited where the patent is limited to the combination itself.

It is well established that there is no infringement of a patent in selling an article that does not in itself infringe the patent even when the vendor knows that the purchaser buys the article for the purpose of using it in the infringement of the patent.[14] However, in Beloit Canada Ltée./Ltd.,[15] Pratte J.A. held that there were two exceptions to this rule:

(a) if the vendor, alone (Windsurfing International Inc. v. Trilantic Corp. (1985), 7 C.I.P.R. 281, 8 C.P.R. (3d) 241, 63 N.R. 218 (sub nom. Windsurfing International Inc. v. Bic Sports Inc.), additional reasons (1986), 8 C.P.R. (3d) 270 (F.C.A.)) or in association with another person (Incandescent Gas Light Co. v. New Incandescent Mantle Co. (1898), 15 R.P.C. 81), sells all the components of the invention to a purchaser in order that they be assembled by him; and

(b) if the vendor, knowingly and for his own ends and benefit, induces or procures the purchaser to infringe the patent. (Slater Steel Industries Ltd. v. R. Payer Co. (1968) 38 Fox Pat. C. 139, 55 C.P.R. 61 (Ex. Ct.)).

The second exception has no application here. A person who, beyond Canada, makes, constructs, uses, or sells the invention commits no breach of the Canadian patent.[16] Therefore, the construction of a combination patent abroad is not an infringement, and cannot consequently trigger a domestic contributory infringement.

The focus of this inquiry must, therefore, be on whether the domestic actions of the respondents constitute an infringement. Did the respondents make, construct, use or vend the patented invention in Canada by manufacturing and selling component parts of the patented press section?

The Trial Judge relied upon the decision of the United States Supreme Court in Deepsouth Packing Co., Inc. v. Laitram Corp.[17] in finding that the respondents had not infringed the patent. In that case, a divided Court held that selling the constituent parts of a combination patent, with the admitted intent that the buyer would combine the parts in a foreign country, did not violate the United States patent laws. In so holding, the Court defined “making”[18] as a state of final operable assembly.

However, it would appear that Deepsouth does not represent the current status of U.S. patent law with regard to combination patents. Indeed, the Patent Law Amendments Act of 1984[19] superseded the holding in Deepsouth by establishing that to supply in or from the United States all or a substantial portion of the components of a patented invention to induce the components’ combination abroad is an infringing act. In this way, the U.S. Congress severely restricted attempts to take advantage of the territorial limits of the patent law by making and selling component parts of a patented product in an unassembled form.

Moreover, in Paper Converting Mach. Co. v. Magna-Graphics Corp.,[20] the Federal Circuit Court rejected the Deepsouth traditional operable assembly standard for determining what constitutes “making” a patented invention. In its place, the Court adopted a more flexible standard that included partial assemblies that have no useful non-infringing purpose. Moreover, the Court held that testing a sub-assembly sufficed to violate the patentee’s rights. Paper Converting Mach. interpreted Deepsouth so narrowly that several legal commentators have argued that Deepsouth has been stripped of all precedential value.[21]

Other U.S. cases have held that, although only a final operable assembly could infringe a combination patent, any such assembly, no matter how momentary, constituted “making”, and any testing of the completed assembly was a use.[22]

Canadian jurisprudence has not addressed the issue of unassembled component parts except in Windsurfing Int. Inc. v. Trilantic Corp.[23] In that case, the plaintiff had sued on a combination patent obtained in relation to sailboards. The defendant’s sailboards were sold in Canada in unassembled form. However, all of the parts sold by the defendant, once assembled, infringed the claims of the combination patent. Urie J.A. held that the defendant had induced the purchasers to infringe because the facts demonstrated that the respondent knew and intended that the ultimate purchaser would utilize the sailboards parts for the assembly of a usable sailboard which, upon assembly, would infringe the appellants’ patent. As such, the defendant had become a party to such infringement.

While the defendants in Windsurfing were held liable for having induced others to infringe, Urie J.A., speaking for the Court, also stated the following regarding the selling of unassembled parts:[24]

No one has ever alleged in this case infringement by the components of the invention. They are acknowledged to be old. The invention is the combination of the old components or elements. The respondent clearly is not selling parts. It is selling parts for the purpose of making a sailboard. Without assembly there can be no sailboard. Without assembly there can be no purpose in a purchaser buying the unassembled parts since, unassembled, they cannot be used for the purpose for which they are purchased, that is, to sail. To suggest that a patent infringement suit can be successfully avoided by selling parts as components of a kit in contradistinction to their sale assembled is, in my view, errant nonsense.

This is, in our view, the correct approach to take with regard to the making and selling of all components of a patented invention. Where the elements of an invention are sold in a substantially unified and combined form for the purpose of later assembly, infringement may not be avoided by a separation or division of parts which leaves to the purchaser a simple task of integration and assembly.

In the present case, the Trial Judge concluded that when the respondents shipped the unassembled parts out of the country, they had not made, constructed, used or sold to others, in Canada, the appellants’ invention. He arrived at this conclusion because the respondents had not sold the components of the invention for use and assembly in Canada, nor had they assembled the machines themselves and later exported the finished product.

In our view, however, the Trial Judge failed to consider that the respondent GEC had in fact sold in Canada the patented invention when it signed contracts in Montréal for complete press machines, not simply for components. It was admitted at trial that:[25]

17. After issuance of the Beloit Patent CGE has… contracted in Canada for sale to South Sabah for assembly and use in Malaysia, paper machine presses called DEW triple nip press sections which have the elements described above as Trip-nip type presses.

After GEC ceased all of its activities concerning triple-nip presses, VDI undertook to continue such activities, including any obligations flowing from the agreement to sell two complete triple-nip presses to Klockner Stadler Hunter Ltd. It was agreed at trial that:[26]

18. On April 28, 1984 CGE ceased all of its activities concerning DEW triple nips and VDI continued such activity. VDI manufactured in Canada components for the DEW triple nips for South Sabah.

Thus, GEC sold two complete machines to Klockner Stadler Hunter Ltd., which were manufactured and delivered by VDI, and later installed in South Sabah, Malaysia.

While the delivery format was in unassembled parts, it is the whole press section that was sold by GEC, and made by VDI. Further evidence that the respondents were in business of selling and making the whole press section, and not only components or parts, may be found in admissions made during Beloit’s examination of Juhani Pakkala of VDI and GEC that the machines were assembled for verification in their Montréal workshops:[27]

J. PAKKALA: A…. [the components] were all installed in Montreal at our workshops, and then packed and shipped to the customer.

MR. WILSON: Q. When you say “all installed at your works”, you assembled them?

A. Assembled them, yes.

Q. To see if it’s going to fit together, and then you take it apart and ship it out?

A. Yes.

Q. And that was the standard practice for all of these Sym-Press machines that we’re talking about?

A. Yes. I would add to that we are not assembling the whole press section. We don’t assemble the rolls, normally, at all. We only assemble, for instance, one of the felt rolls, and take one felt roll and check each location, that it fits there, and we just then assume that all of the 25 other rolls are identical.

Q. Did you follow the same practice for the South Sabah machines?

A. Yes.

A manufacturer cannot avoid liability for infringement by disassembling the machine after the completed assembly has occurred. In our view, the manufacture of all of the components that are later sufficiently assembled to test the fitting of the parts, constitutes “making” a patented invention for the purposes of section 44 of the Act.

Thus, the respondent VDI can be said to have made the patented invention when it manufactured the components, and then sufficiently assembled the machines to ensure their functionality in their workshops in Montréal. The fact that the press sections were then disassembled for the purpose of shipping and delivery cannot shield VDI from liability for having made in Canada press sections that infringe the appellants’ patent. This conclusion does not constitute an extraterritorial application of the Act, but rather makes the respondent VDI liable for its domestic actions.

To find otherwise would unduly reward VDI for evading the responsibilities of the Canadian patent system. The monopoly granted by section 44 of the Act should not be construed so narrowly as to allow a competitor to manufacture components and assemble the components into the patented invention before shipment on the basis that the infringer had the good sense to deliver the product in a disassembled form.

We, therefore, conclude that VDI’s manufacture of the two South Sabah machines constitutes “making” under the terms of section 44 of the Act, and amounts to an infringement of Beloit’s patent.

(b)       Provision of parts, services, information and assistance to customers

In his amended judgment and reasons dated 25 March 1993, the Trial Judge rejected the appellants’ submission that VDI was a party to the infringement by providing parts, services, information and assistance necessary to the continued running of the patented press sections belonging to GEC’s former customers, Donohue-Normick Inc. and Consolidated-Bathurst Inc. He wrote at page 4 of the amended judgment and reasons that:

The plaintiff maintains that it raised this issue in its memorandum filed before the infringement hearing in October 1992. However, no argument was made at the hearing with respect to this issue and the plaintiff having failed to adduce any evidence that third parties knew of the existence of the patent or that they were induced or procured by the defendants to infringe, no order will issue.

The appellants argue that the Trial Judge’s determination is wrong for two reasons. First, the issue was raised by both parties in their written and oral arguments. Secondly, the appellants need only establish that the respondents knew of the existence of the patent and intended their customers to infringe the said patent.

Since the respondents have replied only to the second ground, this Court will limit itself to that second ground which addresses the substantive question of whether VDI was a party to the infringement.

As stated earlier, this Court previously addressed the issue of infringement caused by the sale of spare parts in Beloit Can. Ltée/Ltd. v. Valmet Oy.[28] In its decision, this Court considered whether Valmet had breached an injunction which enjoined it from manufacturing, using, selling or inducing others to use the same press section in dispute in the case at bar. It was alleged that Valmet breached the injunction by delivering to VDI parts that were to be used in the manufacture of tri-nip press sections. This Court concluded that Valmet had not breached the injunction. It is useful to repeat here the passage from the reasons of Pratte J.A., already quoted:[29]

… it is well established that there is no infringement of a patent in selling an article which does not in itself infringe the patent even when the vendor knows that the purchaser buys the article for the purpose of using it in the infringement of the patent. There seems to be only two exceptions to that rule, namely, that there is infringement:

(a) if the vendor alone … or in association with another person … , sells all the components of the invention to a purchaser in order that they be assembled by him; and

(b) if the vendor, knowingly and for his own ends and benefit, induces or procures the purchaser to infringe the patent. … [Footnotes omitted.]

Subsequently, in Beloit Canada Ltée v. Valmet Oy, this Court considered whether to award profits on spares and auxiliary equipment as well as post-contract sales of spares and concluded that as a general principle “the sale of individual spare parts for an infringing press section does not itself constitute an infringement of the patent here in suit.”[30] Furthermore, the Court wrote:

In our 1992 decision [Beloit Canada Ltée/Ltd. v. Valmet Oy (1992), 45 C.P.R. (3d) 116 (F.C.A.)], quoted above, we had made it plain that, in our view, it was a question of fact whether profits arising from “the after sale provision of parts and services” resulted from the defendant’s infringement. The expression “parts and services” clearly includes the spare parts and auxiliary equipment which form the subject-matter of the present item of claim.[31]

Accordingly, in the case at bar, the supply of spare parts and services alone does not constitute an infringement. VDI will be found to infringe only if it comes within the second exception enunciated by Pratte J.A. namely that VDI knowingly, for its own benefit, induced or procured Donohue and Consolidated-Bathurst to continue running the press sections. As stated by Pratte J.A.:

In order to induce or procure another person to infringe a patent, one must do something that leads that other person to infringe the patent. If one does nothing, there cannot be any inducement ….

…

The evidence does not show that [Valmet] took any part in V.D.I’s decision to continue manufacturing and selling Tri-Nip press sections.[32]

Similarly, while VDI supplied spare parts and services for the continued running of the infringing press sections, the appellants have not directed this Court to any evidence, overlooked by the Trial Judge, which would indicate that VDI participated in the decision by Donohue or Consolidated-Bathurst to continue to operate the infringing press sections. Accordingly, there is no basis to set aside the finding by the Trial Judge that VDI did not infringe the patent by supplying spare parts or services for the continued running of the infringing press sections.

3.         Prescription

We turn now to the appellants’ contention that the Trial Judge erred in applying Article 2261 of the C.C.L.C. to bar the claims against VDI in relation to the South Sabah machines and all the claims against GEC.

The Trial Judge addressed the preliminary issue of whether all claims against GEC, and those against VDI in relation to the two South Sabah machines, were prescribed. Noting that the Act is silent with respect to limitation periods, he referred to subsection 39(1) of the Federal Court Act[33] which required him to apply the law of the relevant province, namely Quebec.[34]

He found no value in the appellants’ argument that if, instead of damages, an account of profits is had, the two-year prescription of Article 2261 of the Civil Code of Lower Canada did not apply and that, in its stead, the thirty-year omnibus prescription provision of Article 2242 applied.[35] The appellants based their argument on the fact that Article 2261 uses the word “damages” (dommages) and could only apply if that remedy was sought. He held, on the contrary, that a patent infringement action is a single cause of action, and that the remedy sought for infringement cannot constitute a separate cause of action. He thus rejected the holding of Gibson J. in Reeves Brothers Inc. v. Toronto Quilting & Embroidery Ltd.[36] which had been relied on by the appellants.

The Trial Judge noted that, throughout the C.C.L.C., the word “damages” in the English version is used interchangeably and gives rise to two different meanings; (1) the harm or prejudice caused due to faulty act or delict; and (2) the compensation that can be recovered if harm has been done. The first meaning relates to the cause of action. The second relates to the remedy which is more properly referred to as “dommages et intérêts”.[37] He found that the reference to damages (dommages) in Article 2261 relates to the harm or prejudice caused due to a faulty act or delict, rather than to the compensation that can be recovered if harm has been done. This led him to conclude that Article 2261 describes situations which give rise to a cause of action, and not to the remedy of “dommages et intérêts”.

Relying on Mastini v. Bell Telephone Co. of Canada et al.,[38] he held that an infringement of a patent is a tort or delict under the law of Quebec and is the type of harm or “dommages” targeted by Article 2261. Thus, in order to pursue an action for infringement, the action must be instituted within two years. Since the evidence, at least with respect to GEC, indicated that Beloit was aware of the allegedly infringing activities of the respondent, from approximately 1975, but took no action until 1986, the Trial Judge concluded that the following contracts were prescribed:

— One complete machine except headbox, sold by GEC to Midtec Paper Corporation (June 1979).

— One complete machine sold by GEC to Donohue-Normick Inc. (13 August 1980).

— A press-section rebuild sold by GEC to Consolidated-Bathurst Inc. (11 July 1980).

— Two complete machines sold by GEC and manufactured by VDI to Klockner Stadler Hunter Ltd. (29 April 1983) and assembled in South Sabah, Malaysia.

Beloit submits that the claims against VDI, the manufacturer of the two South Sabah machines, were not prescribed whether Article 2261 applies or not. Since VDI agrees with this position, we need not discuss it further except to note the error of the Trial Judge with regard to these two contracts.

Beloit claims that the Trial Judge also erred in holding that patent infringement is an offence or quasi-offence under Article 2261 of the C.C.L.C. The action for patent infringement, Beloit reasons, arises solely from the operation of the law, namely the Patent Act. As a result, the omnibus prescription period of Article 2242 applies rather than Article 2261. Moreover, Beloit alleges that the two-year prescription period does not apply to this case because a claim for an accounting of profits is not a claim for “damages” within the meaning of Article 2261. In any event the claims against GEC are not prescribed by Article 2261 because, contrary to the Trial Judge’s finding, GEC failed to establish when the prescription period began to run.

The liability for patent infringement is found in subsection 55(1) of the Patent Act which read thus at the relevant time:[39]

55. (1) Any person who infringes a patent is liable to the patentee and to all persons claiming under him for all damages sustained by the patentee or by any person, by reason of the infringement.

In Johnson Controls Inc. v. Varta Batteries Ltd.,[40] this Court held that an action based on section 55 (formerly section 57) of the Patent Act is an action “to give to the aggrieved party (the patentee) a right to damages to the extent of the actual loss suffered by him due to the acts of an infringing party”.

Besides damages, section 57 of the Act allows further reliefs:

57. (1) In any action for infringement of a patent, the court, or any judge thereof, may, on the application of the plaintiff or defendant, make such order as the court or judge sees fit,

(a) restraining or enjoining the opposite party from further use, manufacture or sale of the subject-matter of the patent, and for his punishment in the event of disobedience of that order, or

(b) for and respecting inspection or account,

and generally, respecting the proceedings in the action.

In Clerk and Lindsell on Torts, the authors state that the infringement of a copyright, patent or a trade mark involves the breach of a statutory right and, therefore, cannot be considered a tort at common law.[41] However, the authors characterize intellectual and industrial profits as interests partly protected by the law of torts. This is explained by the fact that some elements of intellectual and industrial property law are tortious in nature:[42]

The law recognises and protects [intellectual property] rights, but both their existence and vindication tend to depend on an amalgam of the principles of common law and equity, and increasingly on statute. To a large extent, statute now regulates the protection of patents, copyrights, registered trade marks and design, albeit the remedies to redress infringement of those rights have tortious aspects.

In some contexts, infringement of copyright, patents and trade marks has been considered tortious in nature.[43] For instance, in PSM International plc v. Specialised Fastener Products (Southern) Ltd., it was held that “infringement of copyright is and always has been treated as a tortious invasion of a property right”.[44]

Under the French legal system, patent law is also a matter of statute which remains subject to the general principles of the civil law in matters not addressed by statute. Under that system, infringement has been characterized as a “quasi-delict”.[45]

In Canada, the cause of action for patent infringement arises solely under the Patent Act. It does not follow, however, that, for prescription purposes under the C.C.L.C., patent infringement becomes an “[o]bligations aris[ing] from … the operation of the law solely” within the meaning of Article 983 of the C.C.L.C.[46]

Article 983 of the C.C.L.C. provides a list of different sources of “obligations”. Each source is explicitly defined in other provisions of the C.C.L.C. When Article 983 refers to “the operation of the law”, reference must be had to Article 1057 of the C.C.L.C.[47] to determine the ambit of this phrase. What is clear is that the word “law”, as defined in Article 17(2) of the C.C.L.C.,[48] refers only to the laws of Quebec and not to the Patent Act.

In Mastini v. Bell Telephone Co. of Canada et al.,[49] it was not disputed, says Jackett P., that an infringement of a patent was “a tort or wrong” at common law and a “delict” or “offence” under the law of Quebec, although such torts or “offences” were within the exclusive legislative jurisdiction of the Parliament of Canada by virtue of class 22 of section 91 of the Constitution Act, 1867 [30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5]]. Interestingly enough, Mastini predates subsection 39(1) of the Federal Court Act.[50] Be that as it may, it is our view that, for prescription purposes, an infringement of a patent is properly characterized as an offence or quasi-offence (“délit” or “quasi-délit”) under the law of Quebec, with the result that Article 2261 of the C.C.L.C. operates as a bar to such action when it is not brought within two years of the act complained of.[51] In Johnson Controls Inc. v. Varta Batteries Ltd.,[52] this Court has already held that a patent infringement action in Ontario is subject to a six-year limitation period pursuant to paragraph 45(1)(g) of the Limitations Act,[53] and not two years under paragraph 45(1)(h) which deals with actions given by any statute. This is so because the Patent Act has as its objective, not the punishment of the wrongdoer, but the compensation of the aggrieved party for losses occasioned by the acts of another.

A compensation for a loss is akin to tortious liability. Many note the difficulty in defining what constitutes a tort. Linden suggests that the best working definition so far produced is “A tort is a civil wrong, other than a breach of contract, which the law will redress by an award of damages”.[54] Baudouin says for his part [translation] “Civil liability entails the obligation to re-establish the broken economic equilibrium and to repair the damage caused to the victim”.[55] These definitions reflect the logic applied in the Johnson Controls case and assist us in confirming the choice made in Mastini with regard to the notions of “delict” and “quasi-delict”.[56]

It was later held by the Trial Division of this Court, in Reeves Brothers Inc. v. Toronto Quilting & Embroidery Ltd.,[57] that if, instead of damages, an accounting of profits is had, Article 2261 does not apply but, rather, the omnibus thirty-year prescription of Article 2241. There, the Trial Judge wrongly characterized the remedy as if it were the cause of action.[58] In view of the fact that the conclusion in that case was based on an erroneous characterization, we are of the view that Reeves Brothers Inc. was wrongly decided and ought no longer to be followed.

We conclude that the delay for prescription is governed by the provision of Article 2261 of the C.C.L.C. which prescribes a two-year limitation.

Beloit attacks the finding of the Trial Judge that it had knowledge of the infringement since 1975. For the prescription to run, the burden was on GEC, says Beloit, to prove that Beloit was aware of the infringement. It claims that while there might have been evidence about Beloit’s general knowledge of the activities of the respondents, there was no evidence as to when Beloit first learned of the sales and when Beloit first became aware that the DEW triple-nip press section infringed its patent.

The evidence shows that Richard J. Regnier, President and General Manager of Beloit Canada, was cross-examined on his affidavit and said:[59]

Q. Were you personally aware of the formation of the joint venture between Valmet and Canadian General Electric that led to the formation of the Defendant Valmet-Dominion Inc.?

A. Yes, I heard about that shortly after it happened.

Q. In early 1984?

A. That is correct.

…

Q. You were aware of its products?

A. Generally I am aware of its products, primarily assets related to paper machines.

Q. I’m sure your Canadian company was well aware of Dominion Engineering and its products before the 1984 joint venture.

A. That is correct.

…

Q. Now, sir, didn’t Dominion Engineering Works Limited before the creation of the joint venture that led to V.D.I., didn’t that company, Dominion Engineering Works, offer for sale and sell trip-nip press sections in Canada?

A. I believe that is correct.

Q. Did your company ever complain to them about patent infringement?

A. I don’t know the answer to that.

Q. Would you check and let me know?

MR. WILSON:[60] My understanding is that they didn’t and that there is now a patent infringement action.

MR. MORROW:[61] Q. How far back does that activity go—the activity by Dominion Engineering in offering for sale and selling trip-nip press sections? I should say: How far back does your company’s information as to that activity go?

A. Our information indicates one ordered in 1975, one order in 1980.

Q. And your company… neither your company nor Beloit U.S. ever sued Dominion Engineering for patent infringement arising from those activities—correct, sir?

A. I don’t believe so.

Q. Shall I take the answer as “no” unless you advise me to the contrary?

A. That’s correct.

…

Q. I take it, sir, that your company has been aware not only of the existence of the Defendant V.D.I. but also of its activities in the sphere of trip-nip press sections since it was formed—is that right, sir?

A. I believe that is correct.

The Supreme Court of Canada has made it clear that tort actions accrue as of the date of their “discoverability”. Writing for the Court in Central Trust Co. v. Rafuse, Le Dain J. stated:

I am thus of the view that the judgment of the majority in Kamloops[62] laid down a general rule that a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence, and that that rule should be followed and applied to the appellant’s cause of action in tort against the respondents under the Nova Scotia Statute of Limitations. …[63]

…

The Court, in Central Trust Co., also increased the types of claims that can fall under the discoverability rule, finding no principled reason for distinguishing between an action for property damage (as in Kamloops) and an action for recovery of purely financial loss caused by professional negligence. Since Kamloops and Central Trust Co., the discoverability rule has enjoyed broad application.[64]

With regard to Quebec law, Article 2232 enumerates the causes which suspend the course of prescription:

Art. 2232. Prescription runs against all persons, unless they are included in some exception established by this code, or unless it is absolutely impossible for them in law or in fact to act by themselves or to be represented by others.

The Supreme Court of Canada, in Oznaga v. Société d’exploitation des loteries et courses du Québec,[65] held that the causes suspending prescription in Article 2232 did not include situations where a creditor lacked the awareness of the legal facts which are the basis of his right of action, unless such lack of awareness results from the debtor’s fault. Lamer J. [as he then was], speaking for the Court, wrote:

I am therefore of the view that in general it is rightly so that legal scholars refuse to regard the creditor’s lack of awareness of the legal facts which are the basis of his right as constituting an absolute de facto impossibility of acting (see Pierre Martineau, La prescription, P.U.M., 1977, at pp. 353 et seq.). Be that so, there however appears to be as much agreement, and I concur, in recognizing that lack of awareness of the legal facts giving rise to a right, when such lack of awareness results from the debtor’s fault, is de facto impossibility of acting as provided for in art. 2232, and that the starting point for computing deadlines will be suspended until the creditor is aware of the existence of his right—provided, it should be added, that he acted with the care of a reasonable man.[66]

While the test in Oznaga is stricter, both Central Trust Co. and Oznaga require that a plaintiff, who pleads suspension of a limitation period, demonstrate that their lack of awareness of the material facts that give rise to the cause of action exists despite having exercised due diligence. The Trial Judge appears to have inferred that because Beloit was aware of the activities of the respondents, it knew or ought to have known of the infringing sales. He concluded that Beloit “at least with respect to the defendant GEC, was aware of its allegedly infringing activities since approximately 1975”.[67] The appellants did not indicate to us any evidence with regard to their due diligence. Considering that the Trial Judge heard all the evidence, we are more than reluctant to reverse the inference he made on the facts.[68]

We conclude that since Beloit filed a statement of claim against VDI, on 4 June 1986, and a statement of claim against GEC, on 20 October 1986, any activities of those respondents prior to June 1984 and October 1984, respectively are prescribed.

Before dealing with the remaining issues in the appeal, it might be useful to summarize here the conclusions we have reached, based on the foregoing analysis. First, that the Trial Judge correctly found that this Court did not construe claim 1 of the patent in suit to include “high speed” as an element of the invention. Secondly, the manufacture by VDI in Canada of the two machines which were substantially assembled and tested in its Montréal plant and subsequently disassembled in Canada and shipped to South Sabah, Malaysia, for reassembly was a “making” within the terms of section 44 of the Act and was therefore an infringement of the patent in suit. Accordingly, the contrary finding of the Trial Judge was erroneous. Thirdly, the Trial Judge did not err in concluding that VDI did not infringe the patent in suit by supplying spare parts or services to Donohue and Consolidated-Bathurst for the continued running of the press sections. Fourthly, the Trial Judge erred when he concluded that the claims against VDI, the manufacturer of the two South Sabah machines, were statute-barred. Finally, that the Trial Judge was right to conclude that the prescription was a two-year period.

REMEDIES

The remaining submissions of the parties all relate to remedies. To these we now give consideration.

1.         Accounting of profits

In their cross-appeal, the respondents contend that liability for the infringement and the consequential remedy is provided in subsection 55(1) [as am. by R.S.C., 1985 (3rd Supp.), c. 33, s. 21] of the Act, which reads:

55. (1) Any person who infringes a patent is

(a) liable to the patentee and to all persons claiming under the patentee for all damages substained by the patentee or by any such person, after the grant of the patent, by reason of the infringement; and

(b) liable to pay reasonable compensation to the patentee and to all persons claiming under the patentee for any damages sustained by the patentee or by any such person by reason of any act on his part, after the application for the patent became open to the inspection of the public under section 10 and before the grant of the patent, that would have constituted an infringement of the patent if the patent had been granted on the day the application became open to the inspection of the public under that section. [Emphasis added.]

It is the respondents’ view that a remedy in damages is the only remedy available to a patentee once infringement has been found and that this Court is without jurisdiction to grant any other. They support this contention by referring to subsection 54(1) of the Act which gives jurisdiction to provincial superior courts to award the “amount of the damages claimed” in an infringement action.

Relying on the decision of the Trial Division in Irving Refining Ltd. v. National Harbours Board,[69] the respondents say that subsection 57(1) of the Act cannot be invoked to ground the remedy of accounting of profits as a remedy in actions for infringement of a patent. For convenience, we reproduce that subsection here:

57. (1) In any action for infringement of a patent, the court, or any judge thereof, may, on the application of the plaintiff or defendant, make such order as the court or judge sees fit,

(a) restraining or enjoining the opposite party from further use, manufacture or sale of the subject-matter of the patent, and for his punishment in the event of disobedience of that order, or

(b) for and respecting inspection of account,

and generally, respecting the proceedings in the action. [Emphasis added.]

It is the respondents’ contention that the use of the phrases an “order” “respecting the proceedings in the action” and the words on “application of the plaintiff or defendant” in this subsection, all indicate an intention by Parliament to provide remedies in interlocutory proceedings and not in final proceedings commenced by statement of claim. According to the respondent, the word “account” is meant to facilitate the calculation of damages awarded pursuant to subsection 55(1) of the Act.

The respondents also refer to the decision of the Trial Division in Consolboard Inc. v. MacMillan Bloedel (Saskatchewan) Ltd.[70] where Collier J. held that the use of the word “account” in paragraph 57(1)(b) [then paragraph 59(1)(b)] embraces the more technical “accounting of profits” and allows for the remedy in patent infringement cases. They remark that Collier J. declined to grant the remedy in that case and that his refusal was upheld by the Supreme Court of Canada.[71] In any case, they contend that Collier J. was wrong to read into paragraph 57(1)(b) of the Act, the word “profits”.[72]

The respondents then contrast paragraph 57(1)(b) of the Act with section 53.2 of the Trade-marks Act[73] and subsections 34(1) and 35(1) of the Copyright Act[74] where the remedy of an accounting of “profits” is provided eo nomine. Based on the references in those statutes, the respondents contend that the use of the word “accounts” in paragraph 57(1)(b) of the Act should be construed as providing for an order of accounting for the number and the value of the infringing articles sold by the defendant in lieu of an interlocutory injunction.

The respondents contend further that since, in their view, the Act does not award a remedy of accounting of profits for an infringement action, section 20 [as am. by S.C. 1990, c. 37, s. 34] of the Federal Court Act cannot do so. In support of this contention, they rely on the decisions of the Exchequer Court and the Supreme Court of Canada in Radio Corp. of America v. Philco Corp. (Delaware),[75] a case involving conflicting applications for patents. Jackett P., as he then was, expressed the view that section 21 of the Exchequer Court Act [R.S.C. 1952, c. 98] (now section 20 of the Federal Court Act) confers jurisdiction on the Court only where a right to relief is expressly given by the Patent Act [R.S.C. 1952, c. 203]. In the Supreme Court of Canada, Martland J., wrote for the Court, at page 304:

The important point is, however, that, since 1923, Parliament has made it clear in the provisions of the various Patent Acts that, notwithstanding the jurisdiction conferred by the Exchequer Court Act upon the Exchequer Court to deal with conflicting patent applications, the right to seek redress in that Court by an applicant is governed and limited by the provisions of the Patent Act respecting conflicting applications. The conclusion which I draw from the legislative history of the provisions of the Patent Act respecting conflicting applications is that, although jurisdiction is conferred upon the Exchequer Court by s. 21 of the Exchequer Court Act in cases of conflicting applications for a patent, the right of a party involved in such a conflict to attack the patent application of another party is governed by s. 45 and such party is restricted to such rights as are conferred by that section.

By analogy with this passage, the respondents assert that unlike paragraph 18(1)(a) (as am. by S.C. 1990, c. 8, s. 4) of the Federal Court Act, section 20 of the same Act does not create a right to relief and, as well, confer jurisdiction on the Court.

For its part, the appellants contend that there is an express provision in the Act providing for the award of a remedy of an accounting of profits in infringement cases. First, they adopt the reasoning of Collier J. in Consolboard, supra, and point to several subsequent decisions of this Court in which the reasoning in Consolboard has been applied, including the recent decision of this Court in AlliedSignal v. Du Pont.[76] Furthermore, they say that by virtue of sections 3 and 20 of the Federal Court Act, where the subject-matter is otherwise within the jurisdiction of the Court, where equitable principles are applicable to the issue and where no statutory authority bars jurisdiction, this Court has the authority to enforce all remedies available to it as a court of law and equity. In support of this argument, the appellants refer to three decisions of the Trial Division.[77] Finally, the appellants assert that authority for the grant of the remedy of accounting of profits in an action for patent infringement may be found in subsection 20(2) of the Federal Court Act, which reads:

20. …

(2) The Trial Division has concurrent jurisdiction in all cases, other than those mentioned in subsection (1), in which a remedy is sought under the authority of any Act of Parliament or at law or in equity respecting any patent of invention, copyright, trade-mark, industrial design or topography referred to in paragraph (1)(a).

A review of the jurisprudence and the literature discloses that this Division of the Court has never confronted squarely the issue whether the Court has jurisdiction to award the remedy of an accounting of profits in an action for infringement of a patent. Some commentators have questioned whether the Act does indeed provide for the award of such a remedy in patent infringement cases. See, G. A. Macklin, Q.C., “Relief in Intellectual Property Actions”;[78] and D. H. MacOdrum, “Entitlement to an Accounting of Profits”.[79]

In our view, the time has come to put the issue to rest in this Court. For the reasons that follow, we are all of the view that this Court does have and has always had jurisdiction to award the remedy of accounting of profits and that that jurisdiction is found in paragraph 57(1)(b) of the Act and in sections 3 and 20 of the Federal Court Act.

À notre avis, le moment est venu pour la Cour de régler cette question. Pour les motifs qui suivent, nous estimons que la Cour a et a toujours eu compétence pour accorder la restitution des bénéfices et que cette compétence découle de l’alinéa 57(1)b) de la Loi ainsi que des articles 3 et 20 de la Loi sur la Cour fédérale.

(a)       History of the remedy of accounting

A brief review of the history of the remedy might serve as a useful starting point for analysis.

The remedy of accounting has existed as an action at common law since at least the year 1200, although originally it was limited to actions against bailiffs, guardians in socage or receivers.[80] Prior to 1760, the Court of Chancery had concurrent jurisdiction with the common law courts to order an account in certain cases where such remedy was necessary to assert a legal right.

The equitable remedy of an account was granted against the infringer of a patent, copyright or trade mark, on the premise that the infringer acted as the agent of the owner of the right and was therefore obliged to account for the profits earned through the infringement. Accordingly, the owner of a patent who claimed an account of profits was considered to have condoned the infringement and could not claim damages in addition to the account.[81] The House of Lords then determined that the plaintiff in an action for infringement of a patent, having succeeded, is entitled to an election either for damages or an account of profits.[82] Since 1858, the remedy of accounting, therefore, continues to exist as an equitable remedy in patent infringement cases within the jurisdiction of courts vested with the authority to administer both law and equity.

(b)       Legislative history of subsection 57(1) of the Act

The first Patent Act of Lower Canada enacted in 1824 and entitled An Act to promote the progress of useful Arts in this Province[83] predated by some 28 years the first English statute to codify into statutory form the English Patent Laws (the Patent Act of 1852), subject to the Statute of Monopolies [21 Jac. 1, c. 3] of 1623. Consequently, the original Canadian Acts governing patents were modelled after the United States Acts of 1790, 1793 and 1836. Upper Canada passed its first Patent Act in 1826[84] and in 1849, the two Acts were consolidated.[85] However, it was not until the first post-Confederation Patent Act that the remedy of accounting appeared in the Statute.[86] Although The Patent Act of 1869 was clearly modelled after the U.S. Patent Act of 1836,[87] the language in section 24 is almost identical to that in section 42 of the British Patent Act of 1852.[88] The relevant section of the The Patent Act of 1869 reads:

24. An action for the infringement of a Patent may be brought before any Court of Record having jurisdiction to the amount of damages asked for and having its sittings within the Province in which the infringement is said to have taken place, and being at the same time, of the Courts of such jurisdiction within such Province, the one of which the place of holding is nearest to the place of residence or of business of the defendant; and such Court shall decide the case and determine as to costs; n [sic] any action for the infringement of a Patent, the Court, if sitting, or any judge thereof in Chambers if the Court be not sitting may, on the application of the plaintiff or defendant respectively, make such order for an injunction, restraining the opposite party from further use, manufacture or sale of the subject matter of the patent, and for his punishment in the event of the disobedience to such order, or for inspection or account, and respecting the same and the proceedings in the action, as the Court of Judge may see fit;—but from such order an appeal shall lie under the same circumstances and to the same Court, as from other judgments or orders of the Court in which the order was made. [Emphasis added.]

The corresponding section in the English Patent Act of 1852 reads:

XLII. In any Action in any of Her Majesty’s Superior Courts of Record at Westminster and in Dublin for the Infringement of Letters Patent, it shall be lawful for the Court in which such Action is pending, if the Court be then sitting, or if the Court be not sitting then for a Judge of such Court, on the Application of the Plaintiff or Defendant respectively, to make such Order for an Injunction, Inspection, or Account, and to give such Direction respecting such Action, Injunction, Inspection, and Account, and the Proceedings therein respectively, as to such Court or Judge may seem fit. [Emphasis added.]

It should be noticed that the U.S. Patent Act of 1836, which in all other respects is comparable to the Canadian Patent Act of 1869,[89] makes no mention of an inspection or account.[90] Based on the foregoing comparison, we infer that Parliament clearly intended to adopt the English law respecting the remedy of accounting in patent infringement cases.

We acknowledge that contemporary Canadian and English legislation differ in respect of the remedy of accounting for profits in patent infringement cases.[91] Nonetheless, it is our view that the earlier English authorities, based on statutory provisions almost identical to Canadian legislation, are persuasive in interpreting the latter. Similarly, Australian jurisprudence is equally persuasive to the extent that the provision in the Australian Patent Act provides for the relief of accounting in an infringement action.[92]

We reject the argument that English authorities respecting the remedy of accounting are of no assistance because the basis for the grant of patents in England was the Crown prerogative, but in Canada the grant and the remedies are statutory.[93] In our view, the origin of the right to a patent remains one of prerogative even if it is merged in the statutory right.[94]

The respondents’ final contention on this issue is that sections 3 and 20 of the Federal Court Act cannot provide for the remedy because it is not expressly granted by the Patent Act. In support of that contention, the respondents place great reliance upon Philco, supra [note 75], in which Jackett P., stated, at page 214:

No right to obtain relief from a Court in respect thereto exists except where such right has been conferred expressly or impliedly by some statute and, as far as I am aware, the only statute that deals with such applications is the Patent Act itself.

The short answer to that contention is that the remedy is expressly provided for in paragraph 57(1)(b) of the Patent Act. Since the remedy of accounting is an equitable remedy and section 20 of the Federal Court Act confers upon this Court the authority to grant equitable remedies, we are of the view that the Court does have jurisdiction to grant the remedy to successful patentees in infringement cases, in a proper case.

It should be noticed that the remedies of injunction and account provided in paragraphs (a) and (b) of subsection 57(1) of the Act were both developed in the Courts of Equity.[95]

(c) Whether the remedy of accounting of profits is discretionary and, if so, whether the Trial Judge exercised his discretion judicially in refusing the remedy

The appellants do not challenge the assertion that the Court has the discretion to award or refuse the equitable remedy of an accounting of profits. Indeed the appellants could not properly do so, having regard to the permissive language of paragraph 57(1)(b) of the Act. Instead, the appellants contend that the discretion to award the equitable remedy of an accounting of profits is limited. They contend that in a patent infringement action a successful plaintiff is prima facie entitled to elect damages or an accounting of profits.[96] They contend further that having elected the remedy of accounting for profits in its statement of claim and not being in breach of any of the applicable principles of equity (clean hands, laches or acquiescence) they were entitled to the equitable relief as of right.[97] The appellants contend finally that the Trial Judge erred in refusing the remedy on the basis of the factors he considered, namely, the complexity and inordinate length of the actions, delay by the appellants in bringing the actions after they became aware of the infringement, and the fact that the infringement complained of all occurred while the patent in suit had been declared invalid at first instance, when the decision at first instance was reversed.

For their part, the respondents contend that if the remedy of an accounting of profits is available, that remedy is discretionary and that this Court should not interfere with the Trial Judge’s refusal to grant the remedy unless it was satisfied that the Trial Judge made some palpable or overriding error which affected the exercise of his discretion. They contend further that the Trial Judge exercised his discretion on proper principles by considering the following factors; the appellants’ delay in instituting the actions, the fact that the appellants were aware of the infringement some time before commencing the actions and, the fact that an accounting of profits would be inconvenient and lead to considerable expense and delay. Reliance is placed on the decision of the Supreme Court of Canada in Consolboard, supra, and of this Court in AlliedSignal Inc. v. Du Pont Canada Inc.[98] They contend finally that the remedy of accounting of profits should not be granted since all of the three- nip press section contracts were undertaken when the patent had been found to be invalid by the Court and, there was no evidence that Beloit had bid for any of the GEC contracts in suit.

The appellants rely on English authorities to establish that a successful plaintiff has a prima facie right to elect an accounting of profits. However, without commenting on the efficacy of those authorities, we note that the jurisprudence in this Court, by which we are bound, is that “the choice between the two remedies [damages or accounting profits] cannot be left entirely to the successful plaintiff”.[99] In Unilever PLC v. Proctor & Gamble Inc.,[100] this Court held that the decision to award an accounting of profits in patent cases is within the discretion of the judge or prothonotary. That case affirmed the earlier decision of this Court in Lubrizol Corp. v. Imperial Oil Ltd.,[101] where Mahoney J.A. stated that “(t)he award of the option of an election of profits is, in any event, clearly discretionary”. The jurisprudence of this Court has identified several circumstances under which an accounting of profits may reasonably be refused, such as excessive delay and any misconduct on the part of the patentee. In the present case, the Trial Judge chose not to grant the accounting of profits on the basis that there was a lengthy delay in the proceedings; that the relief would lead to further delay and expense; and, that the infringing parties acted in good faith when they entered the contracts in suit at a time when the Trial Division of this Court had decided that the patent in suit was invalid.

We examine in turn each of the factors which the Trial Judge considered in exercising his discretion to refuse the remedy.

The complexity and inordinate length of the actions:

While it is true that there is no rule or principle of equity by which the successful patentee is to be denied an equitable remedy due to the inordinate length or complexity of the proceedings, both the British and Canadian courts have repeatedly expressed their concern for the inefficiency of such a remedy in patent infringement, cases. In Reading & Bates Construction Co. v. Baker Energy Resources Corp.,[102] Létourneau J.A. noted some of the inconveniences associated with an accounting of profits:

It is trite to say that the exercise of this remedy has been associated with a number of practical difficulties which have somewhat diminished its usefulness. As early as 1892, Lindley L.J., of the English Court of Appeal, wrote:

The Plaintiff therefore was perfectly within his right in electing, as he did in this case, to have an account of profits; but I do not know any form of account which is more difficult to work out, or may be more difficult to work out than an account of profits. One sees it—and I personally have seen a good deal of it—in partnership cases where the capital of a deceased or outgoing partner has been left in the trade; an account has been directed of the profits made in respect of his capital, which is something like the profits made in respect of an invention, and the difficulty of finding out how much profit is attributable to any one source is extremely great—so great that accounts in that form very seldom result in anything satisfactory to anybody. The litigation is enormous, the expense is great, and the time consumed is out of all proportion to the advantage ultimately attained; so much so that in partnership cases I confess I never knew an account in that form worked out with satisfaction to anybody. I believe in almost every case people get tired of it and get disgusted. Therefore, although the law is that a Patentee has a right to elect which course he will take, as a matter of business he would generally be inclined to take an inquiry as to damages, rather than launch upon an inquiry as to profits (Siddell v. Vickers (1892), 9 R.P.C. 152 (C.A.), at pp. 162-163).

The remedy often leads to a relitigation of the nature and extent of the infringement in an attempt to minimize the amount of profits made from it or to obtain apportionment. It also gives rise to litigation in the determination of the secondary benefits, i.e., the level and amount of earnings made on the profits by a defendant. Central to the debate between the litigants are the extent and the proper allocation of the burden of proof. This case is no exception to the rule.

In our view, it was within the discretion of the Trial Judge to take into consideration the equitable results of the election of an accounting of profits based on the complexity and length of proceedings among other considerations.

The Trial Judge was well qualified to exercise his discretion and to refuse the remedy since he had heard a reference to assess profits in a parallel case involving the same patent.[103] The Trial Judge was correct to refer to the complexity of these actions which required partial hearings in Germany, and elsewhere, not a usual occurrence in patent cases. Moreover, the Trial Judge was aware of the potential length of the proceedings, given the lengthy proceedings involving Valmet Oy in which he had been involved.

Once a patentee has successfully demonstrated infringement, the Court, as a court of law and equity, has the discretion to grant the patentee’s choice of remedies. The language of section 57 of the Patent Act is clear and unambiguous. It provides that the court or judge “may” as “the court or judge sees fit” grant an account in a patent infringement action. If the judge thereby refuses the award of an account, damages are available pursuant to section 55 of the Act. Given that “equity follows the law”,[104] the court or the judge is not obliged to rely on the maxims of equity in order to deny a successful plaintiff his or her election of an accounting of profits.

Beloit was aware of GEC’s allegedly infringing action since 1975 and took no action until GEC instituted its action in 1986:

There is no doubt that when the acts of infringement were carried out with the full knowledge of the plaintiff, a delay in instituting infringement proceedings is a ground for refusing the election of an accounting of profits.[105] However, counsel for the appellants, took the view that because Beloit came to equity with clean hands it had a prima facie right to equitable relief. According to counsel GEC did not establish when Beloit first discovered GEC’s infringing action and therefore, the defence of acquiescence should fail. But, the respondents did not plead acquiesence in these actions. As mentioned earlier, the Trial Judge was not bound by maxims of equity in exercising his discretion to refuse the election of an accounting of profits since such election is provided for as a statutory alternative to a remedy in damages.

Before this Court there was evidence establishing that Beloit was well aware of DEW and its products before 1984; that DEW offered for sale and sold tri-nip press sections before 1984; that Beloit was aware of GEC’s activities as far back as 1975; and that GEC’s alleged infringing activities began in 1979 and ended in 1984.[106] Beloit however, did not inform DEW or GEC of any complaints of infringement nor did it take action against GEC until 1986.

The contracts in suit were all entered into when the patent had been held invalid by the Trial Division:

The appellants contended that there is no principle in equity which provides that a plaintiff ought to be denied an equitable remedy on the basis of an erroneous trial judgment from which it promptly appealed. While we agree with this submission we do not think that this error by itself, if error it be, requires us to interfere with the exercise of discretion by the Trial Judge to award the remedy of accounting of profits. The judgment of the Trial Division was valid until set aside and acts done pursuant to it were arguably done in good faith. In Reading & Bates v. Baker,[107] we held that the good faith of an infringer is a factor which a judge could consider in exercising his or her discretion to award a remedy of accounting. In this case, the respondent VDI has accepted responsibility for the risk it took by entering into contracts in the period following the Trial Division’s determination that Beloit’s patent was invalid. In doing so, it ran the risk of reversal of that determination by this Court, but we are unable to say it did not act in good faith.

It is trite that:[108]

As a general rule, an appellate court will not interfere with the exercise of a discretion by a trial judge unless the judge has proceeded upon some erroneous principle, or some misapprehension of the facts, or where the order is not just and reasonable.

We are unable to say that in refusing the remedy of accounting of profits the Trial Judge exercised his discretion in a manner that would justify our intervention. Accordingly, we find no error in the conclusion of the Trial Judge that the remedy of accounting of profits was not appropriate in the circumstances of this case.

2.         Damages

In its cross-appeal, VDI submits that the Trial Judge erred in directing that damages be assessed against VDI for the press sections themselves and any other paper machine components with which the press sections may have been sold. VDI argues that the assessment of damages should be limited to the press sections themselves.

VDI puts forward three grounds in support of its assertion that Beloit is only entitled to the profits obtained by the infringement of the press sections which constitute one of the four sections of the paper machine. First, Beloit’s statement of claim against VDI and GEC relates only to press sections. Second, there is no evidence that the sale of any of the VDI or GEC press sections was linked to the sale of other machine sections. Third, this Court must set aside the Trial Judge’s determination in order to be consistent with its decision in Beloit Canada Ltée v. Valmet (1995), 61 C.P.R. (3d) 271 (F.C.A.). Accordingly, VDI concludes that this Court must direct the referee to limit damage assessment to the press sections.

Conversely, Beloit submits that the Trial Judge’s decision is consistent with the jurisprudence and that the Trial Judge correctly inferred from evidence that the inclusion of infringing tri-nip press sections was a factor in the sales by VDI and GEC of the paper machines in which they were included.

Two questions must be addressed in deciding this issue. First, whether the patentee is entitled to an assessment of the whole article sold where its patented article forms only part of the whole article. Second, if the first is answered in the affirmative, then it must be determined whether Beloit, in the case at bar, is entitled to an assessment based upon sales of the press sections with other components.

With respect to the first issue, the Supreme Court of Canada in Colonial Fastener Co. Ltd. v. Lightning Fastener Co. Ltd.,[109] held that there may be instances when a patentee may be entitled to damages based upon the whole article of which the patented article forms a part. In that instance, the Court awarded damages not just for the infringed article, the stringers, but for the completed article, the fasteners. The Court reached this conclusion on the basis that the stringers were only of importance in their use with the fasteners. In coming to this conclusion the Court adopted the principle established in Meters Ld. v. Metropolitan Gas Meters Ld.[110] where, at pages 41-42, Kerwin J. (as he then was), stated for the Court:

… the Court of Appeal had to consider the amount of damages the plaintiff was entitled to where the defendant infringed plaintiff’s patents, one of which related to a particular kind of cam and spindle for opening the gas valve in a prepayment gas meter, and the other of which was for a particular kind of crown wheel in a like meter. It had been shewn before the Master and Eve J., … that the plaintiff would have sold many more meters but for the defendant’s intervention, and it was, therefore, awarded 13s. 4d. for the loss of profit on each of such meters. [Emphasis added.]

Similarly in Beloit Canada Ltée/Ltd. v. Valmet Oy,[111] this Court stated at page 119, with respect to a discovery issue in the reference, that it could:

… see no reason in principle why a patentee, whose property has been wrongly appropriated through infringement, should not recover all the profits, direct and indirect, derived by the infringer from his wrongful infringement ….

This Court went on to note that [at pages 119-120]:

Questions as to whether any proportion of the profits earned by the defendant on the sales of non-infringing parts of paper machines was due to such machines have infringing press sections incorporated into them, and the amounts thereof, if any, are difficult questions of fact.

Accordingly, this Court in Beloit Canada Ltée v. Valmet Oy[112] upheld the Trial Judge’s refusal to award profits on the entire machines containing infringing press sections. This Court wrote at page 278 that the “question is wholly one of fact”. At page 279 it observed that the “judge made very strong findings of fact” and then cited the following portion of the Trial Judge’s reasons [(1994), 55 C.P.R. (3d) 433 (F.C.T.D.), at page 458]:

Based on the evidence, I am unable to conclude that any of the profit realized by Valmet on the sale of the four paper machines in question was derived as a result of its wrongful infringement of the plaintiff’s patent. The facts clearly show there were numerous reasons why the defendant was successful in its bid for the sale of those machines. None of them, in my view, are in any way related to the infringing press section.

Based upon the jurisprudence, in our view the first question should be answered in the affirmative. A patentee is entitled to damages assessed upon the sale of non-infringing components when there is a finding of fact that such sale arose from infringing the patented component.

The remaining question is whether the Trial Judge correctly determined that Beloit was entitled to damages based upon sales of other components with the press components. At pages 550-551, the Trial Judge wrote:[113]

I cannot accept the defendant’s contention that an award of damages to the plaintiff should be limited to the press section of a paper machine and not beyond, in those instances where the defendants actually sold an entire machine. The case law does not support a restriction of the measure of damages to the loss of profits attributable to the patented article itself. If, in the normal course of a patentee’s trade, the patented article is sold by itself, this may well be all he is entitled to. However, where the patented article is not always or necessarily sold by itself, it is reasonable to assume that the damage to the patentee lies, not merely in loss of profits attributable to the article itself, but in selling the articles in which he trades, in the present case, paper machines with triple-nip press sections. Indeed, this was the position taken by the Supreme Court of Canada in Colonial Fastener Co. Ltd. v. Lightning Fastener Co. Ltd ….

…

The end result is that at the reference, the plaintiff must show what profit it would have made on the sale of the three machines sold by the defendant VDI to Corner Brook Pulp & Paper Limited, Donohue Malbaie Inc., and Repap N.B. Inc., respectively, the two press section rebuilds sold by the defendant Voith to Canadian International Paper (Gatineau) and to British Columbia Forest Products, and the one press section sold by the defendant VDI to Great Lakes Forest Products Limited, all of which have been found to infringe the patent. [Emphasis added.]

We are unable to agree with the Trial Judge’s statement that “where the patented article is not always or necessarily sold by itself, it is reasonable to assume that the damage to the patentee lies … in selling the articles in which he trades.” As shown in the preceding review of the jurisprudence, the scope of damages to which a patentee is entitled is not based upon an assumption but rather on a finding of fact. The reasons of the Trial Judge do not, in our respectful view, contain a specific finding based on evidence that non-infringing component parts of machines were sold because the infringing press sections were sold with them. We must conclude from the record, therefore, that the Trial Judge erred in directing that VDI must pay damages based on other components with which the press sections were sold rather than on the press sections alone.

3. Whether the Trial Judge failed to apply the proper legal tests for the award of pre- and post-judgment compound interest; whether he overlooked a declaration as to which claims were infringed; and whether he overlooked the issue of an injunction describing who and what activities are restrained

Although the appellants raised all of these issues as his final ground of appeal we consider it appropriate to deal with each separately:

i)          Pre- and post-judgment interest

The Trial Judge did not deal with this issue in his judgment pronounced on 16 February 1993. However, on 25 March 1993, pursuant to a motion brought by the appellants under subsection 337(5) of the Federal Court Rules, the Trial Judge considered the submissions of counsel for the parties on the issue and amended his judgment as follows:

IT IS HEREBY ORDERED THAT the defendants Voith and VDI shall pay to Beloit simple pre-judgment interest on such damages from the date Beloit commenced its actions to 31 December 1990 at the rate of 10% per annum, and thereafter simple interest at the rate of 7% per annum until payment in full.

The appellants contend that the Trial Judge should have awarded compound instead of simple interest on the damage award, both pre- and post-judgment, and relies in support on the decisions of this Court in Reading & Bates v. Baker[114] and Algonquin Mercantile v. Dart Industries.[115] To this, the respondents make the following reply. First, they say that the award of pre- and post-judgment interest are governed by subsections 36(1) [as am. by S.C. 1990, c. 8, s. 9] and 37(1) [as am. idem] of the Federal Court Act which incorporate by reference the law in force in the province in which the cause of action arose. Secondly, they note that the causes of action here arose in Quebec and say that the provincial law applicable is Article 1056c of the Civil Code of Lower Canada which reads:

Art. 1056c. The amount awarded by judgment for damages resulting from an offence or a quasi-offence shall bear interest at the legal rate as from the date when the action at law was instituted.

There may be added to the amount so awarded an indemnity computed by applying to the amount, from such date, a percentage equal to the excess of the interest rate fixed according to section 28 of the Act respecting the Ministère du Revenu (R.S.Q., chapter M-31) over the legal interest rate.

Thirdly, the respondents say that subsection 36(5) [as am. idem] of the Federal Court Act invests the Court with a discretion over the award of the pre-judgment interest and having regard to the respondents’ good faith as implied in the conclusions of the Trial Judge, the discretion he exercised in awarding pre-judgment interest at the simple rather than the compound rate was proper and ought not to be disturbed. Reading & Bates v. Baker, supra, was cited in support. No similar contention was made in defence of the award of post-judgment interest.

We are unable to accept the appellants’ contention that the Trial Judge erred in refusing to award compound interest, pre- and post-judgment. Subsection 36(5) of the Federal Court Act provides expressly for the exercise of a discretion by the Court in relation to the award of pre-judgment interest and, although section 37 of the Federal Court Act does not contain a comparable provision, this Court has recognized that an award of post-judgment interest is also discretionary.[116] It is true that the Trial Judge did not articulate the basis upon which he awarded simple interest pre- and post-judgment. However, this omission, by itself, does not provide a basis for reversal, if we are satisfied that it was open to him on the facts found to make the award that he did.

Before us, the focus of the appellants’ contention on this issue, as we understand it, was upon the failure by the Trial Judge to apply the proper legal test in making the award and not upon whether there was a factual justification for the award.

We are all of the view that there is, in law, no legal test which mandates the award of compound interest pre- and post-judgment to a successful patentee in an infringement action. Acceptance of such a thesis would imply a rejection of the discretionary nature of the award. Indeed, Reading & Bates v. Baker, supra, upon which the appellants place great reliance, expressly recognizes the discretionary nature of the award of pre-judgment interest and that an award of simple interest might be appropriate in a proper case. Létourneau J.A., writing for a unanimous Court, stated at pages 503-504:

There is no doubt that the analogy between an infringer and a trustee is an imperfect one. However, it is one that the courts, in their struggle to achieve equity, devised at a time when the awarding of pre-judgment interest was not permitted at common law, but was emerging in equity. It eventually led, in this latter case, to the compounding of interest because compound interest became a modern reality and the reality of business life. The modern reality is that interest paid or earned on deposits or loans is compound interest.

In my view, bearing in mind this reality and the need to achieve equity in the accounting of profits, the awarding of compound pre-judgment interest as deemed earnings on the profits is the rule, subject to a Court’s discretion to mitigate it or to award only simple interest in appropriate circumstances. The good faith of the infringer is certainly a criterion that judge can take into account in the exercise of his discretion. Other factors could include the highly debatable validity of the patent claim or the fact that compounding the interest may reach beyond equity into the realm of punishment. [Emphasis added.]

But there, the Court was considering the award of pre-judgment interest in the context of the equitable remedy of accounting. Here, the Trial Judge had awarded the statutory remedy of damages. In our view, this fact alone makes the rule laid down in Reading & Bates v. Baker, supra, inapplicable to this case. Moreover, as the respondents contend in paragraph 128 of their memorandum of fact and law, given the finding of good faith by the respondents, it was open to the Trial Judge to exercise his discretion by awarding simple pre- and post-judgment interest. For these reasons, we are of the view that the discretion which the Trial Judge exercised ought not to be disturbed.

4. Whether the Trial Judge overlooked the making of a declaration as to which claims were infringed

In our view, when the reasons for judgment are read as a whole and understood, there is no confusion respecting the claims that were found to have been infringed, although the Trial Judge did not make a declaration to that effect. Counsel for the appellants has included such a declaration in paragraph 2 of the draft judgment filed as Schedule 3 to his memorandum of fact and law which we are prepared to adopt with necessary modifications in order to remedy the omission.

5. Whether the Trial Judge overlooked the issue of an injunction describing who and what activities are restrained

In his amended judgment, the Trial Judge made the following order:

IT IS HEREBY ORDERED THAT an injunction issue against VDI and Voith,

but he did not specify the activities in respect of which the restraining order was made.

Since this objection to the judgment as against VDI was withdrawn during oral argument, and we were informed that the action against Voith had been settled, we see no need to discuss it further.

CONCLUSION

For the foregoing reasons, we would dispose of the appeals as follows:

1. With respect to appeal No. A-179-93, we would allow the appeal, in part, and would declare that Canadian letters patent 1,020,383 (the Beloit patent) and claims 1, 2, and 4 through 11 thereof have been infringed by DEW triple-nip presses. In particular, but without limiting the determination of the extent of infringement to be made on the reference, such claims have been infringed by:

(a) the manufacture by the respondent VDI in Canada of two DEW triple-nip presses as part of complete machines to Klockner Stadler Hunter Ltd. for South Sabah Pulp and Paper Mill;

(b) the sale by the respondent VDI of a press section (with minor dryer rebuild) to Great Lakes Forest Products Limited;

(c) the sale by the respondent VDI of one complete machine except dryer to Corner Brook Pulp & Paper Limited;

(d) the sale by the respondent VDI of one complete machine to Donohue Malbaie Inc;

(e) the sale by the respondent VDI of one complete machine to Repap N.B. Inc.

2. In all other respects, the appeals should be dismissed.

3. The cross-appeal should be allowed in part for the reason that the Trial Judge erred in directing that VDI must pay damages based on other components with which the press sections were sold rather than on the press section alone.

4. In all other respects, the cross-appeal should be dismissed.

5. Success being divided there should be no award of costs of the appeals or the cross-appeal.

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