Discretionary Remedies Clarified, and Videotron Ltd Successfully Defends Against Much Litigation-Experienced Rovi Guides Inc.

Discretionary Remedies Clarified, and Videotron Ltd Successfully Defends Against Much Litigation-Experienced Rovi Guides Inc.

Anita Gogia is a IPilogue Writer and a 2L JD Candidate at Osgoode Hall Law School.

In Rovi Guides Inc v Videotron Ltd, the Federal Court of Canada invalided patents for interactive program guide (“IPG”) technology and clarified a reasonable royalty as the appropriate remedy had the patents been found valid and infringed.

Rovi supplies digital entertainment technology, and Videotron is a telecommunications corporation providing cable services and operating primarily in Quebec. IPGs are interactive menus that you may have used to select/search programming listings rather than viewing them on a paper guide.

Rovi’s revenue model is to license a portfolio for a rate without consideration for the number of patents. Videotron did not renew its license which expired in 2016. Videotron claimed they licensed to avoid litigation, and later realized that Rovi’s portfolio is obsolete. Notably, Rovi wanted to double the royalty rate and when Videotron asked Rovi to “identify those patents Rovi considered to have particular value to Videotron and that were specific to its platform.” Rovi did not provide an adequate answer.

Rovi claimed that Videotron infringed four patents, which Videotron counterclaimed were invalid. Rovi’s patents were held invalid due to obviousness and anticipated knowledge in consideration of prior art and knowledge of the skilled person. Rovi’s patents were secured in the 1990s, one of which claims a “focus on a user using a remote device with a limited guide to schedule a recording on a device inside the user’s home”.  The Court held that it was obvious to the industry that IPGs would be prominent in the future and that 1990s were “a period of great innovation in the field of interactive digital audio-visual applications and services.” Therefore, Rovi’s patents were natural developments or obvious extensions.

The Court’s reasoning for denying the remedy of accounting of profits is significant, as not much caselaw has clarified this equitable remedy. Videotron’s products are classified as “complex products” since the patented technology is a small part of the overall value of the product —- not analogous to a pharmaceutical product. With standard patent cases, patentees can be granted ‘accounting for profits’ as a remedy. The availability of such a remedy is questionable with non-standard cases. The deciding factors for awarding an ‘accounting for profits’  are as follows:

  1. Whether there has been undue delay in commencing or prosecuting the litigation
  2. Rovi’s conduct
  3. Videotron’s Conduct
  4. Whether Rovi practiced the invention of the patent in Canada
  5. Complexity of calculating an accounting of profits

First, the Court did not find undue delay by Rovi in pursuing litigation against Videotron.

However, upon examining Rovi’s conduct, the Court found that Rovi operated in bad faith — that Rovi was using “hard-ball legal tactics to pressure third parties to license its patent portfolio” and not disclosing the list of infringed patents to Videotron to prevent them from designing around them. The recognition of “hard-ball” as a characteristic of bad faith conduct is a novel interpretation of a traditional equitable ground.

Second, the judge recognized Rovi’s “aggressive use of litigation to drive risk-avoiding businesses” into royalty deals and took note of Rovi’s delay in prosecuting patents which results in the problem of “holdup”. Granting an accounting remedy in this case would set an undesirable precedent contrary to the purposes of IPR as it gives patentees leverage in negotiations where the royalty would reflect the value of avoiding litigation, rather than the value of the technology itself.

Third, Rovi claimed that Videotron wilfully infringed their patents, however, the judge concluded that Videotron refusing to renew their agreement was actually based on a “reasonable assessment of the necessity of the patents”.

As the court considered the fourth factor neutral, it moved on to an interesting analysis of the complexity of calculating an accounting of profits — that inventors are entitled to that portion of which is causally attributable to the invention. However, patentees seeking an accounting remedy must provide a sound and reliable way to calculate profits. Here, the Courts found that Rovi’s proposal for calculating Videotron’s profits complex and unreliable, said to be based on “insufficient, speculative, and contradicted” evidence. The court noted caselaw describing that “the inventor is only entitled to that portion of the infringers’ profit which is causally attributable to the invention, i.e. ‘perfect compensation’.”

Instead, the Court accepted Videotron’s proposal of the appropriate remedy as a “one-time reasonable royalty, capped at no more than Videotron’s cost to remove or design-around the subject-matter of the relevant asserted patent claim.” It was a safer approach to argue a reasonable royalty cap of $150,000 per feature based on design-around rather than arguing that the royalty was zero, since the non-infringing alternative is to remove the IPGs all together.