Everything Costs More Nowadays: Update on Costs Awards in Canadian Patent Litigation
November 29, 2021
In our July 2020 article, “Moving on Up: Increased Costs Awards in Canadian Patent Litigation”, we discussed the trend in the Federal Court of Canada towards awarding increased costs to the successful party in patent litigation. In particular, we discussed how it had become commonplace for the successful party to receive between 25% and 50% of its actual legal fees together with full recovery of its reasonable disbursements.
In this article, we provide an update regarding some of the cases that have been decided over the past year. These cases have addressed issues such as when an award based on a percentage of the successful party’s legal fees may not be appropriate and whether the court has discretion to go beyond the 25% to 50% range when fixing costs as a percentage of actual legal fees.
As discussed in our earlier article, for many years 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 each particular stage in the proceeding. Units, which are adjusted annually for inflation, correspond to dollar amounts. The Tariff also provides for five different ranges of recovery for each stage, designated 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, Federal Court judges have begun to move away from assessing costs under the Tariff for patent litigation, noting that such a costs award, even one made under Column IV or V, provides inadequate recovery. It has therefore become more commonplace for trial judges in the Federal Court to award costs to the successful party in patent litigation fixed as a lump sum based on a percentage of the party’s actual legal fees.
Factors Relating to Lump-Sum Awards
The Federal Court has established a number of principles governing the issue of whether to award lump-sum costs as a percentage of the successful party’s legal fees and, if so, what percentage to apply.
Evidence required. A party seeking a lump-sum costs award must provide sufficiently detailed evidence so that the court can be satisfied that the party’s fees as represented were actually incurred. Nova Chemicals Corp v Dow Chemical 2017 FCA 25.
Need for predictability. Although a judge fixing costs on a lump-sum basis has a wide discretion, this discretion is not unfettered. The Court’s discretion must be exercised prudently, in accordance with the Rules, the case law and the objectives that underlie costs award. Costs must be predictable so that counsel can properly advise and clients can make informed decisions about litigation risks.
Sophisticated commercial parties. Lump-sum costs awards are only appropriate where the litigants are sophisticated commercial parties. For example, in each of two decisions made this year, Betser-Zilevitch v. Petrochina Canada Ltd. 2021 FC 151 and Swist v. MEG Energy 2021 FC 198, the trial judge’s decision not to depart from the Tariff was based in large part on the fact that the plaintiff patentee was not a sophisticated commercial entity. In these cases, the trial judges commented that an award of costs should not function to make patent litigation inaccessible to the individual inventor.
Lump-sum costs awards common in IP cases. It is increasingly common in intellectual property cases to award a significant lump-sum amount well in excess of the Tariff. Venngo Inc. v. Concierge Connection Inc. 2017 FCA 96 at para. 85.
Customary range for lump-sum costs. When a lump-sum costs award is made, it is customary to fix costs in the range of 25 to 50% of actual legal fees, together with recovery of the successful party’s reasonable disbursements. Nova v. Dow 2017 FCA 25 at paras. 17, 21.
Full recovery of disbursements. Disbursements are typically assessed in full, provided that they are reasonable: MediaTube Corp v. Bell Canada 2017 FC 495 at para. 21.
Departing From the 25-50% Range. As discussed in our July 2020 article, in cases that came 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.
For example, in Packers Plus v. Essential Energy et al. 2020 FC 68, the trial judge ordered that, for the liability phase of the case (i.e., infringement and validity), each defendant was entitled to 40% of its fees together with 100% of its reasonable disbursements.
However, when three of the defendants subsequently sought lump-sum awards for the damages phase of the litigation, the Court (see Packers Plus v. Essential Energy 2021 FC 986) awarded them 66% of their actual legal fees incurred during such phase. The Court’s rationale for departing from the 25-50% range endorsed by the Federal Court of Appeal in Dow was that the unique circumstances of the litigation justified a higher level of costs. These circumstances included the following:
- the plaintiff should have observed the accepted convention of bifurcating a patent trial such that damages would only be litigated, if necessary, after validity and infringement had been decided, thus saving the costs associated with discovery and experts on damages;
- after the trial on liability, and while judgment was under reserve, the plaintiff vigorously resisted the defendants’ proposals to move the dates for the damages trials and to postpone discoveries on damages until the release of the trial decision on liability; and
- the plaintiff was the author of all of the costs thrown away for the damages phase preparation.
The Court in Packers Plus also noted that the Federal Court of Appeal’s decision in Dow did not mandate that lump-sum costs could only be awarded in the range between 25% and 50% of actual fees. Rather, the Court of Appeal had held that “there may be cases where a higher or lower percentage is warranted”.
The Federal Court’s recent movement towards making costs awards that better reflect the true costs of patent litigation is a welcome trend. Going forward, parties to patent proceedings should plan their litigation and settlement strategy on the assumption that there is a high likelihood of costs being awarded as a percentage, within the range of 25% to 50%, of the successful party’s actual legal fees. Parties should also appreciate that their litigation decisions, such as choosing to pursue an untenable cause of action or defence or taking an overly aggressive position on an issue, could have significant costs ramifications.
Note: The authors were trial and appellate counsel for the successful parties in the Packers Plus v. Essential Energy case referred to in the article.
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