On August 6, 2024, the Federal Court of Appeal (per Gleason JA; Stratas and Monaghan JJA, concurring) held that two patents owned by Rovi Guides [Rovi] were invalid for obviousness. Nonetheless, in obiter, the FCA held that the trial judge erred in several aspects of his remedial analysis, including the correct approach for deciding whether Rovi was entitled to an accounting of profits, the consideration of non-infringing alternatives [NIA] as part of a damages analysis, and the method for determining a reasonable royalty rate.
Rovi Guides, Inc. v. Videotron Ltd. – Federal Court of Appeal (fca-caf.ca)
Background
Rovi owns a portfolio of patents relating to interactive television program guide [IPG] technology. An IPG consists of “software that generates for display television program listing and recorded content in electronic firm that a user can navigate by electronic means.” In an IPG, “information on available programming content is downloaded or sent to a user’s television equipment, typically a set-top box [STB], and the information is then stored in memory. A STB is so-called because it originally sat on top of the television set. It is also colloquially known as a cable box.”
Rovi sued Videotron for allegedly infringing four of its IPG patents in Canada [Patents]. The Patents “cover many aspects of the design and engineering of an IPG that can be accessed through a television set or another platform, such as a mobile phone or website.” The Patents originated from filings made in the late 1990s.
Rovi had relied on more than one hundred claims when the actions commenced. However, by trial, Rovi had “whittled down” its allegations to four sets of Asserted Claims. Videotron denied the allegations of infringement, sought a declaration that each of the Asserted Claims was invalid, and argued that Rovi was not entitled to the remedies sought. Each of the Patents had expired by the time the trial commenced.
The evidentiary phase of the trial lasted seventeen days. Rovi led evidence from two lay witnesses, one named inventor, one technical expert, and three financial experts. Videotron called six lay witnesses, one technical expert, and three experts on the issue of remedy.
Trial Decision
By Judgment dated June 10, 2022 (2022 FC 874), the Federal Court (per Lafrenière J.) dismissed Rovi’s infringement action, holding that each of the Asserted Claims was invalid for anticipation and/or obviousness, and that Videotron did not infringe certain claims. In obiter, the Court stated that, had any of the Asserted Claims been found to be valid, Rovi would not have been entitled to an accounting of profits and instead would have only been entitled to a reasonable royalty.
Appeal Decision
Rovi appealed in respect of only two of the four Patents and focused its arguments on three alleged errors: obviousness, accounting of profits (denial of right to elect), and damages (NIA; lost royalty income; reasonable royalty).
a. Obviousness
Rovi argued that the Federal Court made three reviewable errors in its obviousness analysis:
- It relied on evidence given by Videotron’s technical expert who was misinformed as to the attributes of the skilled person.
- It exhibited a hindsight bias.
- It had a “coloured view” of Rovi and its Patents.
The FCA was not persuaded by any of these arguments. The FCA held that a trial judge’s assessment of the expert evidence and their preference for the testimony of one witness over another lie at the very heart of a trial court’s function as the trier of fact. It is not the role of an appellate court to substitute its views and reject specific testimony in the absence of a legal error – and there was no such basis to do so in the present case. In the present case, the trial judge was “very alert” to the potential for hindsight bias and was ultimately satisfied that Videotron’s technical expert was able to carry out his job appropriately. Finally, the FCA held that the trial judge did not rely on his view of Rovi’s business practices in his discussion of validity. Rather, his comments on this subject were directed solely to the issue of remedy. In sum, there was no basis for the FCA to redo the Federal Court’s obviousness analysis and arrive at a different conclusion.
b. Accounting of Profits (Denial of Election)
Rovi asserted that the Federal Court made three errors in denying its election of an accounting of profits:
- It erred in its treatment of the relevant factors.
- It erred in finding that Rovi’s conduct provided a basis for denying a remedy.
- It erred in concluding that the complexity of the required calculations was a basis for denying the remedy.
On the first alleged error, the FCA held that the trial judge’s entire remedial analysis started from the wrong premise. The trial judge should have started from the premise that a successful patentee is entitled to an accounting of profits unless there are sufficient compelling reasons to deny the remedy, i.e., a prima facie entitlement to relief.
On the second alleged error, the FCA agreed with Rovi in part. The Court held that it was not inappropriate for Rovi to staunchly defend its patent rights, or to adopt a business model of licensing, or to decline to send a cease-and-desist letter before launching an infringement action. The FCA rejected Rovi’s argument that delays that occurred during prosecution of its patents applications without more cannot provide a basis for denying equitable relief; however, any such claim would need to be supported by evidence explaining why the conduct was so inequitable as to disentitle relief (unclean hands). In the present case, the trial judge made a palpable and overriding error by relying on alleged prosecution delays to draw adverse inferences and deny relief. The FCA declined to say whether a patent licensor and licensee owe each other a precontractual duty of good faith, but noted that much of the conduct that the trial judge impugned was not a basis for denying equitable relief.
On the third issue, the FCA held that the complexity of an accounting of profits is not a basis to disentitle relief, nor is this what the trial judge held. Rather, the trial judge held that an accounting of profits would not have been appropriate in this case because none of the methods proposed by Rovi to calculate Videotron’s profits would have enabled the Court to arrive at a reliable and appropriate amount. The FCA held that there was ample basis for the trial judge to reach this conclusion.
c. Damages (NIA; lost royalty income; reasonable royalty)
The FCA held that the trial judge erred in basing his provisional damages calculation on the amount that it would have cost Videotron to design around the Patents without first finding what these non-infringing alternatives were, whether Videotron “could have and would have” adopted them, and whether consumers would have accepted them as true substitutes. The trial judge failed to undertake this analysis and failed to ascertain what design changes Videotron posited it could have made. The trial judge also failed to address whether any such changes could and would have been adopted by Videotron and whether they would have been accepted by its customers. This was an error of law.
The FCA held that the trial judge did not err in denying Rovi damages for lost royalty income based on its previous licence with Videotron, as Rovi only sought damages based on an entirely different basis of a reasonable royalty.
However, the trial judge erred in law by only considering the royalty amount that Videotron would have been willing to pay and not the amount that Rovi would have accepted. A hypothetical reasonable royalty rate must be set based on what rate would have been agreed to by both plaintiff and defendant had they been a willing licensor and willing licensee. The trial judge should have considered both parties’ positions (had they been acting as willing contracting parties) in setting the hypothetical reasonable royalty rate.
Disposition
The appeal was dismissed with costs. Rovi has 60 days to file an application for leave to appeal to the Supreme Court of Canada.