Telefonaktiebolaget LM Ericsson v. Harris Canada Inc., 2002 FCT 599

Date: 20020524

Docket: T-305-00

Neutral citation: 2002 FCT 599

Ottawa, Ontario, this 24th day of May, 2002

PRESENT:      THE HONOURABLE MR. JUSTICE JOHN A. O'KEEFE

BETWEEN:

                                          TELEFONAKTIEBOLAGET LM ERICSSON

                                                                                                                                                          Plaintiff

                                                                              - and -

                                                            HARRIS CANADA, INC.

                                                                                                                                                      Defendant

                                               REASONS FOR ORDER AND ORDER

O'KEEFE J.

[1]                 This is a motion by the defendant, Harris Canada, Inc. (appellant), appealing the order of Prothonotary Lafrenière dated February 25, 2002. The appeal is made pursuant to Rule 51 of the Federal Court Rules, 1998. Prothonotary Lafrenière ordered in part that:

The preamble to paragraph 1, "(Amended pursuant to Rule 200 and the Order of Mr. Roger Lafrenière dated January 2, 2002)", and paragraphs 20A, 20B, 20C & 20D of the Defendant's Second Amended Statement of Defence and Counterclaim are hereby struck without leave to amend.

[2]                 The motion also claimed the following relief:

1.          In the alternative, an Order extending the time for the Defendant to deliver its Reply to the Defence to Counterclaim until ten (10) days after the disposition of this Appeal;

2.          The costs of this Appeal and the motion before Prothonotary Lafrenière to the Defendant; and

3.          Such other relief as to this Honourable Court may seem just.

[3]                 By statement of claim issued February 18, 2000, Telefonaktiebolaget LM Ericsson ("Ericsson") commenced the within action alleging that Harris Canada, Inc. ("Harris") has manufactured, offered for sale, sold and used wireless digital local loop telecommunication products in a manner that infringes Ericsson's Canadian patent No. 2,152,947 (the "‘947 Patent").

[4]                 On May 12, 2000, Ericsson was served with the Harris statement of defence and counterclaim dated April 18, 2000. This pleading was subsequently amended on May 16, 2001 (the "amended statement of defence and counterclaim").

[5]                 Ericsson brought a motion on December 12, 2001 for an order striking paragraphs 16 to 20 of the amended statement of defence and counterclaim on the basis that Harris had not complied with an order of Associate Senior Prothonotary Giles dated May 10, 2001. This motion was argued before Prothonotary Lafrenière who by order dated January 2, 2002 ordered in part as follows:

Paragraphs 16, 17, 18, 19 and 20 of the Defendant's Amended Statement of Defence and Counterclaim are hereby struck without leave to amend.

[6]                 Harris did not appeal the January, 2002 order of Prothonotary Lafrenière.

[7]                 On January 14, 2002, Harris filed a second amended statement of defence and counterclaim which deleted paragraphs 16 to 20 of the amended statement of defence and counterclaim and added four additional paragraphs numbered 20A to 20D.

[8]                 It is these paragraphs, 20A to 20D, that the Prothonotary ordered struck without leave to amend on February 25, 2002. The order striking these additional paragraphs is the subject of this appeal.

[9]                 Issues

1.          Did the Prothonotary make a reviewable error when he struck, without leave to amend, paragraphs 20A to 20D of the second amended statement of defence and counterclaim?

2.          Did Prothonotary Lafrenière err by misapprehending the facts in considering that paragraphs 20A to 20D of the second amended defence constitute an amendment to former paragraphs 16 to 20 of the first amended defence?

3.          Did Prothonotary Lafrenière err in his appreciation of the pleadings by failing to recognize that paragraphs 20A to 20D of the second amended defence advance a new and distinct defence to the allegation of patent infringement as compared to the estoppel defence pleaded in paragraphs 16 to 20 of the first amended defence?                        

4.          Did Prothonotary Lafrenière err by applying an erroneous principle of law in deciding that Harris had to seek leave before amending its first amended defence, despite Rule 200 and the fact that Ericsson had not yet pleaded to the first amended defence?

5.          Did Prothonotary Lafrenière err in failing to apply the appropriate test in evaluating whether he should strike Harris' second amended defence or any parts of it? In this regard, did Prothonotary Lafrenière:

(a)         Fail to consider that it is not plain and obvious that paragraphs 20A to 20D disclose no reasonable defence?

(b)         Fail to consider that paragraphs 20A to 20D are not so clearly futile that they have not the slightest chance of success at trial?

(c)         Fail to examine the legal requirements for a defence in breach of contract and determine whether the facts outlined in paragraphs 20A to 20D could support this decision?

6.          Did Prothonotary Lafrenière err in striking paragraphs 20A to 20D even though the only relief that Ericsson sought in its notice of motion was to strike the entire second amended defence on the basis that Harris had allegedly failed to comply with previous Court orders, and, that Ericsson did not seek to strike paragraphs 20A to 20D by way of alternative relief nor did it allege that the breach of contract allegations contained in these paragraphs failed to disclose a reasonable defence?

Applicable Legislation

[10]            Rules 51(1) and 200 of the Federal Court Rules, 1998 read as follows:

Analysis and Decision

[11]            Standard of Review

The law followed by this Court when reviewing or deciding appeals from a discretionary decision of a Prothonotary is clearly set out by McGuigan J.A. in Canada v. Aqua-Gem Investments Ltd. [1993] 2 F.C. 425 (F.C.A.) at pages 462 to 463:

I also agree with the Chief Justice in part as to the standard of review to be applied by a motions judge to a discretionary decision of a prothonotary. Following in particular Lord Wright in Evans v. Bartlam, [1937] A.C. 473 (H.L.) at page 484, and Lacourciere J.A. in Stoicevski v. Casement (1983), 43 O.R. (2d) 436 (Div. Ct.), discretionary orders of prothonotaries ought not to be disturbed on appeal to a judge unless:

(a)             they are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts, or

(b)            they raise questions vital to the final issue of the case.

Where such discretionary orders are clearly wrong in that the prothonotary has fallen into error of law (a concept in which I include a discretion based upon a wrong principle or upon a misapprehension of the facts), or where they raise questions vital to the final issue of the case, a judge ought to exercise his own discretion de novo.

And at pages 464 - 465:

In Canada v. "Jala Godavari" (The) (1991), 40 C.P.R. (3d) 127 (F.C.A.), this Court in an obiter dictum stated the rule the other way around, seeking to emphasize the necessity for the exercise of the Judge's discretion de novo, in contradistinction to the view that was at that time gaining acceptance in the Trial Division that the prothonotary's discretion should be followed unless he had committed error of law. Jala Godavari should not, I think, be read as meaning that the prothonotary's discretion should never be respected, but rather that it is subject to an overriding discretion by a judge where the question involved is vital to the final issue of the case. (Error of law is, of course, always a reason for intervention by a judge, and is not in any way in controversy).

Now, in the case at bar, what kind of interlocutory order was in question? The appellant urged this Court to follow Stoicevski, but was unable to explain in argument why the prothonotary's decision here was not on a question vital to the final issue of the case. The formulations both of Lord Wright and Lacourciere J.A. underline the contrast between "routine matters of pleading" (Lord Wright) and "a routine amendment to a pleading" (Lacourciere J.A.) [italics added] and questions vital to the final issue of the case, i.e., to its final resolution.

The question before the prothonotary in the case at bar can be considered interlocutory only because the prothonotary decided it in favour of the appellant. If he had decided it for the respondent, it would itself have been a final decision of the case: A-G of Canada v. S.F. Enterprises Inc. et al. (1990), 90 DTC 6195 (F.C.A.) at pages 6197-6198; Ainsworth v. Bickersteth et al., [1947] O.R. 525 (C.A.). It seems to me that a decision which can thus be either interlocutory or final depending on how it is decided, even if interlocutory because of the result, must nevertheless be considered vital to the final resolution of the case. Another way of putting the matter would be to say that for the test as to relevance to the final issue of the case, the issue to be decided should be looked to [page 465] before the question is answered by the prothonotary, whereas that as to whether it is interlocutory or final (which is purely a pro forma matter) should be put after the prothonotary's decision. Any other approach, it seems to me, would reduce the more substantial question of "vital to the issue of the case" to the merely procedural issue of interlocutory or final, and preserve all interlocutory rulings from attack (except in relation to errors of law).

[12]            The appeal in this motion involves the Prothonotary's striking of paragraphs in a second amended statement of defence and counterclaim. As the decision of the Prothonotary could either dispose of a defence or a claim by the plaintiff, I find that the question raised goes to the final issue of the case. I shall exercise my discretion de novo.

[13]            Issues 1 and 2

Did the Prothonotary make a reviewable error when he struck, without leave to amend, paragraphs 20A to 20D of the second amended statement of defence and counterclaim?

           Did Prothonotary Lafrenière err by misapprehending the facts in considering that paragraphs 20A to 20D of the second amended defence constitute an amendment to former paragraphs 16 to 20 of the first amended defence?

I will deal with Issues 1 and 2 together. The Prothonotary, in his order dated January 2, 2002, ordered paragraphs 16, 17, 19 and 20 of the defendant's amended statement of defence and counterclaim struck without leave to amend. Paragraphs 16, 17, 18, 19 and 20 read as follows:

16.            In the alternative, if claims 16-20 and 26-28 of the 947 Patent are not invalid and such claims are found to be infringed (all of which is not admitted), Harris pleads that, for the reasons set forth below, Ericsson is estopped from any relief against Harris, including claiming damages, an accounting of profits and delivery up.

17.            The TIA and TDMA Forum are industry associations involved in forming and establishing technical standards to enable telecommunication equipment (including cellular radiocommunication systems) from various manufacturers to inter-operate. At all material times the telecommunication industry in Canada was and is substantially involved in the activities of the TIA and TDMA Forum, and the standards developed by such bodies are widely followed by the telecommunications industry in Canada. At all material times the TIA and TDMA Forum employed the following policies relating to patent rights in the development of standards:

(a)             An early disclosure policy which required those who have contributed subject matter to a developing standard to disclose to the standard body whether the contributor has knowledge of any patent rights which may be essential to the standard under development.

(b)            A licensing policy requiring participants who hold patent rights essential to the execution of an interim or finalized standard to agree that any such patents will be made available for licensing to others on reasonable and non-discriminatory terms.

(c)             At all relevant times, Ericsson had knowledge of the foregoing policies.

18.            Harris states that Ericsson contributed the alleged invention described and claimed in claims 16-20 and 26-28 of the 947 Patent to the development of the IS-54 Revision C and IS-136 standards and, as a consequence, the alleged invention forms a part of these standards.

19.            Harris further states that Ericsson failed to disclose its patent rights with respect to the alleged invention described and claimed in claims 16-20 and 26-28 of the 947 Patent to the standards bodies leading the telecommunications industry in Canada and, in the result, led Harris to believe and to act on the belief that IS-54 Revision C and IS-136 were "open" standards, free of proprietary rights. Harris therefore pleads that Ericsson is estopped from demanding any relief against Harris. Without limiting the generality of the foregoing, Harris states that, for the reasons pleaded, Ericsson is estopped from obtaining a permanent injunction, damages or an accounting of profits, and the delivery up of any products which would infringe the 947 Patent if it were valid.

20.            Alternatively, Harris states that if Ericsson made the required statements to the above mentioned standards bodies, Ericsson would have agreed to license the alleged invention described and claimed in Claims 16-20 and 26-28 of the 947 Patent to others on reasonable and non-discriminatory terms. In the result, Harris relies on such statements having been made to the above standards bodies and states that Ericsson is estopped from demanding any relief against Harris. Without limiting the generality of the foregoing, Harris states that, for the reasons pleaded, Ericsson is estopped from obtaining a permanent injunction, an accounting of profits, and the delivery up of any products that would infringe, if valid, the 947 Patent.

[14]            The relevant paragraphs from the second amended statement of defence and counterclaim read as follows:

16.            Deleted.

17.            Deleted.

18.            Deleted

19.            Deleted.

20.            Deleted.

20A.         In the alternative, if claims 16-20 and 26-28 of the 947 Patent are not invalid and such claims are found to be infringed (all of which is not admitted), Harris pleads that, for the reasons set forth below, Ericsson is not entitled to any relief from Harris for Harris' activities or, in the alternative, Ericsson's right to relief is limited to a reasonable license fee.

20B.         The TIA and the TDMA Forum are industry associations involved in forming and establishing technical standards to enable telecommunication equipment (including cellular radiocommunication systems) from various manufacturers to inter-operate. At all material times the telecommunication industry in Canada was and is substantially involved in the activities of the TIA and TDMA Forum, and the standards developed by such bodies are widely followed by the telecommunications industry in Canada. At all material times the telecommunication industry in Canada was and is substantially involved in the activities of the TIA and TDMA Forum, and the standards developed by such bodies are widely followed by the telecommunications industry in Canada. At all material times the TIA and TDMA Forum employed the following policies relating to patent rights in the development of standards:

(a)             An early disclosure policy which required those who have contributed subject matter to a developing standard to disclose to the standard body whether the contributor has knowledge of any patent rights which may be essential to the standard under development.

(b)            A licensing policy requiring participants who hold patent rights essential to the execution of an interim or finalized standard to agree that any such patents will be made available for licensing to others on reasonable and non-discriminatory terms.

(c)             At all relevant times, Ericsson had knowledge of the foregoing policies.

20C.         Harris states that Ericsson contributed the alleged invention described and claimed in claims 16-20 and 26-28 of the 947 Patent to the development of the IS-54 Revision C and IS-136 standards and, as a consequence, the alleged invention forms a part of these standards.

20D.         Harris further states that Ericsson failed to disclose its patent rights with respect to the alleged invention described and claimed in claims 16-20 and 26-28 of the 947 Patent to the TIA and TDMA Forum. Harris therefore pleads that Ericsson, by not informing the TIA and the TDMA Forum or its members that Ericsson had patent rights which may be essential to the corresponding standard, agreed to license at no cost the alleged invention described and claimed in the 947 Patent to all others, including Harris. In the alternative, Harris pleads that Ericsson's right to claim relief from Harris is limited to a reasonable license fee. Without limiting the generality of the foregoing, Harris states that, for the reasons pleaded, Ericsson is not entitled to a permanent injunction, damages or an accounting of profits, and the delivery up of any products which would infringe the 947 Patent if it were valid.

[15]            I am of the view that the Prothonotary did not err under these issues. A review of his January 2, 2002 order shows that Prothonotary Lafrenière ordered that paragraphs 16, 17, 18, 19 and 20 of the defendant's amended statement of defence and counterclaim be struck without leave to amend. The Prothonotary also ordered the defendant to file an amended pleading with paragraphs 16, 17, 18, 19 and 20 of the amended statement of defence and counterclaim struck. I am of the opinion that paragraphs 20A, 20B, 20C and 20D are very similar to the old paragraphs 16, 17, 18, 19 and 20. A review of the new paragraphs reveals that paragraph 17 is identical to paragraph 20B and paragraph 18 is identical to paragraph 20C. In essence, the defendant is alleging that Ericsson breached a contract or the policy guidelines and as a result, it can only receive a license fee and not damages for infringement. As I see it, whether the defendant bases its defence on a breach of contract by the plaintiff or that the plaintiff is only entitled to a license fee, this all goes back to the defence of estoppel which was struck by the Prothonotary on January 2, 2002. If the defendant disagreed with the striking of the estoppel defence, it could have appealed that decision but it did not. The Prothonotary's January 2, 2002 order simply struck the estoppel defence in paragraphs 16, 17, 18, 19 and 20 and ordered the defendant to file an amended defence without these paragraphs. There was no general leave to amend granted and I find the defendant amended the struck paragraphs by filing paragraphs 20A, 20B, 20C and 20D.

[16]            Issue 3

Did Prothonotary Lafrenière err in his appreciation of the pleadings by failing to

recognize that paragraphs 20A to 20D of the second amended defence advance a new and distinct defence to the allegation of patent infringement as compared to the estoppel defence pleaded in paragraphs 16 to 20 of the first amended defence?

As I have outlined above, the defendant's new defence appears to be based on breach of contract or policy by the plaintiff. To me, this defence is the same as the estoppel defence that has already been struck by the Prothonotary. The same is true for the license fee argument. This is raised as a defence to the plaintiff's claim for damages for infringement. The defence in paragraphs 20A, 20B, 20C and 20D is the estoppel defence that has been struck. The Prothonotary therefore did not err in this respect.

[17]            Issue 4

Did Prothonotary Lafrenière err by applying an erroneous principle of law in deciding that Harris had to seek leave from him before amending its first amended defence, despite Rule 200 and the fact that Ericsson had not yet pleaded to the first amended defence?

Rule 200 of the Federal Court Rules, 1998 cannot be taken to mean that it allows a party to amend without leave and put back in a pleading a paragraph similar to the paragraph that has been struck by the Court. Once a portion of a pleading has been struck by the Prothonotary, the appropriate approach to be taken by a party who disagrees with the Prothonotary's decision is to appeal the decision, not just file an amended pleading with the struck portion reworded.

[18]            Issue 5

Did Prothonotary Lafrenière err in failing to apply the appropriate test in evaluating whether he should strike Harris' second amended defence or any parts of it? In this regard, did Prothonotary Lafrenière:

(a)         Fail to consider that it is not plain and obvious that paragraphs 20A to 20D disclose no reasonable defence?

(b)         Fail to consider that paragraphs 20A to 20D are not so clearly futile that they have not the slightest chance of success at trial?

(c)         Fail to examine the legal requirements for a defence in breach of contract and determine whether the facts outlined in paragraphs 20A to 20D could support this decision?

I have reviewed the plaintiff's motion record for the February 11, 2002 hearing which

resulted in the Prothonotary's order of February 25, 2002 being issued. The basis for the motion appears to be that the pleading in question was scandalous, frivolous or vexatious (Rule 221(1)(c)) and the amended paragraphs of the pleading were otherwise an abuse of the process of the Court (Rule 221(1)(f)). I agree with the plaintiff that the test used to determine whether to strike pleadings pursuant to Rule 221(1)(f) is not the same as the test used for a motion to strike pursuant to Rule 221(1)(a). The plaintiff stated the test to be that a pleading should only be struck where "it is plain and obvious, beyond doubt, that it discloses no reasonable cause of action or defence". The paragraphs sought to be struck in this case were sought to be struck because they did not comply with the terms of the order of Prothonotary Lafrenière dated January 2, 2002. As such, the issue of reasonable cause of action or defence does not arise. What arises is the Court's ability to control its own process. If an amended pleading or part thereof is in contravention of a previously issued Court order dealing with the pleading, the offending part should be struck. That is what the Prothonotary did in this case and I cannot find that he has made an error in this respect.

[19]            With respect to (b) and (c) above, I find that the Prothonotary did not make any error in his order as a result of these issues.

[20]            Issue 6

Did Prothonotary Lafrenière err in striking paragraphs 20A to 20D even though the only relief that Ericsson sought in its notice of motion was to strike the entire second amended defence on the basis that Harris had allegedly failed to comply with previous Court orders, and, that Ericsson did not seek to strike paragraphs 20A to 20D by way of alternative relief nor did it allege that the breach of contract allegations contained in these paragraphs failed to disclose a reasonable defence?

The plaintiff asked that the whole of the defendant's second amended statement of defence and counterclaim be struck but Prothonotary Lafrenière only struck the new paragraphs 20A, 20B, 20C and 20D and the preamble to paragraph 1 be struck. The defendant submits that the Prothonotary could not simply strike portions of the pleading but could only strike the whole pleading as requested by the plaintiff. I do not agree. The Prothonotary did not err in striking only paragraphs 20A, 20B, 20C and 20D and the preamble to paragraph 1. It seems to me that even if a request is made to strike out the whole pleading, the Court is entitled to choose to strike out only the offending portions of the pleading.

[21]            The plaintiff shall have its costs of this motion.

ORDER

[22]            IT IS ORDERED that the motion (appeal) of the defendant is dismissed with costs to the plaintiff.

                                                                                   "John A. O'Keefe"             

                                                                                                      J.F.C.C.                       

Ottawa, Ontario

May 24, 2002