Monday, September 28, 2020

Ovrebreadth Argument Rejected as Being Akin to the Promise Doctrine

Eli Lilly Canada Inc v Apotex Inc 2020 FC 814 St-Louis J

2,492,540 / tadalafil / CIALIS ADCIRCA

In this case, Lilly asserted that the processes used by Apotex to make tadalafil infringed Lilly’s 540 process patent. In addition to non-infringement, Apotex argued that the 540 patent was invalid for anticipation, obviousness, lack of utility and overbreadth. St-Louis J held that while the 540 patent would be infringed if it were valid, it was invalid for anticipation and obviousness, though the attacks based on lack of utility and overbreadth failed [204]. So far as I can tell, the holdings of invalidity on the basis of anticipation and obviousness turned on the facts and not on any point of law, though I have to say that the facts were quite complex and it is possible that I missed an issue.

There were a few other points of interest: (1) St-Louis J rejected an overbreadth attack as being akin to the promise doctrine; (2) there was a discussion of the presumption relating to process patents; and (3) there was a discussion of obvious errors in a claim, which related to the utility argument.

Overbreadth

Apotex argued that the 540 patent was overbroad on the basis that a particular (redacted) solvent has been tested and found not to work, but the disclosure nonetheless stated that it was useful [350].

St-Louis J rejected this argument, saying:

[356] The way that Apotex articulated the allegation of overbreadth in this case appears indeed very akin to the promise doctrine, abolished in AstraZeneca SCC. What Apotex really asks the Court to do is to parse the disclosure, conclude that [redacted solvent] promises to be useful for the PSR, import [redacted solvent] into Claim 1 in the absence of any ambiguity, and strike Claim 1 as a result.

She noted that the SCC in AstraZeneca SCC warned against this, and stated that “As such, the doctrine of overbreadth should not be applied in the manner suggested by Apotex, akin to the promise doctrine” [358].

St-Louis J’s comments strike me as entirely sound (with the caveat that her description of Apotex’s argument at [350] is very brief, so that can’t assess for myself her characterization of it at [356]). I have a paper on “Overbreadth in Canadian Patent Law” forthcoming in the IPJ, in which I argue that the approach to overbreadth adopted in Amfac (1986), 12 CPR (3d) 193 (FCA) “if widely adopted, risks invalidating patents for inventions which are new, useful and non-obvious, on the basis of an arbitrary parsing of the disclosure, in a manner reminiscent of the promise doctrine.” A draft version is available on SSRN (note that this draft was updated on 10 June from the first SSRN version). In that paper, I also show that overbreadth is almost always redundant, as merely restating a statutory ground of invalidity (most commonly lack of sound prediction of utility). In this case, if I understand Apotex’s argument correctly, it would appear that the preferable statutory basis for the attack would have been s 53(1); if St-Louis J had allowed the attack to go forward on the basis of overbreadth, this would have side-stepped the statutory requirements and related case law requiring wilfulness and materiality.

Presumption regarding a process patent

The 540 patent is a process patent, and Lilly argued that the burden should be reversed, so that Apotex would have to prove non-infringement on the basis of s 55.1, which provides that when the claim is to a process for obtaining a “new product” it should be presumed that the product was produced by the patented process. Lilly wished to argue that “new” meant that the product had not been sold on the market before, while Apotex argued it mean “new” in the sense of being previously known, whether or not it had received marketing authorization: [37], [38]. The prior caselaw at the FC level is against Lilly, which therefore did not press the point, but merely sought to preserve its rights on appeal [41].

Lilly also argued that the burden should be reversed on the basis of the common law rule that is more or less to the effect that “when the subject-matter of the allegation lies particularly within the knowledge of one of the parties, that party must prove it, whether it be an affirmative or negative character” [42]. The exact nature of the common law presumption is unsettled. In Cefaclor, 2009 FC 991, [221], Gauthier J held that the presumption would have applied “given the particular circumstances of this case,” if “Lilly had taken reasonable steps to obtain this information.” St-Louis J relied on this to hold that the presumption did not apply because there was the evidence did not alow her to conclude “that Apotex did not diligently seek to provide the requested process documents, nor that Lilly diligently sought further information from Apotex” [45]. This is reasonable enough as an application of Gauthier J’s holding to the facts of this case, though the caveat in Cefaclor regarding “the particular circumstances of this case,” suggests that the holding might be a fairly narrow one. It will be interesting to see how this line of reasoning develops in future cases.

Obvious Error in the Claim

Claim 12 had an obvious error. It read:

12. A method of preparing [tadalafi] comprising the steps of: . . .

(b) reacting [C] with [D] to provide [E];

            (c) reacting the product of step (b) with [F] and [G] to provide [E]; . . .

The product of step (b) is E, so reacting it with F and G would clearly not provide E. In fact, step (b) would not produce E, but rather a different compound, not otherwise mentioned in the claim [197]. The claim was otherwise correct, so that carrying out step (c) on the product of step (b) would indeed produce E.

It appears Apotex acknowledged that the error was obvious [343], and St-Louis J found on the facts that indeed a skilled person “would understand Claim 12 to bear [sic] a mistake, and would make tadalafil by following the sequence of actions” [349]. Nonetheless, Lilly did not ask the court to correct the error [197], [347]; instead “they are asking the Court to simply accept the evidence of the experts providing how a skilled person would read Claim 12c. Essentially, Lilly argue that the skilled person understands the error and accordingly understands the scope of the claim, which accords with the purposive approach construction” [197]; and see [347].

There is ample authority holding that an obvious error this type will not affect the construction of the claims: see eg Procter & Gamble (1979), 42 CPR (2d) 33, 36-37 (FCA); Cefaclor 2009 FC 991, [159]; Lovastatin 2010 FC 1265, [99]. Varco 2013 FC 750; Azithromycin 2005 FC 1421, [36]. The notion that the claim is not being “corrected” but merely read as a skilled person would read it is a technical distinction which is somewhat difficult to grasp.

In Procter & Gamble at 37 the FCA simply held that “the claims should be interpreted in the only way that makes sense”; in Cefaclor at [159] Gauthier J stated that a skilled person would “understand” the claim to apply as it should have been written; in Lovastatin at [99], Snider J held that the error “would not change the meaning ascribed to the phrase by the skilled addressee”; in Azithromycin at [36] Mosely J stated that the incorrect word in the claim is a typographical error “and is of no moment.” These statements are all a bit ambiguous as to whether the error was being “corrected” or rather that the claim was being read as a skilled person would read it. Phelan J in Varco at [336], on the other hand, expressly held that the error would be corrected: “[the plaintiff’s expert] opined that a Skilled Person would see the error and make the necessary corrections; and would not be confused or misled. [The defendant’s expert] all but admitted the same. Even a judge hearing this case could see the error and make the correction” (my emphasis).

In any event, a person untrained the law would say that an obvious error in the claim will be corrected. Even for a lawyer, that’s the easiest way to remember the rule. However one phrases it, the rule is very well established, with St-Louis J’s decision adding to the already ample authority.

 

Friday, September 25, 2020

Time to Relegate IG Farbenindustrie to the Dustbin of History

 Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC 2020 FC 816 St-Louis J

            2,371,684 / tadalafil / CIALIS ADCIRCA

Yesterday’s post discussed the issues raised by the anticipation analysis of this decision. This post discusses the issues related to selection patents.

To repeat the background from yesterday’s post, Lilly markets 2.5mg, 5mg, 10mg and 20mg strengths of tadalafil for the treatment of erectile dysfunction [11]. The defendants in this action are various generics that want to sell tadalfil in those dosage forms [13] The asserted claims of the 684 patent are to dosage forms of tadalafil for treating ED, namely doses from 1 to about 20 mg, as well as specific doses within that range, including 2.5, 5, 10 and 20 mg doses: [197-213].

The question in this case was whether the 684 patent is valid over the prior art 2,226,784 application, which claims tadalafil for the treatment of ED, and discloses unit doses of tadalafil from 0.2 to 400 mg. St-Louis J held on the facts, that starting from the knowledge that doses from .02 to 400 mg were useful, it would be routine for the skilled team to carry out the trials necessary to narrow that down to the range providing the best balance between efficacy, and safety and tolerability, and they would be motivated to do so [325-28]. The claimed invention was therefore obvious to try [323, 330].

While that much was straightforward, the decision has a long discussion of whether the 684 patent is a selection patent, ultimately concluding that it is not [116–136]. Everyone, including St-Louis J and both parties, seems to have been of the view that this was central to the assessment of validity: “the determination that a patent is not a selection patent has consequences, as the purported advantages relied upon by the patentee, if not in the claims, may not be considered in the assessment of novelty and inventiveness, as examined later on” [128]; the defendants argued that “the 684 Patent is necessarily anticipated and invalid unless it is a selection patent” [226], on the basis that “a dosage range out of a broader disclosure is anticipation, unless the patent qualifies as a selection” [229]. See also [136], [235], [238], [263], [306], [310], and throughout, distinguishing cases depending on whether or not they related to a selection patent (see eg [286–88]).

In my view, this wrong. In Lilly / olanzapine 2010 FCA 197, [4], [27], [33], the FCA emphatically affirmed that the conditions for a valid selection patent set out in IG Farbenindustrie (1930), 47 RPC 289 (Ch), and approved by the SCC in Sanofi at [9]-[11], do not constitute an independent basis upon which to attack the validity of a patent. The argument in this case seems to be that these conditions can nonetheless be an independent basis upon which to uphold the validity of a patent, though not to attack it, because the putative advantages can be considered if it is a selection patent, but not otherwise. This must be wrong.

In the first place, as the FCA pointed out in Lilly / olanzapine “the Act contains no reference to invalid selection” [29]. This point cuts the other way: validity is determined on the basis of the statutory conditions, not otherwise. It doesn’t matter whether selection patents are uniquely susceptible to attack, or uniquely immune from attack, because neither option has any basis in the Act.

Further, the distinction between attacking and upholding a patent on the basis of it being a selection is not tenable. St-Louis J relied on the IG Farbenindustrie conditions as setting out the requirements that must be met before an unexpected advantage can be considered [129]. She held that because those conditions were not satisfied, the unexpected properties could not be considered [136]. So, failing to satisfy the IG Farbenindustrie conditions is not in itself a ground for invalidity, but failing to possess these qualities may result in a patent being held invalid because the unexpected properties that might be invoked to save the patent if the conditions were satisfied, cannot be considered. To my mind, this is simply a roundabout way of invalidating the patent for failure to satisfy the IG Farbenindustrie requirements. Consequently, this analysis is contrary to the FCA holding in Lilly / olanzapine 2010 FCA 197. (I expect that St-Louis J’s analysis was influenced by the decision of de Montigny J in the NOC proceedings involving the same patent, 2015 FC 125, which has some of the same problems (see eg [147–48], even though he started off by emphasizing, correctly in my view, that “the jurisprudence has established that a selection patent is like all other patents and is governed by the same legal principles” [108].)

St-Louis J’s determination on the facts of whether the 684 patent was a selection patent also demonstrates problems with the whole approach. Her discussion is quite brief. “I note first that the 684 Patent, filed in 2000, makes no mention of the 784 Application, published in 1997" [131]. The difficulty with this observation is that it is not set out in IG Farbenindustrie, or anywhere else that I know of; it is certainly not based on the Act.

Next, and “[m]ore importantly”:

[132] in regards to Lilly’s argument that the substantial advantage of the 684 Patent lies in the better than sildenafil flushing side effect at 2 to 20mg, I conclude that there is nothing in the specification, or the claims themselves, to the effect that the advantage is peculiar to this particular dosage to the exclusion of any other unit dose, nor does it assert that a larger number of unselected doses do not possess the same advantage, which is an essential characteristic of a selection patent.

This evidently addresses the third IG Farbenindustrie requirements, which is that “The selection must be in respect of a quality of a special character peculiar to the selected group. . . . if research showed that a larger number of unselected compounds possessed the same advantage, the quality of the compound claimed in the selection patent would not be of a special character.”

An initial difficulty is that St-Louis J’s statement could be construed as saying that the fact that the patent does not state that the advantage was peculiar to the particular dose is in itself fatal, whether or not the advantage is in fact peculiar to the dose. If so, it is a novel requirement.

It is more likely that St-Louis J is simply saying that that the evidence did not establish that the third condition is satisfied. This suggestion is taken up at [133]. The difficulty here is that the third condition has no clear statutory basis. The FCA in Lilly / olanzapine stated at [32] that “the notion of selection permeates the entire analysis in relation to each of the grounds of alleged invalidity”: which statutory basis for invalidity is permeated by St-Louis J’s holding in [132]? Applying the third requirement without a statutory basis is particularly problematic, given that the EWCA in Dr Reddy’s [2009] EWCA Civ 1362 [39] has rejected it as being unsound in principle.

In Sanofi at [11] the SCC remarked that “Maugham J.'s analysis [in  IG Farbenindustrie] is consistently referred to and is well accepted.” This was no longer true: just a year after Sanofi was decided, the EWCA in Dr Reddy’s rejected reliance on the IG Farbenindustrie requirements, in part because they had no statutory basis [36]-[38], and in part because of substantive criticisms [39]. Jacob LJ stated that “the best thing to do is to regard them as part of legal history, not as part of the living law” [37]. In my view, we should do the same in Canada. The SCC in Sanofi did not require the use of the IG Farbenindustrie factors, but only said “it is a useful starting point for the analysis to be conducted in this case” [11]. In practice, the IG Farbenindustrie requirements have turned out not to be helpful at all; on the contrary, they have added confusion and complexity to the law, with a concomitant likelihood of error. Moreover, while the SCC endorsed the IG Farbenindustrie requirements, it did not actually apply them in its analysis on the facts; the SCC relied on IG Farbenindustrie only for the proposition that “A system of genus and selection patents is acceptable in principle” [19]. Otherwise the SCC relied entirely on universally applicable principles of anticipation and obviousness. I suggest that the the Federal Courts should take the same approach: a system of genus and selection patents is acceptable in principle, but whether any particular patent is valid depends on the standard principles of anticipation and obviousness, and not on whether the patent at issue can be characterized as a selection patent.

Wednesday, September 23, 2020

Does a Range Anticipate a Point Within the Range?

 Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC 2020 FC 816 St-Louis J

            2,371,684 / tadalafil / CIALIS ADCIRCA

Lilly markets 2.5mg, 5mg, 10mg and 20mg strengths of tadalafil for the treatment of erectile dysfunction [11]. The defendants in this action are various generics that want to sell tadalfil in those dosage forms [13] The asserted claims of the 684 patent were to dosage forms of tadalafil for treating ED, namely doses from 1 to about 20 mg, as well as specific doses within that range, including 2.5, 5, 10 and 20 mg doses [197-213].

The question in this case was whether the 684 patent is valid over the prior art 2,226,784 application, which claims tadalafil for the treatment of ED, and discloses unit doses of tadalafil from 0.2 to 400 mg. St-Louis J held on the facts, that starting from the knowledge that doses from .02 to 400 mg were useful, it would be routine for the skilled team to carry out the trials necessary to narrow that down to the range providing the best balance between efficacy, and safety and tolerability, and they would be motivated to do so [325-28]. The claimed invention was therefore obvious to try [323, 330].

So far, so good, and I wish I could stop the post here. However, St-Louis J also held that the 784 application anticipated the 684 patent, which, with due respect, is clearly wrong. I’ll address that issue in this post. There is also some problematic discussion of selection patents, which I will discuss in the next post. And there are some difficulties with the discussion of the role of the inventive concept in the obviousness analysis, which I won’t address, as it did not seem to impact the obvious-to-try conclusion. St-Louis J, and the parties, appear to have been guided by the decision of de Montigny J in NOC proceedings involving the same patent, Lilly v Mylan 2015 FC 125, which has similar problems, though again the basic obvious-to-try analysis was not affected.

Friday, September 11, 2020

CIPO's Approach to Patentability of Computer-Implemented Inventions

 Choueifaty v Canada (Attorney General) 2020 FC 837 Zinn J rev’g and remanding CD 1478

            Application 2,635,393

The vexed issue of patentable subject matter has reared its head once again. Choueifaty applied for a patent for a computer-implemented method for selecting an investment portfolio with the lowest level of risk for a given return [CD 25]; in brief, a computer-implemented business method. CIPO, applying its problem-solution approach to claim construction set out in MOPOP 12.02.02e [13], determined that the “essential elements” of the invention “are directed to a scheme or rules involving mere calculations used to construct the anti-benchmark portfolio and thus not directed to patentable subject matter” [CD 52], [16]. In CIPO’s view, the computer itself was not an essential element; had it been, the claim would have been allowed [17]: PN 2013-03.

In a brief decision, Zinn J reversed on the basis that the problem-solution approach is not the correct way to determine the essential elements of the claim; rather, the approach set out by the SCC in Whirlpool 2000 SCC 67 and Free World 2000 SCC 66, must be used [40]. CIPO relied on Genencor 2008 FC 608 for the proposition that the Whirlpool test is not applicable to patent examiners [34]. In light of the subsequent FCA decision in Amazon 2011 FCA 328, [43] which expressly held that CIPO must use the Whirlpool approach, Zinn J held that Genencor “is no longer good law” [35]. Zinn J therefore remitted the application to the Commissioner for reassessment in accordance with his reasons.

In my view, Zinn J’s decision is entirely correct so far as it goes, but in this post I want to step back and take a brief look at the bigger picture.

Wednesday, September 9, 2020

Default Judgment Requires Evidence

 Tatuyou, LLC v H2Ocean Inc 2020 FC 865 Little J

            2,739,837


In this decision, Little J dismissed a motion for default judgment on the basis of insufficient evidence to meet the burden of proof on the balance of probabilities.


It is well established that “On a motion for default judgment in [the Federal] Court, all of the allegations in the statement of claim are to be taken as denied” [9]; Little J noted that “This standard is different from the requirements for default judgment under the rules in some provincial superior courts in Canada” [10], several of which provide that a defendant noted in default is deemed to have admitted the facts alleged in the statement of claim.


Consequently, even if the defendant has not filed a statement of defence, the plaintiff must provide evidence sufficient to establish infringement on the balance of probabilities [12]: “bald assertions” are not sufficient [14]. Little J indicated that the evidence must go to both validity and infringement [16], [17], [19], but presumably in the absence of evidence to the contrary, validity would be adequately established by the presumption of validity under s 43(2). In any event, the reference to validity was merely in passing, as the specific deficiencies noted by Little J went to infringement. In particular, there was no evidence from a skilled person on claim construction [19], but only statements by the plaintiff’s CEO that the defendant’s product is “substantially similar” to the plaintiff’s product and that it “includes all of the elements” of the asserted claims [20]. These statements amounted to little more than bald assertions, particularly given that the CEO “does not profess to be a person ordinarily skilled in the art” and there was no explanation as to how she arrived at these conclusions.


The evidence was also insufficient to establish that the defendant, an American company, had been selling the product in Canada [22]. There was an assertion to that effect, but again, no explanation of the basis for that assertion. A reference on the defendants’ .com website to “where customers in Canada can purchase [the allegedly infringing product],” unsupported by other evidence of actual sales, was not sufficient establish that anyone has actually purchased or attempted to purchase the product from the defendants’ website using a computer in Canada.


The bottom line is that because allegations in the statement of claim are taken to be denied, the mere fact that the defendant did not file a statement of defence after being served is not sufficient to obtain a default judgment in the Federal Court. Bald assertions of infringement are not sufficient to support a default judgment; at the very least, the plaintiff must provide an explanation for the basis for those assertions.

Friday, September 4, 2020

Silos or Not?

 Canada (Health) v Glaxosmithkline Biologicals SA 2020 FCA 135 Rivoalen JA

TFI Foods Ltd v Every Green International Inc 2020 FC 808 McHaffie J


In Canada (Health) v Glaxosmithkline [Shingrix] Rivoalen JA refused to grant the Minister of Health’s request for a stay of pending appeal of 2020 FC 397 (here). In TFI Foods McHaffie J granted an interlocutory injunction in a trademark case. Both, of course, use the same tri-partite test from RJR-MacDonald [1994] 1 SCR 311. I won’t go into the details of either case (for what it’s worth, I agree with both decisions).


Rather, I’ll make one observation. In TFI Foods, McHaffie J stated that “The elements of the RJR-MacDonald test are conjunctive, in that the moving parties must satisfy all three to obtain relief. However, they are not independent silos, and a stronger finding on one or more of the elements may lower the threshold for the other elements” [5]. In Shingrix, Rivoalen JA stated that “All three questions must be answered in the affirmative, and failure on any single question is fatal to the motion for the stay” [9]. Both positions have ample support in the case law. The silos approach is the normal in the Federal Courts, with the irreparable harm factor being the most prominent hard silo, which applicants often fail to escape. The “no silos” approach is dominant in most other Canadian jurisdictions: see eg Potash Corp 2011 SKCA 120 [57]-[58]; Apotex Fermentation 1994 CANLII 16694 (Man CA); Circuit World 100 OAC 221 (ON CA); Imperial Sheet Metal 2007 NBCA 51 [7].


So, silos or not?

Wednesday, September 2, 2020

Rule 420 Doubling Applies to Lump Sum Costs

 Bauer Hockey Ltd. v. Sport Maska Inc. (CCM Hockey) 2020 FC 862

2,214,748


In recent years we have seen costs awards turn away from the outdated and inadequate tariff, in favour of lump sum awards. This decision by Grammond J provides a nice summary of the principles that are emerging to guide the determination of quantum in awarding lump sum costs. Grammond J’s decision also clarifies the impact of an offer to settle on lump sum costs. I expect parties seeking or resisting lump sum awards will want to review this decision carefully, so I will just hit some highlights. This decision is consequent on Grammond J’s determination in 2020 FC 624 (here) that CCM had not infringed any valid claims of Bauer’s 748 patent.


● The tariff is dead

At least in complex patent cases. “Where the nature of the case is such that the parties are justified in expending a significant amount of legal fees, the tariff simply does not provide a level of indemnification sufficient to further the purposes of costs awards” [10].


● 25% of fees is the baseline

While there is “no rigid guideline. . . . In the interests of consistency and predictability, I proposed to set the starting point at 25% and to analyze whether the circumstances of a specific case warrant a higher or lower number” [14].


● Litigation conduct does not necessarily affect the percentage

This is not because litigation conduct is irrelevant to costs, but rather because a percentage costs award already captures an element of litigation conduct: “For example, if a party fails to admit facts that should have been admitted, this presumably results in an increase of the other party’s legal fees” [17].

 

● Do not reargue the merits

This further supports the view that litigation conduct does not necessarily affect the percentage of fees awarded. Parties are often tempted to argue that the other side should be penalized for having run an argument that was without merit, or for having failed to admit certain facts. However, “one should always remain conscious of the difficulties associated with judging litigation conduct. After a judgment on the merits is rendered, it is tempting to criticize steps taken by the parties in the proceedings with the benefit of hindsight. During the trial, however, parties must make decisions in a state of uncertainty” [18]. Further, trial judges “are not expected to keep a tally of penalties to be reflected in a costs award,” [20] and judging litigation conduct, in particular, pre-trial conduct, “requires information that is often unavailable to the trial judge” [20]. Moreover, “it does not assist a party to suggest that the case was close or that it did not expect to lose. Neither are costs awards a way to obtain an opinion on issues that the Court did not need to address in its judgment on the merits” [21]. See also his application of these principles to the facts [31]-[32].

 

I particularly like Grammond J’s pithy statement that a costs decision is not the occasion for an “autopsy of the trial” [20].


● Litigation conduct does not normally preclude a lump sum

“[Bauer] it asserts that CCM’s litigation conduct disentitles it from claiming a lump sum. I disagree with Bauer. Litigation conduct is taken into account when determining the percentage of recovery” [23].


● Complexity does not generally justify an increased percentage

Increased costs resulting from increased complexity will automatically be reflected in a higher costs award, even if the percentage itself is not adjusted [28].


● Percentage recovery doubled when Rule 420 applies

On this point, Grammond J clarified the law. Rule 420 provides that if a defendant makes an offer to settle that is refused, the defendant is entitled to doubled costs if the judgment is less favourable. Rule 420 was triggered in this case [40], but the case law was not clear as to how an offer to settle should be considered in the context of a lump sum costs award, and in particular whether it should be only one factor to be considered [37]. Grammond J noted that the purpose of Rule 420 is to provide an incentive to settlement, and “[t]his incentive will be ineffective if the doubling of costs is subject to unstructured discretion.” He therefore held that Rule 420 is indeed applicable in the context of lump sum costs, and “when rule 420 applies, the percentage of recovery should be doubled for the period after the refusal of an offer, save in exceptional circumstances” [38]. I am persuaded by Grammond J’s point that predictability is important to ensure that Rule 420 has the intended effect [36] [38]. It will be interesting to see whether other members of the court follow his lead on this point.


● A modest offer may nonetheless embody an element of compromise

The case law on Rule 420 requires a genuine offer that includes an element of compromise [39]. Grammond J held that the mere fact that the offer is very low does not in itself imply there is no element of compromise. (CCM’s offer in this case was $500k, against Bauer’s claim of $80m [41]; $500k is nonetheless substantially better than nothing, which is what Bauer ended up with.) “The parties’ decisions are based on their assessment of their chances of winning and the value of the claim. By nature, this assessment is probabilistic. By raising the stakes, however, rule 420 prompts the parties to be as objective as possible, although some uncertainty inevitably remains” [42].


The fact that the offer is less that the legal fees expended to the time of the offer is not relevant [40].


“[T]he doubling of costs provided by rule 420 does not depend on an after-the-fact evaluation of the reasonableness of the parties’ positions. All that matters is that the offer be genuine and contain an element of compromise. In this case, it did” [42]. On the facts, this led Grammond J to double the percentage award, from 25% to 50%, for the period after the refusal of the offer [43].


A final point of interest is that Grammond J denied Bauer’s request that the obligation to pay the cost award be spread evenly over a period of twelve months, in light of financial distress caused by the shutdown of the sports industry as a result of Covid-19 [60]. Grammond J noted that “[i]It must be assumed that the situation described by Bauer affects all players in the sporting goods industry, including CCM. One fails to see why the financial burden of the costs award should be borne, for the next year, by the party who won the case, even though it must be equally affected by the COVID-19 pandemic” [64].