Canada: Reverse Engineering And Product Puffery Lead To Punitive Damages

Originally published in Miller Thomson IP/IT Newsletter.

The recent decision of the Federal Court in Eurocopter v. Bell Helicopter Textron Canada, 2012 FC 113 ("Eurocopter") demonstrates the potential dangers of reverse engineering a competitor's product.

Eurocopter is the owner of a patent on a sleigh-type landing gear. The patent asserted that the landing gear of the invention "significantly" reduced the drawbacks associated with conventional landing gear. What distinguished the patented landing gear (called the Moustache gear) from conventional landing gear was a particular curvature of an integrated front cross piece. Eurocopter incorporated the Moustache landing gear into its EC120 and EC130 helicopters, the first of which was certified for commercial use by transportation regulators in 1997.

In 2004, Bell began a program to develop an entirely new helicopter with an articulated four-bladed rotor, which became known as the Bell 429 helicopter. As Bell had never previously designed a helicopter with an articulated rotor or a sleigh type landing gear, Bell leased and operated an EC120 for about 4 months, during which time various tests on the helicopter and its landing gear were performed. According to internal Bell documents, this testing showed that the landing gear on the EC120 functioned better than that on prior Bell helicopters. Armed with this information, Bell engineers began to design what would be known as the Legacy gear. Bell actively solicited orders for the 429 helicopter with the Legacy gear and, by October 2007, had obtained deposits for over 200 helicopters.

Notwithstanding that Bell knew of the Moustache gear on the EC120 and that the Legacy gear was based on the Moustache gear, in an article presented at an American Helicopter Society annual forum, a Bell employee stated that the sleigh type landing gear "has been designed for the first time by Bell Helicopter Textron for use on its new model 429 civil helicopter". When concerns were raised by Bell engineers about the similarity of the Legacy gear to the Moustache gear, the Bell project manager directed the engineers to "carry on" with the project. A total of 21 Legacy gears were manufactured and helicopters equipped with the Legacy gear were used for certification and promotional purposes.

Upon learning of the lawsuit, Bell rapidly made changes to the Legacy gear, modifying it to what was known as the Production gear. However, Bell continued to promote the 429 helicopter with the Legacy landing gear even though efforts were under way to develop a different landing gear. The Legacy gear was not used on any commercial production and, in fact, all 21 Legacy gears were quarantined by Bell upon commencement of the lawsuit.

The trial judge, Justice Martineau, found that the Production gear did not infringe Eurocopter's patent. He did find, however, that the Legacy gear did infringe; in fact, the Judge stated that Bells expert did not hesitate to say that the Legacy gear fell within claim 1 of the patent, even though Bell never made such an admission.

Justice Martineau awarded Eurocopter damages resulting from Bell's use of the Legacy gear. As Bell never delivered a helicopter with the Legacy gear, and, as was stated by the judge, "A buyer does not buy a helicopter landing gear, but rather, a helicopter equipped with a landing gear", it would seem that Eurocopter may have an uphill battle in proving more than nominal damages. As the quantification of any monetary relief was deferred, we will need to wait to see how the court determines compensatory damages in these circumstances.

In a rare holding for patent infringement actions, Justice Martineau concluded that Eurocopter was entitled to punitive damages, the quantification of which was also deferred. Justice Martineau stated that Bell had plans to manufacture and incorporate the Legacy gear in its Bell 429 model and that Bell actively promoted the sales of the Bell 429 equipped with the Legacy gear. Further, the judge stated that "Bell has shown no remorse and offered no excuse for its behaviour" and that Bell's assertion that it had no knowledge of Eurocopter's patent was "simply not plausible and contrary to the evidence".

It seems that the statement that Bell was the first to develop a sleigh type landing gear weighed heavily in the judge's mind. Justice Martineau stated, "Bell concealed the fact to the public and the potential purchasers of the Bell 429 that it had imported from a competitor the sleigh type landing gear and copied the Moustache landing gear from Eurocopter EC120, while suggesting that the Legacy gear was somewhat a "premiere" at Bell" and that "there is no evidence supporting any genuinely held belief that Bell was the first to develop a sleigh type of landing gear".

Justice Martineau concluded that there was "clear evidence of bad faith and egregious conduct on the part of Bell". As Bell has appealed, Justice Martineau's decision is not the last word on whether Bell's conduct was so oppressive, high-handed and enough of a departure from "ordinary standards of decent behaviour" to warrant an award of punitive damages.

The Eurocopter decision is notable for the application of the doctrine of lack of sound prediction of utility to a mechanical patent. Under the Patent Act an invention must be useful and as of the Canadian filing date, the inventor must have either demonstrated utility (i.e. shown that the claimed invention actually works in the manner promised in the patent) or that there was a sound prediction of utility. Where utility is based on a sound prediction, the patent must disclose the factual basis for the prediction and an articulable and sound line of reasoning from which the desired result can be inferred from the factual basis. A lack of sound prediction of utility is often raised as an attack on pharmaceutical patents, on the basis that the testing performed prior to the Canadian filing date was not enough to soundly predict that the drug would actually work in humans.

Here, Eurocopter's patent disclosed two variations of the invention – one in which the front cross piece is offset forward, the other in which it is offset rearward. However, the inventors had only tested the variant offset forward. Accordingly, for the claims that encompassed this rearward offset to be valid, the conditions for a sound prediction needed to be met. The judge found that there was no data in the specification upon which the inventors could have predicted that the rearward variant provided the specific advantages identified in the patent and, further, that no such data had been produced at trial. The judge further stated that there was no line of reasoning described in the patent to allow a sound prediction that a landing gear with a front cross piece which is offset backwards would work. Accordingly, only one claim – the claim that was specifically limited to a forward offset – was held valid.

In view of the success of a lack of sound prediction attack, we can expect to see ground of invalidity raised in not only against pharmaceutical patents, but against patents in all areas of technology where the patent itself does not demonstrate utility.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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