RBM Equipment Limited (Appellant)
v.
Philips Electronics Industries Limited (Respond-
ent)
Court of Appeal, Thurlow J., Cameron and
Bastin D.JJ.—Ottawa, January 8, 1973.
Industrial designs—Pleading—Action for infringement by
assignee—Defence alleges assignment made to further con
spiracy to restrain trade—Motion to strike out—Allegations
obscure, irrelevant, confusing and insufficiently detailed—
Federal Court Rule 419.
Respondent, the assignee of two registered industrial
designs relating to dictating equipment, sued appellant for
infringement, claiming damages, an injunction, and the
delivery up of infringing articles. By its defence appellant
alleged, inter alia, that the assignment of the designs to
respondent was invalid as having been made in furtherance
of an unlawful conspiracy to induce persons by threats of
cancellation of franchise to maintain selling prices and to
refuse to sell to appellant (whose franchise had been can
celled for refusing to maintain prices). Respondent moved to
strike out the allegations.
Held, affirming Noël A.C.J., the allegations were confus
ing, obscure and largely irrelevant and insufficiently
detailed, and must therefore be struck out pursuant to Rule
419.
Philco Products Ltd. v. Thermionics Ltd. [1940] S.C.R.
501; [1943] S.C.R. 396; Massie & Renwick Ltd. v.
Underwriters' Survey Bureau Ltd. [1937] S.C.R. 265;
[1940] S.C.R. 218, discussed.
APPEAL from Noël A.C.J.
The judgment of Noël A.C.J. was as follows:
This is an application by the plaintiff for an
order pursuant to Rule 419 striking out para
graphs 3 and 4 of the statement of defence and
those portions of paragraphs 11 and 12 of the
statement of defence which rely upon the facts
alleged in paragraphs 3 and 4 on the grounds
that they disclose no reasonable defence, are
immaterial, are scandalous, frivolous and vexa
tious, may prejudice, embarrass and delay the
fair trial of the action andfor are otherwise an
abuse of the process of the Court.
Paragraphs 3 and 4 of the defence are repro
duced hereunder:
3. The plaintiff is a dealer in Philips dictating products
including dictating machines and microphones as illustrated
in Industrial Design Registrations Nos. 34112 and 34113
who has at least during the past ten years, by threats of
cancellation of franchise required or induced or attempted
to require or induce persons to resell such dictating products
at not less than a published list price specified by the
plaintiff, contrary to Section 34(2) of the Combines Investi
gation Act. On November 19, 1971 the plaintiff cancelled
the defendant's franchise and refused to sell to the defend
ant such dictating products because the defendant refused to
resell or offer for resale such dictating products at not less
than a published list price specified by the plaintiff, contrary
to Section 34(3) of the Combines Investigation Act.
4. The alleged assignments in favour of Philips Electron
ics Industries, recorded against said Industrial Designs were
made pursuant to or directly resulted from a conspiracy or
agreement between Philips Electronics Industries Ltd. and
N. V. Philips Gloenlampenfabrieken to enable Philips Elec
tronics Industries Limited to practice the illegal activities
referred to in the preceding paragraph and are void or in the
alternative, ineffective to give to the plaintiff rights enforce
able against the defendant.
This is a motion to strike out the above para
graphs of the defence on the basis that the title
of the plaintiff or its right to sue is derived from
an agreement or agreements which the defend
ant claims constitutes a violation of the Com
bines Investigation Act as being a combination
in restraint of trade.
Counsel for the plaintiff argued that he had
specifically pleaded in paragraph 4 of the
defence that "the alleged assignments in favour
of Philips Electronics Industries recorded
against said Industrial Designs were made pur
suant to or directly resulted from a conspiracy
or agreement between ..." (italics are mine) and
that in doing so he brought his allegations within
what Duff C.J. in Philco Products Limited v.
Thermionics Limited [1943] S.C.R. 396, sug
gested would be a situation where a plaintiff
claiming under such title would find himself in
great difficulties.
There may possibly be circumstances where
the existence of an illegal conspiracy in restraint
of trade may be an answer to an action for the
infringement of a design on the basis that no
cause of action can have its origin in fraud.
However, the authorities are clear that such a
principle will apply to an action for infringement
only where the plaintiff must necessarily prove
in order to establish his title to sue that he was a
party to an illegal conspiracy upon which his
cause of action rests. This appears clearly from
the words of Duff C.J. when he deals precisely
with the words "pursuant to or directly resulted
from a conspiracy or agreement ..." which are
qualified by the following preceding words,
"Now, if the plaintiff in an action for infringe
ment must in order to make out his title prove
such a combine and that he is a party to it and if
his alleged rights are founded upon it or 'direct-
ly result from it', I think he would find himself
in great difficulties." Duff C.J. had further occa
sion to confirm his views on this matter in the
Thermionics case [1943] S.C.R. 396, when he
said at page 407:
... The illegal combination, assuming it to have been such,
to which these companies were parties, did not effect a
forfeiture of the statutory rights under the patents. Assum
ing the transactions between these companies and Therm-
ionics Ltd. were illegal and void, the patents were still
vested in them and they are, I think, entitled to enforce
those rights.... the defence embodied in paragraph 7 fails.
It is now settled law that an allegation in a
suit for infringement of an industrial right that
the plaintiff is a party to an unlawful combine in
restraint of trade does not constitute a valid
defence in all cases where the owner of the right
does not rely in any way on such illegal agree
ment or conspiracy to establish his cause of
action and a defendant who is an infringer
cannot shield himself from liability on any such
ground even if the title of the plaintiff as owner
of the design in question is derived from an
agreement which is claimed to constitute a vio
lation of the law.
Here the plaintiff's title to the design which it
acquired by a valid assignment does not rely in
any way on any illegal agreement or conspiracy
but is based entirely on the rights it has as the
proprietor of the design under sections 7(3), 9
and 13 of the Industrial Design and Union
Label Act.
It follows, of course, that paragraphs 3 and 4
and those portions of paragraphs 11 and 12 of
the statement of defence which rely upon the
facts alleged in paragraphs 3 and 4 are therefore
irrelevant to the cause of action and afford no
defence and they shall be struck out.
The defendant has stated in paragraph 11 of
its defence that the plaintiff is not entitled to an
injunction because of the facts alleged in para
graphs 3 and 4 of the defence.
I understand that this defence is based on the
contention that the Industrial Design and Union
Label Act contains no statutory section provid
ing for injunctions and that the right of a plain
tiff would be based on equity alone in which
case the plaintiff must have clean hands in order
to obtain this remedy.
The matter cannot be dealt with on the plead-
ings as they now stand. It may be determined
when and if an amendment is made to bring in
the facts relied on by the defendant to support
its contention. Plaintiff shall on this application
be entitled to its costs in any event of the cause.
COUNSEL:
David Watson for appellant.
J. D. Kokonis and Nicholas Fyfe for
respondent.
SOLICITORS:
Gowling and Henderson, Ottawa, for
appellant.
Smart and Biggar, Ottawa, for respondent.
THURLOW J.—This appeal is from an order of
the Trial Division striking out as irrelevant and
disclosing no reasonable defence portions of the
defence to an action for infringement of two
industrial designs. The designs relate to dictat
ing equipment and were registered in July 1971
in the name of N.V. Philips Gloenlampenfab-
rieken of Eindhoven, Holland, which I shall
refer to as the Dutch company. By its statement
of claim the respondent alleged itself to be the
registered proprietor of the designs by virtue of
assignments to it from the Dutch company, and
it claims damages, an injunction and delivery up
of offending articles.
The appellant is an Ontario corporation which
carries on the business of selling business equip
ment including dictating machines and dictating
equipment. By its defence it denied the respond
ent's assertion of title to the designs and went
on to plead in paragraphs 3, 4, 11 and 12 as
follows:
3. The plaintiff is a dealer in Philips dictating products
including dictating machines and microphones as illustrated
in Industrial Design Registrations Nos. 34112 and 34113
who has at least during the past ten years, by threats of
cancellation of franchise required or induced or attempted
to require or induce persons to resell such dictating products
at not less than a published list price specified by the
plaintiff, contrary to Section 34(2) of the Combines Investi
gation Act. On November 19, 1971 the plaintiff cancelled
the defendant's franchise and refused to sell to the defend
ant such dictating products because the defendant refused to
resell or offer for resale such dictating products at not less
than a published list price specified by the plaintiff, contrary
to Section 34(3) of the Combines Investigation Act.
4. The alleged assignments in favour of Philips Electron
ics Industries, recorded against said Industrial Designs were
made pursuant to or directly resulted from a conspiracy or
agreement between Philips Electronics Industries Ltd. and
N.V. Philips Gloenlampenfabrieken to enable Philips Elec
tronics Industries Limited to practice the illegal activities
referred to in the preceding paragraph and are void or in the
alternative, ineffective to give to the plaintiff rights enforce
able against the defendant.
11. The plaintiff is not entitled to an injunction as there is
no infringement of any rights of the plaintiff and because
the plaintiff is disentitled to an injunction by reason of the
activities referred to in paragraphs 3 and 4 of this defence.
12. The plaintiff is not entitled to delivery up as there is
no infringement of any rights of the plaintiff, there is no
jurisdiction to grant this relief and in the alternative, the
plaintiff is disentitled to the relief by reason of the activities
referred to in paragraphs 3 and 4 of this defence.
The provisions of the Combines Investigation
Act cited as sections 34(2) and 34(3), as set out
in the appellant's memorandum of fact and law,
appear to be taken from R.S.C. 1952, c. 314 and
are now sections 38(2) and 38(3) respectively of
R.S.C. 1970, c. C-23. They provide that:
34. (2) No dealer shall directly or indirectly by agree
ment, threat, promise or any other means whatsoever,
require or induce or attempt to require or induce any other
person to resell an article or commodity
(a) at a price specified by the dealer or established by
agreement,
(b) at a price not less than a minimum price specified by
the dealer or established by agreement,
(c) at a markup or discount specified by the dealer or
established by agreement,
(d) at a markup not less than a minimum markup speci
fied by the dealer or established by agreement, or
(e) at a discount not greater than a maximum discount
specified by the dealer or established by agreement,
whether such markup or discount or minimum markup or
maximum discount is expressed as a percentage or
otherwise.
(3) No dealer shall refuse to sell or supply an article or
commodity to any other person for the reason that such
other person
(a) has refused to resell or to offer for resale the article or
commodity
(i) at a price specified by the dealer or established by
agreement,
(ii) at a price not less than a minimum price specified
by the dealer or established by agreement,
(iii) at a markup or discount specified by the dealer or
established by agreement,
(iv) at a markup not less than a minimum markup
specified by the dealer or established by agreement, or
(v) at a discount not greater than a maximum discount
specified by the dealer or established by agreement; or
(b) has resold or offered to resell the article or
commodity
(i) at a price less than a price or minimum price speci
fied by the dealer or established by agreement,
(ii) at a markup less than a markup or minimum markup
specified by the dealer or established by agreement, or
(iii) at a discount greater than a discount or maximum
discount specified by the dealer or established by
agreement.
By the order appealed from paragraphs 3 and 4
of the defence and those portions of paragraphs
11 and 12 which rely upon the facts alleged in
paragraphs 3 and 4 were struck out. In the
course of his reasons for making the order the
learned trial judge said:
Counsel for the plaintiff [sic] argued that he had specifi
cally pleaded in paragraph 4 of the defence that "the alleged
assignments in favour of Philips Electronics Industries
recorded against said Industrial Designs were made pursu
ant to or directly resulted from a conspiracy or agreement
between ..." (italics are mine) and that in doing so he
brought his allegations within what Duff C.J. in Philco
Products Limited v. Thermionics Limited [1943] S.C.R. 396,
suggested would be a situation where a plaintiff claiming
under such title would find himself in great difficulties.
There may possibly be circumstances where the existence
of an illegal conspiracy in restraint of trade may be an
answer to an action for the infringement of a design on the
basis that no cause of action can have its origin in fraud.
However, the authorities are clear that such a principle will
apply to an action for infringement only where the plaintiff
must necessarily prove in order to establish his title to sue
that he was a party to an illegal conspiracy upon which his
cause of action rests. This appears clearly from the words of
Duff CJ. when he deals precisely with the words "pursuant
to or directly resulted from a conspiracy or agreement ..."
which are qualified by the following preceding words,
"Now, if the plaintiff in an action for infringement must in
order to make out his title prove such a combine and that he
is a party to it and if his alleged rights are founded upon it or
`directly result from it', I think he would find himself in
great difficulties." Duff CJ. had further occasion to confirm
his views on this matter in the Thermionics case [1943]
S.C.R. 396, when he said at page 407:
.. The illegal combination, assuming it to have been
such, to which these companies were parties, did not
effect a forfeiture of the statutory rights under the pat
ents. Assuming the transactions between these companies
and Thermionics Ltd. were illegal and void, the patents
were still vested in them and they are, I think, entitled to
enforce those rights.... the defence embodied in para
graph 7 fails.
It is now settled law that an allegation in a suit for
infringement of an industrial right that the plaintiff is a party
to an unlawful combine in restraint of trade does not consti
tute a valid defence in all cases where the owner of the right
does not rely in any way on such illegal agreement or
conspiracy to establish his cause of action and a defendant
who is an infringer cannot shield himself from liability or on
any such ground even if the title of the plaintiff as owner of
the design in question is derived from an agreement which is
claimed to constitute a violation of the law.
Here the plaintiff's title to the design which it acquired by
a valid assignment does not rely in any way on any illegal
agreement or conspiracy but is based entirely on the rights it
has as the proprietor of the design under sections 7(3), 9 and
13 of the Industrial Design and Union Label Act.
The learned judge's conclusion as to the law
and as to the application of the law to the facts
alleged were attacked on the appeal as being
erroneous and not in accordance with the views
expressed by Duff C.J. in Philco Products, Ltd.
v. Thermionics, Ltd. [1940] S.C.R. 501. In par
ticular it was submitted that as the Dutch com-
pany was the original proprietor any rights the
respondent may have in the designs did not
arise under the statute but from the assignments
which it was said were tainted with illegality by
reason of the alleged conspiracy or agreement
between the Dutch Company and the respond
ent. It was also submitted that the facts pleaded
show that the respondent's claim for equitable
relief is a step in the carrying out of the con
spiracy or agreement and that as the Court will
not lend its assistance to the carrying out of an
illegal scheme the respondent would on that
account as well be disentitled to relief.
Most of the jurisprudence dealing with illegal
ity as a defence to civil proceedings is found in
cases dealing with the enforceability of con
tracts which are either in themselves illegal or
which while appearing to be legal are in fact
made to carry out some illegal or immoral pur
pose. These cases turn on their own peculiar
situations and therefore afford little or no help
with respect to the application of the fundamen
tal principle expressed by the maxim ex dolo
malo non oritur actio in actions for the infringe
ment of industrial property rights. Moreover in
Massie & Renwick, Ltd. v. Underwriters' Survey
Bureau Ltd. [1937] S.C.R. 265, and Philco
Products, Ltd. v. Thermionics, Ltd. [1940]
S.C.R. 501, the two principal cases in which the
problem arose in infringement actions, it arose
in a way that did not call for any definitive
exposition of when or how or in what circum
stances the principle might be applied.
The Massie & Renwick case (supra)' was an
action for, among other things, infringement of
copyright to which a number of defences were
pleaded, including that referred to in the follow
ing passage from the judgment of Hudson J. (at
page 267):
... It also pleaded that the plaintiffs were disentitled to
succeed on the ground that they had combined and con
spired together to prevent the defendant from competing
with the plaintiffs in the business of fire insurance and that
the course they had pursued for some twenty-five years,
particularly in relation to certain agreements with the origi-
nal holders of the copyright in question, and certain legal
proceedings including the present action, had been adopted
in order to attain the object of such conspiracy and combi
nation (emphasis added). The defendant invokes section
498 of the Criminal Code and the provisions of the Com
bines Investigation Act, both of which specifically refer to
conspiracies and combines in respect of insurance. The
plaintiffs moved to strike out the allegation with respect to
conspiracy and on the return of this motion this question
and also a question as to the application of the statutes of
limitation pleaded by defendant with respect to infringing
documents were directed to be heard as preliminary ques
tions of law.
The first of these questions was answered by the Presi
dent of the Exchequer Court of Canada in favour of the
plaintiffs and the second in favour of the defendant. Both
parties appeal to this court.
The first question submitted was:
Whether the plaintiffs would be disentitled to succeed in
this action if the defendant established the allegations
contained in paragraphs 7, 8, 10, 11, 12, 13, 14, 15, 18,
19, 22 and 23 of the statement of defence which relate to
acts done by the plaintiffs or some of them in
combination.
The plaintiffs seek the aid of the court to protect a
property right, but the remedy sought is in part an equitable
one, i.e. an injunction.
The law governing the court in granting or refusing an
injunction is correctly stated in Ashburner's Principles of
Equity (2nd Ed. 1933), page 343:
Where the court has jurisdiction to grant an injunction,
the question whether it will grant it or not is a question of
discretion. It is not bound to grant an injunction merely
because A threatens and intends to violate a legal right of
B. But the tendency of the decisions in recent years is to
limit the discretion of the court, and it may be laid down
that every threatened violation of a proprietary right
which, if it were committed, would entitle the party
injured to an action at law, entitles him, prima facie, to an
injunction, and the onus is upon the defendant of rebut
ting the presumption in favour of an injunction, by show
ing that damages will be an adequate compensation to the
plaintiff for the wrong done him, or that on some other
ground he is not entitled to equitable relief.
In considering whether such grounds exist for refusing
this relief, the court would, unquestionably, have regard to
the conduct of the plaintiffs and, especially to the fact, if
such fact were established, that the application for the
injunction was merely one step in the prosecution of a
scheme in which the plaintiffs had combined to further some
illegal object injurious to the defendant. Taking this view I
do not think that this court should be called upon at the
present time to say whether or not the allegations in the
above-mentioned paragraphs of the statement of defence
would be sufficient to justify the court in withholding an
injunction. The matter should be referred back to trial
without expressing at present any opinion one way or the
other as to the sufficiency of the allegations in the statement
of defence.
This course was adopted by the Privy Council in dismiss
ing an appeal from the decision of this court in the case of
McLean v. The King (1907) 38 Can. S.C.R. 542. The deci
sion of the Privy Council is not reported but was given on
the 10th July, 1908. The judgment delivered by Lord Lore-
burn, L.C., was as follows:
The question in this appeal arises on a demurrer. If, on
any reasonable construction of the respondent's petition
of right, a cause of action could be proved, then the
respondent (the suppliant) would be entitled to succeed. It
will be for the learned judge who hears the case, when the
facts have been proved, to decide whether a cause of
action has or has not arisen, but it is not for their
Lordships to express an opinion beforehand, on the plead-
ings as they stand.
Accordingly their Lordships will humbly advise His
Majesty to dismiss this appeal. In accordance with the
undertaking given on behalf of the Attorney-General for
Canada when special leave to appeal was granted, the
appellant will pay the respondent's costs of the appeal as
between solicitor and client.
The appeal in respect of the first question should, there
fore, be allowed and the order of the learned President
should be set aside—with costs in the cause.
It should be noted that what was set aside was
the trial judge's answer to the question of law.
The sufficiency of the pleading was not
involved and was not determined. When the
action came to trial the defence failed because
the alleged conspiracy was not established. In
dealing with the matter on the subsequent
appeal to the Supreme Court ([1940] S.C.R.
218) Duff C.J. said (at page 244):
I think the conclusion of the learned trial judge negativing
the existence in fact of a criminal conspiracy is right and I
think it unnecessary to discuss the subject further except to
say this: If the plaintiffs in an action for the infringement of
copyright are obliged, for the purpose of establishing the
existence of, and their title to, the copyright to rely upon an
agreement, and that agreement constitutes a criminal con
spiracy, and their title rests upon such agreement and upon
acts which are criminal acts by reason of their connection,
with such an agreement, then I have on general principles
great difficulty in understanding how such an action could
succeed.
In Philco Products, Ltd. v. Thermionics, Ltd.
[1940] S.C.R. 501, the action was for infringe
ment of two patents which had been assigned to
Thermionics Ltd. by parties who, with Therm-
ionics Ltd., were plaintiffs. The defendants
sought leave to amend the defence so as to
plead that the plaintiffs had entered into an
illegal conspiracy or combine "contrary to the
common and statute law of the Dominion of
Canada, and in particular contrary to the Com
bines Investigation Act" and the Criminal Code,
and that the plaintiffs were disentitled to relief
because the assignments by which rights in the
patents were claimed were made in pursuance
or as a result of said conspiracy or combine and
were ineffective to convey such rights or alter
natively because such rights if acquired had
been used in the action and otherwise in pursu
ance of the conspiracy or combine in such a
way as to disentitle the plaintiffs to any relief.
On the hearing of the application for leave to
make the amendment an order was made by
consent setting down for argument as a question
of law the question whether in an action for
infringement of a patent such a defence could
constitute an answer to the claim. Maclean P.
determined that question in the negative (1939)
1 Fox P.C. 166. He said (at page 207):
I think the motion of the defendants must be denied. The
Patent Act and the Combines Investigation Act seem
designed to protect the particular exclusive rights attaching
to patents, and to exempt them from the operation of those
provisions of the Combines Investigation Act and the Crimi
nal Code which are designed to restrain and punish anything
in the nature of a combine or conspiracy in restraint of trade
and commerce, and which might be against the public inter
est. If different patentees should combine in such a way as
to offend against the intent and spirit of the relevant provi
sions of the Combines Investigation Act, or the Criminal
Code, which is conceivable, then the procedure of attack
would be that set forth in such statutes, and not by way of a
defence in an action for infringement of a patent or patents
and I do not think that anything else was ever intended.
Even if there was established a combine or conspiracy
relative to a particular patented article it would not, I think,
thereby follow that the patented article might not be
infringed, or that the patent would thereby become invalid.
That situation is not contemplated by the Combines Investi
gation Act or the Criminal Code, and it would seem unrea
sonable if they did. The infringement of a patent is one
thing, and whether patentees have entered into a combine or
conspiracy in restraint of trade is another thing. My conclu
sion is that the proposed amendments to the statement of
defence cannot be raised as defences in an infringement
action, and must be refused, and with costs to the plaintiffs.
On appeal the Supreme Court took a different
view ([1940] S.C.R. 501). Duff C.J. speaking for
the Court said (at page 503):
There is one principle upon which it is conceivable that
the defence discussed on the argument, if properly pleaded
and proved, might be available: ex dolo malo non oritur
actio. This principle is stated in the judgment of Buckley
L.J. in Gordon v. Chief Commissioner of Metropolitan Police
[1910] 2 K.B. 1080, at 1098 in these words:
It is certainly the law that the Court will refuse to
enforce an illegal contract or obligations arising out of an
illegal contract, and I agree that the doctrine is not con
fined to the case of contract. A plaintiff who cannot
establish his cause of action without relying upon an
illegal transaction must fail; and none the less is this true
if the defendant does not rely upon the illegality. If the
Court learns of the illegality, it will refuse to lend its aid.
The rule is founded not upon any ground that either party
can take advantage of the illegality, as, for instance, the
defendant by setting it up as a defence. It is founded on
public policy. Lord Mansfield in Holman v. Johnson
(1775) 1 Cowp. 341, at 343 said "Ex dolo malo non oritur
actio. No Court will lend its aid to a man who founds his
cause of action upon an immoral or an illegal act."
The passage was quoted with approval by L6rd Wright,
M.R., in Berg v. Sadler [1937] 2 K.B. 158, at 166-167.
I do not see any reason why this principle is not appli
cable to a case in which a plaintiff must necessarily, in order
to establish his cause of action, prove that he is a party to an
illegal conspiracy upon which his cause of action rests; nor
can I understand why the principle does not apply to an
action for infringement of a patent. If the plaintiff's title is
founded upon an agreement which amounts to a criminal
conspiracy to which he is a party, and which he must
establish in order to prove his title, then he cannot succeed.
There is nothing, in my opinion, in the provisions of the
Patent Act referred to on the argument that affects the
application of this fundamental principle.
I am not satisfied that in no circumstances can the exist
ence of an illegal combine be an answer to such an action. A
reference to a recent decision in the Supreme Court of the
United States will illustrate my point. The first two para
graphs in the head-note to Ethyl Gasoline Corp. v. United
States (1940) 84 Law. ed. 559 are as follows:
1. The regulation of prices and the suppression of
competition among purchasers of the patented article are
not within the scope of the monopoly conferred upon a
patentee by the patent laws.
2. A system of licences employed by the owner of
patents for an improved motor fuel, whereby jobbers who
do not conform to the market policies and posted gasoline
prices adopted by the major oil companies may be cut off
from the list of those to whom refineries licensed to
manufacture such fuel may sell it, and which has been
used to coerce adherence to those prices and policies, is
not within the monopoly conferred by the patents and
operates as an unreasonable restraint of interstate com
merce in such fuel, in violation of the Federal Anti-trust
Act.
Now, if the plaintiff in an action for infringement must, in
order to make out his title, prove such a combine, and that
he is a party to it, and if his alleged rights are founded upon
it or "directly result from it," I think he would find himself
in great difficulties.
I do not pursue the subject further. The doctrine laid
down by the learned President in his judgment is too sweep
ing if it is inconsistent with this.
Later in discussing the question of law raised by
the proposed amendment the learned judge also
said at pages 505-506
... And the question seems to have been treated as the
question whether in any circumstances the existence of an
illegal conspiracy in restraint of trade, to enhance prices for
example, could be an answer to an action for the infringe
ment of a patent. That proposition includes the proposition
that in such an action a plaintiff may succeed even though
his title to sue is directly founded upon a crime to which he
is a party, and is, therefore, too broad; ... .
A somewhat differently framed amendment
having been made to the defence alleging inva
lidity only of the assignments to Thermionics
Ltd. the action came on for trial when Maclean
P. again rejected the defence based on the
alleged illegal agreement. (Vide (1941) 1 Fox
P.C. 166 at pages 196 et seq.) On appeal Duff
C.J., with whom the other members of the Court
agreed on the question, dealt with the defence
as follows ([1943] S.C.R. 396 at page 406):
The facts relied upon by the appellants beyond doubt
point to the conclusion that the respondents had entered into
an agreement to restrict competition among themselves in
respect of radio tubes; and I shall assume that where A and
B enter into an agreement to suppress competition in respect
of articles of commerce they do not escape the provisions of
section 498 of the Criminal Code merely by reason of the
fact that these articles of commerce are protected by pat
ents. I shall assume further that the learned trial judge ought
to have permitted the appellants to proceed with evidence
establishing the existence of such a combine, that is to say, a
combine constituting a criminal offence under section 498.
I find myself faced with this difficulty. Prior to the
arrangements of 1936, which are impeached by the plea of
the appellants, the Langmuir patent was vested in the Gen
eral Electric Company—in point of fact the Canadian patent
was issued to the Canadian General Electric Company—and
the Freeman patent was vested in the Westinghouse Compa
ny, having been issued to that company. The illegal combi
nation, assuming it to have been such, to which these
companies were parties, did not effect a forfeiture of the
statutory rights under the patents. Assuming the transac
tions between these companies and Thermionics Ltd. were
illegal and void, the patents were still vested in them and
they are, I think, entitled to enforce those rights. By sections
54 to 57 of the Patent Act, the patentee, as well as those
claiming under him, is entitled to recover damages sustained
by reason of the infringement, as well as, in a proper case,
to an injunction. On this ground I am constrained to the
conclusion that the defence embodied in paragraph 7 fails.
I do not think it follows from anything in this
passage, a portion of which was cited by the
learned trial judge in support of his view of the
law, that a defence to an infringement action
cannot be founded on illegality in the agreement
or transaction by which the title asserted by the
plaintiff has been acquired or in the purpose for
which the agreement or transaction has been
entered into or carried out. Rather in my opin
ion the possibility of a defence based on such
illegality, as indicated in the earlier decisions of
the Supreme Court, remains open. The first
Massie & Renwick case [1937] S.C.R. 265, indi
cates that where the action is brought or the
relief is claimed in furtherance of an illegal
scheme the Court will decline relief. The second
Massie & Renwick case [1940] S.C.R. 218 at
page 244 and the first Philco case [1940] S.C.R.
501, moreover, appear to me to indicate the
possibility that an infringement action may fail
when the plaintiff's title rests upon a criminal
act, though nothing in either case goes so far as
to say that a conveyance of title in due form,
voluntarily executed by the owner and not in
itself criminal would be insufficient to vest title
in the transferee who might then enforce it
against an infringer even though the object of
the transfer was to enable the transferee to use
the property for the purpose of carrying out
some illegal project not connected with the
infringement. It seems, therefore, to be an open
question whether the Court will ever decline
relief in an infringement action to a party hold
ing the title to industrial property save where
what is being sought in the action is in sub
stance the enforcement or furtherance of the
illegal conspiracy or agreement itself.
The first Philco case [1940] S.C.R. 501, more
over indicates that when illegality which may
defeat an action appears in the course of the
proceedings the consequences will follow
whether the illegality has been pleaded or not
but if a party elects to raise it by his pleading he
must in so doing observe the rules of pleading.
Thus at page 505 Duff C.J. said:
... The proposed amendment does not profess to state the
nature of the illegal conspiracy alleged beyond the vague
allegation that it is contrary to the common and statute law
of the Dominion. On this ground the application to put this
amendment on the record ought to have been dismissed in
limine. The learned President by consent treated this vague
allegation as raising a question of law within rule 151. If at
the trial it appeared that the plaintiff's case was founded
upon an illegal transaction to which he was a party, in the
sense above indicated, it would be the duty of the trial judge
to take notice of it and dismiss the action; but the appellants
are proposing to set up their objection in their pleading and
in doing so they must observe the rules of pleading and
allege the facts which constitute the illegality complained of
and the connection of the plaintiff's cause of action with
that illegality.
It remains to consider the particular pleas put
forward in the present case. For my part I find
them confusing and obscure and largely irrele
vant and I think the learned judge would have
been warranted in striking them out as embar
rassing and thus an abuse of the process of the
Court within the meaning of Rule 419.
Apart from this, however, the most favour
able construction I find it possible to put upon
paragraphs 3 and 4 is that they vaguely say that
the assignments are void because they were
made in pursuance of or resulted from a con
spiracy to enable the plaintiff to commit the
illegal acts referred to in paragraph 3, i.e., (1)
induce persons by threats of cancellation of
franchise to resell at listed prices goods sold by
the plaintiff; and (2) refuse to sell to the defend
ant. No information is given in these paragraphs
as to how such assignments were to be used to
"enable" the plaintiff to commit the illegal acts
or of what it was that was illegal or criminal
about the owner assigning his property and I do
not think that what is in them even amounts to
an allegation of a conspiracy or agreement con
trary to the law of Canada between the Dutch
company and the appellant to use the property
rights in question for the purpose of threatening
"persons" to induce them to maintain resale
prices or for any purpose relating to the alleged
refusal of the plaintiff in November 1971 to sell
to the defendant. There is thus no connection
alleged between the alleged infringement and
what is alleged to render the plaintiff's title
void. It was argued that there was a connection
between these paragraphs and paragraph 6,
which admits sales by the defendant of articles
bearing the designs and goes on to plead that the
articles were made outside the jurisdiction by or
for the Dutch company. As I read it, however,
paragraph 6 does not plead a licence or anything
else that would amount to a justification of such
acts against a claim for infringement by either
of the two possible owners of the designs. It
therefore does nothing to provide a plea of a
connection between the infringement and the
agreement or conspiracy referred to in para
graphs 3 and 4. Nor is there any allegation
either that the assignments were in fact used for
the purpose of furthering the illegal object or
that this action or the claim therein for an
injunction and other equitable relief are them
selves steps in the carrying out of that object.
I am therefore of the opinion that the para
graphs in question do not disclose a defence and
that the appeal fails and should be dismissed,
but without prejudice to any application the
defendant may make to the Trial Division for
leave to amend its defence by properly framed
amendments. The costs of the appeal should be
respondent's costs in the cause.
* * *
CAMERON D.J.—I concur.
BASTIN D.J.—I concur.
I The point also arises in much the same way in the
present instance, that is to say, in a preliminary procedure
requiring no such comprehensive definition but merely a
determination of whether what was alleged could afford a
basis for denying the respondent the relief which it claims.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.