Safilo Canada Inc. v. Contour Optik Inc., 2005 FC 278

                                                                                                                        Date: 20050223

                                                                                                                             Docket: T-1021-04

                                                                                                                        Citation: 2005 FC 278

BETWEEN:

                                                         SAFILO CANADA INC.

                                                                                                                          Plaintiff/Respondent

                                                                           and

                                                     CONTOUR OPTIK INC. and

                                                              CHIC OPTIC INC.

                                                                                                                      Defendants/Applicants

                                                        REASONS FOR ORDER

MONTIGNY J.

[1]                The applicants Contour Optik Inc. (CONTOUR) and Chic Optic Inc. (CHIC) have applied to this Court seeking dismissal or, in the alternative, a stay of the action brought by Safilo Canada Inc. (SAFILO) to invalidate patent No. 2,180,714 (hereinafter patent 714E) held by CONTOUR and for which CHIC has an exclusive licence in Canada.

[2]                The situation in which this motion was made and the pleadings preceding it are of some importance, and so it would be appropriated to take the time to consider them before looking at the parties' arguments on the merits.

Chronology of proceedings

[3]                Patent 714 E and the CHIC licence deal with the marketing, sale and distribution of spectacles equipped with a magnetic attachment system of solar clips sold under various names (the best known undoubtedly being "Easyclip". This system essentially makes it possible to add to the primary frame tinted lenses mounted on an auxiliary frame, known as a "clip-on", which is held to the primary mount with an arm used to anchor it.

[4]                In 2004 SAFILO introduced to the Quebec market two mount brands which, in the submission of CONTOUR and CHIC, infringed several claims in patent 714 E.

[5]                Within two weeks of learning of the alleged infringement, namely on May 17, 2004, the applicants sent SAFILO a notification requiring it to withdraw from sale and to cease selling its products, failing which proceedings would be initiated against it. As there was no reply to this letter, on May 19 and 21 the applicants sent two reminder letters. In the second, it was also stated that a proceeding for a provisional, interlocutory and permanent injunction would be served on the respondent on the morning of May 25, to be submitted to the Superior Court on the afternoon of that day.

[6]                On May 21, counsel for the respondent wrote counsel for the applicant advising them that they had just been retained by their client to handle this matter, they had not learned of the letter until May 17, they had still not had an opportunity of discussing it with SAFILO representatives and they assumed that the applicants would await their reply or would inform them before initiating their proceedings.

[7]                On the same day, counsel for both parties discussed the matter on the telephone, and at this time counsel for the respondent learned that the applicants expected to initiate proceedings on May 25 (the 24th was a holiday) and did not intend to allow SAFILO any additional time. The content of that conversation was the subject of confirmation by e-mails exchanged between counsel for the two parties on May 23.

[8]                This exchange of e-mail is of some importance for understanding the parties' actions, and it is appropriate to refer to them here:

                                                                                            Sunday, May 23, 2004 5:03 PM

Dear Mr. Biernacki:

I wish to confirm what we discussed on the telephone Friday afternoon. I will present on Tuesday May 25 a Motion for the issuance of a provisional injunction against your client before the Superior Court in Montreal.

As my client is out of the country, the affidavit can only be signed on Monday the 24th. The Motion will be sent by facsimile to Safilo either on Monday night or Tuesday morning.

Your Montreal office will represent Safilo. A courtesy copy will be sent to your Montreal office as soon as it is sent to Safilo. Our client shall rely on the '714 patent, Safilo's recently started sale campaign of top-mounted magnetic clip-on and the serious and irreparable damage that this situation is causing or will cause to our client.

We have lost one full week waiting for your client to even acknowledge receipt of our 3 letters sent within 7 days starting on the 17th of May.

Your firm has already battled our client with respect to the '714 patent, a patent that is well known to you. The Chesterfield top-mounted clip-on that your client has just begun selling in Quebec and in the rest of Canada is a clear violation of said patent. It is very urgent that sales of this product in Canada be stopped.

You appeared to indicate that your client had no intention of stopping such sales and, in your view, there is nothing urgent because an accounting of profits would suffice to protect our client. We entirely disagree for the reasons exposed to you and which our client shall reiterate in his proceedings.

We cannot imagine that you will not be ready to contest these proceedings on Tuesday and we insisted on giving you ample advance warning in order to avoid an argument that your client needs time to contest.

We remain,

Yours truly

Laurent Debrun

                                                          * * * * * * * * * *

                                                                                     Monday, May 24, 2004 10:12 A.M.

Dear Mr. Debrun:

Thank you for your e-mail.

Please fax a copy of your motion materials to our montreal [sic] office at (514) 954-1396 as soon as they are ready. Also, I would appreciate if you could send a copy of the materials to my e-mail address.

Your e-mail mentions that you have sent 3 letters to our client. We are aware of only 2 letters and have only seen the letter dated May 17. Kindly fax or e-mail us copies of all three letters as soon as possible.

During our discussion I made no indication regarding our client's intention with respect to it's sale of allegedly infringing eyewear. On the contrary, I indicated that I did not yet have an opportunity to confer with our client regarding this issue.

We disagree that notification on the Friday afternoon before the long weekend is "ample advance warning". Apart from the short notice, we still have not seen your client's evidence and it appears that we may have to wait until the day of the motion.

Yours Very Truly,

Mark Biernacki

[9]                Counsel for the respondent argued that they had never received a copy of the motion for interlocutory and provisional injunction filed by the defendant in the Superior Court before receiving formal service at 4:55 p.m. on Tuesday, May 25. They also pointed out that it was after learning the intentions of the applicant in their telephone conversation of May 21 that they received instructions from their client SAFILO to file their proceeding to invalidate the patent in this Court, which they served on counsel for the defendant at 12:15 p.m. on Tuesday, May 25, namely a few hours before the proceedings for an injunction were filed in the Superior Court.

[10]            In a judgment rendered orally on May 28, Louis Crête J. of the Superior Court granted the interlocutory injunction sought by CHIC and CONTOUR and dismissed the lis pendens argument made by SAFILO. Despite Safilo's proceedings in this Court for declaratory relief and to cancel the patent, Crête J. considered that the subject-matter of the two proceedings was not the same and the parties were not acting in the same capacities.

[11]            The Quebec Court of Appeal, per Dalphond J.A., affirmed this Superior Court judgment on December 9, 2004. In so doing, it in turn accepted the arguments of CHIC and CONTOUR that there was no identity of parties, cause and objects between the action filed in the Federal Court and the proceeding for an injunction filed in the Superior Court. However, it should be noted that, even before dealing with the lis pendens argument, Dalphond J.A. came to the conclusion that this argument could not be admitted in view of the actions by counsel for the appellant, which he characterized as [TRANSLATION] "unacceptable". This is what he said in this regard:

[TRANSLATION]

[22] On account of the unacceptable actions of counsel for the appellant, who suggested they would need time to speak to their client and respond to the application for an injunction, and who took advantage of the long weekend to quickly draft proceedings to be filed in the Federal Court so as to short-circuit the Superior Court, I feel that the lis pendens estoppel should be allowed, and consequently the appeal dismissed without even having to rule on the argument.

. . . . .

[26] In the case at bar, the estoppel is raised against the appellant's motion to dismiss for lis pendens, that is, an argument by the latter that the respondents' action is without foundation. In my opinion, the estoppel is then similar to dismissal of a defence argument and it is proper in the circumstances to allow it. Any other conclusion would allow the appellant to benefit from conduct suffused with concealment, and even bad faith: in other words, to benefit from its own turpitude.

[12]            Finally, on November 5, 2004, Danielle Richer J. of the Superior Court allowed the application for an interlocutory injunction sought by the defendants CHIC and CONTOUR. On January 14, 2005, Louise Otis J.A. of the Quebec Court of Appeal denied SAFILO leave to appeal Richer J.'s judgment.

Conduct of parties

[13]            Before reviewing on the merits the parties' arguments regarding the motion to dismiss or stay the action, we should briefly remark on the conduct of the parties, if only because it was discussed at length at the hearing of this motion.

[14]            Relying as required on the comments by Dalphond J.A. in the Quebec Court of Appeal cited above, counsel for CHIC and CONTOUR emphasized the [TRANSLATION] "underhanded" conduct of SAFILO's Toronto counsel, and several times stressed that the dismissal of its motion would amount to approving and even encouraging SAFILO's reprehensible conduct. According to counsel for the applicants, by failing to mention in his e-mail dated Sunday, May 23, that he had received instructions from his clients to challenge the validity of patent 714 E in the Federal Court, and by indicating that the motion for an injunction could be sent to the office of Smart and Biggar in Montréal as soon as it was ready, Mr. Biernacki tried to reassure his clients and implicitly consented to the Superior Court's jurisdiction.

[15]            As one would expect, counsel for SAFILO vigorously disputed these allegations of bad faith. He argued that his client was only exercising the right conferred on it by section 60 of the Patent Act, that there was no evidence that Mr. Biernacki tried to mislead the defendants or to gain time, and that there was never any tacit acceptance of the Superior Court's jurisdiction to decide any issue between the two parties. Further, the delay in answering the three letters from counsel for the defendants was explained by the fact that they were sent to the SAFILO president in Montréal, whereas his office was in the U.S.

[16]            It seems clear that the race to court was prompted in part by the parties' perception that it would be more difficult to obtain a provisional injunction in the Federal Court than in the Superior Court. Dalphond J.A. did not fail to see this and made this observation at paragraph 16 at the Court of Appeal judgment. Does this mean that counsel for SAFILO deliberately misled their colleagues representing CHIC and CONTOUR, by their actions and statements, so as to pull a fast one on them by filing their own pleadings in the Federal Court before applying for an injunction in the Superior Court?

[17]            That is the conclusion reached by Dalphond J.A. in connection with the appeal from the trial judge's judgment issuing the provisional injunction to the defendants. Though I am not technically bound by that decision, it nevertheless seems to me to merit some deference and clearly cannot be lightly dismissed. That said, in view of the submissions made to this Court and the exhibits submitted for my consideration (letters and e-mails), I am not absolutely persuaded that counsel for SAFILO acted with malice and bad faith, though they did not necessarily act with the greatest openness.

Motion to dismiss action

[18]            Relying on rule 221(1) of the Federal Court, the defendants/applicants are asking this Court to strike the application to invalidate the patent filed in this Court, on the ground that this pleading is "scandalous, frivolous or vexatious" (paragraph 221(1)(c)) or that it "is otherwise an abuse of the process of the Court" (paragraph 221(1)(f)). Counsel for the defendants essentially relied on the plaintiff's conduct as a basis for arguing that the pleading in this Court was an abuse of process which should not be encouraged, especially as the plaintiff could have obtained the same results from the Superior Court as those sought in the Federal Court.

[19]            It is well settled that before dismissing an action expressly provided for by law (here section 60 of the Patent Act), the Court must be persuaded that the action is without foundation, will have no concrete effects and is not supported in any way by the facts. The burden of proof is on the applicant, and the Draconian nature of this measure is such that it will not be easy to discharge that burden: Micromar Int'l Inc. v. Micro Furnace Ltd. (1988), 23 C.P.R. (3d) 216 (F.C.T.D.); Creaghan Estate v. The Queen, [1972] 1 F.C. 732 (F.C.T.D.); Waterside Ocean Navigation Co. Inc. v. International Navigation Ltd., [1977] 2 F.C. 257 (F.C.T.D.); Sweet v. R., [1999] F.C.J. No. 1539 (F.C.A.)).

[20]            In fact, counsel for the applicants was unable to cite a single judgment in which a party's conduct was a sufficient basis for dismissing an action. It may be that a party's actions and motivations will contribute to establishing a lack of basis for a proceeding; but when the application made to this Court is not completely frivolous prima facie, the questionable conduct of its originator will not by itself be a sufficient basis for dismissal of the proceeding. In the case at bar, the action has a clear legal basis and the facts relied on in support of it are not obviously far-fetched.

[21]            However, there is another reason for refusing to grant the applicant parties' motion, and that is the delay in filing it. It is well settled that, apart from some exceptional cases covered by paragraph 221(1)(a), a motion to dismiss an action cannot be allowed if it is made after the applicant has responded to the disputed pleading, without specifically reserving his rights to file such a motion thereafter. It is further established that the Court must take into account the delay that has elapsed between the time of service and filing of the disputed pleading and the filing of the motion to dismiss (Nabisco Brands Ltd. et al. v. Procter & Gamble Co. et al. (1985), 5 C.P.R. (3d) 417 (C.A.F.); Gariepy v. Canada (Administrator of Federal Court), [1989] 1 F.C. 544 (F.C.T.D.); Dene Tsaa First Nation v. Canada, [2001] F.C.J. No. 1177 (F.C.T.D.), reversed on another point at [2002] F.C.J. No. 427 (F.C.A.)).

[22]            It was only in its defence served on counsel for SAFILO on December 3 last that CONTOUR for the first time expressed a definite reservation of its rights, that is, over seven months after filing the pleadings in this Court. What is more, in its defence it indicated that it would apply to stay the proceedings in this Court but made no mention whatever of dismissing the action.

[23]            CHIC sought dismissal of the proceedings regarding it on September 8, on the ground that an action brought pursuant to section 60 of the Patent Act could not relate to the holder of a licence, only the patentee (the prothonotary dismissed this application on October 29, and that decision is currently on appeal). Consequently, it is surprising that the defendant CONTOUR allowed so much time to go by before seeking dismissal of the action.

[24]            An effort to explain this delay was made by reference to the fact that it was necessary to await the outcome of the proceedings in the Quebec Court of Appeal before seeking to dismiss or stay the action in the Federal Court. That explanation does not persuade the Court, since it was to be expected that the defendant/applicants would wish to reserve their rights at the first opportunity regardless of the fate suffered by their application for a provisional injunction in the Quebec courts.

[25]            For these two reasons, therefore, I have no hesitation in dismissing the first part of the applicants' motion and so will not allow their application to dismiss the action based on section 221 of the Federal Court Rules.

Motion to stay proceeding

[26]            Alternatively, the applicants relied on section 50 of the Federal Court Act as a basis for seeking a stay of the proceeding, and argued that there is no reason to go ahead in two parallel proceedings on the same subject-matter. Moreover, it is not in dispute that the schedule determined in both cases is essentially the same and that SAFILO's amended statement of claim in the Federal Court is basically to the same effect as its defence in the Superior Court. It was also argued that the Superior Court action is further advanced and more complete, since the Court will assess not only the infringement allegations but also the feasibility of issuing an injunction, and that much expert evidence has already been entered in the record. Ultimately, counsel for CHIC and CONTOUR maintain that the two actions cannot go forward simultaneously and that it was SAFILO's action in the Federal Court that should be stayed, in view of its conduct.

[27]            The courts have developed a number of guidelines to determine the circumstances in which a stay of proceedings should be ordered (Discreet Logic Inc. v. Canada (Registrar of Copyrights) (1993), 51 C.P.R. (3d) 191, aff. by (1994), 55 C.P.R. (3d) 167 (F.C.A.); Plibrico (Canada) Limited v. Combustion Engineering Canada Inc., 30 C.P.R. (3d) 312; Ass'n of Parents Support Groups v. York, 14 C.P.R. (3d) 263; Compulife Software Inc. v. Compuoffice Software Inc. (1997), 77 C.P.R. (3d) 451; 94272 Canada Ltd. v. Moffatt, (1990) F.C.J. No. 422; [1974] S.C.R. 98">General Foods v. Struthers, [1974] S.C.R. 98). These guidelines have been well summarized by Dubé J. in White v. E.B.F., (2001) F.C.J. No. 1073:

1. Would the continuation of the action cause prejudice or injustice (not merely inconvenience or extra expense) to the defendant?

2. Would the stay work an injustice to the plaintiff?

3. The onus is on the party which seeks a stay to establish that these two conditions are met.

4. The grant or refusal of the stay is within the discretionary power of the judge.

5. The power to grant a stay may only be exercised sparingly and in the clearest of cases.

6. Are the facts alleged, the legal issues involved and the relief sought similar in both actions?

7. What are the possibilities of inconsistent findings in both Courts?

8. Until there is a risk of imminent adjudication in the two different forums, the Court should be very reluctant to interfere with any litigant's right of access to another jurisdiction.

9. Priority ought not necessarily be given to the first proceeding over the second or, vice versa.

[28]            As we noted earlier, it appears that the main reason the applicants opted for the Superior Court was the fact that they thought they could obtain a provisional injunction more readily in that Court than in the Federal Court. That was certainly their right. They have now obtained that injunction, provisional then interlocutory, which would continue to be in effect while the Federal Court proceeding is under way. It is thus hard to see what prejudice CHIC and CONTOUR would suffer, apart from the fact that they may have to proceed in both cases rather than in one, with the risks of contradiction that would entail, and to which we will return below.

[29]            For its part, the plaintiff/respondent alleged that it would suffer serious prejudice if it was prevented from asserting its rights in the Federal Court, since only that Court could rule on the actual validity of the patent and dispose of it at a national level, while the Superior Court judgment would only be valid between the parties and in Quebec. Additionally, counsel for SAFILO went on, the Superior Court could decide not to rule on the validity of patent 714 E, thereby leaving that question open, and not enabling SAFILO or other manufactures to determine clearly whether they should take this patent into account in future product development. Moreover, it was because there was no identity of cause and object that the Quebec Court of Appeal concluded that there was no lis pendens in the case at bar.

[30]            To meet this difficulty, counsel for CHIC and CONTOUR referred the Court to the solution adopted in Apotex Inc. v. Astrazeneca Canada Inc. ([2003] 4 F.C. 826, affirming the trial judgment at [2003] F.C.J. 149; leave to appeal denied in the Supreme Court). In that case, very similar to the one at bar apart from the fact that the Copyright Act was at issue, Astrazeneca initiated an action in Ontario for a judgment declaring that it held the copyright to certain product monographs and seeking indemnity for infringement. It also claimed an interlocutory injunction or summary judgment. A few days later, Apotex filed an action in the Federal Court seeking a judgment that no copyright subsisted as well as an order striking the Astrazeneca copyright registrations. Malone J.A., for the Federal Court of Appeal, ruling on a motion to stay the proceeding regarding the action brought in the Federal Court, affirmed the orders made by the prothonotary and subsequently by the Federal Court Trial Division and allowed the motion.

[31]            Apotex maintained that only the Federal Court could entirely resolve the points at issue, and in particular, make declarations in rem regarding ownership of copyrights and the striking of copyright registrations. The Federal Court of Appeal disposed of this argument in two stages. First, it said that in its opinion if Apotex was successful in the action brought in Ontario, it would have an in personam conclusion of invalidity of the copyright registrations between itself and Astrazeneca. It would only have to await the outcome of the action brought in Ontario and then seek to have the copyright registrations struck out by the Federal Court based on subsection 57(4) of the Copyright Act.

[32]            Secondly, the Court approved Astrazeneca's undertaking to agree to the striking out of any copyright declared invalid by the Ontario Court. This is what the Court said in this regard:

[33]            At the hearing, counsel for CHIC and CONTOUR made the same undertaking with respect to patent 714 E, with the result that were the Quebec Superior Court to come to the conclusion that patent 714 E was invalid between SAFILO on the one hand and CONTOUR, CHIC and all the sublicensees which were part of the Aspex group on the other, the latter undertook to agree to the striking out of patent 714 E by the Federal Court. That undertaking would be implemented when the defendants/applicants in this Court had exhausted all remedies in the Quebec Superior Court and the appeal deadlines had expired.

[34]            It is true that the provisions applicable to copyrights and patents are not the same and differ in several ways. Nonetheless, the undertaking made in court by counsel for CHIC and CONTOUR as it were makes moot the distinction between the in rem and in personam nature of the remedies which the Federal Court and Superior Court may grant respectively. Subsection 57(4) of the Copyright Act and subsection 60(1) of the Patent Act appear to give this Court essentially the same power. That solution also has the merit of not depriving of meaning the concurrent jurisdiction granted by Parliament to the provincial courts and the Federal Court in cases of patent infringement (section 54 of the Patent Act). The possibility that the Superior Court might not rule on the patent's validity appears to this Court to be quite theoretical, in view of the allegations of infringement on which the injunction application relies.

[35]            In view of the foregoing, neither of the two parties would suffer real prejudice if this motion to stay were allowed or dismissed, as the case may be. That guideline thus could not be conclusive as to the outcome of the motion at bar. That said, it would undoubtedly be a misuse of the courts' limited resources to move two actions forward in parallel, when their subject-matter is essentially identical, as indicated by the similar schedules and close relationship between the amended statement of claim filed by SAFILO in this Court and the defence it filed in the Superior Court, to say nothing of the risks of contradictory judgments that might result from such a duplication of proceedings.

[36]            Ultimately, the solution probably lies in the fact that the case is much further advanced in the Superior Court. Two extensive judgments have already been rendered by that Court for the issuing of an interlocutory and then provisional injunction, the Court of Appeal has affirmed the interlocutory injunction and denied leave to appeal the provisional injunction, the parties have agreed on a schedule and expert evidence dealing in part with the patent's validity has already been entered in the record. It is true that no ruling has yet been made on the merits of the case, and that the parties must still complete their evidence on the patent validity and the infringement allegations. The fact remains that all these preliminary stages have made it possible to move the case forward and will be very useful in examining the issues on the merits.

[37]          I recognize that Dalphond J.A. mentioned the possibility that the Superior Court might await the outcome of the Federal Court proceeding before issuing a permanent injunction (Quebec Court of Appeal judgment No. 500-09-014646-046, dated December 9, 2004, at note 8). However, in view of the fact that the Federal Court has already heard two other cases in which the applicants sought to have the validity of patent 714 E confirmed (Contour Optik Inc.

and Chic Optic Inc. v. Elite Optik Inc. and Elite Optik Canada Inc., Court No. T-710-02,

and Contour Optik Inc. and Chic Optic Inc. v. Viva Canada Inc. and Viva Optique Inc., Court No. T-1927-02), it is very unlikely that the Superior Court will have to rule on the infringement allegations before this Court has been able to consider the validity of the patent

at issue. Consequently, the risks of contradictory judgments seem quite small.

[38]            A motion to stay should always be allowed with the greatest care, if only because it is a discretionary power that should be seldom used bearing in mind a party's right to have access to the court of his or her choice. On mature reflection, nevertheless, I have concluded that the very special facts laid before me justify granting the motion at bar. Unless one is to deprive of all meaning the concurrent jurisdiction of the provincial superior courts on patent infringement matters, it seems to this Court that the progress of proceedings in the Quebec Superior Court to date justifies staying the action to invalidate the patent in the Federal Court.

[39]            I would add that I am encouraged in this decision by the conduct of the parties, which is not above reproach. Although it is not easy to assign fault solely based on the exhibits that were in evidence, I cannot help feeling that counsel for SAFILO do not seem to have played fairly. Of course, the parties' actions cannot be conclusive by themselves, but they certainly may contribute to tipping the balance one way or another when the judge must exercise his discretion in a case like the one at bar.

[40]            For all these reasons, and noting the undertaking given by counsel for the applicants at the hearing, to be filed in writing in the Registry of this Court within the deadlines set by the order, I would allow the motion to stay and consequently stay proceedings to invalidate patent 714 E in this Court until there is a final disposition of the applicants' application for an injunction in the Superior Court and the appeal deadlines have elapsed, or until this Court directs otherwise.

                                                                                                                             "Yves de Montigny"                     

                                                                                                                                                   Judge                                

Certified true translation

K. Harvey

                                                             FEDERAL COURT

                                                      SOLICITORS OF RECORD

DOCKET:                                           T-1021-04

STYLE OF CAUSE:               SAFILO CANADA INC. v. CONTOUR OPTIK INC. and CHIC OPTIC INC.

PLACE OF HEARING:                     Montréal, Quebec

DATE OF HEARING:                       February 9, 2005

REASONS:                                         The Honourable Mr. Justice de Montigny

DATED:                                              February 23, 2005

APPEARANCES:

François Guay                           FOR THE PLAINTIFF/RESPONDENT

Jean-Sébastien Brière

Marc-André Boutin                               FOR THE DEFENDANTS/APPLICANTS

SOLICITORS OF RECORD:

Smart & Biggar                                     FOR THE PLAINTIFF/RESPONDENT

Montréal, Quebec

Davies, Ward, Phillips & Vineberg         FOR THE DEFENDANTS/APPLICANTS

Montréal, Quebec