Most IP litigation in Canada takes place in the Federal Court. Pursuant to the Federal Courts Rules1, the Court has a broad discretion in awarding costs. However, the Federal Court will typically order the losing party to pay the successful party’s legal costs. Such an award is comprised of two components: a fee component (to reflect a portion of the legal fees incurred by the successful party) and a disbursement component (to reflect the reasonable disbursements incurred by the successful party relating to the conduct of the litigation). It is important that IP litigants in Canada remain mindful of Canada’s costs regime throughout the litigation process. Depending on the circumstances, costs awards can be significant, and cost considerations should be taken into account when developing an appropriate litigation strategy.
Costs awards in the Federal Court
By default, the legal fees component of a costs award is guided by a Tariff system that sets out a scale of costs for various procedural steps in the litigation (i.e., pleadings, motions, discovery, etc.). Where the Court lands on the scale depends on a number of factors, including the result of the trial, the complexity of the case, any written offers to settle, and the parties’ conduct throughout the litigation.2
The Federal Courts Rules also enable judges to award “lump sum” legal fees as an alternative to the Tariff system. Such awards have become more common in recent times, as it is generally recognized that the Tariff may not adequately compensate successful litigants, especially in difficult and complex IP cases. In addition, a “lump sum” calculation can be more efficient, since it is based on a certain percentage of the winning party’s total legal fees, thereby dispensing the need for a line-by-line calculation of the potential costs based on the Tariff. In previous cases, this percentage has ranged from 25% to 50% of the successful party’s actual legal fees, depending on the circumstances.
Aside from legal fees, costs awards also typically include reimbursement of 100% of the reasonable disbursements incurred by the successful party. Eligible disbursements include Court filing fees, fees for expert witnesses, fees for Court reporters, the cost of printing and photocopying documents, and travel and accommodation expenses for counsel. Whether the Court considers a disbursement reasonable largely depends on its discretion and the unique facts and circumstances of each case.
In recent patent cases, total costs awards have ranged between $1.5 to 3 million. In some circumstances, costs awards can be significantly higher. By way of example, in a complex patent infringement action between The Dow Chemical Company and NOVA Chemicals Corporation, the trial judge awarded Dow a lump sum costs payment of $6.5 million (comprising $2.9 million for legal fees and $3.6 million for disbursements).3
Offers to settle
It is also important for parties to know that rejecting a qualifying offer to settle can lead to significant cost consequences. In particular, if a party (plaintiff or defendant) makes a written offer to settle which meets certain requirements prescribed by the Federal Courts Rules4, and obtains a more favourable judgment than the offer, then it is entitled to up to double its costs for legal fees from the date of that offer. This potential doubling applies to legal fees only, whether calculated pursuant to the Tariff or as a lump sum, and does not apply to disbursements.
In recent cases, parties have successfully relied upon offers to settle to increase the total costs payable considerably. For example, in Tekna Plasma Systems Inc v AP&C Advanced Powder & Coatings Inc,5 an impeachment action in which most of the defendant’s patents’ claims were invalidated, the Court granted a lump sum costs award to the successful plaintiff that equated to 33% of its legal fees up to the date of the offer to settle and 66% of legal fees thereafter, resulting in a total costs award of just under $3 million.
Summary and future directions
Costs awards in Canada can be significant, and cost considerations should be taken into account when developing an appropriate IP litigation strategy.
Amendments to the Federal Court’s Tariff system have recently been proposed that are intended to more closely reflect what is being awarded via “lump sum” costs awards.6 Should these amendments be enacted, the updated Tariff would provide more assessable items along with a streamlined scale for easier calculation of costs. It is predicted that costs under the updated Tariff may increase by approximately 25%. These changes should help the Tariff system better reflect current litigation practices, including the actual legal fees incurred by the parties.
The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.
References
Dow Chemical Co v Nova Chemicals Corp, 2016 FC 91, aff’d Nova Chemicals Corp v Dow Chemical Co, 2017 FCA 25. Read more about the costs decision.
Tekna Plasma Systems Inc v AP&C Advanced Powders & Coatings Inc, 2024 FC 1954. Read more about the decision.
Canada Gazette, Part 1, Volume 157, Number 6; Rules Amending the Federal Courts Rules and the Federal Courts Citizenship, Immigration and Refugee Protection Rules (February 11, 2023).