Docket: T-407-14
Citation:
2016 FC 1193
Montréal, Quebec, October 26, 2016
PRESENT: The Honourable Mr. Justice Locke
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BETWEEN:
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POLLARD
BANKNOTE LIMITED
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Plaintiff
(Defendant by Counterclaim)
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and
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BABN
TECHNOLOGIES CORP. and SCIENTIFIC GAMES PRODUCTS
(CANADA) ULC
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Defendants
(Plaintiffs by Counterclaim)
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ORDER AND REASONS
[1]
This decision concerns costs following trial in
a patent impeachment action by Pollard Banknote Limited (Pollard) against
Scientific Games Products (Canada) ULC (SG). In a decision dated July 28, 2016,
I found in favour of Pollard, ruling that the claims of the patent in suit
(Canadian Patent No. 2,752,551, hereinafter the 551 Patent) were invalid. In
that decision, I ruled that costs would follow the event and invited the parties
(Pollard first and then SG) to make submissions on costs of no more than 15
pages. Pollard then had an opportunity to make submissions in reply of no more
than five pages.
I.
Pollard’s Submissions
[2]
In its submissions in chief, Pollard seeks a
lump sum award of costs that reflects its actual expenses in the impeachment
proceeding, instead of an award according to Tariff B of the Federal Courts
Rules, SOR/98-106 [the Rules]. Pollard asserts that its actual expenses
included $1,348,315.00 in legal fees and $208,001.72 in disbursements. Pollard
seeks an award in the amount of $882,159.22 which reflects 50% of its legal
fees and 100% of its disbursements.
[3]
Pollard argues that costs calculated on the
basis of Tariff B would amount to only 17% of its legal fees (if the top of
Column IV is applied) or 22% (if the top of Column V is applied). Pollard also
cites a “trend in recent caselaw favouring the award of
a lump sum based on a percentage of the actual costs to the party when dealing
with sophisticated commercial litigants that clearly have the means to pay for
the legal choices they make” (Eli Lilly and Company v Apotex Inc,
2011 FC 1143 at para 36). Pollard also cites the following decisions as
examples of this trend: Air Canada v Toronto Port Authority, 2010 FC
1335; Philip Morris Products SA v Marlboro Canada Ltd, 2014 FC 2, [2014]
FCJ No 1370 (QL); The Dow Chemical Company v Nova Chemical Corporation,
2016 FC 91.
[4]
Pollard notes Rule 400(3) setting out a number
of factors that may be applied in awarding costs, and asserts a number of
reasons why costs in this case should be elevated.
II.
SG’s Submissions
[5]
SG argues that this is not a case that warrants
a departure from the default costs award under Column III of Tariff B as
contemplated in Rule 407. SG also argues that nothing in the “trend” asserted by Pollard suggests that the Court
should ignore Tariff B. SG argues that, though Pollard was entitled to pay its
counsel any amount, it should not be entitled to pass on the cost of that
choice to SG. Citing Wihksne v Canada (Attorney General), 2002 FCA 356
at para 11, SG also argues that if the recovery of costs pursuant to Tariff B
is considered inadequate, the remedy is not to ignore it, but for the
Governor-in-Council to amend the Rules.
[6]
SG discusses the various factors mentioned in
Rule 400(3) and argues that (i) elevated costs are not warranted, and (ii)
costs should actually be discounted from Tariff B for several reasons. SG then
provides a detailed response to Pollard’s bill of costs based on Tariff B.
[7]
Before continuing, I must note that SG’s
submissions do not appear to comply with the Rules. They appear to use a
10-point font (rather than the 12-point font required by Rule 65) and to be
single-spaced (thus exceeding the limit of 30 lines per page exclusive of headings).
The result of SG’s failure to comply with the Rules is that its 15-page
submissions total 116 paragraphs versus 47 paragraphs for Pollard’s submissions
in chief. SG has effectively exceeded the page limit for costs submissions more
than two-fold without seeking leave to do so. I have reviewed and considered
SG’s costs submissions in their entirety, and I will reflect SG’s disrespect
for the Rules in awarding costs related to this assessment.
III.
Pollard’s Reply Submissions
[8]
In reply, Pollard reiterates its position that a
lump sum costs award would be appropriate and responds to some of SG’s comments
concerning (i) the various factors mentioned in Rule 400(3), and (ii) Pollard’s
bill of costs based on Tariff B.
IV.
Analysis
[9]
In seeking an award of costs that is
appropriate, the Court must be prudent in exercising its discretion, if only to
prevent parties whose conduct is not reprehensible from being ordered to pay
costs of an unforeseeable quantum: Mugesera v Canada (Citizenship and
Immigration), 2004 FCA 157 at para 14.
[10]
Though there are grounds (discussed below) on
which I conclude that an award of elevated costs is justified in this case, I
am not convinced that SG’s conduct has been so reprehensible as to justify a
lump sum award of costs at the level sought by Pollard.
A.
Factors in Awarding Costs
[11]
I have considered the factors listed under Rule
400(3) that may be considered in awarding costs. In the paragraphs below, I
discuss some of the issues raised by the parties in relation to those factors.
(1)
The result of the proceeding
[12]
Pollard had unmitigated success in this matter.
This factor clearly favours Pollard.
(2)
The importance and complexity of the issues
[13]
This matter was clearly of considerable
importance to the parties. They devoted the significant resources necessary to
prepare for and conduct a trial lasting 11 days during which seven witnesses
testified. Though the subject matter was not as technically complex as in some
pharmaceutical patent cases, patent matters are inherently complex, and expert
witnesses were called by both sides. Though Pollard had four counsel in
attendance during much of the trial, SG made do with one senior counsel and one
junior counsel.
(3)
Details of Pollard’s invalidity allegations
[14]
SG argues that Pollard should be criticized for
pleading with insufficient particularity near the beginning of this proceeding,
and providing details only when pressured to do so by the case management
judge. SG characterizes this as an abuse of process because Pollard commenced
the proceeding without a proper understanding of the allegations supporting it.
SG also criticizes Pollard for late changes in its invalidity allegations.
[15]
I am not prepared to draw any conclusion that
Pollard’s pleadings constituted an abuse of process. That would have been a
finding for the case management judge on a motion to strike. I have no
information concerning any such motion. Also, I note that it is not uncommon
for parties to plead broadly at the beginning of a patent proceeding, and then
to narrow those pleadings as information is obtained through the discovery
process and from experts. Parties should be encouraged to focus the issues in
dispute as a case progresses toward trial. I would not want, in a costs award,
to dissuade parties from doing so.
(4)
SG’s alleged conduct tending to lengthen and
complicate proceedings before trial
[16]
For its part, Pollard argues that SG
unnecessarily complicated matters, first by refusing to cooperate with
Pollard’s efforts to obtain early case management and an early trial date, and
then by failing to complete its examination for discovery within a reasonable
time and by pursuing motions to compel discovery answers that had limited
success.
[17]
I am not convinced that anything SG did or
failed to do delayed the trial. Moreover, I am not prepared to sanction SG,
over and above what is contemplated in Tariff B, for requiring an additional
day of examination for discovery. Finally, any sanctions related to SG’s
motions to compel discovery answers were for consideration by the case
management judge who heard these motions. I understand that no costs were
awarded on any of the motions to compel.
(5)
SG’s arguments concerning claim 2
[18]
Pollard argues that it was “absolutely unnecessary and unforgivable” for SG to
continue, throughout the trial, to assert infringement of, and to defend the
validity of, claim 2 of the 551 Patent, which was found to be invalid for
ambiguity. In my view, this did not add significantly to the length or
complexity of the trial. I am also mindful that allegations of ambiguity of
patent claims are rarely successful. Therefore, it was not unreasonable for SG
to maintain these allegations. SG lost on claim 2 and should pay costs related
thereto. However, it is my view that maintaining its arguments concerning claim
2 is insufficient, without more, to justify an elevated award of costs.
(6)
SG’s evidence relating to retailer fraud rather
than consumer fraud
[19]
Pollard criticizes SG for presenting significant
amounts of evidence concerning issues that concern retailer fraud in the
lottery industry, whereas I found that the 551 Patent was concerned instead
with the distinct issue of consumer fraud. Though my decision did not
favour SG’s reading of the 551 Patent, it was not unreasonable for SG to make
this argument, and I am not prepared to sanction SG disproportionately for
doing so.
(7)
Pollard’s standing
[20]
SG argues that the award of costs should be
reduced to reflect the following allegations that Pollard failed to prove, or
even present evidence in support of, at trial: (i) that the 551 Patent might
negatively impact its business, and (ii) that SG’s predecessor had threatened
litigation or sought licenses from several of Pollard’s clients. It is apparent
that Pollard made these allegations in order to establish that it had standing
to challenge the validity of the 551 Patent. Pollard answers SG’s argument
completely by noting that SG counterclaimed against Pollard for infringement
and alleged that Pollard had induced infringement by its customers. Once SG had
counterclaimed, there could no longer be any issue as to whether Pollard had
standing. The inducement allegation implies that SG also saw infringement by
Pollard’s clients. In light of the counterclaim, it was no longer necessary for
Pollard to present any evidence in support of these allegations. Costs should not
be reduced on this basis.
(8)
Admissibility of James Trask’s expert evidence
[21]
SG argues that, to the extent that SG’s
unsuccessful arguments are sanctioned with increased costs, Pollard’s
unsuccessful challenge to James Trask’s expert testimony should be sanctioned
with reduced costs. I disagree on the basis that it was not unreasonable for
Pollard to have sought to exclude the opinions of an expert who had close
connections with a party. Moreover, the time spent on the question of Mr.
Trask’s evidence was not significant.
(9)
Read-Ins
[22]
During the trial, SG sought to have certain
passages from the examination for discovery of its representative read in as
part of Pollard’s evidence as qualifying answers to the passages Pollard
elected to read in. The Court heard a motion by SG under Rule 289 seeking an
Order to that effect. SG was entirely unsuccessful in its motion. Pollard
argues that this motion had no chance of success and was a waste of time.
[23]
I am inclined to agree with Pollard that SG’s
Rule 289 motion was a waste of time. However, the amount of time and resources
wasted was not as great as with regard to the other issues discussed below.
(10)
Standard of review of Patent Office decision to
issue the 551 Patent
[24]
In its defence against Pollard’s attack on the
validity of the 551 Patent, SG argued that, in view of the extensive
prosecution of the patent application over a 17-year period, some deference
should be shown to the decision of the Patent Office to allow the patent to
issue. The parties have referred to this as the standard of review argument.
[25]
Pollard submits that an action to impeach a
patent is not a judicial review, and the jurisprudence indicates clearly that
no deference is owed to the Patent Office on its decision to allow a patent to
issue. Pollard argues that SG’s standard of review argument had no little or
chance of succeeding. For its part, SG argues that the unusual circumstances
surrounding the 551 Patent (Pollard filed 12 protests) effectively turned the
prosecution of the application into a third party opposition.
[26]
I am not persuaded by SG’s argument. It did not,
at trial or in the present argument on costs, offer any compelling reason not
to apply the established jurisprudence concerning the presumption of validity
of an issued patent and the applicable legal tests for invalidating a patent. I
agree with Pollard’s argument that SG’s standard of review argument had little
to no chance of succeeding, and that this should be taken into account in
awarding costs. Moreover, in my view, there was nothing remotely improper in
Pollard’s repeated protests. Generally speaking, they had merit and met with
success. Essentially, Pollard’s repeated protests were necessitated by SG’s
repeated submission of impermissible claims to the Patent Office.
(11)
Fred Finnerty
[27]
Fred Finnerty testified at trial as an expert on
behalf of SG. His testimony was notable because, in cross-examination, he
acknowledged that he had “grossly mischaracterized”
the principal prior art reference in the case (the Camarato Application)
because he had misunderstood it. He stated that he wished to retract the entire
portion of his report that concerned that reference. At paragraph 53 of my
decision following the trial, I expressed some concerns as follows:
Mr. Finnerty’s admission in cross-examination
that he had completely misunderstood what was clearly the most important prior
art reference in this case was surprising enough. But I do not understand why
Mr. Finnerty’s retraction was not addressed during his examination-in-chief.
Based on Mr. Finnerty’s testimony, it appears that he recognized his error well
in advance of trial, after reading documents prepared by Pollard’s experts, and
that he brought this to the attention of SG’s counsel at the time; he testified
that he was told that there was no further opportunity to amend or clarify his
report. The failure to address this error during examination-in-chief, leaving
Mr. Finnerty’s report unaltered, constitutes not just a strategic misstep by
SG, but it also suggests that there may have been a hope that Mr. Finnerty’s
confusion would go unnoticed and that the report would be considered without
amendment. Proceeding in such a manner would be improper as it would mislead
the Court as to the expert’s actual opinion. Pollard’s counsel noted (correctly)
that it might have chosen not to cross-examine at all on the Camarato
Application, in which case Mr. Finnerty’s confusion would indeed have gone
unnoticed. There may have been a reasonable explanation for not correcting Mr.
Finnerty’s report at the outset of his testimony, but none was offered.
[28]
Pollard argues that substantial costs should be
awarded as a result of this incident. SG responds as follows:
Unfortunately, Mr. Finnerty became unnerved
in the courtroom setting and made statements during cross-examination that were
not anticipated by Scientific Games or its counsel. Counsel could not
intervene, speak to or direct a witness who was under cross-examination. Until
receipt of the Court’s judgment, counsel was unaware that the Court may have
perceived the situation differently. Viewed in the overall context of the
case, this factor should not weigh heavily, if at all, with respect to costs,
especially since Pollard ended up relying upon aspects of Mr. Finnerty’s
testimony.
[Emphasis added]
[29]
With reference to the underlined sentence above,
it is inconceivable to me that SG’s counsel could have failed to perceive that
the Court would have serious concerns about Mr. Finnerty’s testimony. I do not
understand how the Court could “have perceived the
situation differently.” SG failed to address the situation in any way
during trial, either in re-direct or in argument. Though SG asserts that
neither it nor its counsel anticipated Mr. Finnerty’s statements during
cross-examination, this does not amount to a denial that they had been made
aware of Mr. Finnerty’s reservations prior to trial. His suggestion to that
effect during his testimony remains uncontradicted. Based on the evidence, it
appears that SG and/or its counsel was aware before trial that it had no reliable
expert evidence to defend against Pollard’s obviousness challenge in view of
the Camarato Application.
[30]
Because of my serious concerns about this
situation, and the fact that it relates to the central issue in the case, I am
of the view that costs should be elevated substantially to dissuade this sort
of behaviour.
(12)
SG’s altered position on claim construction
[31]
I observed in my decision on the merits of the
trial that SG’s position on the construction of claim 1 of the 551 Patent was
contrary to the position it took during prosecution of the patent application.
Based on jurisprudence that is clearly binding on me, I ignored the position
that SG took during prosecution. Instead, I adopted the claim construction
position that SG argued at trial. But I observed that it was “breathtaking” to see SG take this position on claim
construction without addressing the fact that it reintroduced the problem of
obviousness that it had overcome during prosecution by asserting the contrary
claim construction position.
[32]
My concerns surrounding both Mr. Finnerty’s
testimony and SG’s standard of review argument are compounded by the fact that
SG seems to have had no reasonable argument as to how the 551 Patent, construed
as SG argued at trial, could survive the obviousness attack. SG sought to have
the Court show deference to the decision of the Patent Office to allow the 551
Patent to issue, while ignoring the circumstances that led to that decision.
(13)
Public interest
[33]
Pollard argues that it acted in the public
interest, and without hope of monetary remedies, by challenging a patent that
was being asserted against various lotteries and which was eventually
determined to be invalid. Pollard argues that the costs award should be
elevated to reflect Pollard’s efforts in the public interest.
[34]
I would be more inclined to agree with Pollard
if it had embarked on this expensive process without expectation of financial
reward. But I am not convinced this is the case. My impression is that Pollard
won customers by virtue of its undertaking to them to address the 551 Patent. I
assume that Pollard, a for-profit company, would not have given such an
undertaking if it did not believe that doing so was in its long-term best
financial interest. In my view, this is not the sort of case that calls for increased
costs because Pollard was acting in the public interest.
V.
Conclusions
[35]
Based on the result of the proceeding and the
importance and complexity of this case, and before taking into account the
other issues discussed above, I would award costs to Pollard calculated at the
top of column IV of Tariff B. I would also permit the addition of fees for
preparation and attendance by one junior counsel (at half the amount
contemplated for senior counsel) for any of the following steps in which two
counsel were involved: examinations for discovery, trial and any pre-trial
hearings in respect of which costs were awarded. I would not award any costs
for more than one senior counsel and one junior counsel. Furthermore, I agree
with SG that no costs should be awarded in relation to mediation or any motion
in respect of which costs were not awarded. I would also permit Pollard to
claim any disbursements that it can establish were reasonable.
[36]
I have considered Pollard’s argument that costs
should be awarded as a lump sum based on its actual legal expenses, but I am
not convinced that an award of costs based on Tariff B will be inadequate.
However, because of my concerns with SG’s conduct during this case, I conclude
that the fees portion of costs should be elevated by 50% above what is
contemplated in the previous paragraph. As discussed above, I am particularly
concerned about (i) SG’s standard of review argument, (ii) the manner in which
SG dealt with Mr. Finnerty’s testimony, and (iii) SG’s argument for a claim
construction that defers to the Patent Office’s decision to allow the 551
Patent to issue, and simultaneously ignores its submission during prosecution
that led to that decision.
[37]
Because of SG’s disrespect for the Rules with
regard to font size and line spacing in its submissions on costs, I award
Pollard $2,500.00 for the costs associated with the present submissions.
[38]
I have not calculated the amount of costs to be
awarded for this proceeding as a whole. That amount may be determined by an
assessment officer pursuant to Rule 405 and in accordance with my instructions
herein, assuming that the parties are not able to agree on an amount. The
assessment officer may address any of the arguments raised by the parties that
I have not discussed in these Reasons. The parties may rely on their
submissions before me, and may submit additional evidence and/or submissions to
support their respective arguments, though they may not add new arguments or
claims. The costs of the assessment before the assessment officer may be determined
and awarded by the assessment officer, separately from the costs of the present
submissions, as he or she sees fit.
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