Varco v. Pason trial judgment

Justice Phelan held that Varco’s patent was valid and infringement in Varco Canada Limited et al. v. Pason Systems Corp. et al., 2013 FC 750. The patent at issue related to autodriller systems used in the petroleum industry, particularly for directional drilling. The proceeding was not bifurcated and the Court ordered a permanent injunction, delivery up and payment of $52 million as disgorgement of profits.

The public reasons in, Varco v. Pason Systems, 2013 FC 750 (PDF) were released earlier this week.The patent at issue was CA2,094,313, entitled “Automatic Drilling System” which expired earlier this year.

The trial was re-opened after additional evidence came forward that clarified or corrected certain testimony of the inventor but the new evidence was determined to have not materially altered the core of the original testimony.

The issues addressed by the Judge included claim construction [164-205], infringement of both new and old versions of the control software [206-249], inducing infringement [250-256] and exporting [257-266] on which the Court found that shipping user manuals induced infringement and exporting component parts to foreign subsidiaries also infringed.

A key issues in the proceeding was whether the invention was disclosed by the inventor more than one year before the filing date when the invention was tested in the field at a third party well site [289-308]. In this case the inventor testified that

“the box [containing the invention] was locked, that he disconnected hoses, and that it was not possible to see inside the device or observe its inner workings. While he explained the operation generally to Union Pacific to obtain their consent to testing the invention, there is no evidence that it was anything more than a general description. Wooley confirmed that nothing Bowden said or did would have enabled a Skilled Person to know how the invention worked.” [301]

The Court held that the defendants had not met their burden on this issue.

On obviousness and anticipation, the Court noted that if the invention was in fact obvious, “it is strange that it was not invented before” [321].

Inutility was another argument for invalidity, particularly the use of incorrect “increase” and “decrease” in certain claims. The plaintiffs had earlier brought an ex parte attempt to correct these words at the Patent Office during the litigation by way of Section 8 of the Patent Act relating to ‘clerical errors’. Justice Hughes in 2006 FC 753 had held this was improper. Nevertheless, in this decision, the Court held on the merits that the person skilled in the art would see the error and make the necessary corrections. [336]

Regarding the argument that the patent was abandoned for the lack of good faith in responding to a s.29 requisition during prosecution, the Court held that the response was accurate and appropriate [359]. “There was nothing in the evidence to suggest that [the patent agents] personally or subjectively acted contrary to the good faith obligation.” [375] The decision does not mention Corlac Inc. v. Weatherford Canada Inc., 2011 FCA 228 on this point, likely because the main trial took place prior to the release of the Corlac decision.

Having held the patent valid and infringed, the Court turned to remedies [383]. The Court ordered an accounting of the defendant’s profits after considering the equities and held that sales by the defendant would have been made by the plaintiff since the parties were the only sources for the technology [405] and rejected the defendant’s theory of apportionment [424]. The Court favoured the expert testimony on the “AlliedSignal factors” on a reasonable royalty rather the “25% Rule” and did not embark on the “anticipated profits” consideration of Jay-Lor [448]. The Court granted a permanent injunction.

The Court delayed the injunction for 90 days and ordered costs in accordance with Column V of the Tariff. According to the docket, the parties are discussing a global settlement so there may not be any appeal from this decision.