Bifurcation, or the splitting and deferring of the resolution of issues, is common in intellectual property proceedings. If a case is bifurcated, the issue of liability is determined first, followed by the remedies, but only if necessary.
In the example of a patent case, the first part of the proceeding would focus on the validity and infringement of the patent to determine whether the defendant has infringed the patent. If there is infringement, in the second part, the amount of monetary relief is then determined.
The Federal Courts Rules, applicable in the Federal Court where most IP cases take place in Canada, include broad abilities for the Court to split the determination of issues in a proceeding:
107. (1) The Court may, at any time, order the trial of an issue or that issues in a proceeding be determined separately.
(2) In an order under subsection (1), the Court may give directions regarding the procedures to be followed, including those applicable to examinations for discovery and the discovery of documents.
The Federal Court provides a ‘model bifurcation order’ specifically for intellectual property proceedings which may be used as a basis for parties seeking such an order. A party seeking a bifurcation must show that bifurcation is more likely than not to result in the just, expeditious and least expensive determination of the proceeding on its merits, although in most cases the orders are entered on consent.
A bifurcation order typically defines a ‘liability phase’ where validity and infringement are determined. Often the entitlement to remedies is also determined in the first phase, such as whether an injunction is appropriate, and whether the plaintiff is entitled to an election of profits or damages. Entitlement to punitive damages may be either in the first phase or the second phase (see Bell Helicopter Textron Canada Limitée v. Eurocopter, 2013 FCA 219 at para 168).
The second phase, or ‘quantification phase’, is typically directed to determining the extent of infringement, such as the amount of the defendant’s profits or the plaintiff’s damages.
When a case is bifurcated, discovery, any expert reports and trial take place on only the relevant issues for that phase. For example, during a typical ‘liability phase’, documentary and oral discovery will exclude financial documents and issues that only relate to damages. Similarly a trial for the liability phase will not address the amount of damages in the event of infringement.
Only if the court finds the defendant liable, will the second phase take place. A reference or trial will be held to determine the amount of the financial remedies after discovery on the financial issues. If the defendant is not liable, for example because the patent is invalid or not infringed, then there is no need for the second phase.
Should you bifurcate your case?
Not every case is suited to bifurcation and the parties may have different perspectives on whether bifurcation is appropriate in a given case.
Often a bifurcation order is entered on consent by all parties and issued by the Court. Such an order should be discussed and obtained early in the proceeding, typically prior to exchange of affidavits of documents, so that the scope of discovery is understood.
An advantage of bifurcating cases is that it defers the need to disclose and decide financial issues, perhaps forever if the liability phase is decided in favour of the defendant. If the plaintiff is unsuccessful at the liability phase, then there is no need for the quantification of damages, saving the costs and time of discovery, experts and trial on those issues. Also, the parties may not need to disclose sensitive financial information until after the liability phase.
Often a plaintiff in intellectual property proceedings seeks an election as to its damages or the defendant’s profits. Until this election is made, discovery and experts have to consider both potential remedies, increasing the costs of the proceeding.
Potential disadvantages of bifurcating a proceeding include lengthening the time to a final resolution if a second phase and trial have to take place after the liability trial. An intervening appeal of the liability decision may also lengthen the proceeding. By not having financial information from the other side, the chances of settlement may be reduced if parties are less sure of their financial exposure or recovery. In addition, there may be duplication of evidence and issues resulting in more trial time for two trials than for a single trial on all issues.
Will the Court bifurcate Your Case?
Some recent decisions suggest that on contested motions seeking bifurcation, the court will look critically at contested requests to bifurcate, often recognizing the additional time required for final resolution and the right of the plaintiff to get all issues resolved.
While the Courts recognize that many intellectual property cases are bifurcated, the onus is still on the party seeking bifurcation to show it is appropriate in a particular case, given that the default is for all issues to be resolved at one trial.
In the recent decision of Casella Wines PTY Limited v. Constellation Brands Canada, Inc., 2015 FC 403, the defendant in a trademark dispute sought a bifurcation order after examinations for discovery. Justice Harrington weighed the possibility that the damages calculations would be simpler than many intellectual property cases against “delays inherent in bifurcation” to dismiss the request for bifurcation.
In an unreported decision dated January 30, 2013 in File No. T-1274-12, Prothonotary Aronovitch considered factors relating to the nature of the issue of quantification and its complexity to dismiss a motion for bifurcation, stating in part “… bifurcation presents a clear prejudice to the plaintiff who in the event that it is successful at the liability stage, will have to engage in a second proceeding, and will thereby be deprived of a timely remedy.”
In contrast, in a complex pharmaceutical case, the proceeding was ‘trifurcated’ into a trial on liability, a trial on the terms of any injunction, and a trial on the issue of damages (see decisions 2014 FC 178 affirmed 2014 FCA 112 in Abbvie Corporation v. Janssen Inc.).
When starting an intellectual property case, one should take a close look at the complexity of the remedies, including the type of remedies sought, the number of likely relevant documents and whether any factor favours one party over the other when deciding whether to seek bifurcation.