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The Cost-Effectiveness of Patent Litigation in Canada

Two important considerations for a patentee deciding whether to litigate the infringement of its patents are the likelihood of success and, of course, the cost of doing so. Canadian patentees have done well historically, with over 70% of asserted patents being found valid over the last half century. The cost of litigating patent infringement in Canada has also been recognized as being significantly lower than in jurisdictions such as the United States and the United Kingdom. Hourly billing rates for Canadian patent litigators are generally much lower than that of their colleagues in the United States, and the Federal Court of Canada's rules and procedures' focus on efficiency and cost-effective resolution of disputes help to make litigation less expensive in Canada than elsewhere.

This paper discusses two recent developments that may result in patent litigation at the Federal Court of Canada being more cost-effective. First, the Federal Court has issued guidelines for streamlining litigation through case management and the concept of proportionality. Second, the Federal Court is trending towards the granting of more substantial cost awards to successful litigants as a contribution towards their litigation costs. It should not be forgotten that there are several other reasons why Canada is an attractive jurisdiction for patent litigation, such as judges with patent law experience, permanent injunctions almost always being granted to a successful patent and the option to choose the profits of the infringer rather than damages.

The Federal Court of Canada has long used Case Management Judges to ensure that complex litigation moves forward efficiently and cost-effectively for the litigants. Case managers become engaged in the proceeding and gain familiarity with the issues in dispute between the litigants. Using this familiarity, case managers are able to resolve procedural disputes between the litigants, often informally and without full briefings. The Court has now issued case management guidelines to further modernize and improve practice and procedure in complex litigation before the Court. The guidelines focus on ensuring that the time and money spent on steps taken in the proceeding are proportional to the issues in dispute. For example, a litigant will not be required to conduct extensive searches to locate documents that are only tangentially relevant to a minor issue in dispute.

The guidelines also set out limits on the time for oral discovery, which are tied to the expected duration of trial. Oral discovery typically involves the examination of one corporate representative, in contrast to the extensive depositions process that occurs in the United States, with many different individuals being deposed on related topics. Where the hearing of the matter will be less than a week, examinations for discovery will be limited to one day per litigant. The time for examinations increases up to a maximum of four days each if the trial will be five weeks or longer. Case Management Judges have been given instructions to enforce the guidelines barring special circumstances.

To further streamline proceedings, the guidelines seek to reduce or eliminate motions on discovery evidence by mandating that all questions must be answered under reserve of objection unless clearly improper, prejudicial or they require disclosure of confidential information. Litigants may be subjected to significant cost sanctions if they are found to be acting unreasonably. The guidelines also strictly enforce a limit of five experts testifying in a proceeding, per litigant, for all issues including remedies. For efficiency, litigants may be required to prepare science and technology primers for the Court in advance of trial. Additionally, the Court has indicated that further guidelines will be forthcoming. As a result, a patentee litigating infringement at the Federal Court of Canada can expect to do so in a more cost-effective manner.

The second development is the Federal Court's recent trend toward substantial cost awards. This trend has culminated with what has been reported as the highest patents cost award in the Federal Court's history; a $6.5 million award that was recently affirmed by the Federal Court of Appeal. While this award was for "an extremely complex patent case involving much expert testimony", the Federal Court of Appeal endorsed the trend of more substantial cost awards.

The Federal Court of Canada employs a fee shifting regime that provides successful litigants with an award of costs. Such awards are not intended to be punitive, though in cases of egregious conduct they can be. Instead, cost awards are intended to provide the successful litigant with a reasonable contribution towards the expenses of the litigation. These cost awards are broken down to include a portion reflecting legal fees and a portion for other disbursements associated with the litigation.

The 'rule' regarding disbursements is that they will be awarded to the successful litigant where they are reasonable in amount and were necessary for the litigation. The most significant disbursement is usually the fees of testifying experts but other recoverable disbursements include travel expenses for witnesses and counsel, the cost of tests to prove infringement, research and search fees, court reporter services and process server fees, photocopies and telecommunication costs. A successful litigant will usually be granted 100%of the cost of these disbursements, though if they are deemed excessive the Court will typically award a percentage.

The legal fee portion of a cost award has historically been assessed by the Court based on a tariff table provided in the Federal Courts Rules. Under the tariff, a number of units are granted for the various steps taken in the litigation, with each unit being worth a dollar amount. It has been recognized that the maximum amounts provided by the Tariff are often inadequate in providing a reasonable contribution to the costs of the litigation. As a result, the Federal Court now frequently departs from the tariff and awards a lump sum based on a percentage of the successful party's legal fees.

The Federal Court of Appeal has confirmed the appropriateness of lump sum awards in the range of 25 to 50% of total legal fees; however, higher or lower percentages may be justified on the facts of a specific case. These lump sum awards are recognized as especially appropriate when dealing with sophisticated commercial litigants that clearly have the means to pay for the legal choices they make. Lump sum awards have also been favoured for their efficiency in eliminating what essentially is an exercise in accounting under the tariff structure.

In conclusion, Canada is a jurisdiction worth considering for patentees determining where to litigate infringement. The Federal Court of Canada has a good record of upholding the validity of patents and continues to reduce the costs of complex litigation. On top of this, a successful litigant can expect to recover up to 50% of its legal fees as well as its disbursements. If this isn't enough, the low Canadian dollar is currently providing a further discount to foreign corporations!