Friday, January 13, 2017

A Costs Cornucopia

Mediatube Corp v Bell Canada 2017 FC 6 Locke J
            2,339,447 / Internet Protocol Televsion / Fibe TV, FibreOp

In his decision, Locke J held that the plaintiff NorthVu’s ‘447 patent (Mediatube is the exclusive licensee), was valid but not infringed by Bell’s products. However, the infringement action fell apart halfway through the discovery process, if not sooner, with the result that the main thrust of the decision was more about allocation of costs rather than about patent infringement [7]. While no new principles of law were applied, the decision is important on costs simply because it is unusual to see so many requests for elevated costs considered, and several actually granted. This post focuses on a few of the more interesting costs issues. These turned generally on Rule 400(3) and particularly Rules 400(3)(i), which relates to conduct which tend to “unnecessarily lengthen the duration of the proceeding,” and (k) which relates to steps which are “improper, vexatious or unnecessary,” or “taken through negligence, mistake or excessive caution.” The overall message is that there will be costs consequences against a patentee for proceeding with a claim that it should have known was without merit.

Corrected Information

The first costs argument was based on the fact that Bell changed some of its discovery answers relating to the details of how its products worked (the “Corrected Information”). The main changes were first made in January 2016, about eight months before the hearing, but further clarifications were made over the subsequent months, including some information that was provided during trial [7], [204], [212]. The information bore significantly on the plaintiffs’ theory of infringement, and the plaintiffs sought costs in any event of the cause due to the late corrections [8], [203], arguing that they were denied the opportunity to withdraw their infringement claims or negotiate a settlement, and thus avoid the expense of a trial [210], [231]. 

Locke J rejected this for several reasons acting cumulatively. First, Bell had acted in good faith, as it could not have been expected to understand the significance of the Corrected Information prior to full disclosure of the plaintiffs’ theory of infringement, in December 2015 [232]. Ideally, of course, the information would have been accurate in the first place, but Bell provided the Corrected Information as soon as it became aware of the significance of the issue. Second, even if the Corrected Information had been produced correctly in the first place, the earliest it would have been received was September 2015, only a few months before it was actually received, and there is no reason to believe this few months made any real difference in the plaintiffs’ decision making [211]. Third, there was something of an inconsistency in the plaintiffs position that it would have settled had it known the Corrected Information earlier, and the fact that it pressed ahead with the trial even after receiving the Corrected Information. The plaintiffs argued that they went ahead because they doubted the accuracy of the Corrected Information. Locke J rejected this, saying if this were true, they would have sought further examination to verify it, and the information provided after the initial correction was in the nature of clarification rather than corrections [212]. And in the end the Corrected Information made no difference to the infringement holding. Bell’s system lacked four distinct essential elements from Claim 1, and the absence of even one of elements would have been determinative: “Cumulatively, the case for non-infringement is so compelling that I am not prepared to accept that the plaintiffs had a reasonable belief that they had a good arguable case before receiving the Corrected Information” [234].

Knowledge of non-infringement

Things did not go entirely smoothly on the other side either. During trial and in closing argument, the plaintiffs acknowledged that none of Bell’s commercially available products infringed. Two Bell products were at issue: FibreOp TV, offered by Bell Aliant, and Fibe TV, offered by Bell Canada. (These are now a single entity, so Bell Canada was the only defednant.) The plaintiffs acknowledged in the middle of trial that Bell Aliant’s product did not infringe [9]. And in oral argument the plaintiffs acknowledge that Fibe TV as offered did not infringe either. After these concessions, all that remained was a “vestige” infringement issue, that Fibe TV could be modified so as to infringe by removing certain components [10]-[12], [181]. (The vestige argument ultimately failed as well [223]). Bell asked for elevated costs on the basis that the plaintiffs had unreasonably pursued the case when they knew Bell was not infringing. Bell was (at least) partially successful on this point.

In respect of the Bell Aliant product, Bell asked for solicitor-and-client costs, and while Locke J refused that request, he did grant 50% elevated costs [253], “because the plaintiffs commenced and pressed forward with their claim against Bell Aliant in the face of information indicating that Bell Aliant was not infringing” [253]. As noted above, the Corrected Information was not crucial in this regard: “the plaintiffs had the information necessary to conclude that Bell Aliant’s system does not infringe the 477 Patent in February 2016" [252]. Locke J continued:

I would be more understanding of the plaintiffs’ perseverance with the case against Bell Aliant if there were not four distinct claim elements missing in Bell Aliant’s system and if the system described in the 477 Patent was not so different from Bell Aliant’s. Based on the contortions of the claims in issue that would be required in order to find infringement, the plaintiffs should have known that Bell Aliant did not infringe.

While Locke J does not say so explicitly, the word “contortions” implies that the problem was not just that the plaintiffs should have known that Bell Aliant’s system probably did not infringe. It seems that something more is required, but the precise test – unreasonableness, perhaps? – isn’t clear. While the plaintiffs lost fairly comprehensively on claim construction, some of their arguments were at least prima facie reasonable, though perhaps cumulatively it might have been unreasonable to believe that they would prevail. Locke J did not make any explicit finding as to the reasonableness of the plaintiffs' claim construction argument, and it is hard to independently assess the merits, in part because the infringement discussion is quite heavily redacted. But the fact is that plaintiffs had admitted non-infringement in respect of all the commercial products during trial, prior to knowing how Locke J's would construe the claims, so it could not have been that close.

Locke J also granted elevated costs in respect of the infringement claims relating to Fibe TV:

[256] the plaintiffs commenced the present patent infringement action against Bell Canada without a clear theory of infringement, and the theory they did eventually form was weak. Just as with regard to the case against Bell Aliant, the contortions of the claims in issue that would be required in order to find infringement indicate that the plaintiffs should have known that Bell Canada did not infringe.

The term “should have known” implies a balance of probabilities, while the word “weak” and, again, “contortions” and implies something more like unreasonableness. Taken as a whole my sense is that elevated costs would not have been granted if the infringement case had been close, even if the patentees had expected they would probably lose.

I am not sure of the exact extent of the costs order. The plaintiffs had made two different admissions of non-infringement relating to two different aspects of Bell Aliant’s system, and Locke J held that costs should not be elevated with respect to one of those aspects: “it is not unusual or improper for a party to cast the net broadly in formulating its infringement allegations and then to narrow them after obtaining information during discovery” [251], and Locke J held that Bell's costs "should not be elevated" in respect of that allegation, until December 2015. However, the judgment itself ordered costs “elevated by 50% for all issues except the punitive damages claim which are to be calculated on a solicitor-and-client basis.”

Allegations of dishonesty

The plaintiffs had made allegations in their Statement of Claim in support of a claim for punitive damages, and a great deal of time and effort was spent on this issue [257]. This allegations were based on the fact that there had been early negotiations between the parties regarding the patented technology, which had ultimately gone nowhere. Without stating as much expressly, the allegations implied that the defendants had breached an agreement with the plaintiffs, misused the plaintiffs’ confidential information, or misappropriated the plaintiffs’ property [262]. In effect, the plaintiffs alleged that the defendants had refused to licence the plaintiffs’ technology, and had then gone ahead and based their product on it [3]. On a motion to strike, Prothonotary Milczynski had referred to the allegation as being that Bell had “betrayed” the relationship [262]. Locke J accepted that the allegations amounted to an allegation of betrayal, and that is effectively an allegation of dishonesty [263].

These allegations, along with the the claim for punitive damages, were withdrawn, and Bell sought elevated costs on the basis that the allegations on which the claim for punitive damages were founded “created the false impression of misconduct or impropriety by Bell” [260]. Relying on Open Window Bakery 2004 SCC 9, [26], which held that solicitor-and-client costs are appropriate when a party makes allegations of fraud or dishonesty, with access to information sufficient to conclude that the other party was neither dishonest nor fraudulent, Locke J held that on the facts, solicitor-and-client costs were warranted. The allegations were not only withdrawn, they were withdrawn based on the plaintiffs’ own evidence [264]; the plaintiffs admitted that they overstated Bell’s acts, and they acknowledged that they had information sufficient to conclude that Bell was neither dishonest nor fraudulent [264]. The evidence established that they had that information prior to commencement of the action, and moreover they were made aware very early of the cost consequences that would follow if the allegations were shown to be unwarranted [266].

As an aside, Bell referred to both “full indemnity costs” and also “solicitor-and-client costs,” treating these terms as synonymous. Locke J treated this as a request for solicitor-and-client costs, leaving aside the question as to whether the terms are actually synonymous [258]. 

Trolls

Finally, the plaintiffs sought aggravated costs against Bell because in its Statement of Defence Bell had referred to the plaintiffs as “patent trolls” [236]. Locke J denied this request, noting that while the word “troll” is “not complimentary,” and while the patentees were not in fact trolls, Bell’s statement to that effect was not an allegation of fraud or dishonesty, but rather a statement of its opinion that the plaintiffs’ infringement allegations were meritless [239]-[240]. So, it would seem that simply calling a patentee a troll is not in itself grounds for awarding elevated costs.

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