Date: 20040728
Citation: 2004 FC 1046
Ottawa, Ontario, the 28th day of July 2004
Present: THE HONOURABLE MR. JUSTICE SHORE
BETWEEN:
CARBO CERAMICS
Plaintiff
and
CHINA CERAMICS PROPPANT LTD.
Defendant
REASONS FOR ORDER AND ORDER
INTRODUCTION
[1] What you see, is what you get! A prima facie case is made; a first blush reason for a serious issue to be tried is recognized. A patent infringement can be made to appear like an astute new product entry; it, seemingly, relies on competitive market forces simply to play themselves out.
Herein lies the paradox of a free market economy; a determined choice is made to protect registered intellectual property. If such protection is warranted for the infringement of intellectual property, then the potential for irreparable harm and the balance of convenience must be determined in its link to the serious issue to be tried. The answer awaits the trial to come...
JUDICIAL PROCEDURE
[2] This is a motion wherein the Plaintiff seeks an interlocutory injunction to prevent the Defendant from marketing and selling ceramic proppant, which is being sold under the name "LinhaiProp/Linhai Proppant" until the trial of the Plaintiff's claim of infringement of its Canadian patent.
BACKGROUND
[3] Proppant is used in the oil and gas industry. Oil and natural gas are produced from wells having porous and permeable subterranean formations. Permeability of the formation is essential to permit oil and gas to flow to a location where it can be pumped from the well.
[4] At times the permeability of the formation is insufficient for economic recovery of oil and gas. In such cases, it is necessary to fracture the formation and prop it open by means of proppant material. The proppant is particulate materials such as sand, glass beads, or ceramic particles, which is carried into the fracture in a liquid slurry.
[5] Essentially spherical particles of uniform size are generally acknowledged to be the most effective proppants due to their maximized permeability. Rounded sand grains, metallic shot and glass beads are all essentially spherical, however, in practice they are ineffective because the high pressures encountered in a deep well unduly decrease their permeability.
[6] The Plaintiff, Carbo Ceramics, (the "Plaintiff") invented a ceramic proppant. The Plaintiff patented this invention, which was issued on February 16, 1988. The Patent expires February 16, 2005.
[7] The Plaintiff's proppant proved to be more effective than the more commonly used sand proppant because it could withstand the high pressures created in deep wells. The permeability was thus higher, and the subterranean flow rate was far better than that of sand proppant.
[8] Since its introduction to the market, the Plaintiff's ceramic proppant has become widely accepted within the oil and gas industry. As a result, the Plaintiff has enjoyed great success in marketing and selling ceramic proppant in Canada.
[9] Over the last ten years, the Plaintiff has held between 70% and 90% of the Canadian market for ceramic proppant. Prior to the Defendant's sales of his own ceramic proppant in Canada, the Plaintiff's only competitor was the company "Norton Proppant". Norton Proppant does not sell into the lightweight ceramic proppant market, as does the Plaintiff, and thus is not in direct competition with the Plaintiff.
[10] The Plaintiff has invested in research and development in order to create its proppant. This cost is rolled into the price of the Plaintiff's products.
[11] The Defendant, China Ceramic Proppant Ltd. (the "Defendant"), is a small corporation, with a sole shareholder and two directors. It was incorporated in Alberta on June 11, 2002. It sells ceramic proppant to the oil and gas industry in Canada, which is manufactured by Guizhou Linhai New Material Manufacturing Co. Ltd. ("Guizhou Linhai"), a company located in China.
[12] The Defendant sells its product about 4-6 cents less per pound than the Plaintiff.
[13] At present there are six corporations that use proppant. One of those corporations has almost ceased purchasing the Plaintiff's ceramic proppant in favour of that of the Defendant's.
ISSUES
[14] Is there a serious issue to be tried?
[15] Would the Plaintiff suffer irreparable harm should the Court refuse to grant an interim injunction?
[16] Who does the balance of convenience favour?
ANALYSIS
Test for Interlocutory Injunction
[17] Both parties agreed that, in accordance with R.J.R.-MacDonald Inc. v. Canada (Attorney General),[1] in order to be granted an interim injunction the Plaintiff must establish: there is a serious issue to be tried, the Plaintiff would suffer irreparable harm should the Court refuse to grant the interim injunction, and that the balance of convenience favours the Plaintiff.
Is there a serious issue to be tried?
[18] In this case, both parties agree that the Plaintiff has established a serious issue to be tried.
[19] The Plaintiff filed evidence with the Court of the chemical composition of the two proppants which demonstrated that the properties of the Defendant's proppant falls squarely within Claim 1 of the Plaintiff's Patent. Because there is a presumption that a patent is valid once it has been issued,[2] the Plaintiff has established a prima facie case for infringement.
[20] The Defendant questions whether the results of the Plaintiff's analysis of the chemical composition of it's proppant is accurate, in particular taking issue with the chain of continuity, given that the Plaintiff's sample of the Defendant's product passed through several hands before being tested. It furthermore argues that the patent itself is invalid because it is obvious and/or overbroad. Although this was ably argued during the motion, as the Defendant himself conceded, these issues can only be addressed at trial, on a full assessment of the merits. As such, there is no question that there is a serious issue to be tried.
Would the Plaintiff suffer irreparable harm should the Court refuse to grant an interim injunction?
[21] Both parties agreed during the hearing that the case largely turned on the question of irreparable harm. The Plaintiff presents two submissions: the Defendant would be unable to pay damages were the Plaintiff to be successful, and the Defendant is "springboarding" into the marketplace.
Defendant unable to Pay Damages
[22] The Plaintiff submits that the Defendant would be unable to pay should damages be awarded against it. In response to this allegation, the Defendant has submitted a letter of undertaking from Guizhou Linhai, the Defendant itself has submitted a letter of undertaking, and it has filed a balance sheet that indicates that it has $132 000 of assets and capital in Canada.
[23] The Plaintiff however, does not accept these undertakings nor the balance sheet. During the hearing, the Plaintiff filed evidence that Guizhou Linhai does not have any assets in Canada. As the Plaintiff indicated during the hearing, an undertaking is not a bond, and without assets in Canada, the Plaintiff cannot compel Guizhou Linhai to fulfill its commitment. The undertaking is therefore of little value.
[24] The Defendant's undertaking, moreover, is hollow, given that the Defendant has not shown that it could pay an award made against it. It notes that the Defendant filed a motion before this Court, requesting that the Director represent it. In an affidavit filed on behalf of that motion, the Defendant's Director stated that it does not have the means to hire a patent lawyer to contest what could become a costly action against it. The balance sheet was prepared by one of the Defendant's directors, and not by a neutral third party.[3] Moreover, the Defendant provided no evidence to support the figures found on the balance sheet, and under cross-examination the Director of the Defendant refused to allow the Plaintiff to contact third parties who could confirm that the assets as stated on the balance sheet were correct.[4] As such, the balance sheet was considered meaningless to the Plaintiff.
[25] The Plaintiff also noted that the Defendant owns no real property in Canada and has no employees. A court order requiring the Defendant to pay damages would be effectively unenforceable.
[26] The Court deems that the undertaking of the Guizhou Linhai is insufficient, because it has no assets in Canada.
[27] The Court deems that there is insufficient evidence that the Defendant would be able to discharge an award made against it. The Court does not find the Defendant's Director's affidavit attesting to constrained finances dispositive. The Court rejects the Plaintiff's contention that the Defendant is not credible; the Defendant indicated that it's finances are constrained, but it has not indicated that it could not pay any damages.
[28] Nevertheless, given that the Defendant has admitted to being under economic constraints, it is incumbent on the Defendant to demonstrate that it has sufficient assets and capital to fulfill an award of damages. The Court agrees with the Plaintiff that the balance sheet, prepared by a Director of the Defendant, without supporting evidence, is insufficient evidence to demonstrate that it would be able to pay a damages award. The Plaintiff has therefore demonstrated irreparable harm.
Springboarding
[29] "Springboarding" is used to describe the situation in which the party holding the patent loses a part of the market share due to a breach of a patent in anticipation of expiry of the patent. The patent infringer is allowed to take unfair advantage of the situation, as it "ramps up" before the expiration of the patent.[5]
[30] In the case at bar, the Defendant entered the market near the end of the life of the patent, thus squarely raising the issue that it is springboarding into the marketplace.
[31] An employee of the Plaintiff attests that the Defendant is selling ceramic proppant to one of the Plaintiff's clients and that the client has virtually stopped buying proppant from the Plaintiff. The Defendant does not dispute this claim, nor does it make any arguments that it is not, in fact, springboarding into the market.
[32] The Court deems that the Defendant is springboarding and as a result is obtaining an advantage for which an award of damages would be insufficient.
Who does the balance of convenience favour?
[33] Several factors favour the Plaintiff on the issue of balance of convenience: the Plaintiff has given an undertaking in damages, the Defendant entered the market knowing that the Plaintiff held the Patent, and the Plaintiff has expended a considerable sum of money on the research and development of its ceramic proppant.
[34] On the other hand, however, should the injunction be granted, it would undoubtedly cause irreparable harm to the Defendant. The sole shareholder and president of the Defendant attests:
An interlocutory injunction will cause the Defendant significant financial hardship, as ceramic proppant is the only product that the Defendant sells, and the Canadian market is the only market in which the Defendant has set up business operations. In fact, if the injunction is granted, it would likely force the Defendant to permanently cease business operations altogether.[6]
[35] It appears, therefore, that the balance of convenience favours neither one side, nor the other. In such cases, the jurisprudence has established that the status quo should be preferred.[7] The status quo does not mean that the situation, as it was immediately before the motion is brought, should not be tampered with, but rather, means that the infringer should not be allowed to continue in the marketplace.[8] Thus, the balance of convenience favours the Plaintiff.
CONCLUSION
[36] The Court grants the interlocutory injunction sought by the Plaintiff.
ORDER
THIS COURT ORDERS that an interlocutory injunction be granted to prevent the Defendant from marketing and selling ceramic proppant, which is being sold under the name "LinhaiProp/ Linhai Proppant" until the trial of the Plaintiff's claim of infringement of its Canadian patent.
"Michel M.J. Shore"
Judge
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-909-04
STYLE OF CAUSE: CARBO CERAMICS
v.
CHINA CERAMICS PROPPANT LTD.
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: July 22, 2004
REASONS FOR ORDER
AND ORDER BY: The Honourable Mr. Justice Shore
DATED: July 28, 2004
APPEARANCES:
Mr. Christopher C. Van Barr FOR THE PLAINTIFF
Mr. Trevor M cDonald FOR THE DEFENDANT
SOLICITORS OF RECORD:
Gowling Lafleur Henderson FOR THE PLAINTIFF
Ottawa, Ontario
Nelligan O'Brien Payne FOR THE DEFENDANT
Ottawa, Ontario
[1] [1994] 1 S.C.R. 312.
[2] Patent Act, R.S.C. 1985, c. P-4, s. 48.
[3] Transcript of Cross-Examination, at pp. 47-48.
[4] Transcript of Cross-Examination, at pp. 73-79.
[5] Hot Spot Fishing & Lures Ltd. v. O'KI Tackle Mfg. Ltd., [1990] F.C.J. No. 100 (T.D.), Baker Hughes Inc. v. Galvanic Analytical Systems Ltd., [1991] F.C.J. No. 826 (T.D.).
[6] Respondent's Motion Record, Affidavit of (Victor) Sing Ma at para. 44.
[7] Turbo Resources Ltd. v. Petro Canada Inc., [1989] 2 F.C. 451, [1989] F.C.J. No. 14 at para. 28 (C.A.).
[8] Lubrizol Corp. v. Imperial Oil Ltd., [1989] F.C.J. No. 27 (T.D.), var'd [1989] F.C.J. No. 816 (C.A.) (not on this point).