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June 18th, 2020
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Court Document Reveals Arctic Cat MY2021 Snowmobile Sales in Canada in Jeopardy

Document shows Arctic Cat lawyer argued an injunction would take AC out of the Canadian market for model year 2021

The Federal Court of Canada has released its Public Judgment and Reasons document on the Bombardier Recreational Products (BRP) and Arctic Cat (AC) patent infringement lawsuit that was decided on July 15, 2020.

The document contains details of the trial and clarification of the judgment, including both the injunction and the damages. The decision clearly prohibits Arctic Cat from selling its snowmobiles that infringe on the patent in Canada.

But exactly which snowmobiles are those? Does it include current models?

That’s the big question, and the parties holding that information aren’t sharing at the moment. However, an argument on record made by Arctic Cat against injunction suggests that the sale of model year 2021 Arctic Cat sleds in Canada could well be in jeopardy.

Before we delve into the contents of the court document, let us first say: we are not lawyers. We’ll do our best to interpret the judgment here, but our interpretation is not going to be perfect. For that reason, we’ll frequently use quotes pulled directly from the document, and let the reader decide. But feel free to read the documents yourself—all combined 349 pages of them. Links to the court documents are provided, and references to specific paragraph numbers of the July 15, 2020 decision will be indicated in brackets e.g. [72]. Here are the official court documents:

Federal Court Decision February 24, 2017 – Bombardier Recreational Products and Arctic Cat

Federal Court Decision June 15, 2020 – Bombardier Recreational Products and Arctic Cat

Secondly, no outcome is certain. While the June 15, 2020 decision does reveal some interesting evidence into the conversation, we’ve already seen a reversal of fortunes play out once in this series of legal contests and the manufacturers may yet have more cards hidden up their sleeve. Even if the decision does pertain to current model year Arctic Cat sleds as suggested by the manufacturer in court, the outcome may yet be appealed, or a settlement otherwise reached.

On last thing to note is that the manufacturers have been mostly quiet about the judgment. There has been one short press release from BRP and a one paragraph statement from Arctic Cat. Both manufacturers have been contacted via email, but neither has been willing to clarify which, if any current Arctic Cat models at all, are affected by the outcome.


So What Is the Lawsuit About?

The patent trial, which was decided on June 15, 2020, is the result of an appeal of an earlier trial that was originally filed in December, 2011. See the Federal Court Decision February 24, 2017 link above for the full document.

In that trial, BRP sought to establish that Arctic Cat had infringed on four patents that pertained to the REV chassis. Three of the patents (Canadian Patents 2,293,106, 2,485,813 and 2,411,964) have to do with a new configuration for a snowmobile, which brings the rider positioning forward. The fourth patent (Canadian Patent 2,350,264) pertains to the frame assembly used in the construction of snowmobiles.

In the initial ten-week trial, the court concluded that the asserted claims of the first three patents (regarding rider-forward positioning) to be invalid and therefore void. As for the fourth patent, the Court found that AC did not infringe the claims asserted by BRP because its snowmobiles did not have one of the essential components of the frame assembly—the “engine cradle”—as it was defined in the trial.

The February 24, 2017 decision was appealed to the Federal Court of Appeal. The judgment on the first three “rider-forward” patents was not disrupted; however, it found fault with the judgment of the fourth patent decision regarding the so-called “engine cradle” and the way it was defined. It was decided that the Arctic Cat snowmobiles did in fact feature an engine cradle. The matter was remitted back to the Federal Court of Canada for a decision on the validity of the patent and judgment of remedies.

 

BRP and Arctic Cat Patent Lawsuit

With the matter remitted back to the Federal Court of Canada, the burden was on AC to satisfy the Court that the fourth patent is invalid. [72] The Federal Court Decision June 15, 2020 link above contains the pertinent information and is referred to moving forward.

Arctic Cat argued that the patent claims were invalid in anticipation of their T/S Mod sled, which was an ice-racing specific model, and that a person of skill in the art would bridge the gap between the T/S sled and the pyramidal frame-assembly in question using common general knowledge.

However, it was noted by the Court that, “The T/S sled can only operate on ice: it is meant to race on ice as the two skates mounted on the frames show. The evidence at trial, including the inspection by the Court of the T/S, was unambiguous: it is built to travel on ice, not on snow.” [82] The patent also pertains to an over-snow specific vehicle, which the T/S sled is not. It also does not feature the “Pyramidal Brace Assembly” at the core of the patent. [86]

The “pyramidal” frame assembly in question in the patent is designed to distribute the weight loaded on the snowmobile and enhance rigidity for improved handling and ability to operate in difficult terrain, and is the cornerstone of the REV platform.

 

BRP Patent 2350264

The pyramidal frame assembly from BRP Patent 2350264

Judgment and Damages

The Court found Arctic Cat unsuccessful in proving that the BRP patent was either anticipated or obvious, and concluded the so-called “Pyramidal Frame Patent” to be valid. [125]

Arctic Cat was found to have sold 20,934 snowmobiles that infringe on the patent up to 2014. Damages were assessed with a royalty of $135 per unit for the use of the pyramidal frame on snowmobiles for a total of $2,860,090. [177]

But what about snowmobiles built after 2014? And why were damages only assessed for up to that year?

According to the court document, March 31, 2014 was chosen as the cut-off because at the time the two parties were not able to agree on the number of snowmobiles sold in contravention of the patent beyond that date. And so the parties sought to refer the question to another court where the matter of damages beyond March 31, 2014 will be determined.

As a result of the decision, BRP is also entitled to pre- and post-judgment interest and costs in addition to the nearly $3M in damages.

Permanent Injunction

First, let’s consider the injunction, and why it was granted. It should be noted that the Patent Act provides specifically for the issuance of an injunction. BRP argued that the only patent infringement case where an injunction was denied shared none of the same factors, and that to refuse a permanent injunction would force BRP into a compulsory license with a major competitor, while undermining the deterring effect of the patent system. [182] In essence, an injunction is almost always granted when a patent is found to have been infringed.

In conclusion of the judgment, the document states:

“It has been found that the 264 Patent has been infringed. On remand, this Court concluded that the challenge to its validity failed. It follows that BRP is entitled to remedies, one of which is a permanent injunction such that an infringer will be enjoined not to infringe any more. It is a remedy that is usually granted. Quoting again Hughes J. in Abbvie “(a)n injunction normally will follow once the Court has found that a patent is valid and has been infringed” (para 35). Declining to grant an injunction is the exception, indeed the rare exception.” [185]

So, Which Sleds Infringe on the Patent?

This leads us to the big question. Which models of Arctic Cat sled are prohibited from sale in Canada? Well, there is no list of models by year or otherwise provided anywhere.

But a clue is revealed in Paragraph 183, which states that Arctic Cat makes a number of arguments against the granting of an injunction, those being amongst others:

“(i) Other snowmobile manufacturers, claims AC, practice the 264 Patent without consequences. The pyramidal frame is said to be of a relatively minor value and it is unfair to single out AC when others use the pyramidal frame.

(ii)  Furthermore, an injunction would cause undue hardship on AC, its business, brand and reputation: in effect, an injunction would take AC out of the Canadian market for the model year 2021. AC also raises the spectre of unemployment in the area where it manufactures its snowmobiles in the State of Minnesota. Canadian dealers would also be adversely affected by an injunction.”

 

BRP Arctic Cat Patent Lawsuit Decision


Conclusion

What can we take from this? A few things, but primarily, that there is no foregone conclusion.

In our opinion, there are several factors that might provide for the sale of current model year Arctic Cat sleds in Canada, despite the ruling:

  1. First and foremost, Arctic Cat may appeal the decision and win.
  2. Possibly, despite what was argued in court, the latest model year sleds are sufficiently different in structure so as not to infringe on the patent. Arctic Cat isn’t willing to confirm one way or the other.
  3. Arctic Cat and BRP could reach some sort of agreement. It’s happened before in our industry that one manufacturer has licensed a “similar” component from another, and we don’t know enough to say that they can’t work around the court decision if both parties want it.
  4. The patent infringement likely does not apply to all MY2021 Arctic Cat sleds; for example the new, mid-sized BLAST models may be exempt, depending on their construction of course. And certainly the ZR120 and ZR200 models, which are significantly different in construction than the full-sized Arctic Cat models, must be.

One other interesting side note is that the patent was filed on June 12, 2001, making it set to expire on June 12, 2021. In Canada, a permanent injunction is normally upheld until the patent expires. The expiration of the patent would have no impact on sales this year of course, but could be a factor down the road.

At this time however, in the absence of any reassurance from Arctic Cat, the most compelling evidence we have as to Arctic Cat’s standing in the Canadian snowmobile market this year is a legally binding decision from the Federal Court of Canada and an AC representative on record suggesting that the injunction will take Arctic Cat out of the Canadian market for model year 2021.

That’s something to consider, but we firmly believe that anything can happen and this decision isn’t the last we’ll hear of this matter. The best outlook for both the industry and Canadian consumers is that somehow Arctic Cat is able to overcome this hurdle and make their sleds available for purchase north of the border, and we certainly hope that will be the case.

 

— MS