Patents. Dnow Canada ULC v. Grenke Estate
In Dnow Canada ULC v. Grenke Estate (Fed CA, 2020) the Federal Court of Appeal set out some basic principles that apply to damage calculation in a patent infringement context (as opposed to remedy assessed by an accounting):
 When the owner of a patent or anyone claiming under the patent (plaintiff), seeks damages for infringement of the patent, the following general principles apply:. Apotex Inc. v. ADIR
The purpose of an award of damages is to compensate the plaintiff for any and all losses suffered by the plaintiff as a result of the infringement. On an appeal to this Court from a judgment of the Federal Court assessing damages for patent infringement, it is inappropriate for this Court to retry the case or substitute its view for the Federal Court’s view of the evidence. As stated by this Court in Pfizer, at paragraph 69:
When assessing damages, the plaintiff is entitled to the profits on the sales of patented wares it could and would have made but for the presence of the infringing product in the market.
For those sales made by the defendant that the plaintiff would or could not have made, the plaintiff is entitled to a reasonable royalty based on the defendant’s sales.
When considering what sales a plaintiff could and would have made but for the presence of the infringing product, the Court is to consider a theoretical and hypothetical "“but for”" world. What would have happened in that hypothetical world must be established on the basis of admissible evidence and any permissible inferences arising from that evidence (Pfizer Canada Inc. v. Teva Canada Limited, 2016 FCA 161, 483 N.R. 275, at paragraph 46).
To "“prevent the hypothetical from lapsing into pure speculation”" evidence is required of both the nature of the market and the likely outcomes with infringement factored out of the market (Apotex Inc. v. Merck & Co., Inc., 2015 FCA 171,  2 F.C.R. 202, at paragraph 55).
The task of constructing the hypothetical world for the purpose of assessing compensatory damages is a factual inquiry requiring "“robust common sense”" (Apotex, paragraph 45, Pfizer, paragraph 55, each case citing Clements v. Clements, 2012 SCC 32,  2 S.C.R. 181, at paragraphs 8 and 9).
Because of its hypothetical nature, the "“but for”" world is not a world where "“the loss is capable of correct appreciation in stated figures.”" (Teva Canada Limited v. Janssen Inc., 2018 FCA 33, 420 D.L.R. (4th) 493, at paragraph 36, citing Watson, Laidlaw & Co. Ltd. v. Pott, Cassels, and Williamson (1914), 31 R.P.C. 104, at pages 117 to 118).
The plaintiff bears the burden of proving the hypothetical world on the balance of probabilities (Pfizer, paragraph 54).
It must be remembered that judges’ reasons—particularly after long complex trials involving many issues—are often the product of synthesis and distillation. When it comes time to draft reasons in a complex case, trial judges “are not trying to draft an encyclopedia memorializing every last [relevant] morsel.” Rather, they are trying to “distill and synthesize masses of information, separating the wheat from the chaff,” in the end “expressing only the most important…findings and justifications for them”: Canada v. South Yukon Forest Corporation, 2012 FCA 165, 431 N.R. 286 at para. 50. Accordingly, reasons must be "“read as a whole, in the context of the evidence, the issues and the arguments at trial, together with ‘an appreciation of the purposes or functions for which they are delivered’”" (R. v. Villaroman, 2016 SCC 33,  1 S.C.R. 1000, at paragraph 15, citing R. v. Laboucan, 2010 SCC 12,  1 S.C.R. 397, at paragraph 16, citing R. v. R.E.M., 2008 SCC 51,  3 S.C.R. 3, at paragraph 16).
 Reasons must, however, provide a basis for meaningful appellate review. This requires that the decision and the basis of the decision be intelligible, or capable of being made out on a fair reading of the reasons. A logical connection between the decision and the basis for the decision must be apparent. To determine whether a logical connection between the decision and the basis for the decision is established, a reviewing court is to look at "“the evidence, the submissions of counsel and the history of the trial to determine the ‘live’ issues as they emerged during the trial.”" (R v. R.E.M., at paragraph 35).
In Apotex Inc. v. ADIR (Fed CA, 2020) the Federal Court of Appeal considered a successful party's use of the Patent Act's remedial option [s.57(1)(b)] to claim an accounting of profits as opposed to damages, and in so doing explored the theory underlying patent law remedies:
 The Patent Act, R.S.C. 1985, c. P-4 allows courts to award two different types of remedy for patent infringement. The first is an award of damages under subsection 55(1) of the Act. The second is an accounting of profits in accordance with paragraph 57(1)(b) of the Act, which allows a judge in a patent infringement case to make an order "“for and respecting inspection or account”". As will be discussed below, the jurisprudence makes clear that this remedy exists as an alternative to damages.
 Damages are based on the harm suffered by the patentee, and are intended to compensate the patentee for his or her losses. An award of damages may include compensation for the patent holder’s lost profits from sales or lost royalty payments.
 In contrast, an accounting of profits is an equitable remedy based on the profit made by the infringer, rather than the amount lost by the inventor: Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34,  1 S.C.R. 902 at para. 100; Rivett FCA, above at para. 23. As the Federal Court observed in Rivett, an accounting of profits serves two major equitable purposes: a "“prophylactic purpose”" deterring the infringer and others, and a "“restitutionary purpose”", restoring to the wronged party profits which have been wrongly appropriated by the infringer: Monsanto Canada Inc. v. Rivett, 2009 FC 317,  2 F.C.R. 93 (Rivett FC) at para. 19, citing Strother v. 3464920 Canada Inc., 2007 SCC 24,  2 S.C.R. 177 at para. 77.
 The premise underlying this remedy is that the infringer notionally acted as the agent of the patent holder, and is therefore obliged to account for the profits earned through its infringement: Beloit Canada Ltd. v. Valmet-Dominion Inc., 1997 CanLII 6342 (FCA), 73 C.P.R. (3d) 321,  3 F.C. 497 (F.C.A.) at 356; Apotex Inc. v. Bayer Inc., 2018 FCA 32,  F.C.R. 58 at para. 56.
 An accounting of profits should be limited to profits that were actually earned by the defendant as the purpose of this remedy is not to punish the infringing party, but to prevent its unjust enrichment: Imperial Oil Ltd. v. Lubrizol Corp., 1996 CanLII 4095 (FCA),  2 F.C. 3, 206 N.R. 136 (F.C.A.) at para. 8.
 The Supreme Court has observed that where a patentee has elected to receive an accounting of profits, the patentee will only be entitled to that portion of the infringer’s profits that is causally attributable to the invention: Schmeiser, above at para. 101. This is because a patent does not confer a complete monopoly if a defendant could make or sell a non-infringing version of the patented invention: Lovastatin, above at para. 48.
 Citing Professor Norman Siebrasse in "“A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms”" (2003) 20 C.I.P.R. 79, the Supreme Court went on in Schmeiser to state that the preferred method of calculating an accounting of profits is the "“differential profit approach”". In accordance with this approach, profits are allocated taking into account the value that was contributed to the defendant’s goods by the patented invention. As Professor Siebrassse has noted, awarding profits according to the value added by the patented invention is consistent with the fundamental nature of patents as intellectual property: above at page 92.
 A comparison thus has to be made between those profits that are attributable to the invention, and the profits that the defendant would have made using the best non-infringing alternative option: Schmeiser, above at para. 102, citing Collette v. Lasnier (1886) 1886 CanLII 54 (SCC), 13 S.C.R. 563 at page 576.
 In Lovastatin, this Court identified the framework to be used in constructing the hypothetical "“but-for”" world in which the infringer does not infringe the patent.
 The issue that faced the Court in Lovastatin was whether, in determining the damages sustained because of patent infringement in accordance with subsection 55(1) of the Patent Act, regard should be had to legitimate competition from an infringer. Subsection 55(1) states that "“[a] person who infringes a patent is liable to the patentee and to all persons claiming under the patentee for all damage sustained by the patentee or by any such person, after the grant of the patent, by reason of the infringement”".
 After performing a textual, contextual and purposive analysis of subsection 55(1), and after examining the law relating to causation, this Court concluded in Lovastatin that the availability of non-infringing alternatives had to be taken into account in assessing damages for patent infringement. This is because the scope of a patent holder’s monopoly may be extended if damages for lost profits were calculated without regard to the availability of a non-infringing alternative to the invention.
 That is, a patentee could be better off in some cases than they would otherwise have been if a defendant could have lawfully competed in the marketplace by making or selling a non-infringing product, potentially depriving the patent holder of some sales: Lovastatin, above at para. 48. Similarly, a defendant could be worse off than they would otherwise have been if the availability of non-infringing substitutes were ignored: Lovastatin, above at para. 60.
 As a consequence, this Court concluded in Lovastatin that "“perfect compensation”" requires a consideration of what, if any, non-infringing product or products the defendant or other competitors could and would have sold, but for the infringement. Also relevant is the extent to which lawful competition would have reduced the patent holder’s sales: above at para. 50.
 The Court concluded at paragraph 73 of Lovastatin, that in assessing the impact of legitimate competition from a defendant marketing a non-infringing alternative product, a court must consider at least the following questions of fact:
(i) Is the alleged non-infringing alternative a true substitute and thus a real alternative? Of necessity, this is a hypothetical exercise, as the Court must reconstruct the market to determine what would have happened in the hypothetical situation where, rather than infringing a plaintiff’s patent, the infringer instead chose to compete with the plaintiff using a non-infringing product.
(ii) Is the alleged non-infringing alternative a true alternative in the sense of being economically viable?
(iii) At the time of infringement, does the infringer have a sufficient supply of the non-infringing alternative to replace the non-infringing sales? Another way of framing this inquiry is could the infringer have sold the non-infringing alternative? and
(iv) Would the infringer actually have sold the non-infringing alternative?
 As this Court observed in the Profits Appeal, "“evidence concerning the hypothetical world is necessarily hypothetical and the Court is free to draw inferences from the evidence as to what would likely have happened ‘but for’ the breach”": above at para. 61, citing Cadbury Schweppes Inc. v. FBI Foods Ltd., 1999 CanLII 705 (SCC),  1 S.C.R. 142, 167 D.L.R. (4th) 577 at 186.
 The persuasive burden is on the defendant to establish that, in this hypothetical world, it could have and would have been able to obtain a sufficient amount of the non-infringing product, and that it could and would have used the non-infringing product to compete with the patent holder: Lovastatin, above at para. 74.
 The issue of a non-infringing alternative arose again in Pfizer Canada Inc. v. Teva Canada Ltd., 2016 FCA 161, 483 N.R. 275, leave to appeal to SCC refused, 37262 (19 January 2017) (Effexor). While a claim for compensatory damages for patent infringement was at issue in Lovastatin, Effexor involved a claim for damages under section 8 of the Patented Medicines (Notice of Compliance) Regulations, S.O.R./93-133. Citing Astrazeneca Canada Inc. v. Apotex Inc., 2013 FCA 77, 444 N.R. 254 at paragraph 7, this Court stated in Effexor that the overriding principle is the same in both types of cases: namely, that a plaintiff is to be compensated, no more, and no less: above at para. 47.
 The Court observed in Effexor that this Court held in Lovastatin that to succeed with a non-infringing alternative defence, a defendant had to establish that, in the hypothetical world, it would have and could have had access to sufficient quantities of a non-infringing product. The defendant also had to demonstrate that it would have, and could have, used the non-infringing product to compete with the plaintiff’s product: Effexor at para. 49, citing Lovastatin, at paras. 32, 53, 55, 70, 77 and 78.
 The Court noted at paragraph 50 of Effexor that both the "“could have”" and "“would have”" components of the non-infringing alternative defence are important in ensuring that a plaintiff is put in the position that they would have been in, had the infringement not occurred.
 Insofar as the "“could have”" element of the test is concerned, the defendant has to demonstrate that, in the hypothetical world, it would have been possible for it to secure non-infringing product – that is, that it "“could have”" done so. To satisfy the "“would have”" component of the test, a defendant must demonstrate "“that events would transpire in such a way as to put them in that position”": Effexor, above at para. 50. That is, that the defendant "“would have”" obtained and used the non-infringing alternative.
 As this Court observed in the Profits Appeal, the significance of the "“would have”" requirement is that by requiring that a defendant demonstrate that it would have used a non-infringing alternative, it shows that "“the value of the patented invention is not such that reliance on alternatives is unlikely or fanciful”". That is, even if a non-infringing alternative is available, a defendant must nevertheless show "“that there are no impediments to its use”": above at para. 42.
 The non-infringing alternative defence was also discussed in Apotex Inc. v. Eli Lilly and Co., 2018 FCA 217, 161 C.P.R. (4th) 411, leave to appeal to SCC refused, 38485 (23 May 2019) (Cefaclor). There, this Court reiterated that the goal of the non-infringing alternative defence "“is to help ascertain the real value of inventions for which a patentee […] was granted a monopoly”": above at para. 49.
 In considering the impact of legitimate competition from a defendant marketing a non-infringing alternative to the patentee’s product, the Court in Cefaclor adopted the four-part test from Lovastatin. The Court observed, however, that this test was not intended to be exhaustive, and that where the existence of a non-infringing alternative is in issue, a court will be required to consider at least the four questions of fact that were identified in Lovastatin: Cefaclor, above at para. 51 [emphasis added].
 The Court went on in Cefaclor to note that the following principles may also be relevant to the inquiry:
1) the real world informs our construction of the “but-for” world;(Cefaclor at para. 52, citing Lovastatin at para. 90).
2) conduct in the real world is “very important” to what would have happened in the “but-for” world;
3) findings of fact from the liability decision are relevant to constructing the “but-for” world; and
4) “brazen” infringement in the real world makes it very difficult to prove that the defendant would have deployed the non-infringing alternative in the “but-for” world.