Bourgault Industries Ltd. v. The Queen, 2006 DTC 3420, 2006 TCC 449, briefly aff'd 2008 DTC 6007, 2007 FCA 373 -- summary under Compensation Payments

A judge of the Federal Court determined that a competitor of the taxpayer had infringed the taxpayer's patents, but did not deal with the taxpayer's claim for damages or for an accounting of profits as this was to be dealt with in a separate hearing. Pursuant to subsequent minutes of settlement, the taxpayer received a lump sum of $6 million dollars from the competitor. In that finding this sum was an income receipt Woods J. noted that the claim of the taxpayer (as evidenced by its brief and memorandum filed in connection with the infringement litigation) was for lost profits rather than damage to its goodwill, that the action of the competitor did not in fact damage the taxpayer's patents in the sense of any diminution in the taxpayer's statutory rights under the Patent Act and that the fact that the parties came to a compromise and settled for an amount that bore no relationship to the profits lost by the taxpayer did not change the nature of the interest of the taxpayer that was settled. Woods J. also noted that if, instead, the competitor's use of the patented technology had been consensual, the arrangement would have been in the nature of a licence, the taxpayer would have been entitled to royalties, and that a lump sum in lieu of royalties generally is income.