Monday, May 8, 2017

Recovery of Attorneys' Fees and Costs in Canada

Aside from my February 13 post on Apotex Inc. v. ADIR, 2017 FCA 23 (Feb. 2, 2017), and a very brief mention one month later of Airbus Helicopters S.A.S. v. Bell Helicopter Texteron Canada Limité, I haven't been reporting as promptly as I should on developments in the law of patent remedies in Canada.  I hope over the next few weeks to catch up--in addition to Airbus, there is another recent opinion, Dow Chemical Co. v. Nova Chems. Corp., that addresses several important damages issues--but I'll start today with a discussion of a different case from this past January, involving the recovery of costs.  (Costs may include attorneys' fees as well as other disbursements, such as expert witness fees).  

As I discuss in my book (p.209 n.147), like many countries Canada routinely awards attorneys' fees to the prevailing party, in patent and other litigation--though the common wisdom is that the fees awarded are typically only a fraction of the amount actually incurred.  (As I understand it, the thinking is that fee awards aren't intended to be fully compensatory, but rather to strike a balance between compensating the prevailing party and not unduly discouraging people from attempting to vindicate what they believe to be their rights.)  Things can be a bit more complicated in some instances, however, because Rule 400(1) of Canada's Federal Courts Rules states that "The Court shall have full discretionary power over the amount and allocation of costs and the determination of by whom they are to be paid," and then in Rule 400(3) sets forth various factors that may be taken into account in exercising this discretion.  Among these are "any conduct of a party that tended to shorten or unnecessarily lengthen the duration of the proceeding," and "whether any step in the proceeding was . . . improper, vexatious or unnecessary, or . . .taken through negligence, mistake or excessive caution . . . ."  Rule 400(4) further directs that "[t]he Court may fix all or part of any costs by reference to Tariff B"--a table of rates for various services, available here, and Rule 407 states that "Unless the Court orders otherwise, party-and-party costs shall be assessed in accordance with column III of the table to Tariff B."  However, Rule 406 also permits the court to exercise its discretion to award costs against a successful party, and also to award costs on a "solicitor-and-client" basis, which I understand means, essentially, at a higher (possibly full indemnification) rate.   

Anyway, in Mediatube Corp. v. Bell Canada, 2017 FC 6 (Jan. 4, 2017), the Federal Court concluded that the patent in suit was valid but not infringed.  Both parties nonetheless sought to recover costs.  First, the plaintiff sought to recover (1) costs incurred as a result of the defendant's corrections of its initial disclosures, which the plaintiffs alleged led to delay in resolving the dispute; (2) "aggravated costs" due to the defendants' calling the plaintiffs "patent trolls," which in the plaintiffs' view was both inaccurate and an accusation of fraud or dishonesty; and (3) costs arising from the defendants' citation of 735 prior art references in their statement of defense and counterclaim of invalidity (and thereafter identifying, three months before trial was set to begin, only 62 references that they would rely upon at trial).  The court rejected these arguments, the first on the grounds that (1) the defendants acted in good faith, (2) the timing wouldn't have made a "difference between proceeding with the trial and reaching a settlement," and (3) the noninfringement argument was "so compelling," given "the absence of four distinct essential elements of claim 1 from Bell's systems," that the judge was "not prepared to accept that the plaintiffs had a reasonable belief that they had a good arguable case before receiving the Corrected Information" (pars. 232-34).  As for the "patent troll" accusation, the court concluded that the description was more a matter of opinion and in any event not tantamount to an accusation of fraud or dishonesty (para. 240).  As for the prior art disclosures, the court was "not convinced that the plaintiffs were put to unwarranted expense" (para. 245).

Second, the defendants sought elevated costs and the imposition of costs on a solicitor-and-client basis, principally on the ground that the infringement action lacked merit.  The court agreed, in part.  First, it concluded that the defendants were entitled to costs for claims made against defendant Bell Aliant, some of which were withdrawn pretrial, others during trial.  With regard to these expenses, the court did not impose solicitor-and-client costs, but it accepted that costs should be elevated in the amount of 50% for the maintenance of the claims that were withdrawn during trial, which the plaintiffs pressed "in the face of information that Bell Aliant was not infringing" (para. 253).  Similarly, the court awarded elevated costs of 50% for claims that the plaintiffs made against Bell Canada, stating that "the contortions of the claims in issue that would be required in order to find infringement indicate that the plaintiffs should have known that Bell Canada did not infringe" (para.256).  Finally, the court stated that it would award solicitor-and-client costs relating to the plaintiffs' allegation that defendants had misappropriated confidential information and therefore could be liable for punitive damages, on the ground that unfounded accusations of fraud or dishonesty are an appropriate basis for the imposition of fees on this basis (paras. 254-67).  For further discussion of this case, see Norman Siebrasse's write-up on Sufficient Description.

Without speculating whether such an award would be merited in a case like Mediatube, I've sometimes wondered whether courts should have the authority to award attorneys' fees multipliers, in cases in which an action or a defense lacked merit and an award of attorneys' fees alone might not suffice to deter such conduct in the future (perhaps because of the disparity in resources between the parties).  Ultimately I'm not sure that's a good idea, but the issue did arise, in a sense, in a Federal Circuit case I blogged about last year (see here).  Of course, the award of elevated costs in Mediatube probably won't actually consist of the actual fees multiplied by 150%, since as noted above fees in Canada (other than, perhaps, the solicitor-and-client basis costs which the court did not elevate) are usually awarded pursuant to Tariff B and in general are believed to be well below the amount actually incurred.  Still and all, an interesting issue.

For further discussion of awards of attorneys' fees in Canadian patent cases, see Mark Biernacki & Kevin Unrau, Federal Court Awards Legal Costs of $6.5 Million in Patent Infringement Case (available here, and noting a trend toward higher fee awards in Canada, above the default Tariff B column III); Federal Court of Appeal and Federal Rules Committee, Review of the Rules on Costs Discussion Paper (Oct. 5, 2015) (available here, discussing among other matters the potential inadequacy of Tariff B).  I thank Norman Siebrasse for calling these papers to my attention; see also Norman V. Siebrasse, $2.9 Million Award Is 30% of Actual Legal Fees, Sufficient Description, Feb. 5, 2016 (available here). 

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