Monday, October 22, 2018

Security for Costs Against Foreign Patent Assertion Entity

Safe Gaming System Inc v Atlantic Lottery Corp 2018 FCA 180 Woods JA

Patent assertion entities, often pejoratively referred as patent trolls, are prominent in the US patent litigation landscape, but they have been less prominent in Canada and Europe, at least in terms of cases litigated to judgment. It is often suggested that one reason for this difference is that in the US each party normally bears its own costs, while we follow the English rule for costs. This motion for costs on appeal touches on some of these issues.

Safe Gaming System Inc is “a Wyoming corporation that does not carry on any business and appears not to have assets of material value” [11]. It is therefore a non-practicing entity (NPE), and given that it appears not to have substantial assets, it would appear to be a patent assertion entity (PAE). (NPEs also include entities such as universities, which develop new technology with the intent of licensing it to another for commercialization, but such research organizations typically have substantial assets.) Safe Gaming System brought an action against the Atlantic Lottery Corporation and others alleging infringement of the 238 patent in respect of Nova Scotia's Responsible Gaming technology known as "My-Play”: 2018 FC 542 (blogged here). Safe Gaming System lost, and lump sum costs of $1,175,000 were awarded to the defendants, “payable forthwith”: 2018 FC 871.

Safe Gaming System has now appealed, and Atlantic Lottery Corporation brought this motion seeking security for costs for the trial judgment, plus security for costs on appeal, both to be provided by payment into court, with the appeal to be stayed until such security is provided [5]. The FCA granted the motion [13].

Woods JA held that payment for security for costs at trial is not premature because it has been over a month since the Federal Court fixed costs payable forthwith [9]. Nor was it premature on the basis that Safe Gaming System has appealed the costs award [10].

Safe Gaming System also argued that “the respondents are inappropriately using section 416 of the Rules as an alternative to enforcement under Part 12 of the Rules” [11]. This is the only point where Woods JA referred to Safe Gaming System’s status as an apparent PAE: “it is appropriate to use section 416 in these particular circumstances. The appellant is a Wyoming corporation that does not carry on any business and appears not to have assets of material value” [11].

Finally, Safe Gaming System suggested that it did not have the resources to pay security in the near term. Woods JA dismissed this argument: "I would comment that the appellant had the resources to prosecute lengthy and complex litigation and the Federal Court ordered that the costs be paid forthwith. In these circumstances, greater evidence is needed to demonstrate of lack of resources” [12].

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