Recently, Justice O’Keefe of the Federal Court issued his public Reasons for Judgment concerning a costs award from the liability phase of a patent infringement action between the Dow Chemical Company (“Dow”) and NOVA Chemicals Corporation (“Nova”), 2016 FC 91. Dow was awarded a lump sum payment of $6.5 million for their costs consisting of $2.9 million for legal fees and $3.6 million for disbursements. This costs award appears to be the largest reported award that the Federal Court has ever granted in an action for patent infringement. Nova has appealed.
As previously reported, during the liability phase of this proceeding the Federal Court upheld the validity of Dow’s Canadian Patent No. 2,160,705 and found that Nova’s SURPASS polymers infringed. The polymers are used in packaging applications including heavy duty bags, pallet wrapping and food packaging. An appeal was heard in December, 2015 and a decision is currently under reserve.
Dow’s costs award follows a recent trend of the Federal Court of, in appropriate cases, granting costs in excess of those that might be typically calculated under the Tariff of the Federal Courts Rules (the “Rules”). This trend supports the view that the present Tariff system may not adequately compensate successful litigants for the costs of successfully prosecuting or defending intellectual property actions in the Federal Court. This approach would also mirror that of some provincial court systems where costs awards have better reflected the actual costs of litigation.
Principles of costs awards in the Federal Court
Pursuant to Rule 400 of the Rules, a successful litigant in the Federal Court (be it plaintiff or defendant) is typically entitled to an order for payment of its legal costs. Such an award typically has two components: a fee component to reflect a portion of the actual counsel fees billed, and a disbursement component to reflect any reasonable and necessary disbursements incurred (e.g. fees for experts, travel expenses, court reporter fees,etc.).
The Federal Court has noted in the past that, as a general rule, a costs award represents a compromise between compensating a successful party and not unduly burdening an unsuccessful party.
The fee component of a costs award is typically calculated under a Tariff in the Rules and often represents only a modest percentage of actual fees paid to legal counsel. The Tariff consists of 5 columns arranged in ascending order. Each column sets out a range of costs available for certain itemized activities associated with conducting a legal proceeding. The default award under the Rules for a successful litigant is the middle of Column III. However, the Federal Court has full discretion over costs awards and may exercise that discretion to apply a different column, or award an amount that is not based on the Tariff.
A trend towards providing increased costs awards in the Federal Court
The Federal Court’s approach to costs awards has evolved over the past several years. A number of recent decisions reflect the view that costs awards should more closely reflect the actual costs incurred by successful litigants. In particular, the Federal Court has noted that in the context of patent infringement actions or applications made pursuant to the Patented Medicines (Notice of Compliance) Regulations, where both parties are typically sophisticated corporations, it is more appropriate to award costs in accordance with either Column IV or V than the default Column III.
Moreover, there has also been an increasing trend for the Court in some cases to depart from the Tariff entirely, instead, awarding costs based on a percentage of the actual counsel fees billed to the successful litigant. This evolving approach is consistent with the modern practice in some provincial Superior Courts where costs awards are determined with reference to a partial, substantial or full indemnity of the actual counsel fees incurred in the proceeding.
For example, in Philip Morris Products v Marlboro Canada, 2014 FC 2, an action for trademark infringement, the Federal Court awarded Marlboro Canada $1,069,289 in costs, including over $750,000 in fees, which represented approximately one-third of Marlboro’s actual fees.
As a second example, in Harley Davidson USA LLC v Berrada, 2015 FC 189, another action for trademark infringement, the Federal Court awarded Harley Davidson over $400,000 in fees, which again represented roughly one-third of its total counsel fees. This award was over three times greater than the award that would have been available had the Federal Court applied the default Column III of the Tariff.
As a third example, in Air Canada v Toronto Port Authority, 2010 FC 1335, an application for judicial review of decisions relating to the allocation of take-off and landing slots at Toronto’s Billy Bishop Airport, the Toronto Port Authority and Porter Airlines were awarded about $700,000 and $830,000 in fees, respectively, with both awards being equivalent to about 50% of the actual fees incurred.
As a final example, in Eli Lilly v Apotex, 2011 FC 1143, a patent infringement action relating to the drug cefaclor, Eli Lilly was awarded counsel fees of $675,000 for the pre-trial period up to when a settlement offer was made, which represented about 25% of the estimated actual costs paid during that period with respect to the main action.
The decision in Dow v Nova
In making the costs award in Dow v Nova, Justice O’Keefe noted the trend in the Federal Court of awarding higher costs for fees than those typically available under the Tariff. In particular, Justice O’Keefe noted that if the costs award was assessed under Column V of the Tariff (still higher than the default Column III) then Dow would only have recovered 11% of its $9.6 million in actual counsel fees. Instead, Justice O’Keefe awarded $2.9 million in costs for counsel fees, which represented about 30% of the actual fees incurred. In so finding, he noted that the case and technology involved were complex, there were over 180 days of testing conducted in advance of trial, the trial lasted 32 days and the closing written submissions were 700 pages in length. Dow was also awarded $3.6 million in costs for reasonable and necessary disbursements, bringing the total costs award to $6.5 million.