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Federal Court Holds That Design and Promotional Activities for FLNG Facility Did Not Infringe Canadian Patent

Overview

The Canadian Federal Court’s recent decision in Steelhead LNG (ASLNG) Ltd. v. ARC Resources Ltd., 2022 FC 998 (“the Decision”) held that mere design and promotional activities for a floating liquefied natural gas (“FLNG”) facility did not infringe a patent for inventions related to at-shore liquefaction of natural gas. Nevertheless, the Decision illustrates the need for vigilance against the risk of patent infringement claims during the development stages of industrial facilities.

Background

Steelhead LNG (“the Plaintiffs”) were the owner and licensee of Canadian patent no. 3,027,085 (“the 085 Patent”), which claimed inventions related to at-shore liquefaction of natural gas. ARC Resources Ltd. et al. (“the Defendants”) were a consortium of natural gas producers pursuing LNG export opportunities. Before the 085 Patent application was filed, the consortium hired an engineering, procurement and construction firm to prepare a preliminary Front End Engineering Design (“pre-FEED”) study for an FLNG facility. After the 085 Patent application published, the group disclosed the pre-FEED study or a high-level summary of it to potential investors, LNG off-takers and contractors. The Defendants also entered into an agreement with a developer to develop a FLNG project, but did so without any reliance on the pre-FEED study. After the 085 Patent issued, the Plaintiffs commenced a patent infringement action against the Defendants, alleging that the Defendants’ design, development and marketing activities infringed the 085 Patent. The Defendants brought a motion for summary trial to dismiss the patent infringement claim.

Issue

The Canadian Patent Act provides a patent holder with the exclusive right of making, constructing, selling and using a patented invention. The Defendants conceded the pre-FEED study included a FLNG facility design that would infringe the 085 Patent if the design were made. The Plaintiffs acknowledged that the Defendants had never made, constructed or sold the invention claimed in the 085 Patent, but argued that “using” a patented invention includes any activity that delivers a commercial benefit to the alleged infringer. In this regard, the Plaintiffs asserted that the Defendants presenting the pre-FEED study to third parties was an infringing use of the patented invention which allowed the Defendants to gain credibility in the LNG field, leading to the business relationship with the developer. The Defendants replied that the Plaintiffs’ arguments blurred the distinction between patent rights and copyright, attempted to redraft the 085 Patent to include design of the inventions, and alleged only non-actionable “paper” acts.

Court’s Findings

In order to decide the issue, the Court first interpreted the claimed inventions of the 085 Patent as requiring a water-based apparatus including a floating hull, storage tanks and a refrigeration system for converting feed gas to LNG. Infringement of the 085 Patent therefore required an actual physical apparatus, and not merely a drawing of one. As no such apparatus existed in Canada, the Court found that the Defendants did not use the claimed inventions. Rather, the Defendants’ promotional activities amounted to non-infringing “paper offers” at most. The Court distinguished these activities from previous cases that found infringement on the basis that the patented invention was actually made, in the alleged infringer’s position, and exposed for sale.

Takeaways

Parties involved in developing an industrial facility (e.g. a processing plant, refinery or factory) may take comfort in the Decision insofar that it supports the view that design and promotional activities alone for a proposed facility do not infringe a patented invention requiring a physically existing apparatus. Even so, the risk of patent infringement claims cannot be ignored as the risk may be realized when the facility is constructed and used. One way to address this risk is to conduct a “freedom-to-operate” search for patents that may be relevant to a proposed facility, and assess whether the proposed facility would infringe those patents. Performing such an assessment at an early design stage may allow for greater opportunities to select a non-infringing design option, whereas design changes may become impractical at later design stages. If the assessment concludes that a proposed design cannot avoid patent infringement, then the validity of the patent can be assessed and obtaining a patent licence can be considered.

Patent holders must be mindful that their patents might not be infringed until the potential infringer constructs a patented apparatus or practises a patented method. In certain cases, patent holders may seek an injunction to prevent imminent infringement of patent rights, but obtaining such an injunction may be difficult. If possible, patent applicants may keep a patent application pending while monitoring promotional activities of the potential infringer. In this way, patent applicants might revise pending patent claims to capture the proposed design of the potential infringer and better position an issuing patent for a patent infringement action when the facility is constructed and used.