For many years now, cost awards in complex intellectual property litigation before the Federal Court have made up a progressively smaller percentage of the prevailing party’s real legal costs. This occurred because courts calculated costs using the “Tariff” – a grid of pre-established costs for various steps in the litigation process. In the context of high-stakes patent litigation, sometimes even the highest possible award under the Tariff would make up only 10% of a party’s actual legal costs.
In a recent case, the Federal Court of Appeal has confirmed a change in the court’s approach to calculating cost awards, which will raise the stakes for litigants in intellectual property litigation before the Federal Court. Specifically, in Nova Chemicals Corporation v. Dow Chemical Company, the Federal Court of Appeal upheld a $6.5 million costs award to the defendants, The Dow Chemical Company, Dow Global Technologies Inc. and Dow Chemical Canada ULC (‘‘Dow’’). Dow had incurred over $10 million in legal fees and other costs in order to prevail in a complex patent case against the plaintiff Nova Chemicals Corporation (‘‘Nova’’). The important aspect the cost award upheld by the Court was that instead of using the Tariff, the trial judge had awarded Dow one-third of its actual legal costs.
The Court’s Decision
On appeal, Nova argued, among other things, that the trial judge had erred in awarding costs based on a percentage of Dow’s actual fees, without properly analyzing whether that amount was reasonable. In this regard, Nova argued that costs awards should be guided by the standards established in Tariff B, and that any departures from the Tariff should be limited to exceptional cases. The Court dismissed Nova’s arguments and concluded that the trial judge had not erred in light of the record before him.
Notably, while the Court stated that departures from the Tariff must be justified, it confirmed that they are not limited to exceptional cases. The Court went on to hold that departure was justified in this case due to the large gap between costs awarded under the Tariff and the winner’s actual legal costs, and in order to spare the parties the expenses of an assessment (a very meticulous cost calculation process). These are general considerations that will often apply to high-stakes intellectual property litigation before the Federal Court.
The Court also confirmed that when trial judges depart from the Tariff, they have substantial discretion over the amount of costs they can award to the prevailing party. The Court indicated that existing awards range between 25% to 50% of actual legal fees incurred – a substantially higher amount than what is normally determined under the Tariff approach. The Court also found that there may be cases which justify a higher or lower percentage. However, the Court gave little guidance about how courts should choose within that range, nor did the Court establish a baseline starting point within the range.