Column IV Costs for Summary Trial

Eli Lilly Canada Inc v Mylan Pharmaceuticals ULC 2023 FC 780 St-Louis J

2,226,784 / tadalafil / CIALIS / NOC

There are a couple of points worth noting in this costs decision following from the summary trial in Lilly v Teva 2022 FC 1398*, in which the defendants, Apotex, Mylan, Teva and Pharmascience, prevailed: see FC “Or” And FC Overbreadth. Only Mylan and Lilly filed written submissions in regards to costs [1].

The first point is that while Rule 407 provides that costs are normally assessed on column III, the jurisprudence has established that the upper end of column IV is often appropriate in patent trials due to their greater than average complexity. Lilly argued that notwithstanding this caselaw, column III should apply in respect of summary trials. St-Louis J rejected this submission: “Accepting Lilly’s argument of some sort of a norm being fixed at column III for summary trials in intellectual property would entail, in addition to encroaching on the Court’s discretion, assuming that summary trials in intellectual property are, by default, of average complexity. While summary trials may mitigate the considerations highlighted by the Chief Justice in Allergan [2021 FC 186], I have not been convinced that they necessarily or always completely diminish the complexity of a pharmaceutical patent litigation to the point that these 400(3) factors cannot be considered and found to be present” [37].

Secondly, St-Louis J confirmed that an offer to settle that does not meet the conditions of Rule 420 may nonetheless be considered as one factor in awarding costs under Rule 400. This point is by now well-established [32]. (In this case, Mylan’s offer did not meet the timing conditions in subsection 420(3)—ie presumably it was made less than two weeks prior to trial.)

(I will have a post on the FCA decision in Benjamin Moore 2023 FCA 168, addressing the difficult issue of patentable subjet-matter, but the post may be delayed as I am teaching a new course in the fall and I have an article deadline coming up.)

*For some reason, the trial decision is still not available on the FC website, so I’ve linked to a copy made available by Smart & Biggar.

Misleading the Court as a Basis for Punitive Damages

Fromfroid SA v 1048547 Ontario Inc 2023 FC 925 Grammond J

2,301,753 / rapid cooling cells

This decision is of interest primarily for the award of punitive damages, granted because the infringer had intentionally infringed the patent rather than buying the patented system from the patentee in order to save money and then tried to cover up the infringement by presenting misleading evidence to the court [106]–[107]. As a matter of law, it is interesting that attempting to mislead the court was used as one factor—and for one defendant, the only factor—for awarding punitive damages, rather than sanctioning that conduct through elevated costs. There is precedent for this in the trademark context: see Chanel v Lam Chan Kee Co 2016 FC 987 [76] affd 2017 FCA 38 [11].

Fromfroid’s 753 patent relates to a cooling system for food products. The system consists of “a tunnel lined with tarpaulins that inflate with air blown by a fan. When they inflate, the tarpaulins press against the pallet of products to be refrigerated, which is placed in the centre of the tunnel. In so doing, they force the stream of cold air to pass between the containers of products instead of going around the pallet, which ensures more rapid cooling” [3]. The complete system consists of a number of “cells” each with its own fan.

The defendant 1048547 Ontario Inc dba Skotidakis, operates a dairy products business [6]. Skotidakis was interested in acquiring a cooling system for its dairy products. In 2014, Skotidakis obtained a trial cell from Geosaf, Fromfroid’s agent, for a period of about six weeks. Fromfroid then submitted a bid for a 24-cell system, but Skotidakis did not follow up [6]. In October of 2018, approximately three months after the 753 patent expired, a representative of Geosaf attended Skotidakis’s facilities in order to service unrelated equipment. The Geosaf representative saw and photographed a 24-cell cooling system that bore a strong resemblance to the patented system [7]. The only live issue at trial was whether the system was built before or after the expiry of the patents [10]. (There was a feeble attempt to argue non-infringement on the basis that the tarps did not press against the sides of the pallet, but Grammond J had no difficulty dismissing this on the facts [74]–[93].)

The difficulty for Fromfroid was that it had no direct evidence of when the system was built. Instead, it had to rely on indirect evidence, such as wear marks apparent in the photograph taken by the Geosaf representative and the difficulty of constructing a system in only 3 months [71].

Against this circumstantial evidence was the direct testimony of four persons, all more or less closely associated with Skotidakis, who stated that, “to their personal knowledge, the cells were built [in the three month period after expiry], particularly since this testimony is supported by documentary evidence” [49]. As counsel for the defendants put it, “[a]ccepting Fromfroid’s position would entail that these four witnesses lied to this Court and that the documents they submitted are forgeries” [49].

While Grammond J did not explicitly find that the witnesses lied or that the documents were forgeries, he did reject their evidence as being defensive and unresponsive [52], deliberately evasive [53], “implausible” [57] and imprecise [59]. He found that while the documents Skotidakis tendered in evidence “show no obvious signs of falsification, there is also no basis for excluding the possibility that they are forged, that the date on them could have been altered (e.g., by replacing ‘2016' with ‘2018') or that they refer to a different project” [61].

With little weight given to the defendants’ evidence, Grammond J found that the circumstantial evidence was sufficient to establish “a serious, precise and concordant presumption” (per CCQ Art 2849) that the cells were built before the 753 patent expired [71]. While Grammond J did not expressly find that the Skotidakis witnesseses had lied or that the documents were forged, he did find that “Skotidakis sought to conceal the infringement by presenting various pieces of evidence intended to mislead the Court as to the date the cells were made” [106].

Grammond J awarded lost profit damages on the basis that but for the infringement, Skotidakis would have purchased its system from Fromfroid [97]–[102].

He also awarded punitive damages, on the basis of two factors. First, he found that Skotidakis knew of the existence of the patent and infringed knowingly [105]. This alone would not be sufficient to justify punitive damages [105], but as an additional factor, Grammond J found that in attempting to mislead the Court, Skotidakis had engaged in “highly reprehensible misconduct” [106]. He stated that “the attempt to mislead this Court is serious and should be severely denounced” [109]. Accordingly, he ordered Skotidakis to pay $200,000 in punitive damages, on a top of $150k in compensatory damages [102], [111].

Grammond J also awarded punitive damages against the defendant, Frimasco, a construction company that had built the system on behalf of Skotidakis, even though Frimasco was not aware of the patent at the time it constructed the system [112]. The sole basis for awarding punitive damages against Frimasco was its role in concealing the infringement [112]. While Frimasco did not benefit directly from the infringement, “Skotidakis and Frimasco have a close and longstanding business relationship” [37]. Mr. Robert, the president of Frimasco at the time, gave implausible testimony relating to the purchase of parts for the system [36] and as to the construction speed [47], and as to the nature of the system when testifying regarding infringement [78]. Grammond J found that Frimasco’s “involvement in the cover-up is just as reprehensible as that of Skotidakis” [113]. (Note there are a couple of typos in paras [112], [113], where Grammond J refers to the patentee, Fromfroid, when he evidently intends to refer to the defendant Frimasco.)

It is interesting to see such conduct used as a factor—and in the case of Frimasco, the sole factor—supporting an award of punitive damages. I would have expected to see some kind of costs sanctions instead. But I’m not an expert in sanctions for giving misleading evidence or litigation misconduct generally. Chanel v Lam Chan Kee Co 2016 FC 987 [76] affd 2017 FCA 38 [11], cited by Grammond J at [106], does use attempts to mislead the court as a factor in awarding punitive damages (though in Chanel the attempt to mislead the court was only one of nine factors supporting the award of punitive damages). Further, it is established in Ontario law that litigation misconduct can be an independent actionable wrong that could give rise to punitive damages: McCabe v Roman Catholic Episcopal Corp 2019 ONCA 213 [43]–[48]. At the same time, litigation misconduct can also be sanctioned by costs: Render v ThyssenKrupp 2022 ONCA 310 [87]–[91]. Costs submissions remain to be made in this case [121]. It will be interesting to see if Grammond J takes the misconduct into account in awarding costs, or whether that would be considered double counting. Absent the award of punitive damages, I would be inclined to think that a very substantial costs award would be appropriate, well beyond 40% lump sum which is the higher end of the usual range, and approaching full indemnity. It is apparent from Grammond J’s reasons that Skotidakis did not have any good faith defence and should have settled rather than raising a defence premised on trying to mislead the court.

Costs and Settlement Proposals

Pharmascience Inc v Teva Canada Innovation 2022 FCA 207 Monaghan JA: Gleason, Mactavish JJA

2,702,437 / 2,760,802 / glatiramer acetate / Copaxone / Glatect / NOC /

I don’t usually blog on procedural issues, but this decision on an appeal from a costs award affirms a simple point: “settlement proposals or offers that do not meet the conditions of Rule 420 may be considered under Rule 400 in making a costs award” [18].

Elevated Costs and Refusal to Bifurcate

Paid Search Engine Tools, LLC v Google Canada Corporation 2022 FC 519 McDonald J

2,415,167 / Paid Search Engine Bid Management

This is the costs decision following on 2021 FC 1435 (blogged here and here), in which McDonald J held that that the 167 patent asserted by Paid Search (PSET) against Google was invalid and not infringed.

McDonald J awarded costs at an elevated level (the upper range of Column of IV—Google did not seek a lump sum[10]), in light of several considerations. The main point of general interest is that PSET had refused to bifurcate and Google argued the consequent increase in litigation costs weighed in favour of elevated costs [23]. In response, PSET relied on Seedlings 2020 FC 505 [25], in which Grammond J noted parties are not required to seek bifurcation, and further noting, as McDonald J put it, “that the unsuccessful party would already face the consequences of failing to bifurcate as the costs award would include the fees that the successful party spent on the damages portion of the claim.”

McDonald J was not persuaded by this argument:

[25] In my view, this is a case that should have been bifurcated. The trial on construction, infringement and validity could have been conducted in half the time with significantly fewer experts. Although I acknowledge that, as in Seedlings, PSET will be responsible for Google’s damage experts’ fees, this was, nonetheless, a case that would have benefited [] from the liability portion of the claim [] proceeding in advance of the damages portion of the claim.

[26] Here, despite there being 59 claims that required construction, there is no doubt that the damages portion of the case took the majority of time and was the focus of most of the expert evidence. Damage and remedy-related evidence focused on reasonable royalty, accounting of profits, apportionment and non-infringing alternatives.

[27] This proceeding would have been more efficient as a bifurcated matter. The failure of PSET to agree to bifurcate is a factor which weighs in favour of higher fees.

This seems to be something of a difference of principle (albeit one that is within the discretion of the judge awarding costs). PSET v Google was perhaps more complex than Seedlings — McDonald J described this case as being “above average” in complexity [19], while Grammond J said Seedlings was “[not] overly complex” [p24], but I don’t read McDonald J as relying on this to distinguish Seedlings.

Moreover, I don’t see as the complexity of the case makes any difference. The question is whether the naturally elevated costs faced by an unsuccessful party who refused to bifurcate is a sufficient disincentive, or whether some additional sanction in the form of elevated costs is appropriate. Either way, the additional costs will increase proportionately with the complexity of the case, so I don’t think the complexity affects the principle. Similarly, some cases may benefit more from bifurcation if the damages portion is particularly time consuming relative to the liability portion, but again costs will increase proportionately under either approach.

The question of how to deploy costs awards to encourage just yet efficient resolution of a dispute is always tricky—there is no academic consensus even on the basis issue of the Amercian rule v the English rule for fee shifting—and I have no opinion as to which approach is preferable. I note that this case did not raise the problem of access to justice by small or unsophisticated parties: McDonald J observed that “PSET is neither an inexperienced nor an unsophisticated litigant. Accordingly, I do not accept that the access to justice rights of smaller patent holders is a factor that needs to be considered in setting the quantum of costs in this case” [15].

Reduced Costs

Janssen Inc v Teva Canada Ltd 2022 FC 269 Manson J

             2,655,335 / paliperidone palmitate / INVEGA SUSTENNA

This is the costs decision stemming from Janssen v Teva / paliperidone 2020 FC 593 (blogged here and here), in which Manson J awarded costs to the plaintiffs, Janssen. I don’t always blog on costs decisions, but this one is notable for a significant reduction of both fees and disbursements, which is something I haven’t seen much in reported costs decisions. The parties had agreed prior to the issuance of the judgment that costs were to be set at 35% of the successful party’s actual fees. Manson J found the plaintiffs’ reasonable legal fees were 70% of actual fees claimed [22], and that the reasonable disbursements were 80% of the claimed amount [24]. Costs were awarded as 35% of the reduced amount.

Empirical Evidence on the Effect of Fee-Shifting

Today I’m pleased to present a guest post:

By Christian Helmers, Yassine Lefouili, Brian J. Love, Luke McDonagh.

As previously covered on this blog (here, here, and here, for example), changes are afoot for Canada’s costs shifting regime. In 2016, the Federal Rules Committee determined that costs awarded pursuant to Tariff B of the Federal Courts Rules were inadequate, and the Rules Committee is actively working on a set of proposed amendments for publication and approval: see Allergan v. Sandoz, 2021 FC 186, [28].

In a new paper just published in the American Law & Economics Review, we present a theoretical model and report empirical findings that may help inform the Committee’s work. Our paper examines the effect of a 2010-2013 court reform process limiting the size of costs awards in cases brought in the UK’s Intellectual Property Enterprise Court (IPEC, formerly known as the Patents County Court), a venue that specializes in hearing small-to-mid-size IP disputes.

Importantly for our analysis, these reforms did not extend to the High Court of England and Wales, the UK’s separate venue for relatively large IP cases. Pre-reform, costs were awarded in both jurisdictions under a common set of principles that allowed victorious litigants to request recovery of their actual costs and recoup on average about half to two-thirds of that amount. Post-reform, while costs awards in the High Court carried on as usual, costs awards in IPEC cases were capped at a maximum of £50,000, restricting the extent to which costs are shifted from losing to winning parties.

To study the effect of this costs cap, we hand-collected data from physical case files for all available IP suits that were filed in either court from 2007 to 2013. We use this data to make two comparisons. First, we compare cases filed in the IPEC to cases filed in the High Court, in effect using High Court cases as a control group to isolate the reform’s effect on IPEC cases. Second, because a lump sum costs cap is likely to have a greater effect on (relatively high cost) patent cases, we additionally compare patent and non-patent IP cases litigated in the IPEC.

Our empirical results suggest that the reform had a sizable impact. First, the rate of IP litigation increased once the costs cap came into effect. We find that patent case filings increased in both comparisons (IPEC to High Court, and patent IPEC to non-patent IPEC) and for both small and large plaintiffs. In addition, with the costs cap in place, we see evidence that cases settled more often and that plaintiffs both won less often and spent less on litigation. Specifically, we find that, post-reform, small IP enforcers won less often in cases decided by the IPEC, that IPEC cases settled at a higher rate, and finally that large plaintiffs retained smaller (and thus presumably less costly) law firms when litigating in the IPEC.

What do these findings portend for a potential increase in average costs awards in Canada? While we study a transition from higher to lower average costs awards, the Canadian Federal Court is in the process of doing the opposite. Accordingly, it seems reasonable to hypothesize that the Federal Court might experience effects opposite to those of a costs cap: i.e., a reduction in the rate of IP litigation, along with a higher plaintiff win rate, lower settlement rate, and increase in litigation expenditures among cases that are filed.

Whether or not these effects (individually or collectively) are normatively desirable is another question, and one with no easy answer. While the UK reform that we study has generally been regarded as a success, costs shifting rules have a notoriously complex impact on litigants’ incentives. In the paper, we ultimately take no normative position on the desirability of a costs cap, and so here too we leave it for the Rules Committee’s consideration whether the potential effects identified above align with the broader goals motivating its work.

Essential Reading on Costs

Allergan Inc v Sandoz Canada Inc 2021 FC 186 Crampton CJ

2,507,002 / silodosin / RAPAFLO / NOC

This costs decision by Crampton CJ provides an extremely helpful summary of costs principles in patent litigation at [19]–[36] and it will no doubt be the “go to” decision for costs awards going forward. Crampton CJ's discussion will be essential reading, so I’ll simply flag it without further comment.

The underlying decision is 2020 FC 1189 (discussed in posts here and here). 

PS: The following remark is of particular interest (my emphasis):

 [28] In recognition of the fact that Tariff B no longer provides an adequate level of partial indemnification, the Federal Courts Rules Committee decided in 2016 that the amount recoverable under Tariff B should be increased by approximately 25%: Minutes of the October 28, 2016 Meeting of the Rules Committee. Following a further consultation with the bar, a sub-committee of the Rules Committee is preparing proposed amendments for publication in Part I of the Canada Gazette and approval of the Governor in Council.

Something to look forward to.

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].

Lump Sum Costs Are the New Normal

Viiv Healthcare Company v Gilead Sciences Canada, Inc 2020 FC 486 Manson J
            2,606,282 / bictegravir / BIKTARVY

The costs tariff has been outdated for a while now, and we’ve seen a trend toward lump sum costs in complex patent cases. It seems the trend has now reached the point where lump sum costs are the new normal, at least in complex patent litigation:

[180] The parties agreed that costs should be awarded on a lump sum basis in line with recent complex patent cases in this Court (Dow Chemical Company v Nova Chemicals Corporation, 2016 FC 91, aff’d 2017 FCA 25; Sport Maska Inc v Bauer Hockey Ltd, 2019 FCA 204; Packers Plus Energy Services Inc v Essential Energy Services Ltd, 2020 FC 68). Gilead seeks 40% of its actual costs, and ViiV proposed lump sum costs in the range of 30-40% of its professional fees plus 100% of all reasonable disbursements, in line with the above cases.

[181] Given that these are sophisticated commercial parties engaged in complex patent litigation, a lump sum costs award is appropriate. That said, the summary trial was limited to construing three claims, with the issue of non-infringement flowing from the Court’s construction. In the circumstances, 30% of actual costs, plus reasonable disbursements, is appropriate.

Lump Sum Costs Awarded

Packers Plus Energy Services Inc v Essential Energy Services Ltd 2020 FC 68 O’Reilly J

2,412,072

In this costs decisions following from Packers Plus 2017 FC 1111 aff’d 2019 FCA 96, holding Packers’s 072 patent to be invalid and not infringed, O’Reilly J awarded the prevailing defendants lump sum costs of 40% of their taxable costs, plus disbursements (with some minor adjustments). O’Reilly J’s reasons for awarding a lump sum rather than following the Tariff were brief: “I also do not agree with Packers that costs should be assessed according to the Tariff. A lump sum is more appropriate given the complex nature of this case.” This seems to reflect a general sense that the Tariff scale is outdated and no longer adequate. A collective costs award calculated under the Tariff, even at the upper end of Column IV, would have resulted in an amount of about $375,000, when actual costs were apparently closer to $10,000,000.*

Another point is that there were multiple defendants, and Packers argued that there should only be one set of costs as the defendants’ interests were aligned and they could all have been represented by the same counsel. O’Reilly J rejected this submission, noting that

It was Packers’ choice to pursue each of the defendants separately. It could have limited its costs exposure by proceeding only against the first defendant, Essential Energy Services Ltd, and pursuing the other defendants later if successful. Its approach complicated the proceedings and increased the costs incurred.

He also noted that the defendants, as competitors, were entitled to be represented separately, and that “defendants’ counsel made considerable efforts to divide their labours and reduce duplication throughout the trial.” Accordingly he held the defendants were entitled to individual costs.

*The amount of the defendants’ actual fees is not stated in the decision, but Packers proposed an alternative lump sum amount of $1,003,000 and O’Reilly J remarked that this approach “would effect an arbitrary discount of the defendants’ fees and yield a reimbursement of only 10% of the defendants’ taxable costs.”

Legal Fees Not a Deductible Expense in an Accounting

Human Care Canada Inc v Evolution Technologies Inc 2018 FC 1302 supplementary reasons 2018 FC 1304 Elliott J
            2,492,392

In Human Care v Evolution Tech, Human Care brought an action against Evolution for infringement of its 392 patent related to “rollators” – a “walker” with wheels, primarily used to assist the elderly with mobility issues. Evolution counterclaimed that the 392 patent was invalid. The case turned on the facts. One legal point of passing interest, the deductibility of legal costs as an expense in an accounting of profits, was raised.

Infringement, as usual, turned on claim construction, and Elliott J generally preferred the evidence of Human Care’s expert. For example, Elliott J agreed with counsel for Human Care that the key expert for Evolution “has looked at the claims, picked at random words, define[d] them outside of the claims, and then reinserted them into the claims” [189]. Validity attacks based on anticipation [382], obviousness [405], [410], and overbreadth [420], likewise failed on the facts.

Turning to damages, the parties agreed that the quantum for reasonable compensation for ‘infringement’ after publication but prior to grant, should be based on royalties actually charged by Human Care during that period, and the number of units was also agreed [41], so there was “nothing to discuss” on this issue [432].

Elliott J held Human Care was entitled to elect an accounting rather than damages, essentially on the basis that there was no reason, such as undue delay, for denying the election [436]. This is consistent with the general practice of presumptively allowing the patentee to elect an accounting unless there is some equitable reason to refuse it. (There are one or two cases where the Court has held that the burden was on the successful patentee to establish an entitlement to an infringement, but these are the exception.)

It appears that Human Care’s rollator design swept the market, so that there was no non-infringing alternative; if Evolution had not sold infringing rollators, it would have had to leave the market, and might well have gone out of business [455]. Elliott J noted that “Where there is no non-infringing alternative, the infringer must turn over all profits made from the infringing act, less legitimate expenses incurred” [462].

One unusual point is that Evolution sought a deduction for legal fees as a business expense. Elliott J noted that:

[477] This Court has been generally hesitant to accept deductions for legal fees. For instance, in Teledyne [(1982), 68 CPR(2d) 204), Mr. Justice Addy at [pages] 214-216 did not allow the defendant to deduct legal expenses because it was concluded that such an approach would allow the infringing party to retain part of its unjust enrichment.

The point was apparently a novel one in Teledyne, as the only cases cited related to deductibility for income tax purposes of legal expenses incurred for the purpose of doing business, and as such, “are not remotely applicable” (215). To say Addy J was "hesitant" to accept such a deduction, is an understatement. He said (my emphasis):

That question must be answered most emphatically in the negative, regardless of the fact that the expenditure might well be considered from a general accounting standpoint as being a variable expense incurred in the course of selling the infringing product. Allowing this deduction would amount to the Court rewarding the wrongdoer and contravening its own finding. Such a decision would, in my mind, be likely to bring the administration of justice into disrepute and, in addition, contribute to the unjust enrichment of the wrongdoer. It is impossible for me to conceive how a court of equity would even seriously consider these expenses as a legitimate deduction and indeed the Defendant was unable to point to any case where the question was even raised.

I admit the concept does seem outrageous, but outrage is always an uncertain basis for a legal holding, and to my mind Addy J’s next point was more persuasive:

Furthermore, the Court in this action awarded-costs to the Plaintiff on a party-and-party basis. A deduction of the Defendant's costs on a solicitor-and-silent basis would in effect constitute a direct contradiction of its previous order. Costs in an action have always been considered separately from the ether claims of the parties to that action, as the considerations governing allowance or disallowance of costs, the amounts granted and the scales on which they are to be calculated are quite different from those which govern the Court's findings on substantive issues. It is for this same reason that a successful plaintiff, who elects to as for an assessment of damages, is not entitled to add his legal expenses in prosecuting the action as part of the damages incurred.

That strikes me as entirely persuasive. Costs awards are dealt with separately, with distinct considerations, related to eg the incentive to litigate, and the need to sanction the conduct of the case, and so on. To allow deduction of the legal fees as an expense on the accounting would undermine the rationale for the costs award.

(Note that Addy J remarked that “[a] similar claim was also disallowed in the Dubiner v. Cheerio Toys case [[1966] Ex.C.R. 801, 837-38]” but I note that in Dubiner the legal costs were disallowed primarily “on the simple ground that the defendant failed to prove these accounts,” and it is therefore not strong authority for refusing the deduction as a matter of principle.)

In the case at hand, Elliott J, after citing Teledyne, nonetheless allowed a deduction for legal costs to a certain extent, as being the amount the defendant “spent prior to the litigation in this and a parallel dispute” [478]. This seems to suggest that the principle enunciated by Addy J is applicable only in respect of litigation expenses incurred after the statement of claim is actually filed. I’m not sure that is a principled distinction, but the issue discussed so briefly that I won't explore it further..

Overall, a number of the expense deductions were disallowed in whole or in part for lack of adequate proof. The result was a “rough justice” award of just over $12 million.

Elliott J also granted a permanent injunction on established view that ““[t]he Court should refuse to grant a permanent injunction where there is a finding of infringement, only in very rare circumstances” [485], quoting Valence v Phostech 2011 FC 174 [240]. Compound interest (“profits-on-profits”) was refused on the basis that Human Care “did not provide thorough submissions on why profits-on-profits is merited in this case” [487]. The supplementary reasons clarified the terms of the injunction and order for delivery up, as well as the details of the damages and interest assessment.

Reasonable Lump Sum Costs

Teva Canada Ltd v Janssen Inc 2018 FC 1175 Locke J
            2,203,936 / 2,435,146 / 2,738,706 / bortezomib / VELCADE

This is the costs decision from 2018 FC 754, in which Locke J granted Teva’s claim for compensation under s 8 of the NOC Regulations, dismissed the counterclaim for infringement, and awarded costs to Teva. The parties disputed whether costs should be awarded as a lump sum, or after an assessment [7]-[8].

Locke J’s general comments on lump sum costs are of interest (original emphasis):

[4] Though I am not convinced that there is support for Teva’s statement that lump sum awards are becoming the norm, I do accept that they have found increasing favour with courts because they save time and further the objective of securing “the just, most expeditious and least expensive determination” of proceedings (per Rule 3): Nova Chemicals Corporation v Dow Chemical Company, 2017 FCA 25 at para 11 [Dow].

[5] A lump sum award of costs is particularly appropriate in complex litigation between sophisticated litigants and in the context of commercial litigation: SNF Inc v Ciba Specialty Chemicals Water Treatments Limited, 2018 FC 245 at para 3 [SNF].* In dealing with lump sum, the efficiency of a set amount requires the Court to use a bit of a “broad sword” approach: SNF at para 9.

[6] Lump sum awards tend to range between 25% and 50% of actual fees, though there may be cases where a higher or lower percentage is warranted: Dow at para 17.

Within that range, he suggested that the higher end “seems to be appropriate mainly for situations in which the Court wishes to express its displeasure with the conduct of the losing party” [35]. With that said:

[38] I disagree with the assertion of the plaintiffs by counterclaim that elevated costs are reserved for exceptional cases where there is reprehensible, scandalous or outrageous conduct. Based on the authorities cited by the plaintiffs by counterclaim, this limitation applies only to awards of solicitor-and-client costs.

On the facts, Locke J held that a lump sum was appropriate in light of the complexity of the litigation [32], and an amount of 25% was appropriate [36]. However, he was concerned that he had no basis for assessing the reasonableness of Teva’s legal fees of $4.8 million, which appeared high even for a case of this complexity [32], [34]. He accordingly based the lump sum, not on the actual fees, but what he considered to be reasonable fees, In the absence of more detail, he accepted no more than $3.4 million as reasonable, and awarded $850,000 (inclusive of tax), that is, 25% of $3.4 million [36] (plus reasonable disbursements). This query as to the reasonableness of the fees was not related to the conduct of the litigation itself, which Locke J noted was efficient, and indeed “praiseworthy” [25].

Because of the uncertainty regarding the details of Teva’s fees, he compared this amount with the amount that might have resulted from a determination under the Tariff [33], and in particular the top of Column V, in light of the unusual complexity of the case [37]. The top end of Column V, based on Teva’s submissions, would have resulted in an award of about $990,000 (plus tax) [40], while the top of Column IV would result in about $780,000 (plus tax) [49]. This confirmed the reasonableness of the lump sum award of$850,000 (inclusive of tax) for fees, which was the amount actually awarded.

It’s interesting that in the end, Teva was awarded about 18% of its actual fees as the prevailing party in complex, well-run litigation — $850,000 (including tax) on actual fees of $4,778,473 (it’s not clear to me whether that includes tax).

There is also an interesting point on legal v technical complexity (original underlining, my italics):

[13] The plaintiffs by counterclaim also assert that it is the complexity of legal issues, not technical issues, which should be considered in determining costs. In support of this position, they cite MK Plastics Corporation v Plasticair Inc, 2007 FC 1029 at para 24, which cites TRW Inc v Walbar of Canada Inc (1992), 43 CPR (3d) 449, [1992] FCJ No. 606 (QL) at pp 456-7 (FCA). These precedents do not explain why the issues to be considered under this heading do not include technical issues, but I accept the effect of this jurisprudence. In any case, the technical complexity of the case is reflected in other factors such as the amount of work and the reasonableness of expert witness expenses.

Locke J's apparent concern regarding the validity of this distinction made no difference on the facts, as he found the legal issues in this case to be particularly complex [14], even for pharmaceutical litigation involving obviousness.

*Unfortunately, the costs decision in SNF v Ciba which was cited by Locke J, does not appear to have been posted on the FC website.

Lump Sum Costs and Experts Who Do Not Testify

Apotex Inc v. Shire LLC 2018 FC 1106 Fothergill J
            2,527,646 / lisdexamfetamine [LDX] / VYVANSE

This costs decision is consequent on 2018 FC 637 (see here), in which Fothergill J held Shire’s 646 patent to be valid and infringed. Fothergill J’s decision is interesting on two points: the award of lump sum costs, and recovery of fees for experts who provide litigation assistance without appearing as a witness.

Costs
Fothergill J awarded lump sum costs in favour of Shire, reinforcing the apparent trend to lump sum costs in complex patent cases.

While Shire requested 50% of actual fees plus all reasonable disbursements, Fothergill J remarked that this request “is a departure from the usual partial indemnity rate of one-third,” citing Philip Morris Products SA v Marlboro Canada Limited, 2015 FCA 9 [6]. This contrasts with the 50% awarded by Phelan J in Hospira v Kennedy Trust 2018 FC 1067 (discussed here). In Philip Morris, the FCA notes as follows (my emphasis):

[6] The appellants also argue that if a departure from Tariff B was appropriate, the lump sum awarded was excessive in view of prior jurisprudence of this Court on lump sum costs in intellectual property disputes. The cited case law does not set boundaries that limit the costs award the judge was entitled to make under the circumstances of this case. In fact, the judge's award is consistent with the percentage of actual costs requested by the appellants when they made representations in respect of the amount of costs that they should be awarded back in 2011. At that time, presumably, the appellants had examined the case law and were satisfied that they could request about one third of their actual cost. The judge was prepared to grant that percentage (paragraph 39 of the 2011 costs decision). The only reason he reduced it slightly was that appellants failed to explain why their legal fees were so much higher than their opponents'. As the saying goes: what is sauce for the goose is sauce for the gander.

I don’t read that as a statement that there is a usual partial indemnity rate of one-third. This decision of FCA was a review of the costs award of the trial judge. A trial judge has broad discretion regarding costs, as Fothergill J noted at [18], and the FCA in Philip Morris noted that “[t]he cited case law does not set boundaries that limit the costs award the judge was entitled to make.” The reference to an award of one-third was not based on the FCA’s own assessment of what the case law said, but only on an inference as to what the appellants might have concluded from the case law; it was really only meant to buttress the conclusion that the award of one-third was within the discretion of the judge.

Of course, that is not to say that Fothergill J was wrong to exercise his discretion to limit the award to one-third (in fact 29%, in the end), or even there isn’t a general practice of awarding a lump sum of one-third of actual costs, but only that Philip Morris itself is not strong authority for the view that one-third of actual costs is the usual rate for a lump sum.

[UPDATE: It is my policy not to substantively revise my posts, but in this case I feel compelled to add that the contrast between Fothergill J's award of 30% in this case, and Phelan J's award of 50% in Hospira v Kennedy Trust is not as sharp as my post above may suggest. One of the factors that may be taken into account in assessing costs is the conduct of the parties, and Phelan J was very critical of the conduct of Hospira / Celltrion [6], [20]-[22], while Fothergill J made no particular criticism of Apotex's conduct. With that said, Phelan J considered the matter holistically, and it is impossible to say what he would have awarded had Hospira acted more reasonably.]

Experts providing litigation assistance
Fothergill J also considered issues related to recovery of expenses for experts. In particular, Apotex relied on the decision of Hughes J in Janssen-Ortho 2006 FC 1333 [25], for the proposition that the expenses of an expert who did not appear as a witness but assisted in other capacities should be borne by the client [19]. Notwithstanding the view of Hughes J, after reviewing other relevant case-law, Fothergill J was generally not persuaded by this point [20]-[25]. Fothergill J noted that “Fees for scientific experts who assist counsel in reviewing and understanding other experts’ reports, preparing for cross-examination of opposing experts and, where applicable, assisting in preparation for discoveries, may be recoverable on an assessment of costs” [22], and his decision suggests that such expenses should normally be recoverable unless “clearly superfluous” [25].

Indemnity Principle for Costs Approved and Applied

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2018 FC 1067 Phelan J
            2,261,630 / infliximab / INFLECTRA

This is the costs decision arising from the declaratory judgment action in 2018 FC 259, in which Phelan J held Kennedy’s 630 patent to be valid and infringed: see here and here. Dissatisfaction with the outdated scale of costs set out in the Tariff had resulted in something of a trend towards awarding costs which go above the Tariff, either in the form of enhanced costs where appropriate, or a lump sum award. This decision reinforces that trend, both in the lump sum award of 50% of fees plus actual disbursements, and in Phelan J’s general comments regarding costs in complex litigation. There are two broad take-away messages. First, awarding costs on the Tariff scale of costs would have been unfair in this case, and by extension, will likely often be unfair in the context of complex litigation. Second, disruptive and unnecessary litigation tactics will have costs consequences, even if enhanced costs are not awarded on a line-by-line basis or on the motions themselves.

Phelan J began by noting that “Rule 400(1) gives the Court full discretionary power over the amount and allocation of costs” [5], and then continued:

[7] With respect to the approach to costs in complex litigation involving sophisticated large corporations, I concur with Justice Hughes in his cost decision in Air Canada v Toronto Port Authority, 2010 FC 1335, 196 ACWS (3d) 640, to favour the indemnity (whole or partial) principle and his reasoning in paragraphs 14 and 15.

Here are Justice Hughes’ remarks:

[14] Traditionally, the Federal Court of Canada has been laggard in comparison with other Canadian superior courts, such as Ontario, in escalating an appropriate scale of costs. Many cases in the Federal Court involve persons of limited means who engage the federal government in litigation of one kind or another. The scale of costs is usually modest in such circumstances or usually non-existent in cases such as immigration. Complex commercial cases are frequently those involving intellectual property such as patent infringement actions or applications made pursuant to Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 as amended. Still costs in such matters are assessed largely with reference to the Tariff on one of the higher levels such as Column IV or V.

[15] Other jurisdictions, such as Ontario, have moved away from a tariff toward concepts of full indemnity or partial indemnity based upon the actual costs and disbursements incurred in the proceeding. The theory is that a successful party should not be penalized just because they become engaged in, or had to resort to, litigation. In so doing however, a Court has to be mindful that a party, while successful, may not have been entirely successful or, that the matter was a close call, or that it was one in which the assistance of a Court in its resolution was essential. Therefore an unsuccessful party should not be unduly punished by having to bear not only its own expenses but a large proportion of those of the other parties as well.

Phelan J continued:

[8] There is a public interest served by lump sum awards based on the indemnity principle, particularly in cases like these. Such awards show the real cost of initiating litigation – which Hospira/Celltrion did. Such awards also show the consequences of bringing multiple proceedings, failing to behave reasonably and efficiently in the conduct of the litigation – that there are real consequences to the various steps available in the litigation process.

[9] I intend to follow the indemnity principle, the issue remains as to what level of indemnity – 50% as proposed, 30% as a proposed alternative or some other percentage.

On the facts, Phelan J noted that Kennedy/Janssen had won on every major point [11], and had conducted the trial “with efficiency and effectiveness” [12]. 

Phelan J also noted that application of the Tariff, even the high end of Column V, would result in "an unfair discount" of less than 10% of reasonable fees. Consequently:

[13] While costs seldom are awarded on a full indemnity basis, it would be unsatisfactory to deprive Kennedy/Janssen’s clients of the fruits of their victory by a paltry cost award and would be a windfall of cost savings for the losing side. The disincentive to a losing party pursuing an unsustainable case would be eliminated where the cost award is so far removed from the reality of actual costs.

Regarding disbursements, Phelan J said there was nothing unreasonable or excessive about the disbursements, and he noted that “It is not for the losing party to tell the winning party how they could have succeeded by doing or spending less” [24].

In the result he granted Kennedy / Janssen’s motion for costs at 50% of fees plus actual disbursements [26]. In part this was due to the complexity of the litigation, but Hospira/Celltrion’s generally unreasonable conduct of the litigation was also a significant factor [20]-[22]. Phelan J warned that costs consequences should be taken into account “in terms of both the strategic and tactical decisions the clients and counsel must make and the potential consequences of their choices” [25].

Security for Costs Against Foreign Patent Assertion Entity

Safe Gaming System Inc v Atlantic Lottery Corp 2018 FCA 180 Woods JA
             2,331,238

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].

Levofloxacin Liability Decision Affirmed on the Facts

Teva Canada Ltd v Janssen Inc 2018 FCA 33 Dawson JA: Webb, Gleason JJA aff’g 2016 FC 593 Hughes J and 2016 FC 727
            1,304,080 / levofloxacin / LEVAQUIN

In Janssen-Ortho v Novopharm 2006 FC 1234 aff’d 2007 FCA 217, Hughes held that Janssen’s 080 patent was valid and infringed by Teva’s sale of its levofloxacin product [3]. In the damages phase, 2016 FC 593,Hughes J ordered Teva to pay damages to Janssen Canada in the amount of $5.5m, and to pay damages to Janssen US of just over $13m [4]: see here.

Teva appealed and the FCA has now affirmed. Hughes J’s decision turned almost entirely on the facts, with the exception of his holding that Janssen US had standing under s 51 as a person claiming under the patentee, which I will discuss in tomorrow’s post. Apart from the issue of standing, Teva’s appeal focused primarily on factual errors. Unsurprisingly, the FCA rejected all of Teva’s attacks on Hughes J’s factual findings. 

One point of principle raised by Teva was the complaint that the Lord Shaw’s admonition in Watson, Laidlaw & Co (1914), 31 RPC 104, 118 that compensation is accomplished “by the exercise of a sound imagination and the practice of the broad axe,” quoted with approval by Hughes J [69], is inconsistent with the FCA’s statement in Lovastatin FCA 2015 FCA 171, [43] that damages assessment must aim at "perfect compensation." The FCA explained that there is no inconsistency. The point of the Court’s observation in Lovastatin FCA is that damages must aim in principle for perfect compensation, so that lawful competition and the effect of a non-infringing alternative must be taken into account. Lord Shaw’s remark recognizes that in practice the goal of perfection is seldom achieved [34]-[36]. In assessing damages, a court must account for eg competition from a non-infringing alternative in the "but for" world, but it is not required to arrive at a number which perfectly reflects that hypothetical world; it is only required arrive at the best estimate on the evidence.

The FCA also reaffirmed that damages may be awarded for price suppression [78], and for losses sustained after expiry of the patent, so long as they were caused by the infringement [83]. Neither of these points is novel.

Teva also appealed Hughes J’s costs award of a lump sum of $1m, 2016 FC 727, on the basis that the award is excessive when compared to the amount an assessment officer would have awarded had the Janssen plaintiffs elected to have their costs assessed [153]. The FCA rejected this, noting that there is no requirement that a lump sum award correspond to the amount an assessment officer would assess [156].

How Enhanced are Enhanced Costs?

Mediatube Corp v Bell Canada 2017 FC 495 Locke J
            2,339,447 / Internet Protocol Television / Fibe TV, FibreOp

In his substantive decision in Mediatube v Bell 2017 FC 6, Locke J held that costs awarded to Bell should be elevated by 50% for the infringement case (all issues except punitive damages) and awarded on a solicitor-and-client basis for the punitive damages case, essentially on the basis that the plaintiffs could not have had a reasonable belief that they had a good arguable case [234]: see here. This decision clarified the application of this holding. While the decision turns largely on the facts, there are a couple of general points of interest.

First, Locke J held that in the Federal Court, the term “solicitor-and-client costs” generally means a full indemnify basis, not only a substantial indemnity basis: [33].

Second, he noted that in allocating costs between the infringement case and punitive damages case, there was a trade-off between precision and ease of calculation, and he chose to adopt a relatively simple but less precise approach: [13].

Third, a 50% elevation of costs on the infringement case plus solicitor and client costs on the punitive damages case, sounds like a serious costs sanction. If I have done the calculations correctly, Bell’s actual total costs, including legal fees and disbursements, were just over $7.9 million ($7,901,718 - it’s not clear to me whether this figure includes tax) [5]. The grand total actually awarded on the enhanced basis, including tax, was $2,114,582 [97], or $1,931,876 before tax. This means that the costs award, even on this significantly elevated basis, in respect of a case in which the plaintiffs could not have had a reasonable belief that they had a good arguable case, was only about 25% of Bell’s actual costs. Bell is out of pocket by $5 million for having defended a suit which never should have been brought.

It is more than two years ago that the Rules Committee released an ambitious discussion paper on costs. Perhaps I’ve missed it, but I can’t recall having seen any follow-up.

Is the Tariff System for Costs Broken?

Dow Chemical Co v Nova Chemicals Corp 2017 FC 759 Fothergill J
            2,160,705 / film-grade polymers / ELITE SURPASS

In this costs decision related to the remedies phase of this litigation, Fothergill J awarded Dow, the successful plaintiff, legal fees in the amount of $1,200,000.00. This was about 15% of Dow’s claimed costs, though Fothergill J found that the legal fees claimed by Dow were not adequately supported by evidence, and did not on their face appear reasonable [20]. Of more interest than the size of the award is that Fothergill J used his discretion to assess the award at three times the maximum specified under the Tariff (approximately $400,000.00) [22]. As discussed here, O’Keefe J also departed from the Tariff in awarding costs in the liability phase, 2016 FC 91 saying the Tariff award would be “totally inadequate” [26]. This suggests that the Tariff system is so outdated as to be effectively broken, at least for major patent litigation. The Federal Court has long since recognized this, with a Sub-Committee having been struck almost three years ago, in November of 2014, and a discussion paper issued in October of 2015. Perhaps I’ve missed it, but I haven’t seen anything more from that Sub-Committee since then.

A Costs Cornucopia

Mediatube Corp v Bell Canada 2017 FC 6 Locke J
            2,339,447 / Internet Protocol Television / 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.

$2.9 Million Award Is 30% of Actual Legal Fees

Dow Chemical Co v NOVA Chemicals Corp 2016 FC 91 O'Keefe J here
            2,160,705 / film-grade polymers / ELITE SURPASS

I don’t normally blog on procedural issues, but I’ve made a partial exception for costs because of the interesting disparity between the Federal Court tariff and the actual costs of patent litigation. Awards for fees in the range of 10% of actual fees, which is not uncommon if the tariff is applied, are effectively a hybrid between the English rule (substantial costs in the cause) and the American rule (each party bears their own costs), which strikes me as the worst of both worlds: big enough to fight over (thus increasing costs), but not big enough to make any difference to litigation strategy. We have seen the courts gradually move from Column III of the tariff to Column IV or V in complex patent cases (see here for a review of the trends), but even that is often not enough to make a real difference: in this case fees assessed under Column V would amount to only 11% of actual legal fees. Even if “an award of costs represents a compromise between compensating a successful party and not unduly burdening an unsuccessful party” [10, quoting 2011 FC 1113 [11]], 11% is a distraction rather than a compromise.

O’Keefe J held that costs awarded pursuant to Column V of the tariff “would be totally inadequate as an amount of costs for the plaintiffs in this case. To only recoup 11% of your costs in such a complex case is not acceptable” [26]. Accordingly he exercised his discretion to depart from the tariff and award lump sum costs for legal fees in the amount of $2.9 million, which is
approximately 30% of the actual legal fees [29], for a total award, including disbursements, of $6.5 million [36].

It seems to me that this award of 30% of fees is entering the range where it is reasonable to view the award as actually being a compromise between the English and American rules. I don’t have an opinion as to whether such a compromise is better than the applying a pure version of either of the alternatives, but at least it is a substantive alternative, as opposed to the fee structure of the tariffs, which increasingly appears to reflect no principle other than historical accident. It will be very interesting to see what emerges from the discussion paper on costs that was issued by the Rules Committee.