A-239-80
Armstrong Cork Canada Limited, Armstrong
Cork Company, Armstrong Cork Industries Lim
ited, Armstrong Cork Inter-Americas Inc. (Appel-
lants) (Defendants)
v.
Domco Industries Limited (Respondent) (Plain-
tiff)
and
Congoleum-Nairn Inc., Congoleum Industries, Inc.
and Congoleum Corporation (Respondents)
(Defendants)
Court of Appeal, Heald, Urie and Ryan JJ.—
Ottawa, December 3, 4 and 24, 1980.
Patents — Infringement — Appeal from decision entitling
respondent Domco, the non-exclusive licensee of the patentee,
Congoleum, to recover damages from the appellants, the
infringers of the patent — Whether the infringer of a valid
patent is liable to a licensee thereunder — The Patent Act,
1935, S.C. 1935, c. 32, s. 55 [R.S.C. 1970, c. P-4, s. 57(1)].
This is an appeal from a Trial Division decision wherein the
infringement of patent action brought by Domco, the non-
exclusive licensee of the patentee, Congoleum, resulted in
Domco being entitled to recover its damages from the appel
lants, the infringers of the patent. The question is whether an
infringer of a valid patent is liable to a licensee thereunder.
Appellants submit that the answer must be found in the licence
agreement entered into between Domco and Congoleum while
respondent Domco relies on section 57(1) of the Patent Act and
on the principle of stare decisis. Finally, appellants argue that
there was no intention expressed in the agreement to give the
licensee rights against infringing third parties.
Held, the appeal is dismissed. While the licence agreement
cannot be disregarded, it is to the statute that one must look to
determine whether rights which might otherwise flow from the
agreement are affected by the words of the statute. Section
57(1) clearly encompasses licensees without regard to the pre
cise nature of the rights given them by their particular licence
agreement. Once it is established that a licensee, whether
exclusive or non-exclusive, is claiming under the patentee, he is
entitled to any damages which he can prove by reason of the
infringement of the patent not by reason of a breach of any
term of the licence agreement. Section 57 gives both a right
and a remedy, that remedy being the recovery of the damages it
can prove. Whether or not the principle of stare decisis applies
to this Court, sound judicial administration requires that recent
earlier decisions of the Court be followed, be they rendered in
an interlocutory matter or in the final decision on the merits.
American Cyanamid Co. v. Novopharm Ltd. [1972] F.C.
739 reversing [1971] F.C. 534, applied. Murray v. Minis
ter of Employment and Immigration [1979] 1 F.C. 518,
applied. Perry v. Public Service Commission Appeal
Board [1979] 2 F.C. 57, applied. Fiberglas Canada Ltd. v.
Spun Rock Wools Ltd. (1947) 6 C.P.R. 57, followed.
Flake Board Co. Ltd. v. Ciba-Geigy Corp. (1974) 15
C.P.R. (2d) 33, referred to. Young v. Bristol Aeroplane
Co., Ltd. [1944] K.B. 718, referred to.
APPEAL.
COUNSEL:
David Watson, Q.C. for appellants (defend-
ants).
Donald F. Sim, Q.C. and C. E. R. Spring for
respondent (plaintiff) Domco Industries Lim
ited.
Donald MacOdrum for respondents (defend-
ants) Congoleum-Nairn Inc., Congoleum
Industries, Inc. and Congoleum Corporation.
SOLICITORS:
Gowling & Henderson, Ottawa, for appellants
(defendants).
Donald F. Sim, Q.C., Toronto, for respondent
(plaintiff) Domco Industries Limited.
Hayhurst, Dale & Deeth, Toronto, for
respondents (defendants) Congoleum-Nairn
Inc., Congoleum Industries, Inc. and Con-
goleum Corporation.
The following are the reasons for judgment
rendered in English by
URIE J.: This is an appeal from a judgment of
the Trial Division [[1980] 2 F.C. 801] wherein the
infringement of patent action brought by the
respondent Domco Industries Limited (hereinafter
called "Domco") resulted in Domco being
adjudged to be entitled to recover from the appel
lants its damages which, on a reference, it proves
to have been incurred by it as a result of loss of
sales in Canada between July 25, 1967 and March
9, 1976. The appeal was heard together with one
bearing the same style of cause, Court file No.
A-236-80. The issues at trial in each action were
identical and were heard on the basis of an agree
ment as to facts and issues for trial.
The actions alleged infringement by the appel
lants of a patent relating to a chemically embossed
floor covering. They were originally commenced
by the respondent Congoleum companies (herein-
after called "Congoleum") and Domco as plain
tiffs. During the course of the proceedings the
actions were settled as between Congoleum and
the appellants. The settlement called for the pay
ment by the appellants to Congoleum of the sum
of $35,000,000 in full settlement of past claims;
for the licensing of the appellants for the period
from March 9, 1976 to the end of 1976 to enable
the appellants to effect an orderly termination of
the manufacture and sale of the product and, inter
alia, Congoleum obtaining the release of Domco
and consent to judgment in an agreed form. Con-
goleum was unable to obtain the required release
and consent from Domco with the result that
Congoleum proceeded with the settlement to the
extent that it could and applied for and obtained
judgment substantially in the form annexed to the
minutes of consent. Pleadings were extensively
amended and the style of cause was changed to
remove the Congoleum companies as plaintiffs and
to add them as defendants.
The actions then proceeded to trial resulting in
the judgments appealed from.
To understand the basis upon which Domco
brought its action it is necessary to consider some
of the facts surrounding its relationship with Con-
goleum. Those parties entered into a licence agree
ment on July 8, 1966 whereby Domco was given a
licence to make, use and sell chemically embossed
wall and floor covering products in Canada. It
appears from the agreement that for the period
from July 8, 1966 to July 8, 1971 Domco was the
sole licensee for the manufacture in Canada of
those products and for the three-year period com
mencing July 8, 1966 Domco was entitled exclu
sively, to manufacture the products during that
period thus excluding even the patentee, Con-
goleum, from the right to manufacture in Canada.
During the relevant period, Domco, Congoleum
and the appellants all sold the products in Canada.
The relevant period is July 25, 1967 when the
patent issued, to March 9, 1976 when the settle
ment agreement was signed by Armstrong and
Congoleum. A third party was licensed to manu
facture as well as sell the products in Canada from
January 1, 1974. It never, in fact, manufactured
the products in Canada during the relevant period
although sales were made by it throughout that
time. Only Domco and the appellants have made
chemically embossed products in Canada.
Domco in its memorandum of fact and law
defines the sole issue between the appellants and
Domco as being "the question of law of whether
an infringer of a valid patent is liable to a licensee
thereunder," it being admitted that the appellants
are infringers who have settled the infringement
action brought by the patentee, Congoleum, with
out settling with the licensee. The question as to
the extent of the infringement and as to the dam
ages flowing from such infringement were, by an
order of Gibson J., in the Trial Division, to be the
subject matter of a reference after trial. Those
questions then are not issues in this appeal. Put
another way the sole issue is, does a non-exclusive
licensee have a cause of action against the infring-
er of a patent of which it is the licensee? The
answer to this question according to the appellants,
is to be found in the licence agreement while
counsel for Domco contends that while its rights to
manufacture and sell emanate from the agree
ment, the rights and remedies available to it flow
ing from those licensed rights, are founded on
subsection 57(1) of the Patent Act, R.S.C. 1970,
c. P-4.
That section, which was enacted substantially in
its present form by amendment to The Patent Act,
1935', now reads as follows:
57. (1) Any person who infringes a patent is liable to the
patentee and to all persons claiming under him for all damages
sustained by the patentee or by any such person, by reason of
such infringement.
(2) Unless otherwise expressly provided, the patentee shall be
or be made a party to any action for the recovery of such
damages.
Subsection (1) has been considered and inter
preted in this Court in American Cyanamid Co. v.
Novopharm Ltd. 2 In that case the plaintiff, as the
S.C. 1935, c. 32, s. 55.
2 [1972] F.C. 739, reversing [1971] F.C. 534.
non-exclusive licensee of a patentee, instituted an
action for damages for an infringement. A motion
to strike out the statement of claim on the ground
that a non-exclusive licensee cannot maintain an
infringement action was granted by the then
Associate Chief Justice of the Trial Division, who
held [at page 539] that "The plaintiff having no
status in this action, it shall be dismissed with
costs against it." The decision was appealed and,
by a majority decision the appeal was allowed.
In that case, as in this, it was contended that a
non-exclusive licensee is not a person "claiming
under" a patentee within the meaning of subsec
tion 57(1). This Court unanimously decided in the
American Cyanamid case that this contention
could not stand although Jackett C.J., dissenting
in the result, seemed to indicate that he might
have reached a contrary view on this aspect of the
argument had he not felt himself bound by the
decision of the Judicial Committee of the Privy
Council in Fiberglas Canada Ltd. v. Spun Rock
Wools Ltd. 3 where, at page 66, Lord Simonds
said:
But it appears to them that the statutory amendment of 1935
following upon the decision of Electric Chain Co. v. Art Metal
Works Inc., [1933], 4 D.L.R. 240, S.C.R. 581 points irresist
ibly to the conclusion that licensees are persons claiming under
the patentee within the meaning of the section. The patentee by
definition means the person for the time being entitled to the
benefit of a patent. Section 55(1) [now subsection 57(1)]
contemplates an action not only by the person for the time
being entitled to the benefit of a patent but also by any person
claiming under that person. Upon the plain language of the
section a licensee answers that description.
The appellants as licensees were therefore entitled to sue for
damages under s. 55.
Chief Justice Jackett then pointed out that that
conclusion couched in language which was broad
enough to encompass any licensee, exclusive or
non-exclusive, did not end the matter. Conceding
that the effect of subsection 57(1) was to create a
statutory cause of action that had not previously
existed, the next step was to determine what that
cause of action is. He found that to sustain an
action based on that section it must be established
by a non-exclusive licensee that he himself suf
fered damage not that someone else has. At pages
756-757 of the report he had this to say:
3 (1947) 6 C.P.R. 57.
As I see it, a bare licence under a patent, being merely a
permission from the patentee to do something that it would,
otherwise, have been unlawful to do, a person who infringes the
patent does not commit any wrong against the licensee and does
not deprive the licensee of anything to which he was entitled as
between himself and the patentee. In other words, the licensee
has no right to complain against infringement of the patent
either by reason of any right vested in him that is good as
against the perpetrator of the particular act of infringement, or
by virtue of a contract with the patentee whose legal rights are
infringed by such act. A bare licensee who exercises the patent
for a profit may indeed suffer a diminution in profit from
selling the invented product as a result of competition from
some other person who also exercises the patent rights whether
such person does so under licence from the patentee or as an
infringer. As it seem to me, however, that diminution in profit
is not a loss for which he has any recourse at law. Compare
Bradford v. Pickles [1895] A.C. 587.
The majority of the Court Bastin and Sweet
D.JJ. did not agree with the Chief Justice and at
page 764 Bastin D.J. said:
It can hardly be questioned that the diminution in the volume
of his sales due to sales by an infringer can result in a loss to a
non-exclusive licensee. It might be argued that Parliament
never contemplated compelling an infringer to compensate a
non-exclusive licensee for such de facto damages but intended
to restrict damages for which an infringer is liable to those of a
person whose rights were directly infringed by the particular
act of infringement. On this reasoning, a bare licensee has
merely permission to make use of the patent and, unless his
freedom to exercise this permission is interfered with, he cannot
complain. On the other hand, an exclusive licensee has been
granted a monopoly and an infringement of the patent directly
affects this legal right. This may appear a logical argument but
the answer is that the right of any licensee to collect damages is
purely statutory and, if Parliament had intended to distinguish
between an exclusive and a non-exclusive licence, it would have
made this clear. Since Parliament has made no such distinction,
it follows that all licensees should be treated alike.
Sweet D.J. put his views on the matter in this
way at pages 768-769:
By virtue of section 57(1), the position of the non-exclusive
licensee is advanced beyond whatever rights or benefits he
might have vis-Ã -vis the patentee arising out of the contractual
relationship between them. In my opinion the person infringing
is now liable to a non-exclusive licensee for all damages he
sustains by the infringement to the extent that it encroaches
upon that element of exclusivity as between the licensee and the
infringer previously mentioned.
The situation of a non-exclusive licensee may change from
time to time because of the right of the patentee to grant other
non-exclusive licences which might dilute and diminish the
benefits of the licensee. Even then there would still be a right
under the licence to the non-exclusive licensee which the
infringer would not have unless he also became a licensee. Even
if the infringer should later become a licensee there would still
be the prior period to be considered. In any event, when dealing
with a situation such as this, regard is to be had to the
circumstances as they exist at the relevant time and not as they
might possibly be sometime in the future.
I am of opinion that by section 57(1) Parliament, by apt and
adequate wording, has accomplished and implemented an
intention to create a right in a non-exclusive licensee to recover
from a person who infringes a patent, in respect of any matter
relevant to his licence, damages in compensation for the licen
see's loss by reason of such infringement.
In the result, therefore, the appeal was allowed
and the motion to strike was dismissed.
In Flake Board Co. Ltd. v. Ciba-Geigy Corp. 4 ,
another application to strike, this Court unani
mously held that it was bound to apply the Ameri-
can Cyanamid case and again dismissed the
motion.
Counsel for the appellants in the case at bar
invited us to distinguish the American Cyanamid
and the Flake Board cases on the basis that they
were decisions arising out of interlocutory proceed
ings and were not final decisions on the merits.
Therefore, in his view, the question of the position
of a non-exclusive licensee claiming damages for
infringement is open for consideration and should
be resolved following the reasoning of Chief Jus
tice Jackett although counsel argued at consider
able length that the then Chief Justice erred in
holding that a non-exclusive licensee is a person
claiming under a patentee.
Counsel for the respondent, naturally, disagreed
with this view and put the matter this way in his
memorandum of fact and law:
Although the American Cyanamid case was an appeal from an
order striking out a statement of claim, the issue of law fairly
arising in the decision was the interpretation of section 57 of
the Patent Act and whether a non-exclusive licensee had a right
of action thereunder. The resolution of this issue was necessary
to the determination of the application.
4 (1974) 15 C.P.R. (2d) 33.
Therefore, on the basis of stare decisis this
Court should, in his view, follow the Cyanamid
decision. Alternatively, he said, as a matter of
judicial comity this Court should feel itself bound
by that decision.
The question of the applicability of the principle
of stare decisis to intermediate courts of appeal
was discussed by the House of Lords in the case of
Davis v. Johnsons where Lord Diplock in his
speech said at page 562 of the report:
In my opinion, this House should take this occasion to
re-affirm expressly, unequivocably and unanimously that the
rule laid down in Bristol Aeroplane case [1944] K.B. 718 as to
stare decisis is still binding on the Court of Appeal.
The rule in the Bristol case as summarized in
the headnote is:
The Court of Appeal is bound to follow its own decisions and
those of courts of co-ordinate jurisdiction, and the "full" court
is in the same position in this respect as a division of the court
consisting of three members. The only exceptions to this rule
are:—(1.) The court is entitled and bound to decide which of
two conflicting decisions of its own it will follow; (2.) the court
is bound to refuse to follow a decision of its own which, though
not expressly overruled, cannot, in its opinion, stand with a
decision of the House of Lords; (3.) the court is not bound to
follow a decision of its own if it is satisfied that the decision was
given per incuriam, e.g., where a statute or a rule having
statutory effect which would have affected the decision was not
brought to the attention of the earlier court.
Recent decisions of the Court have required the
question to be considered. In Murray v. Minister
of Employment and Immigration 6 Jackett C.J. at
pages 519-520 had this to say on the subject:
In my view, such a recent decision of this Court, which is
directly in point, should be followed even if, had the members
of this Division constituted the Division of the Court by whom
it was decided, they might have decided it differently. In saying
this, I am not applying the principle of stare decisis, which, in
my view, does not apply, as such, in this Court. I am following
what, in my view, is the proper course to follow from the point
of view of sound judicial administration when a court is faced
with one of its recent decisions. It would, of course, be different
if the recent decision had been rendered without having the
point in mind or, possibly, if the Court were persuaded that
there was an obvious oversight in the reasoning on which it was
based.
In Perry v. Public Service Commission Appeal
5 [1978] 2 W.L.R. 553.
6 [1979] 1 F.C. 518.
Board', the Court speaking through Pratte J.
expressed the view [at page 58] that, despite
doubts as to the correctness of the decision of the
Court in a previous case, for the reasons given in
the Murray case, "Sound judicial administration
requires that the Court, save in exceptional cases,
follow its previous decisions." While this judgment
was reversed in the Supreme Court of Canada, it
was without reasons so that I cannot say that the
principle expressed by Pratte J. has been
overruled.
Similarly, in this case I am of the opinion that,
whether or not the principle of stare decisis applies
to this Court, sound judicial administration
requires that recent earlier decisions of the Court
should be followed. Furthermore, I am unable to
accept appellants' counsel's submission that this
Court is not bound by the decision in the American
Cyanamid case because it was rendered as the
result of a motion to strike the statement of claim
and was not a decision on the merits. The principle
to be derived from the decision is that a licensee,
whether exclusive or non-exclusive, is entitled to
recover damages from a person who infringes the
patent under which he is the licensee, to the extent
that he is able to prove them. That being the
essence of the decision it matters not, in my view,
that it was pronounced in an interlocutory matter
or in the final decision on the merits. That being
so, at this stage of the proceedings, Domco is
entitled to the reference already ordered, to prove
its damages.
If I am wrong in this view of the obligation of
the Court or if the decisions resulting in the obli
gation are wrong, I should, I think, express my
views on the merits of the appeal. In that regard it
is necessary to determine whether section 57 of the
Patent Act provides to a non-exclusive licensee a
right and a remedy against the infringer of a
patent. To decide these questions no great assist
ance can be derived from judgments of the kind
referred to by appellants' counsel, from other juris-
dictions whether relating to patents issued pursu
ant to different statutes, property rights arising
from licences, mortgages, easements or otherwise,
or from decisions relating to alleged tortious activi-
' [1979] 2 F.C. 57.
ties. Whatever the law may be as to the positions
of licensees in relation to these subjects, it has
been modified by statute in so far as licensees
under patents in Canada is concerned. Simply,
section 57 is the section which must be interpreted
and the first matter which must be decided in that
interpretation is whether a non-exclusive licensee
is a person claiming under a patentee. In my view
that question, at least in so far as this Court is
concerned, may be disposed of by reference to the
decision of the Privy Council in Fiberglas Canada
Ltd. v. Spun Rock Wools Ltd., supra, the relevant
excerpt from which was earlier quoted herein. So
far as I am concerned, I agree with the views
expressed by Jackett C.J. in the American Cyana-
mid case [at pages 753-754]:
I cannot, however, think that either Lord Simonds or Davis J.,
with their respective backgrounds in the common law, would
have used the very familiar concept of "licence" to mean only
some very narrow class of licence ....
It is my opinion that, aside from stare decisis or
judicial comity, the interpretation placed on sec
tion 57 by the Judicial Committee is fully support
ed by the plain meaning of the section. That being
so, all of the arguments of counsel that a sub-licen
see is not contemplated by or included in the right
of action accorded by section 57 must fail. In
reaching that conclusion, I am not overlooking the
argument of counsel for the appellants that to
determine the rights of licensees it is to the licence
agreement that regard must be had. While the
agreement cannot be disregarded, it is to the stat
ute that one must look to determine whether rights
which might otherwise flow from the agreement
are affected by the words of the statute. The
section of the statute, in my opinion, clearly
encompasses licensees without regard to the pre
cise nature of the rights given them by their
particular licence agreements.
Appellants' counsel's next argument was that
even if a non-exclusive licensee is a person claim
ing under the patentee, he has suffered no damage
recognized by law in the absence of an invasion of
his legal rights. This theory depends on its validity
for the premise that before damages are recover
able there must be an invasion of the plaintiff's
monopoly. Here, the argument goes, Domco has
been given no monopoly under its licence agree-
ment. Looking at the agreement, he said, the grant
of a non-exclusive licence was merely a promise
between the parties, enforceable only by a suit
against Congoleum in the event of breach. As a
matter of construction, he submitted, as I under
stood him, there was no intention expressed in the
agreement to give rights against third parties, i.e.
there was no exclusivity or monopoly rights trans
ferred enforceable by the licensee as against
infringing third parties.
Domco's reply to this submission, in my view,
answers this contention by referring to the words
of subsection 57(1). The last words thereof, "by
reason of such infringement", are referable to the
words which begin : the subsection, namely "Any
person who infringes a patent." Properly con
strued, when read with the remaining words of the
subsection, what is meant is that a person claiming
under the patentee is entitled to all damages
resulting from infringement of the patent. Once it
is established that a licensee, whether exclusive or
non-exclusive, is claiming under the patentee he is
entitled to any damages which he can prove by
reason of the infringement of the patent not by
reason of a breach of any term of the licence
agreement. Therefore, as I construe it, section 57
gives both a right and a remedy, that remedy being
the recovery of the damages it can prove. The
learned Trial Judge correctly so found.
The appeal should thus be dismissed with costs
as against the appellants and the respondent, Con-
goleum. Although a necessary defendant by virtue
of subsection 57(2) and thus, a proper respondent
in this Court, the Congoleum companies were not
obliged in law to support the appellants as they did
and they should, therefore, bear this share of the
costs as an unsuccessful respondent.
* * *
HEALD J.: I concur.
* * *
RYAN J.: I concur.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.