Moving on Up: Increased Costs Awards in Canadian Patent Litigation

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July 15, 2020

In deciding whether and how to litigate the infringement of its patents, a patentee is typically driven by many considerations. One of the most important considerations is the overall cost of litigation, namely the legal fees and other costs that the patentee will incur in the litigation and its potential for recovering some of those fees and costs from the opposite party. Canadian courts generally award costs to a successful party.  Such awards are intended to provide the successful litigant with a reasonable contribution towards the expenses of the litigation.

In recent years, Canada’s Federal Court has shown a clear trend towards awarding increased costs to the successful party in patent litigation. It has now become commonplace for the successful party to receive a percentage of its actual legal fees in the range of 25% to 50% together, with 100% of its reasonable disbursements.

Background

Historically, the Federal Court did not award costs as a percentage of actual legal fees incurred. Rather, it was typical for the Federal Court to order that costs be assessed in accordance with Tariff B (the “Tariff”) of the Federal Courts Rules (the “Rules”). The Tariff contains a table which provides for a party to be awarded a certain number of units, within a specified range, for particular stages in the proceeding. The table also provides for five different ranges of recovery for each stage, designated in the Tariff as Columns I through V. As a general rule, Column III is considered to be the default range of recovery with Columns IV and V being reserved for cases of higher than average complexity or cases where the conduct of the parties or other factors warrant a higher than average level of costs.

In recent years, the Federal Court has become more sympathetic to arguments that the Tariff provides wholly inadequate recovery in patent litigation matters. For example, a party that has spent several million dollars in taking a patent case to trial might only be entitled to a few hundred thousand dollars under the Tariff. The Court has therefore begun to more freely exercise its discretion to depart from the Tariff in favour of more substantial awards.

Factors to be Considered in Assessing Costs

The starting point for the assessment of costs is Rule 400 which provides that the Court has full discretionary power over the amount and allocation of costs. Rule 400 also provides a list of non-exhaustive factors that the Court may consider in exercising its discretion, such as:

• the result,
• the amounts claimed and recovered,
• the importance and complexity of the issues,
• any written offer to settle,
• the conduct of a party that tended to shorten, or unnecessarily lengthen, the proceeding, and
• whether the expense associated with a particular expert was justified given the nature of the litigation, the nature of the issues in dispute, and the amount in dispute.

Lump-sum Costs awards

In addition to assessment of costs under the Tariff providing an inadequate level of compensation to the successful party, the assessment process could also be unnecessarily burdensome and lengthy. It was therefore not surprising when litigants began asking trial judges to exercise their discretion to fix the costs of a proceeding after trial rather than directing that the quantum proceed to an assessment.  The Court’s discretionary power includes the discretion to order a lump sum payment.

For example, in a 2013 decision, ABB Technology v. Hyundai Heavy Industries, the defendant, which had been successful at trial on both of validity and infringement in respect of two patents, sought a costs award consisting of 50% of its actual legal costs plus 100% of its disbursements. In response, the plaintiff argued that the defendant should be limited to an award of approximately $75,000 under the Tariff. The trial judge held that there were good reasons for awarding costs beyond those provided for in the Tariff, including the fact that the patentee’s claims “were tenuous at best”, the parties were required to travel to Germany and Korea for the litigation, and the defendant made a serious offer to settle the case. As such, the trial judge awarded $350,000 to the defendant as compensation for its legal fees and directed that it could also recover most of its disbursements, subject to verification. This ruling was upheld on appeal.

The following year, Justice de Montigny commented in Philip Morris Products S.A. and Rothmans, Benson & Hedges Inc. v Marlboro Canada Limited and Imperial Tobacco Canada Limited, a trademark case, that an award under the Tariff, even at the highest point of Column V, would be inadequate to reflect the actual costs related to the litigation. On appeal, the Federal Court of Appeal held that Justice de Montigny did not commit an error in principle by awarding a lump sum in lieu of the Tariff. The Court also acknowledged the judicial trend to grant costs on a lump-sum basis whenever possible and noted that, when dealing with sophisticated commercial parties, it was not uncommon for such lump sums to be awarded based on a percentage of the actual costs incurred.

Once the Federal Court of Appeal confirmed its approval for lump-sum costs awards in Philip Morris, such awards started to become routine in Canadian patent cases.

In Dow Chemical Company v. Nova Chemicals Corporation, after success at trial, the patentee sought a costs award of $2.9 million for its fees (calculated as 30% of its actual fees) plus $3.6 million for disbursements. In response, the defendant argued that the plaintiff’s costs should be assessed in accordance with Column IV of the Tariff. The trial judge noted that even if its costs were assessed pursuant to Column V, the plaintiff would only be recouping 11% of its actual costs which would be “not acceptable” for “such a complex case”. In considering the complexity of the case, the trial judge cited the 22 allegations of invalidity, 32 days of trial, 700 pages of closing argument, 33 days of examinations for discovery and the extensive testing that had to be conducted by the plaintiff. In view of this complexity, the trial judge awarded the plaintiff the $6.5 million in costs that it was seeking.

On appeal, the Federal Court of Appeal upheld the trial judge’s costs decision in Dow v. Nova, noting that lump-sum awards save the parties time and money and avoid the costs process becoming an exercise in accounting. The Court of Appeal also noted that the trend in patent actions in the Federal Court has been to fix costs of the successful party as a percentage in the range of 25% to 50% of its actual legal fees.

Percentage of Fees Recovery

In cases that have come after Dow v. Nova, judges of the Federal Court have typically chosen to award costs in the range of 25% to 50% of the successful party’s legal fees.

In Packers Plus v. Essential Energy et al., Justice O’Reilly presided over a trial that consolidated the invalidity counterclaims in four proceedings involving the same patent to be tried with the patentee’s infringement case against the defendants in one of the four proceedings. After succeeding at trial, the defendants in the four actions each sought 50% of their actual legal fees together with 100% of their disbursements. In response, the plaintiff argued that the defendants should be awarded a single set of costs, to be assessed in accordance with the Tariff. Justice O’Reilly held that the defendants, given that they were competitors of each other and were entitled to be separately represented at trial, should also be entitled to individual costs awards. Justice O’Reilly next noted the trend towards fixing costs as a percentage of the successful party’s actual legal costs and held that, given the complex nature of the case, it was appropriate in this case as well. Justice O’Reilly ordered that each defendant was entitled to 40% of its fees together with 100% of its reasonable disbursements, subject to a few minor adjustments.

In Hospira Healthcare Corporation v. The Kennedy Trust for Rheumatology Research, after the defendants were successful at trial, they sought a costs award comprising 50% of their legal costs plus full recovery of their disbursements, for a total of approximately $3.8 million. The trial judge’s reasons for decision on the merits of the case were very critical of the plaintiff’s approach in contesting every aspect of the case even when there was no reasonable prospect of success. On the costs motion, Justice Phelan expressed his approval, in complex litigation involving sophisticated large corporations, to make lump-sum costs awards that reflect the real cost of initiating litigation. In deciding what percentage of their legal fees to award the defendants, Justice Phelan was influenced by the following factors: (a) the defendants were successful on every major point in the litigation; (b) the plaintiffs were unable to show that the defendants’ fees were unreasonable by, for example, comparison to their own fees; (c) using the Tariff would provide only a “paltry cost award”; and (d) there was a great deal of money at stake.

The Hospira trial decision on the merits was, however, set aside on appeal and, as such, the order of costs was also set aside.

In Seedlings Life Science Ventures v. Pfizer Canada, the defendant which had succeeded on all issues in a patent infringement matter, sought 40% of its legal fees in addition to full compensation for its disbursements. The trial judge, Justice Grammond, noted that the practice of awarding lump-sum costs as a percentage of actual costs reasonably incurred was now well established, particularly when dealing with sophisticated commercial parties. Justice Grammond also held that the proper method for setting a percentage of fee recovery was to start at the lower end of the range suggested by the Federal Court of Appeal in Dow, namely 25%, and assess whether the factors listed in Rule 400 warranted a higher figure. In this case, the trial judge did not see any reason to award more or less than 25% of the defendant’s legal fees.

In Apotex v. Shire, after Shire was successful at trial in a patent impeachment and infringement action, it sought a lump sum costs award comprising 50% of its legal fees together with all reasonable disbursements. In arguing for a percentage that was at the upper end of the 25% to 50% range, Shire relied on the complex nature of the proceedings, its overall level of success and the actions taken by Apotex that lengthened or complicated the litigation.  After reviewing the relevant facts, the trial judge held that Shire should receive one-third of its actual legal fees since that was the “usual partial indemnity rate”.

Conclusions

In view of the cases discussed above, there is no doubt that where the successful party in a Federal Court patent infringement case can satisfy the trial judge that the case involves complex litigation conducted by sophisticated commercial parties, the new standard is that costs should be awarded in a lump sum. That lump sum should be calculated as a percentage that is in the range of 25% to 50% of the party’s actual legal costs, together with full compensation for its reasonable disbursements.

Litigants will therefore have to factor these enhanced costs into their decisions regarding whether to commence litigation, how to prosecute the litigation and whether to seek to settle the litigation prior to trial.

^{Note: The authors were trial and appellate counsel for the successful parties in the ABB v. Hyundai and Packers Plus v. Essential Energy cases referred to in the article.}

 

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