The Federal Court, where most intellectual property litigation takes place has a system for determining costs that differs in many respects from that of the Ontario Court system.
Costs in the Federal Court are generally determined based on a number of discretionary factors, set out in Rule 400 of the Federal Courts Rules, and a table of fixed amounts for steps in the litigation. Judges and Prothonotaries can also order costs on a lump sum basis.
Unlike in the Ontario Courts, the Federal Court Rules include a tariff, Tariff B, which allocates a range of ‘units’ for steps in the litigation. Each unit is currently worth $130. The value of each unit is based on a formula involving the Consumer Price Index and is announced by the Federal Court each year.
The Tariff has five columns and the number of units increases under each column. Absent a specific order, costs are awarded in accordance with the tariff under column III pursuant to Rule 407. Based on the specifics of a case, a costs order may award costs such as “costs in accordance with the middle of column III” or “costs in accordance with the top of column IV”.
For example, the Tariff provides for a range of 3 – 7 units under Column III for “Preparation and filing of a contested motion, including materials and responses thereto.” An award under the middle of Column III would result in 5 units for a total of $650 for this step, regardless of the amount of time actually spent by counsel in preparing the materials.
In intellectual property cases, several decisions have held that costs in accordance with column IV of the Tariff are the norm, based on the complexity of a typical intellectual property proceeding. Justice Snider has written in Sanofi-Aventis Canada Inc v Novopharm Ltd, 2009 FC 1139:
A review of recent jurisprudence on the issue of awards in intellectual property trials indicates that this scale recognizes the significance and complexity of the various issues in such a trial. This trial, in my view, reflects the same level of significance and complexity. Indeed, in light of the number of Federal Court decisions where the Court concluded, in cases of similar complexity, that the high end of Column IV was appropriate, I question why the parties argued this point. I will award costs based on the upper end of Column IV. (internal references omitted)
Once an award is made as to which column to apply, the parties, or an assessment officer, will total up the number of units in accordance with the Tariff to arrive at a total for the fees to be awarded. Disbursements are handled separately from the fees and are subject to the discretion of the judge.
Since awards of costs are based on the Tariff, often the fee awards are only a portion of the actual costs incurred by the parties.
Settlements and Double Costs
The Federal Court Rules also provide for double party-and-party costs where a party makes a written settlement offer more than two weeks before trial and judgment is as favourable or more favourable than the terms of the offer to settle. This rule, Rule 420, applies to plaintiffs, defendants and third parties.
In decision released this fall, Justice Scott of the Federal Court granted the defendant in a copyright proceeding double its costs from the date of a 2005 offer to settle up to the date of the trial in 2012 because the defendant made a more favourable offer to settle than the ultimate judgment against it. In determining that the costs award would be doubled, Justice Scott wrote:
Given the offer from the Defendants, the Plaintiff’s decision to forego the offer and risk spending large amounts of money litigating a claim is not necessarily reasonable. As mentioned in the passage taken from Burton, cited above, a party that refuses a reasonable offer to settle is considered to be confident that it will be awarded more at trial. If you are not confident, then you should accept a reasonable offer or be willing to accept the risk of proceeding further.
In a recent pharmaceutical proceeding under Section 8 of the Patented Medicines (Notice of Compliance) Regulations, Justice Snider applied double costs from the date of a $200 million offer even though the defendant argued it had limited time to assess the offer prior to the trial. Justice Snider held that the offer met the requirements of the Rules and the sophisticated parties had adequate time to consider the offer.
The application of double costs provides a significant incentive to parties to make settlement offers and to fully assess any settlement offers they receive during litigation.
In a report published in October, a subcommittee of the Federal Courts Rules Committee has recommended that the costs provisions be amended to make it more likely that a higher quantum of costs will be awarded. Higher cost awards would provide a greater incentive for pre-trial resolution.
The committee notes that “the current scale of costs in the Tariff is low and has little effect on the conduct of large, sophisticated litigants.”
It will be some time before amendments to the Federal Court Rules are finalized but it will be interesting to see if costs are used by the Court to provide meaningful incentives to parties to consider alternative resolution of the disputes or bring fewer interlocutory motions and appeals.