Date: 20040902
Citation: 2004 FCA 283
NOËL J.A.
SEXTON J.A.
BETWEEN:
CHINA CERAMIC PROPPANT LTD.
Appellant
and
CARBO CERAMICS INC.
Respondent
Heard at Ottawa, Ontario, on September 1 and 2, 2004.
Judgment delivered from the Bench at Ottawa, Ontario, on September 2, 2004.
REASONS FOR JUDGMENT OF THE COURT BY: LÉTOURNEAU J.A.
Date: 20040902
Citation: 2004 FCA 283
NOËL J.A.
SEXTON J.A.
BETWEEN:
CHINA CERAMIC PROPPANT LTD.
Appellant
and
CARBO CERAMICS INC.
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Ottawa, Ontario, on September 2, 2004)
LÉTOURNEAU J.A.
[1] We have not been convinced that the motions Judge (judge), in granting an interlocutory injunction in these proceedings, made errors which warrant our intervention.
[2] Counsel for the appellant submitted that the judge erroneously made a preliminary determination of infringement of the patent by the appellant which unduly influenced his decision regarding the balance of convenience. There is no doubt that the judge used loose and unfortunate language at times on the issues of infringement and "springboarding" which may give that impression. However, when the passages that were brought to our attention are read in their context, we are satisfied that he did not prejudge the merits of these issues and that the appellant's submission in this respect is not founded.
[3] The debate before us turned on the judge's conclusion regarding the balance of convenience, his definition of the status quo and the legal impact of his finding regarding an alleged "springboarding" by the appellant. We reproduce paragraphs 29 to 35 of his reasons:
[29] "Springboarding" is used to describe the situation in which the party holding the patent loses a part of the market share due to a breach of a patent in anticipation of expiry of the patent. The patent infringer is allowed to take unfair advantage of the situation, as it "ramps up" before the expiration of the patent.
[30] In the case at bar, the Defendant entered the market near the end of the life of the patent, thus squarely raising the issue that it is springboarding into the marketplace.
[31] An employee of the Plaintiff attests that the Defendant is selling ceramic proppant to one of the Plaintiff's clients and that the client has virtually stopped buying proppant from the Plaintiff. The Defendant does not dispute this claim, nor does it make any arguments that it is not, in fact, springboarding into the market.
[32] The Court deems that the Defendant is springboarding and as a result is obtaining an advantage for which an award of damages would be insufficient.
Who does the balance of convenience favour?
[33] Several factors favour the Plaintiff on the issue of balance of convenience: the Plaintiff has given an undertaking in damages, the Defendant entered the market knowing that the Plaintiff held the Patent, and the Plaintiff has expended a considerable sum of money on the research and development of its ceramic proppant.
[34] On the other hand, however, should the injunction be granted, it would undoubtedly cause irreparable harm to the Defendant. The sole shareholder and president of the Defendant attests:
An interlocutory injunction will cause the Defendant significant financial hardship, as ceramic proppant is the only product that the Defendant sells, and the Canadian market is the only market in which the Defendant has set up business operations. In fact, if the injunction is granted, it would likely force the Defendant to permanently cease business operations altogether.
[35] It appears, therefore, that the balance of convenience favours neither one side, nor the other. In such cases, the jurisprudence has established that the status quo should be preferred. The status quo does not mean that the situation, as it was immediately before the motion is brought, should not be tampered with, but rather, means that the infringer should not be allowed to continue in the marketplace. Thus, the balance of convenience favours the Plaintiff. (footnotes omitted)
[4] Starting with the balance of convenience, it seems, from the judge's reasons, that he assessed it at the time of the application for the injunction by the respondent. He stated that the balance of convenience appeared to favour neither side to the litigation and, therefore, that the status quo ought to be maintained. Then he proceeded to "tamper with" the status quo in order to finally conclude that the balance of convenience favours the respondent and that the interlocutory injunction should be issued. He was of the view that the status quo in the present case referred to the situation which existed prior to the entry of the appellant into the market largely occupied by the respondent pursuant to a patent due to expire on February 16, 2005.
[5] The appellant submits that the judge erred in his determination of the status quo because the status quo should be the situation prevailing at the time the application for the injunction was made.
[6] In our view, the judge came to the right conclusion regarding the balance of convenience, but the reasons that he gave require some clarification.
[7] In Garden Cottage Foods Ltd. v. Milk Marketing Bd., [1984] A.C. 130, at page 140, Lord Diplock defined the status quo as "the state of affairs existing during the period preceding the issue of the writ claiming the permanent injunction". Many cases in this jurisdiction have held that the status quo, where the balance of convenience is neutral, is the status quo at the time the application is made or heard: see Sharpe J., Injunctions and Specific Performance, Canada Law Book Inc., Aurora, 2003, page 2-43, footnote 133, Syntex Inc. v. Novopharm Ltd. (1991) 36 C.P.R. (3d) 129 (F.C.A.). A denial of the injunctive relief has generally ensued: see Syntex Inc. v. Novopharm Ltd., supra, Signalisation de Montreal Inc. v. Services de Beton Universels Ltee et al. (1992) 46 C.P.R. (3d) 199 (F.C.A.), Procter and Gamble Pharmaceuticals Canada Inc. v. Novopharm Ltd. (1996), 116 F.T.R. 99 (F.C.T.D.),.
[8] This Court recognized in Turbo Resources Ltd. v. Petro Canada Inc. (1989) 24 C.P.R. (3d) 1, at pages 13 and 14, that there may be factors, such as the strength of one party's case over the other, which will tip in a party's favour a balance of convenience which otherwise appears to be neutral as a result of some factors being evenly balanced. One such factor, we believe, is the judge's finding that the appellant was "springboarding" into the market place in anticipation of expiry of the respondent's patent, thereby causing the respondent to suffer a loss of part of the market likely to endure after the expiry of the patent, as well as a disadvantage for which an award of damages would be insufficient.
[9] The judge "deemed" the appellant to be "springboarding". Although he improperly cast his conclusion in presumptive terms, it is obvious from his reasons that he made a finding of fact that the appellant was entering the market to obtain an advantage before the expiry of the patent, that it knew of the existence of the patent, that it consciously took the risk of entering the market and that it "walked into the [alleged] infringement situation with its eyes wide open": see Lubrizol Corp. et al. v. Imperial Oil Ltd. (1989) 22 C.P.R. (3d) 493 (F.C.T.D.), upheld (1989) 26 C.P.R. (3d) 461 (F.C.A.).
[10] There was sufficient evidence before the judge to support the serious allegation of "springboarding" made by the respondent against the appellant. That being so, we agree with the following approach taken by Martin J. in Aluma Systems Ltd. v. J. Fitzmaurice Ltd. (1987), 17 C.P.R. (3d) 419, at page 423:
It appears to me that Canada Scaffold, being aware of the risks of its proposed action prior to putting its system into the market-place and electing to take that risk rather than some other appropriate action to determine whether its system would infringe the plaintiffs' claims, cannot now be heard to complain that the appropriate time for the preservation of the status quo should be fixed at a time prior to which it entered the market.
To accept the appellant's contention that the status quo should be fixed at the time at which the injunction was sought would be to allow the appellant not only to continue the alleged infringements, but also to carry on its alleged "springboarding" with the blessings of the Court.
[11] The judge also found that the appellant would be unable to financially honour an award of damages because it owns no property in Canada, has no employees and represented in an affidavit that its financial situation was so precarious as to being unable to retain counsel in a patent litigation.
[12] In these circumstances, these factors, along with the strength of the evidence in favour of the respondent, the strength of the respondent's case as found by the judge, the strengths of the respondent's undertaking with respect to the payment of damages, the time at which the appellant entered the market, in our respectful view, tip the balance of convenience in favour of the respondent. The judge, therefore, made no error when he so concluded although somewhat laconically.
[13] The parties before us agreed that the judge should not have granted the interlocutory injunction until the end of the trial on the claim of infringement since, in all likelihood, the patent will have expired before the trial is completed.
[14] For these reasons, the appeal will be allowed to the limited extent of amending the judge's order so that the interlocutory injunction will expire on February 16, 2005. On all other aspects, the appeal will be dismissed with costs to the respondent.
"Gilles Létourneau"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-401-04
Appeal from an order of the Honourable Mr. Justice Shore dated July 28, 2004 in file T-909-04.
STYLE OF CAUSE: CHINA CERAMIC PROPPANT LTD. v.
CARBO CERAMICS INC.
PLACE OF HEARING: Ottawa
DATE OF HEARING: September 1 and 2, 2004
REASONS FOR JUDGMENT OF THE COURT: Létourneau, Noël and Sexton JJ.A.
DELIVERED FROM THE BENCH BY: Létourneau J.A.
APPEARANCES:
|
Mr. Trevor McDonald |
FOR THE APPELLANT |
|
Mr.Christopher Van Bar Ms. Martha Savoy |
FOR THE RESPONDENT |
SOLICITORS OF RECORD:
|
Nelligan O'Brien Payne LLP Ottawa, Ontario |
FOR THE APPELLANT |
|
Ottawa, Ontario |
FOR THE RESPONDENT |