The Backstory

In 2011, Bombardier Recreational Products Inc. (“Bombardier”) sued Arctic Cat, Inc. and Arctic Cat Sales, Inc. (collectively “Arctic Cat”) for infringement of four patents relating to Bombardier’s new configuration of a snowmobile, which brings the rider into an improved rider position by moving the rider into a more forward position on the snowmobile. After a ten-week trial, the Federal Court held that the first three patents’ claims were invalid, and that Arctic Cat had not infringed the claims of the fourth patent because its snowmobiles did not have one of the essential elements. On appeal to the Federal Court of Appeal, Bombardier succeeded in persuading the Court that Arctic Cat’s snowmobiles did, in fact, have the essential element previously held missing by the Federal Court, and the case was remitted back to the Federal Court to decide whether the fourth patent was valid.

In its 2020 remand decision, the Federal Court held that the fourth patent was valid, and as part of the relief awarded (which included damages of more than $2.8 million), granted Bombardier a permanent injunction. Such injunctions are normally awarded to patentees who succeed in patent infringement cases. In response, Arctic Cat sought a stay of the judgment from the Federal Court of Appeal, which declined to grant the stay on the basis that irreparable harm had not been established, and the balance of convenience favoured Bombardier.

Arctic Cat argued that allowing the injunction would irreparably harm its competitive position in Canada; permanently harm its Canadian dealer network and relationship with customers in Canada; that serious reputational harm would follow; and that independent Canadian dealers of its products would suffer irreparable harm to their Canadian businesses. The Federal Court of Appeal held that the record was insufficient to prove dealers would have to lay off staff or be forced out of business, noting that “much of the irreparable harm alleged by [Arctic Cat] was self-inflicted and avoidable” because it had failed to make “some sort of contingency plan in case it lost the remand”. The Court also observed that if there was no injunction in place, Bombardier would be deprived of its patent exclusivity, which would be “tantamount to having no patent at all.”

Unsatisfied with the Federal Court of Appeal’s decision on the stay, and the permanent injunction granted by the Federal Court, Arctic Cat and four of its dealers brought two motions before the Federal Court to “vary, supplement, modify or clarify” the injunction order. Immediately after the release of the judgment, Bombardier had written to Arctic Cat’s Canadian dealers to advise them of the injunction that would come into effect by July 6. The letters gave notice of the injunction to the dealers and distributors for the purpose of giving them the knowledge necessary for the injunction to apply to them. For many dealers, this was the first time they learned about the litigation and the injunction.

Arctic Cat’s Motion gets Icy Reception from the Federal Court

Arctic Cat’s motion to vary or clarify the injunction related to three categories of its snowmobiles, namely (1) pre-Model Year 2021 snowmobiles that were owned by and/or in the possession of dealers before the date of the remand judgment; (2) Model Year 2021 snowmobiles owned by and/or in the possession of dealers before the date of judgment; and (3) Model Year 2021 snowmobiles pre-sold to customers prior to the date of judgment to be imported, delivered, and distributed, or to be assembled and prepared for delivery to customers by dealers. In effect, Arctic Cat argued that these particular snowmobiles should be subject to a reasonable royalty, rather than the injunction. However, the third category of snowmobiles had not been “sold”, as they had not yet been built and could still be cancelled with a full refund to the customer of the pre-payment.

The Court observed that the Federal Courts Rules allow variation or clarification of an order where a matter arises or is discovered after the making of the order, but is not a way to appeal or re-argue a matter that was before the Court at the time the order was made. Once the Court makes an order, it is functus officio. Accordingly, only if there is specific, particularized evidence of significant and unforeseeable difficulty in following the injunction terms will it be variable pursuant to the Rules. The Court concluded there was no unforeseen difficulty or ambiguity in the injunction terms that would cause a real difficulty. Arctic Cat could have prepared for the ultimate outcome of the remand decision and told its dealers, but chose not to. There was no ambiguity in the language of the injunction order, merely a disagreement as to what the parties believed was its scope.

The Court explained that the remand judgment did not mistakenly order the destruction of infringing goods apply only to Arctic Cat; as a matter of equity, it would have been inappropriate to order the destruction of snowmobiles possessed by dealers and distributors who had not participated in the proceedings. The injunction would ensure further infringement is prevented, without requiring those snowmobiles be destroyed.

Of Arctic Cat’s reasonable royalty argument, the Court noted it would force Bombardier to accept the royalty rather than enforcement of its monopoly through the injunction, constituting “a deemed or implied license to deal with those snowmobiles whereby the dealers and customers are also free to deal with those snowmobiles with impunity”. The Court also noted the effect of “such a bold proposition” was important to consider from a policy perspective:

No need to fear an injunction because the reasonable royalty, that could have been paid upfront, can now be substituted for the injunction that is customary in cases such as this one, as an injunction should not be granted “only in very rare circumstances”. The monopoly conferred by a patent is gone: moral hazard is a thing of the past, as there is an incentive to increase one’s exposure to risk by infringing on a patent because the infringer will not bear the whole cost. The infringer does not have to abide by an injunction as it can be substituted for a compulsory royalty.

Citing the Federal Court of Appeal in a copyright case, the Federal Court concluded there was no reason to accept Arctic Cat’s argument and effectively impose a compulsory license. Arctic Cat’s motion was therefore denied.

The Federal Court also gives the Dealers the Cold Shoulder

In response to the dealers’ motion to vary or clarify the Order, the Court noted that while there was nothing in the injunction to prevent Bombardier from enforcing it with respect to used snowmobiles sold by dealers and distributors, Bombardier had already informed Arctic Cat and the dealers that it would not do so. In addition, there was no issue with the dealers providing repair and maintenance services and selling “youth snowmobiles”. The dealers’ argument that a royalty should be paid on the snowmobile categories identified by Arctic Cat was rejected as a compulsory licensing argument. Accordingly, the dealers’ motion too, was dismissed. The Court did note, however, that it was “puzzled by the attempt of the dealers to fit into the window” of the Rules, as jurisdiction to vary or clarify an Order is rarely exercised because of the public interest in the finality of judgment and the integrity of the judicial process.

The Court found the motions were a “last ditch effort” dressed up as motions under the Rules to avoid the scope of the injunction. It ordered costs payable forthwith and in any event of the cause to Bombardier, along with reasonable disbursements.

The Takeaway

Once patent infringement is found, a permanent injunction normally follows – the patentee is fully compensated for past infringement with damages, and further infringement is punishable by contempt of court for violation of the injunction. A motion to vary, supplement, modify or clarify an injunction will usually not be granted barring specific, particularized evidence of significant and unforeseeable difficulty in following the injunction terms, or where a truly new matter arises or is discovered after the making of the order.