Proof of causation and loss in cases of perfect substitutability

Where there is perfect substitutability and, as already identified, also where there is imperfect substitutability, causation and measurement of loss cease to be simple matters and the judicial attitudes of the Commonwealth and US diverge. For this reason, the analysis here applies equally to cases of imperfect substitutability. In cases of perfect (and imperfect) substitutability courts engage in elaborate counterfactual analysis of what events would have ensued had infringers not unlawfully competed as they did.81 _{This analysis is largely founded on a re-}

construction of what the patentee’s economic fortunes would have been had no infringement occurred.82 _{As foreshadowed, any such reconstruction of the market}

is fraught with robust imagination and practical difficulties. In British United Shoe Machinery Company v Fussel Sons83, _{on account of user(s)’ substitutability}, _Neville

J acknowledged that mathematical certainty in the computation of damages is impossible because of the need for a reconstruction exercise, reasoning that ‘when

81 _{Peter Strand, ‘Back to Bedrock: Constitutional Underpinning Set “New” Standards for Patent}

Infringement Causation’ (2002) 8 Boston University Journal of Science and Technology Law 375; see also Marion Stewart, ‘Calculating Economic Damages in Intellectual Property Disputes: The Role of Market Definition’ (1995) 77 Journal of the Patent and Trademark Office Society 321.

82 _{See Laura Pincus, ‘The Computation of Damages in Patent Infringement Actions’ (1991) 5}

Harvard Journal of Law and Technology 95; see also Robert Frank and Denise DeFranco, ‘Patent Infringement Damages: A Brief Summary’ (2000) 10 The Federal Circuit Bar Journal 281.

it comes to a consideration of these damages, it is a matter of very great difficulty’.84 _{In the end his Lordship awarded a discretionary sum, reasoning that}

‘it is impossible to arrive strictly at what the damages are, and therefore, that the best thing I can do it to assess them as well as I can’.85

Similarly, in British Thomson-Houston v Goodman,86_{although the defendant had}

infringed the patented lamps, the English High Court was unable to determine the extent of damage in terms of lost sales the infringement had actually cost the patentee. Upon describing, as unfortunate, the patentee’s inability to lost profits, Russell J said ‘I am left in the dark as to evidence which entitles me to say that they have been deprived of any particular amount in respect of the sale by the infringer of these infringing lamps’.87 _{His Lordship then reversed the damages computation}

of £500 of the Master, and in its place awarded the patentee six guineas.

As the ascertainment of causation precedes the determination of loss, the ascertainment of causation in such market states is first addressed. For the purposes of establishing causation, the link or nexus between the infringement and the patentee’s loss, courts customarily rely on what is commonly known as ‘probabilistic causation’. A judicial approach to determining causation is to be probabilistic when it relies on a balance of probabilities to reach a judgment on the cause of economic injury to the patentee.88 _{Probabilistic causation is a}

pragmatic approach to establishing causation such that once it is shown that the wrongdoer caused injury by a given probability, then causation is considered established by that proven probability.89 _{Customarily, in applying probabilistic}

causation, it is usually expected that the claimant should prove causation more likely than not by more than fifty percent (50%) probability.90 _{Thus, for example,}

84 _{Ibid, 208.} 85 _Ibid.

86 _{[1925] RPC 75.} 87 _{Ibid, 78.}

88 _{See Richard Wright, ‘Causation, Responsibility, Risk, Probability, Naked Statistics, and Proof:}

Pruning the Bramble Bush by Clarifying the Concepts’ (1988) 73 Iowa Law Review 1001.

89 _{See Steven Shavell, ‘Uncertainty over Causation and the Determination of Civil Liability’ (1985)}

28 Journal of Law and Economics 587, 589; see also Steven Shavell, ‘An Analysis of Causation and the Scope of Liability in the Law of Torts’ (1980) 9 Journal of Legal Studies 463.

90 _{Sarah Green, ‘The Risk Pricing Principle: A Pragmatic Approach to Causation and}

in Fabio Perini SPA v LPC Group PLC, Norris J required the patentee, Fabio Perini, to show evidence that is more than 50% probable that but for the infringement the loss of profits would not have occurred. 91

Upon determining causation by showing sufficient probability of connection between the infringement and the ensuing loss, the patentee is required to present an analysis of loss suffered. Again, in perfect substitutability situations this is usually uncertain. The courts determine resulting loss based on the market conditions, particularly on account of consumers’ attitudes towards the patented goods. Thus, as reasoned in a recent English case, SDL Hair Ltd v Next Row Ltd:92

Where the quantification of the claimant’s loss depends on future uncertain events, such questions are decided not on the balance of probability but on the court’s assessment, often expressed in percentage terms, of the loss eventuating. This may depend in part on the hypothetical acts of a third party…93

In practice, however, there are two major competing models for determining causation and loss in perfect (and imperfect) substitutability situations: the Commonwealth model, chiefly used in Commonwealth jurisdictions; and the ‘Non- Infringing Alternatives consideration’ model, commonly used in the USA and recently adopted in Canada by the Federal Court of Appeal in Apotex v Merck94 _.