Date: 20000808
Docket: T-2211-98
BETWEEN:
MARK1 MARKETING CORPORATION,
Plaintiff,
- and -
INTENSE SOFTWARE INCORPORATED,
VINCENT LEBOW, CHRISTOPHER
BOOTHROYD, CLIVE ALLWORK
and PATRICK ASHFORD,
Defendants.
REASONS FOR ORDER
MR. JOHN A. HARGRAVE,
PROTHONOTARY
[1] This action claims infringement of a patent process for printing illustrations in colour. The conventional four-colour separation process used in printing colour illustrations requires four separate plates, one in each colour of transparent ink, yellow, magenta, blue and black, to produce a full colour illustration, an expensive process. While there are processes using fewer plates, either two or three colour separations, these have draw backs and particularly in producing a reproduction in which the colours are properly balanced.
[2] The Plaintiff has now patented a two plate printing system utilizing only two colours of ink, instead of four, which results in an image which is apparently superior to other presently available two plate and two ink reproduction systems. This invention is said to work both with printing and with copying processes. The infringement alleged is embodied in the Defendants" computer software called "Powertone", which is said to utilize the Plaintiff"s patented process.
[3] The Plaintiff"s action is against the corporate Defendant for infringement, against the individual Defendants Lebow and Boothroyd as officers knowingly and deliberately directing their corporation to pursue the development and marketing of the Powertone software after becoming aware of the infringement. It is against Allwork and Ashford, as directors, for supporting their corporate officers, knowing of or being indifferent to the infringement. This activity is said to have infringed the Plaintiff"s rights, resulted in profits to the Defendants and damages to the Plaintiff.
[4] The Defendants now bring a motion for alternatives, being striking out the whole of the Statement of Claim; striking out the references to three of the individual Defendants in the Statement of Claim; for various particulars; and, if required, for an extension of time within which to file a defence.
[5] Here I would note that the motion refers only to three of the individual Defendants, Messrs. Lebow, Boothroyd and Allwork. The particulars requested of the Plaintiff refer to all four individual Defendants. Argument, as filed in the motion record and subsequently, refers only to the above three individual Defendants. While these reasons and the resulting Order refer to Intense Software Incorporated and to the Defendants Lebow, Boothroyd and Allwork, the reasons in a sense apply equally to Mr. Ashford, who is in the same situation as Mr. Allwork. It may be that the Plaintiff will either voluntarily drop Mr. Ashford as a Defendant or make an appropriate amendment.
[6] In these reasons the reference to "Defendants" and to "Individual Defendants" refers to the Defendants other than Mr. Ashford.
ANALYSIS
Some Usual Law
[7] Counsel for the Defendants sets out the standard for striking out as whether the facts, taken as proven, disclose a reasonable cause of action, that is a cause of action "with some chance of success", citing the judgment of the Federal Court of Appeal in Hirsch Company v. Minshall (1989), 22 C.P.R. (3d) 268 at 269. Other formulations of the Rule include the requirement that it be plain, obvious and beyond reasonable doubt that the action is one which will not succeed: see for example Hunt v. Carey Canada [1990] 2 S.C.R. 959 at 980, for a plaintiff ought not otherwise to be "driven from the seat of judgment" and that is so even if the issues are complex or the action novel [loc.cit. ].
[8] Whatever one uses as the formulation of the test, from the point of view of defendants trying to strike out a statement of claim it is a very difficult test on which to succeed for, in essence, the defendant must establish that the claim is futile.
Striking Out the Whole of the Statement of Claim
[9] The Defendants" argument, going to striking out the whole of the Statement of Claim on the basis of an absence of a cause of action under Rule 221(1)(a), is that there is no allegation that anyone has practised the Powertone method of reproduction in Canada and absent facts setting out a breach of patent, no cause of action has been pleaded, here referring to Precision Metalsmith Inc. v. Cercast Inc. (1966), 49 C.P.R. 234 (Ex.C.), the headnote of which reflects the reasons. In effect, the Defendants say that the Statement of Claim should set out the Plaintiff"s exclusive right and the active encroachment on that right by the Defendants.
[10] Counsel for the Plaintiff acknowledges that the mere sales of articles to be used for the purpose of infringing a patent may not constitute infringement, here referring to Procter & Gamble Co. v. Bristol-Myers Canada Ltd. (1979), 39 C.P.R. (2d) 145 at 166 (F.C.).
[11] In Procter & Gamble at issue was a patent on sheets of fabric softener for use in clothes dryers. The defendant itself did not use the fabric softener, but made it available to the consuming public. Mr. Justice Addy commented upon the packaging directions and the inducements and advertisements to the public to have them use the product. He then went on to say that the defendant had systematically engaged in aiding and abetting an infringement for its own benefit and that it was sufficient if it were established that the article had been sold by the defendant in order to put it on the market for sale to an ultimate infringer by use. The relevant passage, at page 167, is as follows:
| It is difficult to conceive how the present defendant should not be considered as systematically engaging for its own profit in aiding and abetting any infringement by the public of the plaintiff's method claims and should not be considered as constituting itself a party to each infringement committed by such users. Where the defendant has induced or procured an infringement, I do not feel that it is at all necessary in such cases for the supplier to have had any personal contact with the infringing consumer, to even know his or her identity or to have sold the article directly to that person. It is sufficient in such cases, if it is also established, that the article in fact has been sold by the defendant for the purpose of putting it on the market for sale to the ultimate infringer, regardless of whether the final sale is made by an agent of the defendant or by independent distributors or retailers. In the present case, the article being sold infringes the product claims of the plaintiff 's patent and is produced and sold initially for the express purpose of having it resold to the public to be used as directed by the defendant. |
| The invention consists of both a product and a method. Under the circumstances, knowingly inducing or procuring the infringement by the public of any of the method claims constitutes in itself an infringement at law by the defendant of that method claim of the invention. [page 167] |
In essence inducing or procuring an infringement of a method claim is in itself an infringement. This is essentially what the Defendants in this instance are doing: they are selling, by way of the software called Powertone, the method of colour printing to which the Plaintiff claims a patented right.
[12] Counsel for the Plaintiff also touches upon Windsurfing International Inc. v. Trilantic Corp. (1986), 8 C.P.R. (3d) 241 (F.C.A.), which involved vending of components which might be put together in order to produce a device which infringed the plaintiff"s patent. Mr. Justice Urie, writing for the Court, was of the view that there was "... no substance whatsoever to the argument that the respondent, being a supplier of parts as opposed to being a supplier of the assembled sail board, cannot have infringed the patent." (page 264). In essence, in Windsurfing , the defendant was not merely selling parts, but was selling parts for the purpose of making an infringing sail board and without the assembly into the sail board there would be no purpose in the purchaser buying the unassembled parts. Mr. Justice Urie disposed of this argument by saying that "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." (page 265). In Windsurfing the defendant also went on to submit that there could be no infringement by merely selling unassembled parts, for their was no infringement until the sail board had actually been assembled by the customer. Mr. Justice Urie dismissed this argument by saying that it could only be termed specious [loc.cit.].
[13] In essence, the Defendant, Intense Software Incorporated, is not merely selling a piece of software: the allegations in the Statement of Claim, which I must accept, on a motion to strike out, as if proven, is that what is being sold is the patented method of colour reproduction. This is consistent with what Mr. Justice Urie had to say in Windsurfing, including his blunt comments that the argument made for striking out the whole of the Statement of Claim was specious and indeed, a concept that is "errant nonsense". I now turn to the issue of whether the claim against the individual directors ought to be struck out.
Striking Out the Claim Against Individual Officers and Directors
[14] The Statement of Claim alleges that Mr. Lebow, as president, manager and director of the corporate Defendant and Boothroyd, as secretary and director, knowingly and deliberately caused the corporate Defendant to pursue the development and marketing of the Powertone software after they knew of the alleged infringement: paragraphs 17 and 18 of the Statement of Claim.
[15] The Statement of Claim, in paragraph 19, goes on to set out that Messrs. Allwork and Ashford, as directors with knowledge of the actions of the president and secretary, supported those actions when they knew that the actions were likely to constitute an infringement or were indifferent to the risk of infringement. The support is not particularized.
[16] Both counsel referred to Mentmore Manufacturing Co. v. National Merchandise Manufacturing Co. (1978), 40 C.P.R. (2d) 164, a decision of the Federal Court of Appeal, as setting out the relevant principles.
[17] Mentmore Manufacturing sets out the principle that officers and directors should not be held liable for infringement by a company unless there are facts from which it might reasonably be concluded that the director or officer was not merely directing the manufacture and sale of the infringing goods, in the ordinary course of business, but rather had deliberately, willfully and knowingly pursued a course of conduct likely to constitute infringement, or was indifferent to an infringement. The Court of Appeal in Mentmore Manufacturing did not go so far as to decide that a director or officer must know that the acts directed or procured constituted an infringement, but merely that, from the circumstances, it was a reasonable conclusion, that there had been a deliberate, willful and knowing pursuit of the improper conduct:
| I do not think we should go so far as to hold that the director or officer must know or have reason to know that the acts which he directs or procures constitute infringement. That would be to impose a condition of liability that does not exist for patent infringement generally. I note such knowledge has been held in the United States not to be material where the question is the personal liability of directors or officers: see Deller"s Walker on Patents, 2nd ed. (1972), vol. 7, pp. 117-8. But in my opinion there must be circumstances from which it is reasonable to conclude that the purpose of the director or officer was not the direction of the manufacturing and selling activity of the company in the ordinary course of his relationship to it but the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it. The precise formulation of the appropriate test is obviously a difficult one. Room must be left for a broad appreciation of the circumstances of each case to determine whether as a matter of policy they call for personal liability. [p. 174] |
[18] Of course, in Mentmore Manufacturing, Mr. Justice LeDain pointed out the pitfall of too easily making a director or an officer liable for an infringement, that of making the holding of such offices unduly hazardous, particularly in the case of closely held company: see pages 171 and 172 of Mentmore Manufacturing. However, by the same token, directors and offices of a small and closely held company will be taken, perhaps to their detriment, to know about all of the activities of the company: Laboratoire Dr. Renauld Inc. 537500 Ontario Ltd. (1990), 31 C.P.R. (3d) 333 at 338 (F.C.T.D.)
[19] It is clear there must be elements of deliberation, wilfulness and knowledge in order to find officers and directors of a company individually liable for patent infringement. Here counsel for the Defendants refers to a pertinent case, Katun Corp. v. Technofax Inc. (1988), 22 C.P.R. (3d) 269, a decision of Mr. Justice Strayer, as he then was. Mr. Justice Strayer approached the question of striking out portions of the statement of claim, which involved allegations of infringement against officers and directors of the defendant corporation, from the point of view of Mentmore Manufacturing, but concluded that merely alleging deliberate, wilful and knowing actions, in the statement of claim, was insufficient without some particulars:
| Paragraph 19 of the statement of claim as quoted above, while using the words employed by the Court of Appeal in the Mentmore case, does not state any facts upon which it could be concluded that these two individuals "deliberately, wilfully and knowingly" caused or directed the alleged infringement. It is surely not enough simply to use these precise words in order to allege the "material facts" of the supposed wrongdoing of the individual defendants: otherwise, we will have reverted to the technicalities of the old forms of action. Instead, it is necessary that sufficient facts be alleged to put the individual defendants on notice, at least in a general way, as to what kind of control over the company exercised by them, or what kind of personal conduct, is complained of. |
Mr. Justice Strayer makes the point that the use of the key words, "deliberately, wilfully and knowingly" is insufficient, but rather there must be allegations containing sufficient facts to, in a general way, put the defendants on notice of the sort of control or the personal conduct of which the plaintiff complains. Here I would break down the personal defendants into two groups, the officers, on the one hand and those who were only directors, on the other hand.
[20] In the case of Messrs. Lebow and Boothroyd, who were both officers and directors, with Mr. Lebow also being manager, the particulars are that they pursued both development and marketing of the software which is alleged to be infringing, after becoming aware of the infringement. Those are sufficient particulars to take the matter outside of the result in Katun where the application to strike out the two individual defendants was granted, although granted without prejudice to the right of the plaintiffs to file an amended statement of claim.
[21] I have difficulty with the plea against Messrs. Allwork and Ashford, as directors, their sole fault being apparently that they supported the infringing activities of the corporate officers, knowing that those actions were likely to constitute an infringement, or indifferent to the risk of infringement. To hold directors liable on this sort of an allegation goes far beyond the present case law. It is far from the concept of aiding and abetting an infringement, as referred to in Procter & Gamble (supra). I would not consider it even a novel cause of action which ought to be explored. The reference in paragraph 19 to Mr. Allwork is therefore struck out, along with all other references to the Defendant Allwork, but without prejudice to any suitable amendment which the Plaintiff might wish to make, in regard to either Mr. Allwork or Mr. Ashford, within the next 21 days. I turn now to the request for particulars.
Particulars
[22] In that the Statement of Claim has not been struck out in its entirety, I must still deal with the Defendants" request for particulars for pleading. The function of particulars for pleading are well known, being set out in many places, including in Gulf Canada Ltd. v. The Mary Mackin [1984] 1 F.C. 884 (F.C.A.). In this instance the Defendants place emphasis on the first function, to inform the other side of the nature of the case to be met, and on the fourth, fifth and sixth functions, to limit the generality of the pleadings, to limit and define the issues to be tried and as to which discovery is to be required, and to tie the hands of the other party so he or she may not go into matters not included in the pleadings.
[23] While the Defendants suggest that the Plaintiff is engaged in a speculative exercise, hoping to discover additional facts on discovery, there appear, in at least most instances, sufficient facts upon which to found a claim without a fishing expedition on a discovery.
[24] As to the requested particulars, I note that there is no affidavit setting out that the particulars are required for pleading and are not within the knowledge of the Defendants: see for example a passage to this effect in Windsurfing International v. Novaction Sports Inc. (1988), 18 C.P.R. (3d) 230 at 237 (F.C.T.D.) and the cases referred to in that passage. As a specific example, in Flexi-Coil Ltd. v. Smith-Roles Ltd. (1979), 42 C.P.R. (2d) 180 at 182 where Mr. Justice Cattanach, in the face of an insufficient supporting affidavit, dismissed a request for particulars, even though the affidavit was that of a senior partner and, in effect, offered an opinion that particulars were required. See also Lex Tex Canada Ltd. v. Cirtex Knitting Inc. (1977), 28 C.P.R. (2d) 30 at 32 in which Mr. Justice Mahoney was of the view that, no affidavit being filed, he could only conclude that the particulars were far more likely to already be in the defendant"s possession:
| The defendant sought, in the alternative, particulars concerning the alleged purchase from an importer. No affidavit supporting the application was filed and, on the record, I can only conclude that such particulars are far more likely already to be in the defendant"s possession than even to be available to the plaintiff before discovery. |
On the basis of this passage, I ought to look at the Statement of Claim, at the particulars requested and at the particulars already provided in order to see if there are obvious short-comings for which particulars ought to be provided.
[25] I have looked at the pleadings, including the particulars, from the point of view of one not versed in the art of printing, beyond that of a careful reading of the patent attached to the Statement of Claim, who has made an effort to correlate the patent with the pleadings. I have kept in mind that, where the pleadings relate to the Powertone method, I may apply the view of Mr. Justice Mahoney in Lex Tex (supra), that "... such particulars are far more likely already to be in the defendant"s possession than even to be available to the plaintiff before discovery.". I have difficulty with the meaning of a passage in paragraph 15 of the Statement of Claim: "The contribution to the first optical image obtained uses one of the at least two different filters and is considerably less than the contribution to said first optical image obtained using the other of the at least two different filters". The Plaintiff will therefore provide a further answer to particular request number 17. Save for this point, it would appear that the Defendants have sufficient particulars for pleading: further particulars might be requested for trial, but at this point such are premature.
[26] The Defendants may have 21 days, following the furnishing of the above particular and any amended Statement of Claim, which themselves are due with the next 21 days, within which to file a defence.
[27] As to costs, the outcome has not been entirely one sided. Therefore each side will bear its own costs.
(Sgd.) "John A. Hargrave"
Prothonotary
August 8, 2000
Vancouver, British Columbia
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-2211-98
STYLE OF CAUSE: MARK1 MARKETING CORPORATION
v.
INTENSE SOFTWARE INCORPORATED,
VINCENT LEBOW, CHRISTOPHER
BOOTHROYD, CLIVE ALLWORK
and PATRICK ASHFORD
PLACE OF HEARING: VANCOUVER, BC
DATE OF HEARING: February 1, 1999
REASONS FOR ORDER OF HARGRAVE P.
DATED: August 8, 2000
APPEARANCES:
Mr. Richard Martin FOR PLAINTIFF
Mr. Gavin Manning FOR DEFENDANT
SOLICITORS OF RECORD:
Richard W. Martin
Barrister & Solicitor
Toronto, ON FOR PLAINTIFF
Oyen Wiggs Green & Mutala
Vancouver, BC FOR DEFENDANT