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Federal Court gets serious about equitable remedies

Intellectual Property
Federal Court gets serious about equitable remedies

Canada makes more equitable remedies available to patent litigants than many other jurisdictions. A patent owner can elect to pursue a patent infringer’s profits rather than proving her own damages, and the losing party in a dispute is theoretically liable for the winner’s costs (in contrast to the “American Rule” requiring each party to bear its own costs). And while the amounts awarded by the Federal Court have historically been modest, recent decisions suggest the reversal of this trend, making Canada a more attractive forum for enforcing patent rights.

The court’s procedural rules, as well as judicial resistance to the idea of rewarding aggressive litigation with monetary bonanzas, have historically limited the amounts recoverable under these doctrines. In particular, the remedy of an accounting of profits was undermined by the 2004 Supreme Court decision in Monsanto Canada v. Schmeiser. This decision introduced a “non-infringing alternative” defence that has significantly reduced the size of these awards — in some cases, to only a nominal amount.

Moreover, while costs awards are intended to make a successful litigant whole, costs in the Federal Court are determined in accordance with the Federal Courts Rules, which prescribe fixed dollar amounts for various steps in the litigation process regardless of the actual costs incurred: Litigants can only expect to recover approximately 25 per cent of their actual legal costs in complex cases. Any party seeking to recover its full legal costs must prove egregious litigation misconduct by its opponent to justify such an award.

However, the last year has seen a notable departure from these historical trends. In April 2017, Canada witnessed by far the largest award for patent infringement in its history: nearly $645 million to Dow Chemical in Dow Chemical Company v. Nova Chemical Corporation. That amount included an accounting of Nova’s profits during the life of the patents, royalty payments for the period between the publication and issuance of the patents, legal costs and prejudgment interest, as well as “springboard” profits to account for Nova’s unlawful 20-month head start in establishing its sales channels prior to the expiration of the patents. This is an award that would likely not have been possible in other jurisdictions, such as the United States, where an infringer must prove damages in the form of lost sales.

Last year also saw another Canadian first in Airbus Helicopter v. Bell Helicopter, which awarded Airbus $1 million in punitive damages based on the gross misconduct of the defendant Bell: the only punitive damages award for patent infringement in Canadian history. While the level of misconduct far exceeded the corresponding test for elevated damages under U.S. patent law, the punitive damages award suggests Canadian courts are prepared to award increased damages for patent infringement where a party’s conduct offends principles of equity.

The amount of costs awarded by the Federal Court also appears to be catching up to the actual costs of litigation. The Federal Court has increasingly been willing to depart from the amounts specified in the rules where appropriate. In 2016, Justice Michael D. Manson signaled this trend by ruling in The Regents of the University of California et al v. I-Med Pharma Inc. that the fixed amount dictated by the rules was “woefully inadequate” to compensate the successful party on a motion, as it would have resulted in a cost award of only about 10 per cent of the victor’s actual costs. The court has since demonstrated an ongoing openness to elevated cost awards: notably, Dow Chemical received a costs award of about $6.5 million as part of its $645-million judgment. The court is also willing to compensate successful defendants for the full cost of defending against meritless allegations.

In MediaTube Corp v. Bell Canada, the defendant Bell Canada was awarded elevated costs for claims of infringement withdrawn late in the litigation process, including its full solicitor-client costs for the plaintiff’s withdrawn claim for punitive damages.

These developments suggest a greater willingness on the part of the Federal Court to compensate successful parties in line with the actual financial stakes of patent litigation and suggest that if a successful party is entitled to equitable remedies, the court is more willing to award substantial equitable monetary remedies to the successful party.

Matthew Norwood is a partner in the Toronto office of Ridout & Maybee LLP. He gratefully acknowledges the assistance of firm associates Andrew Kaikai and Christopher Langan for their contributions to this article.