In Bauer v. Easton,[1] the Federal Court found Easton Sports Canada liable for inducing or procuring the infringement of a patent for a popular Bauer’s skate design. The judgment explained that to induce infringement an actor must only intend for a third party to follow their influence to achieve a particular end (the infringing act), and that knowledge of the patent’s existence is not a requirement of this tort. This decision, currently on appeal, has for the first time in Canada provided a firm and definitive statement on the “intent to infringe” requirement for inducing infringement.
However, because of the Court’s statement that no intent to infringe was required in the “very unique circumstances” of this case (referring to the high degree of control that Easton had exercised over the actions of the third party infringer),[2] the decision, perhaps unintentionally, raises questions about the degree of control that is required to “induce” another, and whether or not this legal standard is consistent with actual expectations held in the business world.
Background
Direct patent infringement may be characterized as a strict liability tort, as liability can be attached to an infringing party even if it never had any intention of violating the rights of a valid patent holder, or any knowledge that the patent it was violating existed. On the other hand, the law pertaining to inducing (or procuring) patent infringement – whereby one party influences another party to directly infringe a patent, often present in outsourcing arrangements among manufacturers - has not been so clear cut.
There are three basic requirements for inducing infringement in Canadian law: (1) there must be an infringing act committed by the direct infringer; (2) this infringing act must have been influenced by the alleged inducer (akin to a “but for” analysis), and; (3) the influence must have been knowingly exercised and intended by the inducer.[3]
A source of uncertainty in law, both in Canada and abroad, has arisen from the third requirement, for it has raised questions as to the level of knowledge and intent that is needed to attach liability to an allegedly inducing party. For example, does an alleged inducer need to have knowledge of the patent at issue, such that the inducer specifically intended for the influenced party to infringe that patent? Or, is the simple intention that the inducer’s directions be followed enough to attach liability? Or, might the answer fall somewhere in between, such as liability for wilful blindness towards existing patents?
In Bauer v. Easton, Justice Gauthier reiterated the principle that the tort of inducing infringement is to be treated the same as direct infringement, thereby clarifying that an alleged inducer need not be aware of the patent at issue in order to be found liable for influencing its infringement.
Unfortunately, in answering this question, the Federal Court managed to raise a different question, one that could become a source of contention in future patent infringement cases. To what extent does the level of control that an alleged inducer exhibits over the direct infringer affect the intent threshold required for liability? Furthermore, would it be fair for courts to attach liability to a business if it had almost no control over the third party’s actions (and thereby also had no foreseeability of any potential patent infringement)?
Bauer v. Easton
In this case, Easton Sports Canada Inc. was found to have infringed a patent belonging to Bauer Hockey Corp. (the patent described Bauer’s popular “Vapor 8” ice skate model). Based on the facts of the case, Justice Gauthier was able to easily determine that Easton was responsible for inducing a third party into directly infringing Bauer’s patent.
The Easton skates were outsourced for manufacture to a third party company known as Rock Forest Inc. While Rock Forest employees did assist with some minor aspects of the skates’ composition (such as development of the footwear pattern), it was clear on the evidence that Easton had significant control over the entire manufacturing process. Not only did Easton employees fully conceive of the design and conception of the skates (presumably without the aid of Bauer’s patent), but Easton went as far as to station one of their employees at the Rock Forest premises to directly oversee production of the skates.
As a result of this overt relationship of principal-to-agent influence and control, the Federal Court was given a solid opportunity to shed light on the law of inducing infringement in Canada.
Inducement to Act Must Be Intentional, Resulting Infringement Need Not Be
Despite arguments that were put forth by Easton, Justice Gauthier was adamant in proclaiming that “there is no case law stating clearly that one could not infringe by inducement or procurement unless it knew of the patent.”[4]
To be held liable, the alleged inducer must only intend for the actions of the direct infringer (the third party manufacturer) to be completed in accordance with whatever directions were given by the inducer. Whether the inducing party intended for infringement of a patent to occur is completely irrelevant to the analysis.
The Court explained that to hold otherwise would “create an unwarranted and unjustifiable distinction” between companies who manufacture their own products and companies who instead choose to outsource their production by giving specific instructions.[5] If there were to be a higher threshold for intent, any third party who had been contracted to simply follow instructions could unfairly be held as the only party responsible for any resulting patent infringement (as the inducing party could deliberately avoid, or deny, having any knowledge of the interfering patents). The lower threshold of intent in Bauer v. Easton therefore avoids situations where a mastermind can escape punishment while their servant is found guilty.[6]
In the U.S., courts have been split on what level of intent should be required for inducing infringement, known there as “active inducement.” In one case, it was actually conceded that this area of the law is plagued with a “lack of clarity.”[7] Competing American precedents have held that (similar to Canadian law) there is no “intent to infringe” requirement,[8] while others have held entirely the opposite.[9] As recently as February of 2010, the U.S. Federal Circuit has endorsed the position that active inducement may be found at least where the inducer has shown “deliberate indifference” to a patent.[10]
The Legal Model is Misaligned with the Practical Reality
The Supreme Court of Canada has already declared that patent infringement is a “statutory tort,”[11] and the principle that inducing infringement is akin to direct patent infringement has been present in Canadian law for a long time.[12] Bauer v. Easton affirmed this, stating that “inducing or procuring another to make or construct a patented invention is not a tort distinct from that of infringement.”[13] This entails that the low threshold for intent should be applied evenly in any case involving patent infringement, regardless of the reasonable expectations or business arrangements among the parties involved.
Nonetheless, the Federal Court’s acknowledgment of this overlap of torts - when read in conjunction with the facts of the case - may muddy the waters in a new vein. “Here, through [an Easton employee’s] involvement … Easton was actually participating in the making of the skates that are now found to infringe.”[14] The Court’s judgment was straightforward precisely because Easton exercised such unequivocal control over the actual infringer of the patent; the characterization of Easton’s liability as “inducement” is, in this case, interchangeable with a characterization of “directly infringing.”
Whether or not a party needs knowledge of a patent (or intent to infringe) in order to be liable for inducing infringement has often been a source of confusion in Canada. As such, the relationship between the law on this matter and the expectations of real actors in the business world is uncertain. By all means, where the inducing infringer exercises tremendous control over the actor who actually infringed, it is justifiable to overlook intent, because that inducer may just as well be liable for direct infringement.
Yet, what if, instead, Easton had actually only exercised minimal control over its third party manufacturer (such that Easton did not even play a role in the design of the infringing skate)? Yes, this might still qualify as inducing infringement according to the law (since the law on its face only requires minimal influence to be exercised by the inducer); but, in this hypothetical, it would be highly unlikely that Easton could have reasonably expected to be implicated in the unforeseen infringement caused by a third party. Is it not problematic that the notion of “reasonable expectations” - a focal point of tort law - is given no weight when assessing the statutory tort of inducing patent infringement?
Drifting Towards Common Design?
By essentially lumping the tort of inducing infringement together with direct infringement, Bauer v. Easton appears to be steering Canadian law in the direction followed by English Courts via the doctrine of infringement by common design (also known as “joint infringement”), which holds both the inducer and the direct infringer equally liable for patent infringement. The standard for this type of liability also neglects knowledge of the infringed patent and limits the intent threshold to infringe, not unlike Canadian law. More notably, infringement by common design barely contemplates issues of influence or control (which are pivotal to a finding of induced infringement in Canada). In a leading British case that was cited by Justice Gauthier in Bauer v. Easton, it was stated of infringement by common design that: “This idea does not…call for any finding that the secondary party has explicitly mapped out a plan with the primary offender. Their tacit agreement will be sufficient.”[15]
Thus, where there is an agreement in place between two parties to work together under some type of business/manufacturing arrangement, any patent infringement by either party, regardless of the involvement of the other, could render both parties liable as joint infringers. This is not yet an accepted position in Canadian law, and infringement by common design could greatly expand the risks involved in any joint business venture in an industry where patents are abundant.
In the U.S., meanwhile, “joint infringement” (or, “indirect infringement”) might impose a higher burden on plaintiffs seeking to enforce liability on multiple parties who have together carried out all of the claims of a patent. This area of somewhat unsettled law lacks a bright-line test, but does put tremendous emphasis on a factual assessment of the amount of direction and control present in each case.[16] Ideally, significant evidence must be put forth by the plaintiff indicating contractual agreements between the direct infringer and the controlling party; anything less, and the plaintiff’s action may be subject to dismissal or summary judgment.
Stick to the Facts
The U.S. doctrine of “joint infringement” aligns more closely with the facts of Bauer v. Easton than the alternative U.S. approach of active inducement (which requires a specific intent to infringe). Canadian law, however, does not distinguish between active inducement and joint infringement; instead, each case will be assessed by the same standards of “inducing infringement.” As a result, the lines for when multiple parties can be held mutually accountable for the infringement of a Canadian patent remain unclear.
Eventually, a situation that falls hazily between the second and third prongs of Canada’s three part test for inducing infringement (the direct infringement must have been influenced by another party, and that party’s influence must have been intentional) is likely to arise; in this situation, there would be a limited relationship between the parties and a minimal degree of control exercised from one over the other. In such a case - whereby the opportunity would arise for the influencing party to claim ignorance as a potential defense - perhaps Canadian Courts could best decide on infringement liability by avoiding any bright-line test altogether, and instead focus more closely on the factual circumstances at hand. To do otherwise (i.e. by attempting to decide the case using existing legal boundaries on inducing infringement) might conflate inducement and joint infringement principles even further, adding more confusion to this area of the law and more uncertainty for the patent holders and third parties involved.
Conclusion
Pending the appeal of Bauer v. Easton, the law in Canada is settled on the premise that inducing patent infringement does not require knowledge of the patent’s existence. Still, the chances that a business will be surprised to find itself responsible for patent infringement – even though that business may have only played a very limited, and unintentional, role in having influenced the resulting infringement caused by a third party – seems possible. When the Federal Court is inevitably faced with a patent infringement action whereby the inducing infringer exercised substantially less control and influence than Easton has done, issuing a judgment of liability via our existing guidelines for “inducing infringement” may prove to be much more contentious and controversial than it was in the battle over the Vapor 8 ice skate design.
[1] Bauer Hockey Corp. and Nike International Limited v. Eason Sports Canada Inc., 2010 FC 361 [Bauer v. Easton].
[2] Bauer v. Easton, at para 209.
[3] Dableh v. Ontario Hydro, [1996] 3 F.C. 751 (Fed C.A.); leave to appeal refused (1997), 1997 CarswellNat 3240 (S.C.C.).
[4] Bauer v. Easton, at para 197.
[5] Ibid, at para 203.
[6] Lemley, Mark A., Inducing Patent Infringement. UC Davis Law Review, Vol. 39, p. 225, 2005; Stanford Law School, Public Law Working Paper No. 110. Available at SSRN: http://ssrn.com/abstract=772264, at 21.
[7] Insituform Techs. V. CAT Contracting, 385 F. 3d 1360 (Fed. Cir. 2004).
[8] Hewlett-Packard v. Bausch & Lomb, 909 F. 2d 1464 (Court of Appeal, Fed. Cir. 1990).
[9] Manville Sales v. Paramount Sys., 917 F. 2d 544 (Fed. Cir. 1990).
[11] Bristol-Myers Squibb Co. v. Canada (Attorney General), 2005 SCC 26, 39 C.P.R. (4th) 449, at para 134.
[12] Hatton v. Copeland-Chatterson Co., 10 Ex. C.R. 224, 1906 CarswellNat 10, at para 16.
[13] Bauer v. Easton, at para 199.
[14] Ibid., at para 205.
[15] Bauer v. Easton, at para 206, citing Unilever plc v. Gillette (UK) Limited, [1989] R.P.C. 583 (U.K.C.A.) at p. 609.
[16] Eckstein, Maya M. and Spalding, Shelley L., “What Remains of Joint Patent Infringement?” IP Litigator, September/October 2009.
