Monsanto Canada Inc. v. Schmeiser, 2002 FCT 439

Date: 20020417

Docket: T-1593-98

Neutral citation: 2002 FCT 439

BETWEEN:

                          MONSANTO CANADA INC. and MONSANTO COMPANY

                                                                                                                                                        Plaintiffs

                                                                              - and -

                         PERCY SCHMEISER and SCHMEISER ENTERPRISES LTD.

                                                                                                                                                    Defendants

                                    REASONS FOR SUPPLEMENTARY JUDGMENT

                                                                             (Costs)

MacKAY J.

Introduction

[1]                 These reasons concern disposition of the plaintiffs' motion for directions on costs, awarded to them (sometimes hereafter referred to as "Monsanto"), by judgment filed on May 23, 2001 for Reasons for Judgment dated March 29, 2001.

[2]                 Clause 9 of the judgment provided:

The plaintiffs are entitled to their costs of this action as may be determined in accordance with Directions to be given by the trial judge upon hearing submissions on behalf of the parties, to be filed within 30 days hereof.

Submissions on behalf of the parties were received as directed and counsel for both requested an oral hearing of their respective submissions. That hearing occurred in Saskatoon on November 19, 2001. Separate directions are now filed as a Supplementary Judgment on Costs, for these reasons.

[3]                 The plaintiffs' motion seeks directions to an assessment officer for higher than the usual level of costs in regard to certain costs arising in the action. Their motion record includes a draft bill of costs, prepared on the basis that fee components would be permitted in accord with the highest unit level of column III of Tariff B under the Federal Court Rules, 1998. That draft bill of costs includes amounts for fees of $58,080.00, for disbursements of $157,099.00 and for G.S.T. on taxable items of $12,186.00, i.e., a total of $227,365.00. That total does not include any special allowances for fees or disbursements. It compares with total solicitor and own client costs billed by counsel to their clients, the plaintiffs, in the amount of $726,768.00, according to the affidavit of A. Louise McLean, sworn June 20, 2001.

[4]                 The plaintiffs set out their grounds for seeking certain costs above the usual level. They do also indicate that they would not be averse to the exercise of discretion pursuant to Rule 400(4) to award a lump sum for costs to the plaintiff, provided the amount reflects purposes of an award of costs, to discourage unmeritorious litigation and to partially indemnify reasonable costs incurred by the successful party, and further that the sum is not less than the amount claimed in the draft bill of costs submitted in their motion record, i.e., $227,365.00.

[5]                 The defendants submit that the Court should fix costs as a lump sum in an amount less than $10,000.00, for several reasons. Those reasons and the plaintiffs' requests for special costs I deal with after setting out an overview of the case in which the issue of costs arises and a brief outline of the Court's Rules in relation to costs. Ultimately, I resolve to exercise my discretion to fix costs at least in part, but before doing so, since any decision on costs is likely to be subject to review in appeals to be heard in the near future, there is merit in dealing first with the parties' submissions.

Background

[6]                 As background, the following brief summary of the proceedings may be helpful. The action was brought by the plaintiffs for alleged infringement of their interests under Canadian patent No. 1,313,830, for the defendants' use, reproduction, harvesting and sale of genes and cells containing the plaintiffs' patented gene insert in canola seeds and plants, without consent or license. The defendants' canola crop in 1998 was found to infringe certain claims of the plaintiffs' patent. The crop was grown from seed saved from the defendants' 1997 crop, which seed I found was known or ought to have been known by Mr. Schmeiser to be tolerant to "Roundup", a glyphosate herbicide, tolerance to which was the known characteristic of canola seed containing the plaintiffs' patented gene insert, known for commercial purposes as "Roundup Ready Canola". Seeds or plants containing that insert are sometimes referred to as "genetically modified", the progeny of plants resulting from the plaintiffs' process patented by the patent in suit.

[7]                 The defendants contested the allegation of infringement. Further, they contested the validity of the patent, not on the usual grounds of obviousness, or prior art, or that the claims were overbroad, ambiguous or insufficient, but on the basis that the Patent Act, R.S.C. 1985, c. P-4, as amended, did not provide for a patent of the subject matter of the plaintiffs' patent, for insertion of a gene in a plant variety, a life form. Further, defendants urged that by the enactment in 1990 of the Plant Breeders' Rights Act, S.C. 1990, c. 20, Parliament clearly indicated its intent that intellectual property rights pertaining to new plant varieties are to be governed by that Act, and not by the Patent Act.

[8]                 The judgment rendered did not uphold the defendants' arguments. Rather, it upheld validity of the patent in suit, found infringement by the defendants of certain claims of the patent, enjoined their further infringement, awarded payment to plaintiffs of the profits earned by the corporate defendant and interest thereon, and dismissed claims for punitive damages and for general damages claimed against Mr. Schmeiser. As noted earlier, the judgment also provided for submissions on costs payable to plaintiffs.

The Court's Rules on Damages

[9]                 The Federal Court Rules, 1998 provide for the award of costs. A number of those rules are relevant in this case. Thus, the court has discretion to determine the amount and the allocation of costs and by whom they are to be paid: Rule 400(1). Factors to be considered by the court in exercising its discretion are set out by Rule 400(3). The Court may fix all or part of costs by reference to Tariff B and may direct assessment under one or more columns of that Tariff, and it may award a lump sum in lieu of, or in addition to, any assessed costs: Rules 400(4) and (5). Party-and-party costs are assessed in accord with column III of the table to Tariff B, unless the Court otherwise orders: Rule 407. Also, absent an order otherwise, where the plaintiff makes a written offer to settle that is not revoked, and obtains a judgment that is as favourable or more favourable than the terms of the offer to settle, the plaintiff shall be entitled to party-and-party costs to the date of service of the offer, and double such costs, excluding disbursements, after that date: Rule 420(1).

The plaintiffs' submissions

[10]            The plaintiffs' motion for costs seeks directions to an assessing officer to include allowances for exceptional costs on several grounds. There are three grounds on which they urge higher costs generally: an unaccepted offer to settle, costs at the highest level of column IV of Tariff B to reflect the difficulty of the case, and the defendants' failure to admit the fact that the patented gene was present in their canola crops. In addition, the plaintiffs seek increased costs for particular items. I deal with these submissions briefly before dealing with those of the defendants.

[11]            First, pursuant to Rule 420(1), plaintiffs urge that the award should include double the normal party-and-party costs, excluding disbursements, after March 30, 2000, when they served on the defendants a written offer to settle, open for acceptance until one minute after commencement of the trial, which offer was not accepted by the defendants. Rule 420(1) provides:

[12]            This rule is discussed in recent decisions of this Court: see Canadian Olympic Association v. Olymel, Société en commandite, (2000), 195 F.T.R. 261, per Lemieux J; Mediterranean Shipping Company S.A. Geneva v. Sipco Inc., [2001] F.C. 1227, [2001] F.C.J. No. 1676 (QL) (T.D.), per Blais J. and Apotex Inc. v. Syntax Pharmaceuticals Int. Ltd., (2001), 273 N.R. (F.C.A.). In this case the offer to settle by Monsanto was clear and unequivocal, leaving the defendants to decide whether or not to accept it. The offer, in my opinion, contained elements of compromise when compared with the plaintiffs' claims outstanding at March 30, 2000. The offer, while it proposed terms to settle many of those claims in favour of the plaintiffs, did not propose punitive and exemplary damages or costs on a solicitor client basis claimed in the statement of claim. Further, it offered that costs to the plaintiff, which at that stage were significantly less than ultimately incurred by proceeding to trial, should be assessed at the lowest unit of column III of Tariff B. I do not accept the defendants' submission that the offer lacked an element of compromise, in light of the plaintiffs' then outstanding claims which were excluded from the offer.

[13]            The defendants urge that the offer of the plaintiffs to settle does not qualify within Rule 420(1) for two other reasons. First, it is said it was revoked in accord with its terms. It is true that the offer expired when it was not accepted but it remained open for acceptance until after commencement of the trial, and I agree with the plaintiffs that the purpose of Rule 420(1) is to encourage settlement offers and avoid costs of a trial, a purpose that would have been served here had the plaintiffs' offer been accepted. Second, it is urged that the plaintiffs did not obtain a judgment as favourable as the terms of the settlement offer. It is suggested that the judgment which found infringement where the defendants knew or ought to have known about the presence of the patented gene in seed planted for the 1998 crop, was more beneficial to the defendants than the terms of the offer. Yet the offer to settle included recognition that the defendants had infringed certain claims of the patent in suit, it simply did not spell out the factual basis for determination of infringement. In my opinion, the basis for that determination, included in the judgment, does not render it more favourable to the defendants than the terms of the plaintiffs' offer to settle.

[14]            While the plaintiffs' offer to settle appears to qualify within Rule 420(1), in my opinion this is a case where the Court should rule otherwise than directing the doubling of party-and-party costs after March 30, 2000. Here, prior to and throughout the trial there was a difference in the evidence from samples gathered and tested by the plaintiffs and that derived by the defendants' experts from some of those samples.    Thus, until resolved by trial, there was conflicting evidence, and views of the significance of, the presence of the patented cells or genes in the defendants' crop. Further, by the nature of the invention, in my view the investigative process to establish its use by the defendant was more elaborate and required more human and other resources than many other sorts of inventions might require. The higher costs of establishing that evidence, including its presentation at trial, so far as they are reflected in the plaintiffs' costs after March 30, ought not to be doubled, in my opinion.

[15]            In these circumstances, if I were to issue special directions concerning costs after March 30, 2000, in view of the unaccepted offer to settle, it would be that costs after that date, excluding disbursements, be awarded at 1.33 units, or 133%, of the units for party-and-party costs prior to that date. That difference recognizes the principle purpose of Rule 420(1), to benefit a party that makes a serious offer to settle an action before trial, but at a level less than that suggested in Rule 420(1), a level this Court considers more appropriate in this case. In Apotex Inc. et al v. Wellcome Foundation Ltd., (1998), 84 C.P.R. (3d) 303 (F.C.T.D.), Mr. Justice Wetston, in the circumstances of that case, allowed costs subsequent to the date of an unaccepted offer to settle, at 150 percent.

[16]            Secondly, the plaintiffs seek costs at the upper level of column IV of Tariff B in light of a higher than usual volume of work involved, in a case raising important and complex legal issues where the expenses of the litigation are much greater than the costs recoverable under column III, and, it is said, costs awarded should bear a reasonable relationship to the actual costs of the litigation.

[17]            In my opinion, those considerations in this case do not warrant higher than normal party-and-party costs which are represented in Tariff B by column III . To the extent that the volume of work was higher than usual, and actual expenses were much greater than recoverable under column III, those factors were in substantial part the necessary consequences of the nature of the patent-in-suit and the problems of evidence inherent from it to establish infringement. Costs reflecting these consequences should not be expected to be borne by the defendants in this case. In my opinion, they are an aspect of the plaintiffs' overall business expenses. Some inventions may be inherently more expensive to defend than others. In my opinion, that is a factor which should not be reflected in a higher than normal level of party-and-party costs awarded.

[18]            Third, in relation to the parties' actions complicating the trial, it is urged that the defendants' failure to admit facts in advance of trial resulted in unnecessary costs, which should be taken into consideration by the Court, in particular the defendants' unwillingness to admit the presence of the patented gene, RT 73, in their 1997 and 1998 crops. It is urged this necessitated substantial investigation and sample collecting, extensive genetic analysis of the samples, a larger than usual number of fact witnesses, and three counsel actively engaged on behalf of the plaintiffs at trial.

[19]            Much of the scientific evidence, derived from analysis under supervision of the plaintiffs, at their own St. Louis laboratories and elsewhere, was available and known to the defendants before trial, but the defendants had their own evidence which did not support the same conclusions as the plaintiffs' evidence. Moreover, the defendants urge that if the investigations and testing had been arranged by the plaintiffs to be undertaken by a third party, the results would have been more acceptable, with fewer questions about the integrity of the processes and their results. The defendants also point to their willingness to accept filmed evidence of certain fact witnesses of the plaintiffs, taken in advance and admitted at trial by agreement, as evidence of their willingness to cooperate in measures to limit time required at trial.

[20]            In the circumstances, I am not persuaded that the defendants, by failing to admit the presence of the patented gene in their 1998 canola crop, did more than require the plaintiffs to prove their case. Again, I have no doubt that the nature of the patent itself dictated much of the requirement for sampling and analysis, if infringement was to be established. The defendants' failure to admit the presence of the patented gene in their crops is not a factor to be weighed adversely against them in this case. It was not clearly established in advance of trial that the defendants knew the patented gene was significantly present in their 1997 and 1998 crops.

[21]            Finally, the plaintiffs seek directions in respect of particular categories of costs, which if I were directing assessment of costs, I would deal with, as follows:

a) I would include fees for each of two counsel participating at trial, but I would not include fees of a third counsel which plaintiffs' requested, because I am not persuaded that a "large number of fact witnesses" required a third counsel. For many of the fact witnesses, their evidence was comparatively brief.

b) I would direct the assessment of reasonable travel, accommodation and related expenses for up to two counsel for attendance and participation in Saskatoon at examinations for discovery, mediation and pre-trial conferences, and for trial. In addition, I would allow travel for two counsel for two trips to St. Louis for consultation on testing and for taking of evidence. Travel expenses of a third or fourth counsel would not be directed.

c) I would direct that reasonable costs of investigations to collect, store and ship samples of canola grown on or adjacent to the defendants' lands is a recoverable disbursement.

d) I would allow reasonable disbursement costs for genetic testing and analysis, undertaken elsewhere than in the plaintiffs' own laboratories in St. Louis or any grow-out site used for testing by the plaintiffs' representatives. Costs of in-house analysis are not recoverable disbursements, in my opinion.

e) I would allow reasonable fees of expert witnesses other than employees of the plaintiffs, including disbursements for travel and for conduct money for fact witnesses at examinations for discovery or at trial.

f)    I would not direct payment of expenses of representatives of the plaintiffs to attend mediation or pre-trial conference, or the trial itself, even if they attended by direction of the Court. In my opinion, those are expenses of the parties not to be recompensed under an award of costs.

g) I would allow the plaintiffs' request for directions providing for reasonable disbursements for photocopying, both in-house and by commercial enterprises, to a maximum of $8,000.00 of the total $12,197.00 included in the draft bill of costs.

The defendants' submissions

[22]            To restrict costs to a fixed minimal sum, the defendants make several submission. First, it is urged that the case dealt with a novel matter, not previously considered in Canadian courts, i.e., the enforcement of patent rights for genetically modified food crops, involving the balancing of rights of the public and those of the patent holder. It is urged that the case involved a number of legal issues, the resolution of which will provide guidance in the future to farmers and plant biotechnology companies owning patents for genetically modified genes and plants. Further, it is argued that this was a test case, with the defendants selected by the plaintiffs from among many farmers under investigation by Monsanto. In this sense, the action served corporate purposes other than the claim against the defendants whose operations were selected as an example for others, with widespread importance for the plaintiffs and for the public in general. In a case of this nature, the British Columbia Supreme Court declined to award costs to the successful plaintiff and each party was left to bear its own costs. (See Law Society of British Columbia v. Mangat, [1997] B.C.J. No. 2694 (QL) (B.C.S.C.)).

[23]            The defendants refer to a number of other cases where this Court or other Courts in the exercise of discretion have awarded no costs in disposing of novel issues, e.g., Senecal v. The Queen, (1983), 3 D.L.R. (4^th) 684 (F.C.T.D.); Emerson v. Canada [1986] F.C.J. No. 160 (F.C.A.) (QL); where both parties considered the case, with novel issues, to be a test case: Brown v. Durham (Regional Municipality) Police Force, [1996] O.J. No. 1645 (QL), (1996) 2 O.T.C. 29 (Ont. Gen. Div.); or where they agreed an important issue had implications for others: Zaretski v. Workers' Compensation Board (Sask.), (1997), 156 Sask. R. 23 (Q.B.). A similar result in regard to costs was reached in a case concerning environmental issues where the Court considered that well-intentioned applicants seeking review of government action favouring another party, though unsuccessful, should not have costs awarded against them where their perception of their service to public interests was considered by the Court to be well-founded (Friends of Oak Hammond Marsh Inc. v. Ducks Unlimited (Canada), (1991), 84 D.L.R. (4^th) 371 (Man. Q.B.)). I note that in all of these cases the Crown or other public authority involved, though successful in the proceedings, was not awarded costs.

[24]            Further, the defendants submit that costs awarded should bear some reasonable relationship to the amount recovered. In this case, that amount was $19,832.00, the agreed amount of profits the defendants earned on their 1998 canola crop. A claim to an award of costs at more than $220,000.00 is said to be unreasonable and excessive. I note other relief, in particular an injunction, was also awarded to Monsanto. There are cases, here cited by the defendants, where courts have held cost awards in excess of, or approximating claims established, to be unreasonable. In Canadian Forest Products Ltd. v. Termar Navigation Co. (1998), 146 F.T.R. 72, [1998] F.C.J. No. 384 (QL), Mr. Justice Rothstein refused costs and disbursements requested on a solicitor and client basis in a total amount of $369,000.00, or in the alternative costs with fees pursuant to column IV of Tariff B, doubled following an unaccepted offer to settle that case, and disbursements, totalling $233,300.00. In that case, where the claim at issue was some $640,000. arising out of an incident at sea, he awarded $95,000. in fees, and about $36,480. in disbursements, for a total of about $131,480.00.

[25]            It is urged the plaintiffs were not concerned with monetary considerations in this case. The litigation has been of benefit to Monsanto, conveying a message to any person growing canola with the patented gene but having no license. Mr. Schmeiser, it is urged, has sought to defend the rights of farmers, and he should not be deterred from having the important issues considered on appeal "by burdening him with Monsanto's legal fees as well as his own". In support of this consideration the defendants refer to Harrison v. University of British Columbia, [1987] 2 W.W.R. 378 (B.C.S.C.); Re Welk and Saskatchewan Social Services Appeal Board et al, (1986) 28 D.L.R. (4^th) 475 (Sask. C.A.); Valhalla Wilderness Society v. British Columbia (Ministry of Forests), (1997), 4 Admin. L.R. (3d) 120 B.C.S.C. Those cases involved claims in relation to the actions or decisions of public authorities, a factor absent in this case and though interesting, they are not persuasive that costs should be limited specifically to facilitate the defendants' appeal. In any event, in this case both parties have filed an appeal from the judgment at trial.

[26]            Moreover, the further claim of the defendants to limited resources available to pay costs, when compared to those of Monsanto, can hardly be a relevant factor in considering an award of costs. There is no evidence of the resources available to either party and any assumptions by the Court would be purely speculative.

[27]            These general arguments of the defendant, particularly that this is a novel case, with significant implications for Monsanto and for farmers generally, among whom the defendants were selected as a test for establishing Monsanto's patent protection, support the restriction of costs at a level somewhat below the normal party-and-party costs.

Fixing costs

[28]            In my opinion, there is merit in fixing costs in this case, if only to avoid expense that would almost inevitably be incurred, by both parties, in an assessment of costs by a taxing officer under directions of the Court. Moreover, since I anticipate any direction or fixed amount would likely be challenged in the course of anticipated early appeals of the judgment by both parties, the costs may now best be resolved by a fixed award that if unacceptable, may be varied, or the alternative of directions to an assessment officer may be ordered, on appeal. I have indicated how I would deal with the plaintiffs' requests for costs above the norm if I had determined to issue directions.

[29]            In considering fixed costs, in relation to fees, it is appropriate to recall the usual practice of awarding party-and-party costs, if there be no special directions. Rule 407 provides:

[30]            Assessment at the lower to mid-range of column III in this case would lead to an award somewhat less than the plaintiffs' draft bill of costs for fees of $58,080., which were assessed at the top range of column III of Tariff B, according to the affidavit of Ms. McLean. The lower range of column III, and some reduction in allowable disbursements, claimed in the draft bill of costs at about $157,100., is warranted in this case.

[31]            Among the factors on which I rely in coming to this general conclusion are a number of those set out in Rule 400(3): (a) the result of the proceeding; (b) the relief claimed and that granted; (c) the importance and complexity of the issues, in particular, the novelty of the issues and the difficulties of proof; (e) the written offer to settle in this case; and (g) the amount of work. As I have indicated, there are also factors that, in my opinion, warrant costs at less than the norm in this case. These include the importance of the litigation to the plaintiffs, the fact that the defendants were selected among farmers whose practices were investigated as a means of testing the effectiveness of the plaintiffs' patent and licensing regime, and the nature of the patent in this case with inherent complexities for proving infringement.

[32]            My determination, considering these various factors and the submissions of the parties, is that the award of costs in this case shall include:

(1)         for counsel fees, the amount fixed at $39,000., reducing those claimed in the plaintiffs' draft bill of costs by about one-third, to the lower to mid-range of column III in Tariff B;

(2)         for allowable disbursements, costs to a maximum of $102,000. as may be accepted as reasonable by the defendants, or failing their agreement, accepted by an assessing officer and established in accord with paragraph 1(4) of Tariff B. This sum is approximately two-thirds of the disbursements claimed in the plaintiffs' draft bill of costs; and

(3)         for GST paid on taxable items, an amount up to $12,000. as further disbursements, to be settled by agreement, or failing agreement to be determined by an assessing officer.

[33]            A Supplementary Judgment on Costs now goes providing for costs to the plaintiffs so fixed in an amount for counsel fees, and at certain maxima, as the parties may agree are reasonable, or failing their agreement as an assessing officer may determine, for both allowable disbursements and GST paid on taxable items.

(signed) W. Andrew MacKay

_____________________________

    JUDGE

OTTAWA, Ontario

April 17, 2002